The ATT Breakup by poc10020

VIEWS: 175 PAGES: 36

									The AT&T Breakup 20 Years of Confusion
                                  January 1, 2004
  It was 20 years ago that AT&T, the once- mighty "Ma Bell," was broken up on the
   order of Judge Harold H. Greene of the U.S. District Court in Washington, D.C.

Since the break-up, consumers have had a staggering array of choices for local and
long-distance phone service, they've been able to buy their own telephones, hook up
fax machines, modems and other devices and they've been presented with a
multitude of new services, including cellular service, DSL and even Internet and
cable-based telephony.

All this choice is no doubt what Judge Greene, who died four years ago, would have
wanted. His ruling, after all, was based on a finding that AT&T had such a
stranglehold on all aspects of the telephone business that newcomers like MCI weren't
able to compete on a "level playing field," a phrase that has since become a standard
verse in every lobbyists' litany.

Unfortunately, many consumers are confused by the mind-numbing complexity and
often misled by incomplete information, notes Rich Sayers, Editor & Founder,

Today's telecommunications market is divided into at least four customer groups:

      informed shoppers who get good deals;
      under-informed consumers who pay too much because of their own failure to pay attention;
      captive consumers who are victimized by ZPDI and other third-party billing agents;
      rural consumers who often have very limited options in everything but long distance service.

Some would say the list should also include the urban poor, who are often ignored by
providers who lavish attention on more affluent neighborhoods.

It is the second group -- consumers who could get a better deal with a little effort --
that frustrates consumer advocates.

The biggest dupes are the 10 million consumers who, 20 years after Judge Greene set
them free, are still on AT&T's basic service, says Sayers. They pay 35 cents per minute
for peak time phone calls -- seven times as much as necessary. That will get even
worse in 2004 as AT&T is adding a $3.95 monthly fee on basic service.

By contrast, informed consumers pay less than 5 cents a minute for state-to-state calls
with no monthly fee. They also use the better 10-10 numbers to call Europe for about 5
cents a minute.

Judge Greene's complex ruling split AT&T into six local companies -- the "Bell
companies" -- leaving AT&T with only long-distance. Since then, several of the Bells
have merged and become much larger and more powerful than their onetime parent.
Judge Greene left behind a process by which the Federal Communications
Commission (FCC) monitors the level of competition and makes decisions about
which companies can do what.

Most significantly, the FCC has over the last few years decided that the regional Bell
companies have sufficiently opened their local networks to competitors that they
should be allowed to offer long-distance service.

As of 2003, the Bells are free to offer long-distance in all 50 states. They are expected to
swiftly grab more than half of all long-distance business, leaving AT&T, MCI and
Sprint to fight over the crumbs.

Where does this leave consumers?

"Research has always shown that what consumers want is a single provider and a
single bill for all their services," said James R. Hood, ConsumerAffairs.Com President
and a former public affairs executive whose clients included several large
telecommunications companies.

"Consumers had a single bill in the pre-breakup days but Ma Bell kept her thumb on
innovation, so there were very few services. Now, the Bell companies are able to
provide a single bill for all the local, long-distance and cellular services, as well as all
the vastly overpriced add-ons such as Star 69, voice-mail, call forwarding and what
have you," Hood said.

Local companies are also able to offer package prices -- one flat fee for local and long-
distance -- the "bundling" that consumers find convenient but which can stifle the
very competition Greene's ruling was meant to foster.

What happens next?

Believe it or not, the FCC is considering eliminating 411 as the means of contacting
directory assistance, forcing consumers to decide which company they want to go to
to find a phone number.

"While that may be the fastest way to accelerate competition for directory assistance,
many frustrated consumers will say 'Here we go again,'" Sayers said.
 August 30, 2010

 United States District Court
                                   FOR T HE DIST RICT OF COLUMBIA
                                     Civil Action No. 82-0192
                                UNITED ST ATES OF AMERICA, Plaintiff,
                                WEST ERN ELECTRIC COMPANY, INC. and
                       AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Defendants.
                                 PLAN OF REORGANIZATION
                                             CHARLES L. BROWN
                                           CHAIRMAN OF THE BOARD
                                          AMERICAN TELEPHONE AND
                                            TELEGRAPH COMPANY
                                               195 BROADWAY
                                          NEW YORK, NEW YORK 10007
                                              DECEMBER 16, 1982
OF AT&T 335

Section I(A) (4) of the Decree requires that AT&T divest
its "ownership of the separated portions of the BOCs providing
local exchange and exchange access services." AT&T may
accomplish this transfer of ownership "by means of a spin-off of
stock of the separated BOCs to the shareholders of AT&T, or
by other disposition ..." (Decree, § I(A) (4)) .
Parts I and II of this Plan of Reorganization have described
the principles and procedures for identifying wh ich Bell
System assets and liabilities will be assigned to the separated
portions of the BOCs to be spun off in accordance with the
Decree. This Part of the Plan explains the means by which the
assets and liabilit ies thus identified will be lodged in appropriately
reconfigured BOCs and the subsequent transactions that will
effect AT&T's divestiture of these entities.
Part IV.A will describe these procedures, as well as plans
for minimizing the burden of divestiture on small stockholders.
Part IV.B will describe arrangements for enabling each of the
regional co mpanies to service its roughly 2.7 million stockholder
accounts. Part IV.0 will set forth the schedule for
complet ing the reorganizat ion following the Court's approval of
the Plan.

The transfer of ownership ordered in Section I(A) (4) of
the Decree will be effective January 1, 1984. The steps required
to implement the divestiture are set forth below. Because these
procedures are necessary to imp lement the Court's Decree, they
will not be subject to contrary provisions of state law or
regulations of state administrative agencies. 413 Opinion, August
11, 1982, pp. 36-49.
413 The procedures will not, therefore, require the approval of

state admin istrative agencies, nor will the continued operation of the
entities created by the divestiture require additional operating authority
fro m such agencies.
Information filings will be made with each state public
utilit ies commission that will have regulatory jurisdiction over
the entities resulting from the divestiture. These filings will
identify the relevant changes in ownership and service responsibility
caused by the Decree. Applications to the FCC will be
filed to the extent required by Section 214, Section 310, or other
provisions of the Communicat ions Act in order to transfer
certain interstate assets and licenses as required by the Decree
and by the Plan of Reorganizat ion as approved by the Court.
Prior to divestiture, ru lings fro m the Internal Revenue
Service will be requested with respect to all significant tax
consequences of the various corporate transactions and property
transfers that are necessary to carry out the reorganization.
In particular, a ruling will be sought that the distribution of full
shares of the regional holding co mpanies' co mmon stock will be
"tax free" to AT&T's shareholders.

The first step in segregating the exchange functions of the
existing BOCs will be the creation of two wholly owned
subsidiaries for each BOC. One will receive the interLATA
facilit ies of the BOC (the "interexchange" or "IXC" subsidiary);
the other will receive the BOC's customer premises
equipment and related facilit ies (the "CPE" subsidiary).
This procedure will allow the existing BOCs to continue as
providers of local exchange service operating under the franchises
now in the BOCs' names. To the extent franchise
authority is required for the continued operation of the IXC and
CPE subsidiaries, those companies will operate as successors in
interest to the franchises and licenses of the BOCs.
Unless tax or other legal factors dictate otherwise, the
subsidiaries of each BOC will be incorporated in the State in
which the BOC itself is incorporated. The directors and officers
of each of these new BOC subsidiaries will be emp loyees of
AT&T, which will continue to own these subs idiaries after

Each reg ional holding co mpany will hold the stock of one
or more BOCs, but no regional co mpany will share ownership
of a BOC with another regional co mpany. 420 Upon divestiture,
no officer, director, or emp loyee of one regional co mpany will
serve in any of those capacities for another regional co mpany,
for a BOC in another region, or for AT&T or any of its
subsidiaries. 421
Ownership in the BOCs will be grouped in this manner to
secure several financial and operational advantages. By comb ining
the ownership of more than one BOC in a regional
company, many of the BOCs will realize substantial economies
 p recisely what functions the Central Staff Organizat ion will
perform after divestiture will be determined by the Central Staff
Organization's board of directors. The Central Staff Organization will
be free to provide new functions and services or to discontinue existing
ones, subject to the Decree.

4201n addition, each reg ional holding co mpany will hold all the
common stock of a separated regional cellu lar radio co mpany and
one-seventh of the shares of the Central Staff Organizat ion. The
regional cellu lar co mpany will own one-seventh of the shares of the
the cellular Central Serv ice Corporation.

421 Jointly owned cellu lar service corporations may be formed in
certain areas (see Part II.A.3, supra), and in such a case the
corporation may have officers and directors who are emp loyees of
more than one regional holding co mpany.
of centralized management and support services. 422 In addition,
the holding company structure will cushion the impact of
earnings volatility within each region, thereby enhancing the
regional co mpany's attractiveness to investors and its ability to
raise capital. 423
The holding company structure also preserves for the
BOCs the flexibility to raise capital quickly and by the most
advantageous means. 424 This structure will cause no change in
the extent of state regulation of the BOCs because each BOC
will be held by a single stockholder after divestiture (a regional
holding company) as it was held by a single stockholder
(AT&T) before divestiture.

