AT&T agrees to divest itself of twenty-two subdivisions.

The breakup of the Bell System was mandated on January 8, 1982, by an agreed consent decree providing that AT&T Corporation would, as had been initially proposed by AT&T, relinquish control of the Bell Operating Companies that had provided local telephone service in the United States and Canada up until that point. This effectively took the monopoly that was the Bell System and split it into entirely separate companies that would continue to provide telephone service. AT&T would continue to be a provider of long distance service, while the now independent Regional Bell Operating Companies would provide local service, and would no longer be directly supplied with equipment from AT&T subsidiary Western Electric.

This divestiture was initiated by the filing in 1974 by the United States Department of Justice of an antitrust lawsuit against AT&T. AT&T was, at the time, the sole provider of telephone service throughout most of the United States. Furthermore, most telephonic equipment in the United States was produced by its subsidiary, Western Electric. This vertical integration led AT&T to have almost total control over communication technology in the country, which led to the antitrust case, United States v. AT&T. The plaintiff in the court complaint asked the court to order AT&T to divest ownership of Western Electric.

Feeling that it was about to lose the suit, AT&T proposed an alternative — the breakup of the biggest corporation in American history. It proposed that it retain control of Western Electric, Yellow Pages, the Bell trademark, Bell Labs, and AT&T Long Distance. It also proposed that it be freed from a 1956 anti-trust consent decree, then administered by Judge Vincent Pasquale Biunno in the United States District Court for the District of New Jersey, that barred it from participating in the general sale of computers. In return, it proposed to give up ownership of the local operating companies. This last concession, it argued, would achieve the Government’s goal of creating competition in supplying telephone equipment and supplies to the operative companies. The settlement was finalized on January 8, 1982, with some changes ordered by the decree court: the regional holding companies got the Bell trademark, Yellow Pages, and about half of Bell Labs.

Effective January 1, 1984, the Bell System’s many member-companies were variously merged into seven independent “Regional Holding Companies”, also known as Regional Bell Operating Companies, or “Baby Bells”. This divestiture reduced the book value of AT&T by approximately 70%.