The Deal of the Century: The Breakup of AT&T

by Steve Coll

As in war, the only clear winners during the first months after divestiture were those who possessed the means to turn carnage into profit. Also, as in war, the clear losers early on were those in whose name the battle was fought—ordinary American telephone users. In nearly every state between 1982 and 1985, the price of basic residential telephone service increased significantly, while the quality of service declined. The cost of installing and repairing telephone equipment also rose dramatically—as much as tenfold in some areas—and the higher prices were compounded by widespread confusion over which of the newly formed telephone companies was responsible for phone equipment. For a century, consumers had enjoyed the convenience of “one-stop shopping” for nearly all telephone services; suddenly they were confronted by a pluralistic new industry in which even the largest companies seemed confused about which role they were supposed to play. The newly formed “basic operating companies” could “provide” phone equipment, but they did not lease or repair the phones already in consumers’ homes; that was the province of the surviving AT&T, which retained title to the nation’s “embedded” phone equipment base. When a consumer’s phone service broke down his instinct was to call the local operating company for help, as he had always done. But if it turned out that the problem was in the phone equipment, not the local telephone lines, then the operating company would not make repairs, ...