The advantages of a holding company structure can be
realized, moreover, without changing the identity of the entity
(the current BOC) that presently provides Bell System customers
with local services. The same co mpany will continue
providing the same local service after divestiture as it did
before. This will minimize customer confusion. 425
The regional hold ing companies will be created prior to
divestiture as wholly owned subsidiaries of AT&T. They will
be capitalized with sufficient shares of common stock for AT&T
to effect the divestiture at the ratio described below (Part
422 It would be impract ical and unnecessarily expensive to merge
all BOCs within a region into a single telephone company.
423 AT&T' s divestiture of the Bell System's operations by distributing

the shares of seven holding companies rather than the shares
of 22 BOCs will also mean less fractionalizat ion of the distributed
shares and less burden to AT&T's current shareholders. See Part
IV.A.7, infra.

424These include private placements, the implementation of a
dividend reinvestment plan, and e mployee options to invest in
emp loyer shares under savings plans. As is the case with AT&T, the
regional co mpanies will also be able to take advantage of the
Securities and Exchange Co mmission ' s new "shelf" rules wh ich
enable a company to preregister equity shares and then sell these
shares on very short notice when the market is favorable.
425 The holding company structure also will permit the BOCs to
carry on such other businesses as the Court may allow (in the event of
a future modification of the Decree pursuant to Section VIII (C)) .

IV.A.7). In return for the stock of the holding companies,
AT&T426 will transfer to the holding companies four kinds of
property: (i) all of the co mmon stock in the BOCs to be held by
the regional co mpanies ; (ii) all o f the stock in AT&T's reg ional
cellu lar co mpanies (which will each own one-seventh of the
stock of the cellular central service co mpany); (iii) all of the
shares of common stock of the Central Staff Organization (so
that each regional company holds one of the seven shares in the
Central Staff Organization); and (iv) all other assets such as
warehouses and related transportation facilities identified in
Part II of th is Plan as necessary to augment the BOCs'
capabilit ies in accordance with Section I(A) (1) of the Decree
and which have not been transferred directly to the BOCs.
The transfer of these properties will not result in any
recognition of gain or loss for federal tax purposes by the
regional holding co mpanies or BOCs receiving such properties,
or by AT&T.427 However, AT&T may be required to recapture
some investment tax cred its previously claimed with respect to
certain of the properties transferred. The amount of the credits
recaptured is not expected to be significant and will be added to
AT&T's ta x liab ility in the year the transaction is effective.
The accounting to reflect these transactions will require
AT&T to debit (increase) "investments in affiliated co mpanies
regional holding co mpanies" (101.1), and credit (reduce)
"investments in affiliated co mpanies BOCs" (101.1),
"investments in affiliated co mpanies Central Staff Organization"
(101.1), "investments in affiliated companies regional
426 For the purpose of Part IV.A.b of this Plan, references to

AT&T transfers include transfers to be made to the regional holding
companies by Western Electric and Bell Laboratories.
427 Any gain which might be recognized will be deferred and
restored to income under a closing agreement with the IRS as
described in Parts I.B.2.d and e, supra.
cellu lar co mpanies" (101.1), 428 and the various asset accounts
containing AT&T's investment in facilities to be transferred to
the regional co mpanies. The entries on the books of AT&T are
summarized as follows:
Investments in affiliated co m- Investments in affiliated co m
panies —regional holding
companies (101.1)
Liability and reserve accounts
associated with
transferred assets and personnel
panies — BOCs (101.1)
Investments in affiliated co mpanies
—Central Staff Organizat ion
Investments in affiliated co mpanies
—regional cellular
companies (101.1)
Other asset accounts (e.g.,
warehouses, transportation
facilit ies; see Part II, supra)
The regional hold ing companies will recognize AT&T's
transfer by debiting asset accounts for "investments in affiliated
companies BOCs" (101.1), " investments in affiliated co mpanies
Central Staff Organization" (101.1), "investments in
affiliated companies reg ional cellu lar co mpanies" (101.1),
and other asset accounts reflecting facilit ies received fro m
AT&T (and Western Electric and Bell Labs) pursuant to Part
II of this Plan. The regional co mpanies will credit "capital
stock" (150) or other equity accounts by an amount equal to
428 The amounts to be credited to these three AT&T accounts for
investments in affiliated companies will be the amounts necessary to
eliminate entirely AT&T's existing balance in these accounts.
the difference between the debits to their asset accounts and the
credits to their liability accounts. 429 The entries are as follows:
Investments in affiliated co mpanies
— BOCs (101.1)
Investments in affiliated
companies — Central
Staff Organizat ion (101.1)
Investments in affiliated co mpanies
—regional cellular
companies (101.1)
Other asset accounts for
facilit ies transferred (e.g.,
warehouses, transportation
facilit ies; see Part II,
Capital stock (150) or other
equity accounts (see Part
I.B.S, supra)
Liability and reserve accounts
associated with
transferred assets and personnel
The reconfigured BOCs will be grouped into seven regional
holding companies, as depicted in the map on the fo llo wing
page. Each reg ional co mpany will be roughly the same size in
terms of assets and, in any event, large enough to possess the
financial strength to generate broad interest in the investment
community. Each will hold BOCs that serve in the same
general region of the country; thus, the operations of each
regional co mpany (and its subsidiaries) will reflect demographic
similarities. The seven regional co mpanies are described in
the next seven subsections of this part of the Plan.
429 Some portion of this amount may be designated as stated

capital, and the remainder as premiu m on capital stock.

