How AT&T conquered all forms of communication after the government forced it to break up

AT&T dominated the telephone market for most of the 20th century. The company was so big, it was forced to break up into eight smaller companies in 1984. Today, almost all of those companies are once again part of AT&T, along with cellular carriers and cable providers. Here’s how the company grew so big that the government broke it up – only to see it become even bigger. Following is a transcript of the video.

– [Narrator] Have you ever heard of Ma Bell?

– [Operator] Long distance.

– [Narrator] It’s a more affectionate term for the Bell System. It was the dominant telephone provider in the US for most of the 20th century. You may know Bell by another name, American Telephone and Telegraph, or AT&T for short. AT&T was actually broken up by the government in 1984. In fact, it was broken up into eight different companies. Today, almost all those companies are once again part of AT&T. And the company is more than twice the size it was before with a massive cellular network and satellite cable company. So how did this happen?

– [Richard R. John] Ma Bell, the beloved monopoly mid 20th century, was a fixture in many million American households.

- [Narrator] That's Richard R John. He's a History and Communications Professor at Columbia Journalism School. And he literally wrote the book on American telephone history.

- [Richard R. John] The Bell System itself, the concept, was popularized by Bell public relation agents after an antitrust suit in 1913.

- [Narrator] Yep, the 1984 breakup was not the first or second time regulators came after AT&T. The first originated with a 1907 complaint alleging antitrust practices. Worried the case could heat up the movement for government ownership of the telephone and telegraph, Bell settled the case in 1913. The company made two big concessions. One, it divested itself of telegraph company, Western Union, which it had bought in 1907. And two, it agreed to not actively pursue buying rivals in local markets. This created boundaries across the country for markets to be served by Bell and its rivals. The terms of the settlement would dominate the American telephone system for the next 70 years.

- [Richard R. John] The independents get a really good deal. And what Bell gets in return is a blunting of the call for government ownership of the whole telecommunications infrastructure. And that was a live issue in 1913, 1914.

- [Narrator] So Bell got to keep being Bell for the next few decades. But guess what? Another antitrust suit was launched in 1949 looking to break the vertical link between Bell's telephone service and its manufacturing arm, Western Electric, which leased telephones to customers to use with its phone service.

- [Richard R. John] In '56, a consent decree is negotiated. The Bell System does not give up Western Electric. The Justice Department forces AT&T to get out of the computer business. AT&T could have gone into the computer business. But in order to keep them from going into the computer business, guess what? They had to open up their vault, okay, because the business, telephone, and telegraph business in the United States is built around the control of intellectual property, patents. And you know what the jewel of the crown is in their vault? A transistor.

- [Narrator] Bell had so much faith in the telephone it gave up a bunch of inventions to keep it, including the one that led to the computer business as we know it today. But Bell got to keep its telephone business, including Western Electric.

- [Richard R. John] This is a cold war. Had Western Electric not been as closely involved with the government, with Sandia and with nuclear weaponry, the outcome might have been different.

- [Narrator] Bell continued to dominate the telephone industry for the next 20 years reaching 90% of US households by 1969. In 1974, the Justice Department filed an antitrust suit against the company. Eight years later, in 1982, a consent decree ends the antitrust suit. This is it. After almost 100 years, one of the most dominant forces in American technology and communications is told by the government, "You're too big." But how do you break up one of the biggest and oldest companies in the country?

- [Richard R. John] Internally, what they wanna do is to keep their vertically-integrated corporation together. There's three elements. There's the long-distance, or long lines, the manufacturing, Western Electric. And you keep the R&D, which was Bell Labs. An awful lot of smart people said, "Well of course that's what you need to do, because that's the nature of the technology. You're gonna be innovative. You're gonna produce these new things. And long-distance is the core of your network." Okay, lots of smart people said that. And they were dead-wrong.

- [Narrator] Bell gives up the operating companies providing local phone service. They're known as the Regional Bell Operating Companies, or RBOCs. But AT&T didn't realize that a lot of their money came from these operating companies.

- [Richard R. John] Because I think their books were always configured to meet the needs of the state regulatory commissions. Smart people make dumb mistakes. And that's what happened at AT&T after '84. Within five years, they voluntarily trivest. Bell Labs, because there's little teeny bit of Bell Labs still around, but a lot of that becomes Lucent's and, I think, Western Electric goes to Lucent. And before long, Lucent gets out of the telephone equipment manufacturing business.

- [Narrator] Now it's the 90s, and AT&T is not the powerhouse it used to be. But some of it's RBOCs have been thriving. In 1996, RBOCs NYNEX and Bell Atlantic merge to become one company. You know it today as Verizon. In 1995, Southwestern Bell rebrands itself as SBC Communications. They buy out Pacific Telesis in 1997 and Ameritech in 1999. 15 years after the breakup, only four of the seven RBOCs remain.

- [Richard R. John] So Southwestern Bell has a different ethos. And at some point, their management realizes that they can become the Big Kahuna, in a way. They can take over AT&T, which they buy in January 2005 for $16 billion, and the FCC approves it by the end of the year. So they take over the corporation. They've got the brand, so they just rename it.

- [Narrator] The AT&T you know today is technically a totally different company than the one that was broken up. It's, instead, an operating company that, like a little engine that could, bought up other operating companies and was gradually in a position to take over AT&T itself. And they buy BellSouth in 2006.

- [Narrator] The new AT&T tried buying T-Mobile in 2011, but was denied by the Obama administration. They do, however, purchase cable provider, DirecTV in 2015. They're currently trying to purchase Time Warner for $85 billion, but it's unclear if the deal will be allowed to go through.

- [Richard R. John] If it doesn't go through, that will be a remarkable moment, because we've then shifted from a regulatory regime in which, since the 1980s, we've very rarely blocked vertical mergers. That's to say, businesses that are operating in different markets coming together.

- [Narrator] No one really knows what will happen to the company in the future, if it will be allowed to merge with Time Warner, if it'll try to merge with other companies, or if it will try something else. No matter what, the company has come a long way from a devise Alexander Graham Bell created to help the deaf.