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

by Steve Coll

Consider, for example, the plight of William McGowan in 1985. Fifteen years earlier, the MCI chairman could not have dreamed that his legal and political guerrilla war against the phone company would go so far, would actually lead to the complete breakup of the world’s biggest corporation. If he had dreamed it, he might have awoken in a cold sweat. Before the breakup, MCI was paying $235 per line, per month for access to AT&T’s local exchanges. That was the price negotiated under the so-called ENFIA agreement of 1979. The cost to AT&T for the same access was well over $600; the difference supposedly reflected the superior access enjoyed by AT&T. After the breakup, as the first step of a process that was to lead to fully equal access, and more significantly, equal payments by MCI and AT&T, MCI’s per-line, per-month price rose to $330. When it did, the company’s profits fell precipitously for the first time since McGowan won the right to sell Execunet service. MCI’s stock, which had been selling at well over $20 per share, fell to under $7 per share. From the beginning, MCI’s profits, its discount prices, indeed its very reason for being, derived from its cost advantage over AT&T—an advantage that was marketed to consumers in the form of lower long-distance prices. But McGowan’s cost advantage was not the result of superior technology or innovative processes. It was artificial. It resulted from government regulation, not free market forces. Once the operating companies were ...