i. The Northeast
The regional hold ing company for this part of the Nation
will hold the stock of New York Telephone Co mpany and New
England Telephone and Telegraph Company. These BOCs will
provide service in the States of Maine, Massachusetts, New
Hampshire, New York, Rhode Island, Vermont, and a s mall
portion of Connecticut.
The service territory of these BOCs comprises about 25
million people or about 92 percent of the total population in
the States in wh ich the companies do business. As of January 1,
1982, these BOCs operated the following nu mber of revenueproducing
network access lines:
New York Telephone......................................... 8,2109000
New England Tel. & Tel .....................................45266,000
Prior to their reconfiguration in accordance with the Decree,
the BOCs in this reg ion had (as of December 31, 1981)
121,600 employees and total assets of $17,779 million.
ii. The M id-Atlantic
The regional hold ing company for this part of the Nation
will hold the stock of The New Jersey Bell Telephone Co mpany,
The Bell Telephone Co mpany of Pennsylvania, The
Diamond State Telephone Co mpany, The Chesapeake & Poto mac
Telephone Co mpany (Washington, D.C. ), The Chesapeake
& Poto mac Telephone Company of Mary land, The
Chesapeake & Poto mac Telephone Company of Virgin ia, and
The Chesapeake & Poto mac Telephone Company of West
Virgin ia. These BOCs will prov ide service in the States of
430 The separation of IXC and CPE operations fro m the parent
BOCs will reduce their employees and assets by something in the
range of 10-20 percent, depending upon LATA boundaries and the
application of the principles of this Plan for divid ing the BOCs ' assets
and personnel (Part I) and aug menting their capabilit ies with existing
AT&T resources (Part II) .
Delaware, Maryland, New Jersey, Pennsylvania, Virg inia, West
Virgin ia, and the District of Colu mb ia.
The service territory of these BOCs comprises about 27
million people or about 84 percent of the total population in
the States in wh ich the companies do business. As of January 1,
1982, these BOCs operated the following nu mber of revenueproducing
network access lines:
New Jersey Bell........................................... 3117589000
Bell of Penn................................................ 4,4459000
Diamond State............................................ 297,000
C & P of Md................................................ 290709000
C & P of Va................................................. 198159000
C & P of W. Va........................................... 6211000
C & P (Wash. D. C.).................................... 716,000
Prior to their reconfiguration in accordance with the Decree,
the BOCs in this reg ion had (as of December 31, 1981)
108,103 employees and total assets of $17,267 million.
iii. The Southeast
The regional hold ing company for this part of the Nation
will hold the stock of Southern Bell Telephone and Telegraph
Co mpany and South Central Bell Telephone Co mpany. These
BOCs will provide service in the States of Alabama, Florida,
Georgia, Kentucky, Louisiana, M ississippi, North Carolina,
South Carolina, and Tennessee.
The service territory of these BOCs comprises about 30
million people or about 70 percent of the total population in
the states in which the co mpanies do business. As of January 1,
1982, these BOCs operated the following nu mber of revenueproducing
network access lines:
Southern Bell.....................................................6,971 9000
South Central Bell..............................................69008,000
Prior to their reconfiguration in accordance with the Decree,
the BOCs in this reg ion had (as of December 31, 1981)
137,500 employees and total assets of $21,800 million.
iv. The M idwest
The regional hold ing company for this part of the Nation
will hold the stock of Illinois Bell Telephone Co mpany, Indiana
Bell Telephone Co mpany, Mich igan Bell Telephone Company,
The Ohio Bell Telephone Co mpany, and Wisconsin Telephone
Co mpany. These BOCs will provide service in the states of
Illinois, Indiana, M ichigan, Ohio, and Wisconsin.
The service territory of these BOCs comprises about 30
million people or about 74 percent of the total population in
the States in wh ich the companies do business. As of January 1,
1982, these BOCs operated the following nu mber of revenueproducing
network access lines:
Ohio Bell.................................................... 298839000
Michigan Bell.............................................. 3560700
Indiana Bell................................................ 15378,000
Illinois Bell.................................................. 4,62400
Wisconsin Tel.............................................. 19479,000
Prior to their reconfiguration in accordance with the Decree,
the BOCs in this reg ion had (as of December 31, 1981)
112,978 employees and total assets of $17,038 million.
v. The Southwest
The regional hold ing company for this part of the Nation
will hold the stock of Southwestern Bell Telephone Co mpany.
Southwestern Bell will serve the States of Arkansas, Kansas,
Missouri, Oklaho ma, and Texas.
The service territory of Southwestern Bell co mprises about
21 million people or about 76 percent of the total population
in the States in which the co mpany does business. As of
January 1, 1982, Southwestern Bell operated 9,781,000 revenue45
producing network access lines. Prior to reconfiguration in
accordance with the Decree, Southwestern Bell had (as of
December 31, 1981) 97,100 employees and total assets of
$151979 million.
A. The Mountains and Great Plains
The regional hold ing company for this part of the Nation
will hold the stock of The Mountain States Telephone and
Telegraph Co mpany, Northwestern Bell Telephone Co mpany,
and Pacific Northwest Bell Telephone Co mpany. These BOCs
will provide service in the States of Arizona, Colorado, Idaho,
Iowa, M innesota, Montana, Nebraska, New Mexico, North
Dakota, Oregon, South Dakota, Utah, Washington, and Wyoming.
The service territory of these BOCs comprises about 22
million people or about 78 percent of the total population in
the States in wh ich the companies do business. As of January 1,
1982, these BOCs operated the following nu mber of revenueproducing
network access lines:
Mountain Bell....................................................457189000
Northwestern Bell ..............................................352709000
Pacific Northwest Bell........................................ 254509000
Prior to their reconfiguration in accordance with the Decree,
the BOCs in this reg ion had (as of December 31, 1981)
104,900 employees and total assets of $16,109 million.
vii. The Far West
The regional co mpany for this part of the Nation will hold
the stock of The Pacific Telephone and Telegraph Co mpany,
which in turn holds all of the stock of Nevada Bell. These
companies will p rovide service in the States of Californ ia and
The service territory of Pacific Telephone and Nevada Bell
comprises about 20 million people or about 78 percent of the
total population in the States in which the companies do
business. As of January 1, 1982, these BOCs operated the
following number of revenue-producing network access lines:
Pacific Tel.........................................................10127500
Nevada Bell.......................................................... 154,000
Prior to their reconfiguration in accordance with the Decree,
the BOCs in this reg ion had (as of December 31, 1981)
114,700 employees and total assets of $16,573 million.
The following table summarizes the foregoing, based upon
December 31, 1981, data fo r existing BOCs.
Regional Ho lding Co mpanies
(as of December 31, 1981, prior to BOC
reconfiguration in accordance with the Decree)
Northeast...................... $17,778.6 12,476 1219600
Mid-Atlantic.................. 17,267.3 139722 1085103
Southeast...................... 21, 800.4 129979 1379500
Midwest........................ 179038.4 135971 1121978
Southwest...................... 15,949.3 99781 97,600
Mountains and Great
Plains........................ 16,109.1 101438 1049900
Far West....................... 169573.4 109429 1145700
AT&T will divest its ownership of the Bell System's
exchange operations by distributing the common stock of the
regional holding co mpanies to existing AT&T stockholders.
Every AT&T stockholder will thereafter own stock in eight
corporations AT&T and the seven regional holding co mpanies
which collectively represent the Bell System's predivestiture
AT&T stockholders will not recognize gain or loss upon the
receipt of the shares of common stock of the regional co mpanies.
43 1 However, stockholders who receive cash in lieu of
fractional shares, as described below, will recognize gain or loss
on the fractional amount. AT&T stockholders will allocate
their tax basis in AT&T stock between AT&T and the regional
companies on the basis of the relative values of the stocks.
The stock distribution will be recorded on the books of
AT&T by debits to "unappropriated retained earnings" (181)
and to "premiu m on capital stock" 152), and a credit to
"investments in affiliated co mpanies regional hold ing companies"
(101.1) . The cred it, as well as the sum of the debits,
will be fo r an amount sufficient to eliminate entirely the existing
balance in "investments in affiliated companies reg ional
holding companies" (101.1). The journal entry to be made on
the books of AT&T is as follows:
Investments in affiliated co mpanies
—regional hold ing companies
Premiu m on capital
stock (152 )
431 In order for the distribution of the Far West regional company's
stock to be "tax free, " prior to the consummation of the
transactions described above, The Pacific Telephone and Telegraph
Co mpany will amend its articles of incorporation to provide voting
rights to its various outstanding, non-voting preferred shares (cumulat ive,
par value $25 per share) and to convert its one outstanding share
of common stock into 224,504,982 shares, which was the number of
common shares outstanding on May 11, 1982 (the date prior to
acquisition of the publicly held outstanding common stock by AT&T).
( Footnote continued on following p age)
Unappropriated retained
earnings (181)
The distribution ratio will be 1 for 10, meaning that for
every 10 shares of AT&T common stock held, AT&T stockholders
will receive one share of each of the seven newly
created regional co mpanies. AT&T stockholders will be notified
prior to divestiture of their prospective share ownership in
the regional co mpanies, and arrangements will be made for the
physical distribution of regional co mpany stock certificates.
Prior to divestiture, regional co mpany shares will be traded on
a "when-issued" basis, which will provide active markets in the
new co mpanies' stock. Following distribution of certificates for
these shares, normal trading will co mmence.
AT&T stockholder accounts with 500 or mo re AT&T
shares will receive 50 or more shares in each regional co mpany.
These larger accounts comprise about 6 percent of current
accounts, but represent about 70 percent of outstanding shares.
These accounts will be issued certificates in each of the regional
companies and will receive cash in lieu of any fractional shares.
AT&T stockholder accounts with less than 500 AT&T
shares will, by necessary operation of the distribution ratio,
have less than 50 shares in each of the seven regional co mpanies.
432 Based upon AT&T's current stockholder distribution,
the group with at least one whole share but less than 50 shares
in each regional company co mprises about 77 percent of all
stockholder accounts, but only about 30 percent of outstanding
shares. For the seven regional companies co mbined, this
smaller stockholder account group represents a total of over 17
million accounts. 433
(Footnote continued from previous page)
Under the Internal Revenue Code, the Far West regional company
must own "80% of the total co mbined voting power of all classes of
stock entitled to vote and at least 80% of the total nu mber of the
shares of all other classes of stock." By enfranchising the non-voting
preferred stock wh ich is publicly held, and reconstituting the common
stock, the Far West regional company will meet the test.
432 At the 1:10 d istribution ratio, for example, the holder of 499
shares of AT&T stock will hold 49.9 shares in each regional co mpany,
and so forth for s maller amounts of AT&T stock held.
433 Based upon AT&T's current total of about 3.2 million accounts,
this group would represent about 2.5 million accounts for each
regional co mpany.
The preparation and distribution of stock certificates in
such amounts to all of these stockholders would be costly and
virtually impossible to comp lete in t ime to allo w normal trad ing
following divestiture. Further, for stockholders who wish to
consolidate holdings of less than 50 shares, trading would be
burdensome and expensive because of brokerage commissions
and certificate transfer procedures associated with small share
sales. 434
To ease these burdens on the owners of the regional
companies' smaller accounts, and on the regional co mpanies
themselves, arrangements will be made for reducing the costs
associated with distribution and consolidation of these accounts.
Each stockholder account with at least 1 but less than 50 shares
in each regional company will be sent a computer-generated
statement of account, showing the precise number of reg ional
company shares held in the account. At the s ame time, each
such account will receive a return mail card requesting instructions
for the disposition of the regional co mpany shares.
These smaller accounts will be offered the following
(1) A stockholder may receive certificates for whole
shares in any or all of the seven regional companies, and
receive cash in lieu of any fractional shares in such
(2) For each regional co mpany, a stockholder may
deposit all shares in that regional company's Div idend
Reinvestment and Stock Purchase Plan ( " DRISPP " ).435
(3) A stockholder may sell stock in one or more
regional co mpanies and invest the proceeds in the stock of
one or mo re other regional co mpanies. At the stockholder's
option, the newly purchased stock will be sent to the
stockholder in certificate form, or enrolled in the stockholder's
DRISPP account in the selected company.
434 For examp le, many brokers charge a min imu m fee of $30 to
trade one share of stock.
4350f AT&T' s existing stockholders owning less than 500 shares,
approximately 25 percent are part icipants in DRISPP.
All options will be offered for appro ximately four to six
months following divestiture, unless financing considerations
for the regional co mpanies require that the period be shortened.
At the termination of this period, those stockholders who have
not otherwise withdrawn their holdings fro m the co mputerized
accounts will receive cert ificates for whole shares and a check
for the cash proceeds from the sale of any fractional shares.
AT&T stockholder accounts holding less than 10 AT&T
shares will, at the 1 for 10 d istribution ratio, have less than one
full share in each reg ional co mpany. Based upon AT&T's
current share owner distribution, about 17 percent of all
accounts, but only about one quarter of one percent of ou tstanding
shares fall into this category. Accounts with less than
one share per regional co mpany (fractional accounts) will not
participate in the arrangements described above. Fractional
accounts will receive cash in lieu of their fractional shares.
These arrangements to assist smaller accounts are required
to make the distribution of stock ownership practical. Appro ximately
nineteen million stockholder accounts (approximately
2.7 million for each regional holding co mpany) 436 cannot be
feasibly ad min istered using paper certificates at the time o f
divestiture. The expense would unduly burden the regional
companies, and their stockholders would be able to rearrange
small hold ings in the seven regional co mpanies only at disproportionate
cost to them. Under the arrangements, the
smaller account stockholders retain full rights to receive the
certificates representing the shares issued to them upon divestiture.
437 But if they so choose, they can rearrange their ownership
interests by converting their investment in any reg ional
company to investment in another regional co mpany at less
expense than if their shares were traded at full co mmission
436 Due to the treatment of fractional accounts, the size of each
regional co mpany's initial stockholder population will be reduced
fro m over 3 million to about 2.7 million.
437 The smaller accounts will be able to receive their certificates

