AT&T had a history reaching back to 1885 and, as a government-supported monopoly, was a highly profitable company. Colloquially known as Ma Bell, the communications giant lost its government backing in the 1980s when charges were filed against it under the Sherman Antitrust Act. This was the second time that AT&T found itself in an antitrust suit. In 1949, AT&T was excused from antitrust laws because it was believed that a single company providing nationwide service was a vital part of national security and any deregulation might interrupt service. The second time under Sherman's hammer AT&T was not so lucky.

The case began in 1974, was decided against AT&T on January 8, 1982, and the breakup plan was formalized throughout 1983. Ma Bell was ordered to give up local calling services to smaller regional spinoffs dubbed the Baby Bells. The parent company would hold on to its long distance business and be allowed to move into computer and Internet businesses. Brought into existence on January 1, 1984, the Baby Bells were some of the most successful spinoffs in history as AT&T had already paid the infrastructure layouts and their businesses were established and producing cash from day one.

AT&T had troubles finding its feet after the split and, other than spinning off AT&T Wireless in 2001, languished while Baby Bells outperformed their Ma. The government loosened telecommunications restrictions and the Baby Bells began to merge and buy out each other to increase their service areas. In 2005, one of the Baby Bells bought out Ma Bell, renaming itself AT&T and bringing about at least a partial family reunion after two decades apart.

To learn more, check out Antitrust Defined.

This question was answered by Andrew Beattie.

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