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The break up of AT&T was initiated in 1974 by the U.S. Department Of Justice Anti-trust suit against the telephone Monopoly . Under the terms of a settlement finalized on January 8 , 1982 , " Ma Bell " agreed to divest its local exchange service operating companies, in return for a chance to go into the computer business, AT&T Computer Systems . Effective January 1 , 1984 , AT&T 's local operations were split into seven independent Regional Bell Operating Companies (RBOCs) known as " Baby Bells ". AT&T, reduced in value by about 70%, continued to run all its long distance services, although it lost some market share in the ensuing years to competitors MCI and Sprint . RBOCS
ILECS Only difference between these two Incumbent Local Exchange Carriers (ILECs) and the seven divested Baby Bells (RBOCs) was that AT&T owned only a minority interest in these ILECs as opposed to owning them outright before the breakup. Both were monopolies in their coverage areas much like the RBOCs.
EFFECTS The breakup led to a surge of competition in the telecommunications market by companies such as Sprint , MCI , AT&T , BellSouth , Verizon , Qwest , and Equant . Four of these are " Baby Bells " or former competitors that have merged with the Baby Bells. AT&T's computer venture failed and the company became a shadow of its former self. One negative outcome of the breakup is that local residential service rates, which were formerly subsidized by long distance revenues, have been forced to rise faster than the rate of inflation. Long distance rates, meanwhile, have fallen due to the increased competition. END OF AN ERA In an interesting development, SBC Communications purchased AT&T, thus re-uniting the venerable phone company with three of its offspring (SBC was comprised of Southwestern Bell, Pacific Telesis, and Ameritech). The merger was completed on November 18 , 2005 . The merged company is named AT&T Inc. Additionally, on March 5 , 2006 , AT&T announced that it will merge with BellSouth, pending shareholder, and government regulatory approval. The surviving company will be named AT&T, and will be headquartered in San Antonio, with Atlanta retaining the headquarters for Cingular (which will switch to the AT&T name), as well as Southeast region telephone operations. AT&T, through SBC, already controled 60 percent of Cingular Wireless, which had itself recently bought AT&T Wireless from the "old" AT&T. The other 40 percent is controlled by BellSouth EVOLUTION OF THE RBOCS FINANCIAL ARBITRAGE Because of discrepencies between the pricing of the "old" AT&T shares and the new "when-issued" shares, investors were able to make risk-free profits, most spectacularly O. Thorp , who made $2.5 million in what was at the time the NYSE's largest (nominal) block trade: description of arbitrage REFERENCES 1 EXTERNAL LINK |
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