What is a baby bell?

By Peter Cherewyk AAA
A:

In 1982, AT&T agreed to settle the Justice Department's anti-trust action by breaking itself into seven Regional Bell Operating Companies (RBOCs), also known as Baby Bells. For decades, it had been assumed that AT&T held a natural monopoly over the phone industry because of the insurmountable costs associated with attempting to compete against AT&T's existing infrastructure.

However, in the 60's and 70's, several Supreme Court rulings allowed third-parties to access AT&T's telephone network, eroding the company's natural monopoly. And, by breaking AT&T into smaller parts, the thought process was that the challenge for potential competitors would be even less daunting given a geographic – as opposed to national – focus.

RBOCs focused on local calling, whereas a much smaller AT&T was left to compete in the long-distance phone market against rivals such as Sprint and MCI. Finally, in one of the stock market's greatest ironies, AT&T withered to the point that it was eventually acquired by one of the Baby Bells – SBC – in 2005. (For more on this, read Antitrust Defined and, Monopolies: Corporate Triumph and Treachery.)

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