in all seven regional co mpanies at the same time the larger accounts
are issued their certificates.
rates. Finally, these rearrangements are expected to reduce the
enormous stockholder populations of the divested companies
and reduce their costs of providing stockholder services. See
Part IV.B, infra.
In addition to making it easier and more economical for
stockholders with smaller accounts to consolidate their holdings,
the regional co mpanies will be afforded assistance in
serving their stockholder accounts.
The problem arises fro m the size of the in itial stockholder
populations. Upon the date of divestiture, each regional
company will be o wned by approximately 2.7 million stockholders:
Except for AT&T, no larger stockholder population
exists anywhere in the world for a single corporation. 438
The normal servicing of such a large nu mber of stockholders
printing annual reports, mailing pro xy statements,
quarterly reports and dividends, registering shares, and the like
is a significant expense. Even higher than usual expenses are
expected, however, because the market activ ity following
divestiture is expected to cause significant changes in the
regional co mpany stockholder populations. It is anticipated
that over 100 million stockholder transactions will be processed
for the seven companies and AT&T in the first year alone.
During the transition period there will be a h igh dr: gree of
coincidence of ownership among the eight stockholder populations.
With common ownership, economies of scale can be
438 The second largest stockholder group in the United States —

and the only other group in excess of one million accounts — is that of
General Motors (1.1 million). Of the public co mpanies with total
assets in the range of $16 to 22 billion (the projected size of the
regional holding co mpanies), General Electric has the largest number
of shareowners ( 502,000) . Other co mpanies in that asset range are
GTE ( 475,000 ), Gu lf Oil ( 302,000 ), and Tenneco ( 238,000 ).
realized through a common stockholder services organization
because mult iple interactions with stockholders are reduced.
Changes to account records (name, address) or to account
status (divorce, death, litigation) can be uniformly applied, and
requests for transfer requirements for one or more of the eight
companies can be handled with one response. Co mputer and
mailing equip ment can also be more fully utilized.
No organization presently exists with the capability to
serve the more than 22 million stockholder accounts that will
exist upon divestiture. AT&T will therefore plan, develop, and
manage a co mbined stockholder services organization to serve
the seven regional companies and AT&T. The o rganizat ion,
which will be a registered transfer agent subject to regulation
by the Securities and Exchange Co mmission, will be a wholly
owned subsidiary of AT&T. The organization will be co mprised
of AT&T's existing Stock and Bond Div ision which will
operate in Piscataway, New Jersey, New Yo rk City, and a new
facility in Jacksonville, Florida.
This organization will manage the processing of accounts
at divestiture and will provide most of the necessary stockholder
services to the regional co mpanies. 439 It also will provide
stockholder services to AT&T. Each co mpany will own its
stockholder records and will have access to those AT&T records
that are necessary for the regional co mpany to maintain its
records and to serve its stockholders.
Annual service charges to the regional companies will be
based on cost, including the cost of capital emp loyed. In order
to allow recovery of the in itial investment required to establish
the Florida facility, services will be provided to the regional
companies and AT&T under individual five-year contracts.
Each co mpany will have the right to cancel the contract at the
439 These services will include: (i) stockholder service and

recordkeeping (such as processing inquiries fro m stockholders and
brokers, and maintain ing records); (ii) security transfer services; (iii)
recordkeeping and other assistance with respect to dividend reinvestment
and stock purchase plans; (iv) dividend payment processing;
(v) mailing; (v i) pro xy tallies; and (vii) management of emp loyee
stock ownership plans.
end of two, three, and four years, upon payment of a cancellation
fee. The fee would co mpensate the subsidiary for that
portion of init ial capital not recovered through annual charges
and any employee or other costs of termination. Any dispute
arising under the contracts will be resolved by arbitration.
Upon termination of the contracts, it is expected that the
regional co mpanies' stockholder population will be reduced to
a level that can be managed mo re conveniently and with less
expense. At that time each regional co mpany may undertake to
service its own stockholders; it may contract with another
outside organization to perform the services; or it may negotiate
a contract to have AT&T's stockholder services subsidiary
continue some or all of its services for the regional co mpany.
Upon this Court's approval of the Plan of Reorganizat ion,
the divestiture will be imp lemented in accordance with the
schedule set forth in this section. The schedule assumes a
decision fro m the Court in April of 1983.
Wholly owned IXC and CPE subsidiaries will be created to
receive relevant assets fro m the BOCs. The IXC subsidiaries
will be the entities to which the FCC will be requested to grant
interexchange operating authority and broadcast licenses. The
BOCs and their subsidiaries will also notify state regulatory
commissions of changes in ownership and service responsibility
that will result fro m the reorganization.
AT&T will also incorporate the seven regional holding
companies and the Central Staff Organizat ion. The bulk of the
assets to be held by these entities will not be transferred until
late 1983 (see Part IV.C.6, inzfra). The companies' early
incorporation, however, will allow the BOCs to establish headquarters
staffs in order that management and support systems
can be in place and functioning prior to the companies' receipt
of other assets and personnel.
All new co mpanies to be created under the Plan will thus
be incorporated by April or May of 1983.
Several elements of this Plan call for rulings fro m the
Internal Revenue Service with respect to the tax consequences
of certain aspects of the trans actions, including determinations
relating to employee benefit p lans. Where appropriate or
necessary, AT&T will also seek approvals or clearances fro m
the Department of Labor with respect to the compliance of
emp loyee benefit plans with applicable law. The Court's
approval of the Plan will permit AT&T to make any necessary
adjustments to pending requests for rulings by these agencies,
and to seek any additional rulings for which application could
not be made until the Court issued its decision.
The identification of assets and liabilit ies to be allocated to
AT&T or the BOCs cannot be completed until the Plan is
approved. Preliminary work on the basis of the Plan as
submitted to the Court will allo w co mplet ion of this process in
the months between May and September 1983 with sufficient
precision to prepare pro forma statements and other financial
documents to be filed and circu lated in the fourth quarter of
1983 (see Part IV.C. 5, infra).
Personnel assignments will also be generally co mp lete by
September 1983. This will allo w the System to conduct business
during the last quarter of 1983 in a "divested mode,"
mean ing that the System will operate its network in a management
reporting structure that simulates operation by independent
companies. Such a period is essential for assuring uninterrupted
service when AT&T in fact divests the BOCs on January
1, 1984.
During October of 1983, the BOCs and regional hold ing
companies will conduct stockholder meetings and board of
directors meet ings as required for AT&T, as the sole stockholder
of each BOC, to authorize, ratify, and otherwise approve
the transactions called for by the Plan of Reorganizat ion.
AT&T will arrange for the election of indiv iduals selected by
the designated Chief Executive Officers of the respective regions
to serve after divestiture on the boards of directors of the
regional holding co mpanies and the BOCs. Prior to divestiture,
any BOC or reg ional co mpany director who is also a director,
officer, or employee of AT&T (or its other affiliates) will resign
fro m the BOC or regional co mpany board.
In October or November of 1983, the regional co mpanies'
boards of directors will announce their quarterly d ividends for
the first quarter of 1984. These dividends must be announced
at this time in order for the information to be commun icated to
stockholders and the investing public in advance of the first
"when-issued" trading of the regional holding companies'
common stock on the New York Stock Exchange. At about the
same time, AT&T's Board of Directors will announce its
dividend for the first quarter of 1984, in order that "exdistribution"
trading of its common stock may proceed on an
orderly basis.
In October or November of 1983, AT&T and the regional
holding companies will file with the Securit ies and Exchange
Co mmission the disclosure documents necessary for the distribution
and trading of the regional holding co mpany stock.
These will include the prospectus or information statements to
be mailed to stockholders, as well as documents exp lain ing to
the regional holding co mpany stockholders the provisions of
the regional co mpany dividend reinvestment programs.
At about the same time, the reg ional holding co mpanies
will file applications to list their co mmon stock on the New
Yo rk Stock Exchange and any of the regional stock exchanges
they may elect for listing. Trading of reg ional co mpany stock
on the New Yo rk Stock Exchange on a "when-issued" basis is
expected to begin in November or December 1983. Trad ing on
this basis will continue until the init ial distribution of stock
certificates is completed, probably some time in mid -February.
At that time, t rading will begin on a normal basis.
Except as otherwise provided in this Plan, the actual
transfers of asset ownership, dividending of stock, assumptions
of liabilities, and assignment of personnel to their postdivestiture
emp loying companies will occur at the end of
December 1983. Because of the number of docu ments and
entities involved in these transactions, many of the appropriate
papers will be executed prior to December 31, 1983, to become
effective on January 1, 1984.
During December 1983, the regional holding co mpanies,
the BOCs and AT&T will enter into agreements providing for
the various transfers, assignments, deeds, leases, sharing agreements,
termination agreements, mutual releases, and other
matters required to imp lement the reorganizat ion. The agreements
will provide for mutual releases, and will set forth the
legal rights and obligations of the parties as separate companies
in the post-divestiture period. The provis ions of these agreements
will require the parties to make available to each other
all business information and data necessary for each party to
carry out its obligations under this Plan and to comply with the
Decree and any other legal requirements applicable to their
respective operations. 440
440 Arrangements will be made for AT&T and the BOCs to
cooperate to the extent necessary in preparing federal, state and local
tax returns (or claims fo r refund) for p re-divestiture taxable periods.
AT&T and the BOCs will coordinate efforts with respect to postdivestiture
audits of pre-divestiture taxable periods and will furn ish
each other the necessary workpapers or records to respond to audit
inquiries. The parties will agree to keep each other fully informed of
all claims or controversies relating to pre-divestiture tax matters, will
promptly provide each other with copies of all related correspondence
and communications, and will not comp ro mise, settle or waive claims
relating to the taxes paid or to be paid under the Bell System pred ivestiture
consolidated tax return, or any state and local tax return,
except in accordance with the direction of the affected parties.
AT&T will distribute the stock of the seven regional
holding companies to persons who held AT&T shares as of a
specified record date in December. The distribution will be
effective January 1, 1984 (even though the mailing of certificates
will not take place until mid-February). As of January 1,
1984, therefo re, AT&T will have divested itself of all o wnership
interests in the Bell System's exchange, exchange access, and
directory operations.
The foregoing constitutes AT&T's Plan of Reorganizat ion
pursuant to Section I(A) of the Decree. AT&T requests that
the Court approve this Plan as consistent with the Decree.
Respectfully submitted,
December 16, 1982

