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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, http://10-10PhoneRates.com.

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.

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.

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