Reply #7: That was one of the most important anti-trust cases/experiments of all time. Explanation--> [View All]

There has been so much written about AT&T, and it's very important, complicated and interesting.

I think the most interesting thing about it is that it was one of the few cases in which a corporation basically said to the government, maybe you're right; maybe we should be broken up. It was their outside lawyers who famously went through all their options, and did all this analysis and said, you should consent to this. It was so complicated that they then hired that lawyer to be their CEO for a while.

Here was the problem. There was basically one telephone company nation-wide. There were small local companies, but basically AT&T was almost the entire phone company.

Lily Tomlin became famous for lampooning telephone operators on Laugh In by not taking customers compaints seriously and saying, we don't have to do that; we're the telephone company.

AT&T controlled both local and long distance calling. Two companies, Sprint and MCI developed ways of creating long distance phone services. The big problem was getting the right of way to lay wires. Sprint was originally part of "Southern Pacific Railroad" --hence the SPR -- and had rights of way to lay wires next to their tracks as rail traffic declined.

Sprint and MCI sued AT&T as a monopoly and after years of litigation, AT&T agreed to be broken up into a long distance company -- AT&T -- and local companies called the "baby bells", which became Verizon, Pacific Bell, etc.

It turned out that when AT&T controlled everything they charged very high rates on long distance to subsidize local calling, which was extremely cheap.

When the broke up that subsidy no longer existed. Local rates went up very, very fast, but long distance rates plummeted. If you remember those years, people timed long distance calls because they were ruinously expensive. But the actual cost to the phone company is little different from local calls.

So when you say rates went up, it was local rates that went up. Correspondingly, long distance rates went down dratstically.