 To see the full order see
 August 30, 2010

The following is an article from the Southern Bell Magazine dated January,
1983. It gives some historical insight into how the divestiture was to

Restructuring Plan (as of January 1983)
The Road Map to Divestiture
Last month another major phase in the largest corporate restructuring in
American history was completed.

AT&T submitted to the Federal District Court in Washington, D.C., and the
Department of Justice its comprehensive plan for the reorganization of the Bell
The 471-page filing details how the company proposes to divest, as of Jan. 1,
1984, the assets, work force and stock ownership of the Bell System's 22
operating companies in compliance with the consent decree agreed to by AT&T
and the Department of Justice and approved by the court on Aug. 24, 1982.

Because dividing Bell System assets is a major portion of the work needed to
implement restructuring, AT&T also submitted a "Bell System Asset Assignment
Detail Work Plan." The Work Plan sets forth instructions, including inventory
forms, that will be used to carry out the separation of all operating company
facilities and books of accounts. These procedures are being field-tested by the
operating companies to make preliminary assignments. However these
assignments are subject to any modifications in the proposed Local Access and
Transport Area (LATA) boundaries or the reorganization plan.

Under the terms of the decree, the operating companies will provide exchange
and local access service and may provide printed directory advertising and new
customer premises equipment.

AT&T will provide interexchange long distance telephone service and other
products and services. AT&T will also assume responsibility for embedded
customer premises equipment (CPE) , which is equipment on customers'
premises or in operating company inventory. By the time divestiture occurs,
AT&T will already be in the new CPE and enhanced services businesses through
its subsidiary, American Bell Inc., as required by the Federal Communications
Commission's Second Computer Inquiry order.

The Bell System reorganization plan must be approved by the court. The plan is
also subject to review and comment by state regulators, consumer groups,
competitors and other interested parties.

Final court action is expected this spring. The court has adopted a timetable that
allows for 110 days for public comment and response. While awaiting approval,
the Bell System will continue to press ahead with the reorganization process.

Although the consent decree allows up to 18 months from its effective date of
Aug. 24, 1982, to complete divestiture, divestiture has been planned for Jan. 1,
1984, because "the problems of financing in this time of uncertainty are already
acute, and it is critical to the companies' efficient accounting, auditing and
financial reporting that the divestiture not occur in the middle of a reporting
period." The plan allows for a one-year period following divestiture - a so-called
"true-up" time - during which asset and personnel assignments can be corrected,
if necessary.

The Divestiture Process
The first step of the divestiture process is the internal reorganization of the
operating companies. Operating company facilities, employees and books of
accounts for those parts of the business relating to exchange services and
printed directories, which will remain with the operating companies, will be
separated from those parts of the business associated with the provision of
customer premises equipment and interexchange service, which will become the
responsibility of AT&T. Based on this separation, each operating company will
create two wholly owned subsidiaries. InterLATA facilities, personnel and other
assets will be assigned to an interexchange subsidiary, while customer premises
equipment, related facilities, personnel and other assets will be assigned to a
CPE subsidiary.

Each operating company will then transfer to AT&T, by means of a dividend, the
stock it holds in the newly created subsidiaries. As a result, the operating
companies will no longer own any interexchange or CPE operations, and AT&T
will have separated its exchange holdings from its interexchange and CPE

The transfer of these operations will involve a shift of about 10 to 20 percent of
operating company employees.

Assuming approval of the reorganization plan by U.S. District Court Judge Harold
Greene in April or May, all the new companies will be incorporated in May or
June. These new companies include the interexchange and customer equipment
subsidiaries to be established by the operating companies, the seven regional
holding companies with AT&T as the sole stockholder of each regional company,
the Central Organization and the cellular mobile service company.

On Dec. 31, 1983, actual divestiture will begin. The operating companies will
transfer the interexchange and CPE subsidiaries to AT&T AT&T will transfer its
ownership in operating company exchange, exchange access and directory
operations, as well as the Central Organization and cellular services subsidiaries,
to the seven regional holding companies on divestiture day.

AT&T will then distribute the common stock in the holding companies to AT&T
share owners.

The outcome of the divestiture process will be the creation of the seven regional
holding companies, each of which will own the operating companies in its region.
The divested companies will provide exchange telecommunications and local
access service within their respective Local Access and Transport Areas, printed
directories and, if they choose, new customer premises equipment. Each of the
regional companies will also own one-seventh of the Central Organization, as
well as the stock of one regional cellular services company. (For more
information about the Southern/South Central holding company, see the article
beginning on page 26.)
The remaining AT&T will consist of eight organizations. AT&T Corporate
Headquarters will continue to be responsible for setting overall corporate strategy
and the allocation of resources among AT&T lines of business. An interexchange
entity will consist of the Long Lines organization and those operating company
operations related to interLATA and international services, including the
necessary operator services. An embedded base organization will manage
equipment on customer premises or in company inventories that will be assigned
to AT&T upon , divestiture. The other remaining AT&T organizations will be
AT&T International, Western Electric, Bell Laboratories, American Bell Inc., and
195 Broadway Corp.

The "Bell" Name

The plan also proposes guidelines for the use of "Bell" in corporate names. AT&T
and the operating companies will not use any common corporate name, but each
may use "Bell" in their corporate names, so that the operating companies and
their holding companies could use such existing names as Southern Bell and
Illinois Bell, as well as such new names as Northeastern Bell or Midwestern Bell.

Similarly, AT&T could use such existing names as Bell System or American Bell,
as well as such new names as Bell Intercity or American Bell Manufacturing. The
Department of Justice has agreed that Bell Laboratories would not have to
change its name.

Although not required by the consent decree, AT&T plans to assign its title to the
Bell logo and certain other trademarks to the Central Organization for use within
the United States in connection with exchange services, printed directories and
any other activities the operating companies undertake. The Central Organization
will license the use of these trademarks to the operating companies.

AT&T will cease all future use of these trademarks within the U.S., including use
in connection with customer equipment, and will develop its own separate logo
and graphics for use by AT&T affiliates. AT&T will market its products and
services with its own distinctive trademarks under the name American Bell, for
example, referring to them as "genuine Bell products or services."

In the event that these arrangements are not approved, the Bell seal and Bell
names will be retained by AT&T.

With divestiture of the operating companies, a number of contracts and
agreements long in place will cease. Among them is the division of revenues
process by which revenues from interstate services are turned over to the
operating companies to compensate them for the cost of providing local
exchange services used to complete intercity calls. To replace these revenues,
the operating companies will file tariffs for access charges with their state
regulatory commissions in 1983. (See related article on page 20.)

Existing license contracts and cost sharing agreements between AT&T and the
operating companies will also terminate. as will the Business Information
Systems Agreement providing Bell Labs-developed data processing and
business information systems.

The Transfer of Personnel

Assignment of personnel to either AT&T or the operating companies generally
will be based on the principle that employees follow their work. This is expected
to minimize job relocations and employee inconvenience.

The initial assignment of personnel is scheduled for completion in October, 1983.
Generally, operating company employees whose job functions involve providing
intraLATA or printed directory services will be assigned to an operating company
entity. Those whose jobs involve the provision of interLATA services or customer
premises equipment will go to an AT&T unit. (For more in-depth information
about who will go where, read the article beginning on page 12.)

In April, 1982, AT&T, the operating companies and the three unions signed an
agreement that sets forth binding employee assurances during the tra nsition
period for employees who are covered by collective bargaining agreements and
who are reassigned as part of a corporate reorganization. The assurances
provide for no loss of employment, wages or service credit for a seven year
period following transfer, among other guarantees. Employees reassigned after
divestiture will not lose benefits, security or employment rights.

The Transfer of Assets

In general, the division of Bell System assets will be based on the principle of
sole or predominant use. For example, transmission, switching and plant facilities
- including cables, poles, buildings, motor vehicles, office equipment and furniture
- will be assigned to an operating company or to AT&T according to which entity
uses them most. Applying this principle, assets used exclusively or
predominantly for local exchange, or intraLATA, service will go to the operating
companies, while those used exclusively or predominantly for interexchange, or
interLATA, services or to provide customer premises equipment will go to AT&T
(See related story on page 10.)

An inventory of all assets will be conducted before they are assigned to either
organization. Existing plant records will be used wherever possible to avoid
actually counting items. The inventory process is scheduled to be completed by
October, 1983. The federal court must also approve Bell System plans, filed last
October, that define 161 "exchange areas," or Local Access and Transport
Areas, in which the divested companies propose to provide exchange and local
access service.

Upon approval of the Bell System LATA proposal, roughly 75 percent of all Bell
System physical assets will go to the operating companies for the provision of
intraLATA services.

Stock Ownership Provisions

After the regional companies are incorporated, the operating companies and the
regional holding companies will hold regional stockholder meetings in October or
November of 1983 with their sole share owner, AT&T, to seek approval or
authorization of the transactions called for in the reorganization plan. At about the
same time, the regional Boards of directors of the regional holding companies will
announce their quarterly dividends for the first quarter of 1984.

The regions will also file applications to list their stock on the New York Stock
Exchange and other exchanges they choose. (For information about what will
happen to existing AT&T stock, see the article on page 18.)

Trading on a "when-issued" basis possibly will begin in November or December,
1983. This type of trading allows an investor to buy or sell regional company
stock before actual certificates of the regional companies are available. Because
of the large volume of certificates that will need to be issued, the initial
distribution of certificates of the regional companies is expected in February,
1984. At that time, normal trading will begin.

Obligations Following Divestiture

The consent decree imposes a number of obligations on the operating
companies after reorganization is complete. The operating companies must
provide equal access to interexchange carriers. They must file cost-justified
access tariffs for service provided over their facilities. And they must report to the
Justice Department within six months after divestiture on their plans for meeting
decree obligations, including non-discriminatory treatment of interexchange

An attachment entitled "Current Planning for Equal Access," which was submitted with
the reorganization plan last month, summarizes the general plans of the operating
companies. AT&T has pledged to assist the operating companies in preparing to meet
their obligations.
 August 30, 2010

An official announcement to the Bell System employees shortly after the January 8, 1982 ruling
by the U.S. Department of Justice (referred to below as the DOJ) t ook place in the form of a video
taped show called "Chronicle News Update - A Historical Decision. Some highlights of that tape
are provided here.

The audio track from this video tape is available on the Bell System Multimedia
CD. I can also make available a copy of the tape in MPEG-2 or AVI format on

Key dates in the eventual demise of the Bell System:

       November 20, 1974 - DOJ files antitrust suit charging anticompetitive
        behavior, and seeking breakup of Bell System.
       February 4, 1975 - AT&T formally denies all charges.
       June 21, 1978 - Case reassigned to Judge Harold Greene.
       September 11, 1978 - Judge Greene lays down new schedule for
        discovery and trial preparation.
       November 1, 1978 - DOJ files its first statement of contentions and proof,
        settling out detailed charges.
       September 9, 1980 - Judge Greene schedules beginning of trial for
        January 15, 1981.
       January 15, 1981 - Trial begins with opening arguments.
       January 16, 1981 - Judge Greene grants parties' request for recess until
        February 2, 1981 to work on a "concrete, detailed proposal for settlement.
       January 30, 1981 - Judge Greene extends recess through March 2, 1981.
       February 23, 1981 - DOJ advises court it will not be able to approve a
        final agreement by deadline; settlement talks break off.
       March 4, 1981 - Trial resumes; testimony begins.
       March 23, 1981 - Defense Secretary Caspar Weinberger.
       July 1, 1981 - DOJ rests its case.
       July 10, 1981 - AT&T files motion for dismissal.
       July 29, 1981 - DOJ requests 11 month delay to permit Congress to
        consider amendments to S.898.
       August 3, 1981 - AT&T begins its defense.
       August 6, 1981 - DOJ says it will pursue case while Administration seeks
        passage of amended S.898.
       August 10, 1981 - DOJ says it would drop case if acceptable legislation
       August 17, 1981 - DOJ files reply to AT&T dismissal motion, saying it will
        pursue case.
      September 11, 1981 - Judge Greene rules on dismissal, dropping some
       charges, but permitting bulk of case to go forward.
      October 26, 1981 - Court sets schedule that will end AT&T testimony by
       January 20, 1982. Judge Greene indicates a verdict could be handed
       down by end of July, 1982.
      December 31, 1981 - DOJ announces that parties have resumed
       discussions to try to bring the case to a resolution.
      January 8, 1982 - Antitrust suit dropped after AT&T accepts government's
      January 1, 1984 - Bell System no longer exists

Here are some screen shots of the newscast outlining the key points of
post divestiture of the Bell System:

Below are more screen shots from video tape showing (left to right) the
Chronicle News anchorpersons, Chairman of AT&T, and the Vice President
of AT&T at the time of the divestiture announcement. As with above
images, click on the images below to see full-size screen capture of video

Click HERE to see how CNN news announced the breakup.

Timeline of the Legal History of Telecommunications
and the Divestiture of AT&T
1876 - Alexander Graham Bell receives a basic patent on his "talking mac hine."

1885 -The American Telephone and Telegraph Company was established as a
subsidiary of the American Bell Telephone Company to operate the long distance
connections among the rapidly growing local Bell telephone companies.

1900 - AT&T was reorganized into a holding company, becoming the parent of
the Bell companies, and making Western Electric the exclusive manufacturing
arm of the Bell System.

1907 - Following the expiration of Bell's original patents, the industry entered a
period of unrestrained competition, and as a result, by 1907, independent
telephone companies had almost as many phones in service as the Bell System
(about 3,000,000 each).

1913 - After a series of acquisition wars in which AT&T emerged victorious, in
1910, the Interstate Commerce Commission began the first investigation of
AT&T's monopoly activities. As a result, in 1913, AT&T promised the government
to allow independent phone companies to interconnect with its toll facilities, and
to refrain from acquiring any more competing independent companies. This
established the cooperative, non-competing relationship between the Bell
System and the approximately 1,500 independent telephone companies, which
largely exists today, and consolidated AT&T's monopoly power.

1934 - AT&T owns four out of every five telephones in the country, its long
distance network ties together the country's telephone system and nearly every
major city is served by a Bell telephone company. The Communications Act of
1934 is passed by Congress, establishi ng the Federal Communications
Commission, which governs the telephone and broadcast industries.

1956 - The government and AT&T signed a consent decree, which enjoined
AT&T only from engaging in any business other than provision of common carrier
communications services -- it was thus excluded from the computer industry in
the United States -- and barred Western Electric from any activity other than
manufacturing equipment of a type to be used to provide telephone service.
AT&T was also required to license Bell patents to any applicant in exchange for

1959 - The seeds of competition in the long distance market were sown when
several large business users of long distance, dissatisfied with the price and
quality of AT&T services, applied to the FCC for permission to build their own
private microwave systems. In the Above 890 decision, the Commission found
that an adequate number of microwave frequencies were available to serve both
common carrier (AT&T was using these frequencies only to transmit television
signals) and private networks. The Above 890 decision not only caused AT&T to
hasten its development of more efficient microwave systems, but created the first
long distance price competition when AT&T, in response, filed its first tariffs for
bulk line discounts. Almost ten years later, after numerous AT&T procedural
delays, the FCC found that the "Telpak" discount rate tariff was illegal because it
was priced well below AT&T's costs.

1963 - Microwave Communications, Inc. (later re-named MCI) requests
permission from the FCC to build a microwave system between St. Louis and
Chicago, arguing that it could provide better and cheaper private line service
between customer locations in these cities. The Commission approved the
application, but not until 1969.

1969 - The FCC, by a 4-3 vote, grants MCI's application to establish a limited
private line microwave long distance system between St. Louis and Chicago,
asserting that such service was in the public interest. This decision marked the
beginning of a competitive market in long distance services.

1971 - In its Specialized Common Carrier decision, the FCC firmly establishes a
national policy of open entry into private line and specialized common carrier
markets. The decision also changed previous pricing practices, allowing for the
first time a variety of services at a variety of prices tailored to various needs. The
FCC issues a decision in its First Computer Inquiry, drawing a line between data
processing (computer-based) services and communications services, which were
to continue being regulated, in order to avoid the possibility of underwriting profit-
making competitive activities with revenues from regulated telephone company
activities. Because of the 1956 consent decree, AT&T was barred from offering
data processing services even through a separate subsidiary. In 1973, in a case
brought by GTE, the Commission's authority to draw such a line was upheld.

1972 - MCI begins commercial operation of private line service between St.
Louis and Chicago.

1973 - The FCC permits "value-added networks" (VANS) into the
communications market. These carriers lease private lines from other telephone
companies, and with the addition of computer enhancements, sell those lines for
the express purpose of transmitting data and information service.

1974 - The Department of Justice files a new, and much more comprehensive,
antitrust suit, which charged AT&T with illegal actions designed to perpetuate its
monopoly in telephone service and equipment. The suit asks for the divestiture of
Western Electric and "some or all of the Bell Operating Companies." For the next
several years, the parties argued jurisdictional issues and undertook a lengthy
discovery process, delaying the start of the trial until 1981.

From Bell Telephone Magazine - Issue 3 & 4, 1982:
"[1984 was] A trying year for the Bell System. In March, MCI files suit against
AT&T in U.S. District Court in Chicago, charging AT&T with "monopolizing the
business and data communications market." Bristling at the charge, AT&T files a
countersuit, charging MCI with attempting to restrain trade and lessen
competition by obstructing or harassing other common carriers. The controversy
prompts the FCC in April to begin a broad inquiry into the economic impact of
competition, particularly the effect of interconnection and the use of customer-
provided equipment. Thanksgiving Week, AT&T learns it is again being sued, this
time by the federal government. The Department of Justice files suit against
AT&T November 20, charging that the company has unlawfully monopolized the
telecommunications markets. It alleges, among other things, that AT&T has
attempted to restrict and eliminate competition from other common carriers,
private telecommunications systems, and other manufacturers and suppliers of
telecommunications equipment, and that AT&T requires the operating companies
to purchase Western Electric products. The case is assigned to Joseph E.
Waddy, a federal district court judge in Washington, D. C."

1975 -

From Bell Telephone Magazine - Issue 3 & 4, 1982:

"AT&T contends that the suit is without merit and insists that it has broken no
antitrust laws. AT&T and Justice lawyers devote the rest of the year to dra wing
up rules for "discovery," the process by which each party examines the other's
key documents and witnesses. AT&T begins to build a staff to provide
documents to Justice. Ironically, as AT&T prepares to meet charges that it
monopolizes the telecommunications business, the FCC in November
accelerates competition by authorizing direct connection to the network of
customer-provided equipment registered with the FCC.

AT&T introduces "One Bell System. It works." as the central theme for a long-
range information program on the value of the integrated Bell System structure .
The need for a more widespread understanding of the Bell System as a whole is
at the heart of the information program."

1976 - In its Resale and Shared Use decision, the FCC allows unlimited resale
and shared use of private line services and facilities. (Resellers lease bulk rate
lines from telephone companies and resell them at a discount.) However, in
ordering telephone companies to sell lines for resale, the Commission
determined that, when they offer interstate communications, resellers are
common carriers and must be regulated. With its efforts to maintain its monopoly
losing at the FCC and in the courts, AT&T turns to Congress. The Consumer
Communications Reform Act, the first comprehensive attempt to modify the
Communications Act since it was enacted in 1934, is introduced. This bill
became known as the "Bell Bill". Intensive lobbying by AT&T produces more than
200 co-sponsors for the Bell Bill, which would have restored AT&T's monopoly
and stripped the FCC of its regulatory authority over competitive entry in long
distance. The legislation was bottled up for months in both Houses of Congress,
which explored telephone industry competition issues for the first time in a series
of well-publicized hearings.

From Bell Telephone Magazine - Issue 3 & 4, 1982:

"A watershed year for AT&T and the telecommunications business on three
fronts -- regulation, legislation, and litigation.

Regulation: The FCC clears a number of long-standing dockets. Among other
things, it rules that AT&T is entitled to a higher interstate rate of return and
approves the expansion of the Dataphone® Digital Service.

The deadline for registering telephone equipment for connection to the network is
set, postponed, then modified, with staggered deadlines for registering ancillary,
data, and basic voice telephone equipment.

In another major decision, the FCC -- completing two years of study -- concludes
in its economic impact inquiry that competition has not had, and is not likely to
have, significant adverse impact on telephone company revenues
or rates for basic exchange service. Commissioner Benjamin Hooks dissents,
and AT&T says it is in "virtually total disagreement" with the FCC's conclusion.

One of the most significant FCC inquiries begins in August. Recognizing that
technological advances and changing customer needs have blurred the
distinctions between data processing and communications, the FCC decides to
re-examine the rules it set in its 1971 Computer Inquiry. The object of this second
inquiry -- called Computer Inquiry II (CI-2) -- is, among other things, to find ways
to allow common carriers to benefit from new data processing technology. In
November, the FCC overrules its Common Carrier Bureau and allows the Bell
System to sell the Dataspeed ® 40/4 terminal, which the bureau argued was data
processing equipment.

Legislation: The introduction of the Consumer Communications Reform Act
(CCRA) in the House and Senate launches a six-year national debate on national
telecommunications policy. The measure is promptly labeled "the Bell bill" by
detractors. By the time the 94th Congress adjourns, ho wever, there are 192
sponsors of one or another of five versions of CCRA -- 175 in the House and 17
in the Senate.

Litigation: Nearly three years after the filing of the case, Judge Waddy, on
October 20, rules that the Justice Department's antitrust suit is proper and that he
has jurisdiction. AT&T appeals the decision."
1977 - The U.S. Court of Appeals issues its Execunet decision, which opened
the long distance market to full competition by reversing FCC decisions limiting
MCI and other specialized carriers to private line services. In subsequent
decisions (Execunet II, 1978 and Execunet III, 1981) the court ruled that AT&T
and its local telephone companies must permit the other long distance carriers to
interconnect to their local networks to start and complete their calls.

From Bell Telephone Magazine - Issue 3 & 4, 1982:

"Nearly a year after AT&T's appeal, the Supreme Court declines to review the
decision of Judge Waddy, whose poor health is now noticeably slowing the
case's progress. The FCC's request for comments in CI-2 draws responses from
50 parties, including AT&T and other carriers, the Justice Department, IBM, data
processing equipment and services companies, industry associations, and users.
Most want data processing to remain free from regulation. AT&T suggests new
rules be adopted to allow it and other carriers to provide a full range of innovative
communications services.

A new CCRA is introduced in the House on the opening day of the 95th
Congress. A Senate version is introduced soon after. Hearings by the House and
Senate are held throughout the year. Proposals are made by two industry task
forces -- including one on separating telecommunications businesses into
competitive and non-competitive sectors."

1978 -

From Bell Telephone Magazine - Issue 3 & 4, 1982:

"AT&T chairman John D. deButts calls it a "year to be proud of," citing the
beginning of a national switched data network, a vigorous international sales
effort, and the second restructuring of the Bell System in five years. The
company begins changing from a services-oriented to a market-oriented
organization, separating the residence and business operations into major profit

New congressional voices are heard in the continuing debate over national
telecommunications policy.

Representatives Lionel Van Deerlin (D.-California) and Louis Frey (R.-Florida)
introduce the Communications Act of 1978, a re write rather than a revision of the
Communications Act of 1934. Hearings are held across the
country, but Van Deerlin's bill is still in committee at year's end.
The antitrust case is assigned in June to Judge Harold H. Greene because
Judge Waddy is seriously ill. Although nearing its fifth year, the case has yet to
go to trial. Greene, a 13-year veteran of the bench, is reported determined
to treat the suit "just like any other case, because the parties and the public have
a right to expect a federal judge to move things along." Three months later, he
issues a pre-trial order that puts lawyers for both sides on a strict schedule
designed to get the trial under way by Fall, 1980. To speed up the process, he
gives AT&T and Justice deadlines for filing statements detailing what they intend
to prove and what witnesses and evidence they'll use to do so.

AT&T and Justice lawyers begin the process of "stipulation," during which each
side sorts out the facts they can agree on, leaving only the remainder to be
decided in court."

1979 - After the Execunet decision, AT&T files a tariff at the FCC to raise the
cost of specialized carriers' interconnection with AT&T's local network by 300%.
Those carriers had vastly inferior connections into AT&T's local network (creating
poor connections and necessitating dialing multidigit access numbers). They
charged that AT&T was attempting to make it too expensive to compete in the
long distance market.

From Bell Telephone Magazine - Issue 3 & 4, 1982:

"In a 'tentative decision' released in July, the FCC says it will 'adopt a flexible
regulatory scheme' in CI-2. In brief, the FCC says it will allow common carriers to
set up separate subsidiaries to sell detariffed enhanced 'nonvoice' services.
AT&T endorses the concept but is concerned about specifics.

AT&T vice chairman James E. Olson cautiously notes that 'controversy seems to
be giving way to consensus' on telecommunications legislation, helped in large
part by President Carter's call for action. By the end of the year, after another
series of House and Senate hearings, a new House bill is introduced, sponsored
by 15 members of the telecommunications subcommittee. The bill, H.R. 6121,
deals strictly with common carrier issues, no longer touching on the broadcast or
CATV industry as other bills

1980 - The FCC issues a second Computer II decision that completely
deregulated all data processing services. The decision also totally deregulated
customer premises equipment and removed it from the rate base. Further, the
decision allowed AT&T and GTE (the country's second largest telephone
company) to sell customer premises equipment, but only through a separated
subsidiary with separate accounting systems. The FCC allows the resale of
public switched network services like MTS (regular long distance service) and
WATS, establishing a market that today accounts for a growing share of
competitive long distance service.

From Bell Telephone Magazine - Issue 3 & 4, 1982:

"April 7, four years after it began CI-2, the FCC announces one of the most
momentous decisions in its history -- the detariffing of all new customer premises
equipment and of all enhanced communications services.

AT&T and GTE are required to set up separate subsidiaries. The decision is
made public in a 31/2-hour meeting. The FCC sets the detariffing date as March
1, 1982. (Later, the subsidiary requirement will be modified to apply only to Bell,
and the detariffing date will be extended to January 1, 1983.)

The FCC's decision sparks legislative efforts to forge new telecommunications
policy, but both House and Senate bills become snagged after preliminary
approvals by the respective subcommittees.

The bills die at the end of the 96th Congress. In the Senate, committee
leaderships pass from the Democrats to the Republicans; in the House, the
failure of Representative Van Deerlin to be re -elected means a change in
the influential telecommunications subcommittee.

Throughout the year, lawyers for Justice and AT&T file outlines of their cases in
preparation for trial. Meanwhile, in June, the MCI antitrust suit filed against AT&T
in 1974 comes to a conclusion.

A jury awards MC1600 million dollars, a figure automatically trebled to 1.8 billion
dollars because antitrust violations are involved. (AT&T is still awaiting a decision
from the Seventh Circuit Court on an appeal of that verdict.)"

1981 - On January 15, the U.S. v. AT&T antitrust trial begins, and is immediately
recessed amid speculation that a settlement is imminent. However, negotiations
between the Department of Justice and AT&T broke down and the trial resumed
on March 4. At the conclusion of the government's case, AT&T moved to dismiss
the suit, but U.S. District Judge Harold Greene, concluding that "the testimony
and the documentary evidence adduced by the government demonstrate that the
Bell System has violated the antitrust laws in a number of ways over a lengthy
period of time," continued the trial. Late in the fall, H.R. 5158 is introduced in the
House, once again promoting competition as a cornerstone of national
communications policy by providing for separate subsidiaries for AT&T's
competitive activities, and offering a system for deregulating communications
markets when they became fully competitive.

From Bell Telephone Magazine - Issue 3 & 4, 1982:

"Justice's antitrust suit finally begins to move along. After years of developing
evidence and filing pre-trial briefs, lawyers for AT&T and Justice
say on January 5 that they have agreed on the "concept" of a settlement, the first
public hint of a possible conclusion to the long and trying case. When Justice and
AT&T can't agree on the details for settling the case, the first witness is called.
This is March 4, 61/2years after the suit began.

William F. Baxter, newly appointed as assistant attorney general in charge of the
Justice Department's antitrust division, vows in his first press conference to
litigate the case "to the eyeballs," which quells rumors that Justice, under
President Reagan, might seek a compromise to end the case quickly. Baxter
runs into opposition from the Defense and the Commerce departments, however,
and asks for an ll-month recess to permit Congress to address the issue. Judge
Greene refuses and Justice rests its case.

Judge Greene also refuses AT&T's motion to dismiss the case. Justice, he says,
has shown "that the Bell System has violated the antitrust laws in a number of
ways over a lengthy period of time." AT&T begins its defense, but
three months later, on New Year's Eve, Judge Greene is told the two parties
have begun negotiating out-of court. Despite the time the antitrust suit is
consuming, the Bell System continues planning and implementing organizational
changes to comply with the FCC's Computer Inquiry II decision.

On the legislative front, the Senate in October passes S. 898, the
Telecommunications Competition and Deregulation Act of 1981, which AT&T
chairman C.L. Brown calls "the most significant milestone yet in the effort to forge
legislation." The bill is sent to the House, where Representative Timothy E. Wirth
(D.- Colorado) introduces a new bill, H.R. 5158, which is substantially different
from S. 898."

1982 - On January 8, faced with the reality of having to finish the antitrust trial
before a judge who had clear doubts of its innocence, and with the increasing
prospect of legislation mandating competition in communications markets (but
not divestiture), AT&T agrees to a settlement of the antitrust suit proposed by the
Justice Department. The settlement would require the breakup of the Bell
System, the same relief the government had sought from the beginning of the
antitrust case in 1974. Under the proposed settlement, AT&T retained its long
distance services, Western Electric, and Bell Laboratories, and gave up its 22
local monopoly telephone companies. AT&T was barred from "electronic
publishing" over its own lines, and a maximum amount of AT&T debt that could
be assumed by each operating company was established. The settlement
proposal required the local telephone companies -- by September 1986 -- to
provide access to all long distance carriers "equal in type, quality and price" to
that provided by AT&T, and prohibited the local companies from manufacturing
telephone equipment. Publishing of the highly profitable Yellow Pages was to
have been awarded to AT&T. The proposal, however, was subject to approval by
Judge Greene after a period of public comments. After announcement of the
divestiture agreement, H.R. 5158 is modified to allow the local telephone
companies to market customer premises equipment and publish the Yellow
Pages. Consideration of the legislation was ended in mid-July, while it was being
debated in the full Energy and Commerce Committee, because of inordinate
delays and dilatory tactics by AT&T's few supporters on the Committee. In
August, after a nine-month review of the divestiture agreement, Judge Greene
enters a Modified Final Judgment (MFJ) in settlement of the antitrust case. While
substantially accepting the terms agreed to by AT&T and the Department of
Justice, Greene, in order to strengthen the financial viability of the local
telephone companies, permits them to market customer premises telephone
equipment and to publish the Yellow Pages. The FCC extends its Competitive
Carrier deregulation of the interstate telephone industry, ruling that it will rely on
market forces instead of regulation to control the rates of all carriers except
AT&T, under a policy known as "forbearance." In December, the FCC announces
the first of several decisions on access charges -- the prices charged to the
competitive long distance carriers by local telephone companies for hooking into
the local network -- in the post-divestiture environment. The access charge
decision proposed a radical change in the way the fixed costs of the local
telephone network were paid. The previous system had been designed so that
the cost of equipment used by local and long distance carriers for long distance
service -- wires, poles, switches, etc. -- would be shared by long distance and
local service. The access charge order shifted almost all of those costs onto
telephone subscribers, who pay a flat monthly fee whether or not they make any
long distance calls. At the same time, three years before equal access for all long
distance carriers, giving them the same connections as AT&T, was to be
implemented, and with little improvement in the connections long distance
carriers were getting from AT&T, the Commission orders a doubling of the ENFIA
rate the other carriers were paying to AT&T and local Bell companies.

From Bell Telephone Magazine - Issue 3 & 4, 1982:

"Fateful Friday, as some financial analysts tag January 8, is the 129th scheduled
day of the trial. AT&T's Brown and Justice's Baxter announce a resolution of the
suit at a joint press conference at the National Press Club in Washington, D.C.
AT&T agrees to divest the 22 Bell operating companies, representing two-thirds
of AT&T's assets and accounting for a third of its 6.9 billion dollars in net 1981
On the grounds that their 23-page agreement is a modification of the 1956
Consent Decree, Justice and AT&T file for approval in Federal District Court in
Newark, New Jersey, which handled the 1956 Decree. The 1982 agreement is
referred to as the Modification of Final Judgment (MFJ).

Judge Vincent Biunno of the New Jersey court approves the settlement, but
Judge Greene refuses to close the 1974 antitrust suit, claiming he still holds
jurisdiction. In a complicated series of legal moves, Judge Greene is given
complete authority to approve or reject the agreement, and Judge Biunno's
approval is "vacated."

Judge Greene contends that the agreement deserves the full public scrutiny
provided by the Tunney Act, which governs antitrust settlement procedures. The
public is given 60 days to comment after Justice publishes a comprehensive
description of the Decree in ne wspapers across the country. The 60-day period
for comment begins February 19; a second round of comments is provided for
and ends June 14.

Meanwhile, the announcement of an agreement has stirred congressional
waters. On March 22, Representative Wirth introduces more restrictions on the
Bell System in H.R. 5158, weeks after top AT&T and Bell System officers
strongly criticize the bill. The amended bill is approved 15-0 by the House
telecommunications subcommittee and sent to the full House energy and
commerce committee for consideration.

AT&T quickly responds. In an unprecedented move, it urges share o wners and
employees to write and visit their congressional representatives to oppose the
bill, and runs full-page ads denouncing the bill in newspapers across the country.
Congressional offices are reported s wamped with anti-legislation mail. On July
20, Wirth withdra ws H.R. 5158 for the rest of the year.

After months of reviewing the 4,000 pages of public comments, briefs, and the
responses of the parties in the case, Judge Greene on August 11 issues a 178 -
page opinion on the Modification of Final Judgment. He characterizes it as
"plainly in the public interest" but wants 10 changes. He wants, among other
things, to allow the operating companies to provide new customer premises
equipment and printed Yellow Pages and to prohibit the remaining AT&T from
offering electronic publishing services over its own transmission facilities for at
least seven years.

Eight days later, AT&T and Justice, in separate actions, notify the judge that they
will accept his recommendations. Justice is uncomfortable with the change that
allows the divested companies to provide new customer premises equipment, but
says it will agree to the Order even if the judge doesn't change his mind. Judge
Greene doesn't. On August 24, two hours after he receives a revised MFJ signed
by AT&T and the Department of Justice, Judge Greene approves the agreement.
In the 2,834 days since the suit was filed, AT&T has spent more than 380 million
dollars and employed more than two thousand people to meet the demands of
the court and the Justice Department and to prepare its defense. The approval of
the MFJ is the culmination of years of debate on national telecommunications
policy. It sparks the beginning of the most massive structural change in any
company in the nation's history."

1983 - Throughout the year, many of the local telephone companies petition
state regulatory commissions for massive, unjustified rate increases. While
publicly implying that they were needed because of the costs associated with
divestiture, the companies' filings indicated no such reasons. In the pre -
divestiture confusion, many of those requests were granted, and implemented
after the divestiture in 1984. In response to these extraordinary requests for local
rate increases, by the soon-to-be-divested Bell Operating Companies, in
November the House passes H.R. 4102, which prohibited the FCC from
imposing access charges on residential subscribers and continued the discount
for specialized carriers' access.

1984 -Bowing to pressure from the House and a highly critical letter from 35
members of the Senate, the FCC agrees to reconsider its access charge
decision, and, at the same time, rescinds the proposed increase in ENFIA rates.
On January 1, the divestiture went into effect, with AT&T providing long-distance
services and equipment manufacture and sales, and seven regional holding
companies, comprising local telephone companies with separate, "unregulated"
subsidiaries for competitive activities, providing local telephone service. In July,
equal access is introduced for the first time in Charlestown, West Virginia, by the
newly divested Bell Atlantic Corporation. This permits telephone subscribers to
call MCI and other non-AT&T long-distance companies by dialing "1+". On
September 1, each of the seven Regional Companies begins offering equal
access in a small number of locations under the terms of "Appendix B" of the
 August 30, 2010

To top