Baby Bells

What Were the Baby Bells?

The term Baby Bells refers to a series of regional telephone companies that provided telephone service to consumers in the United States. They were formed in 1984 following a U.S. Department of Justice antitrust suit against AT&T's — or Ma Bell's — monopoly in an effort to create more competition within the industry.

The company relinquished control of its monopoly in the U.S. and Canada following a 1982 consent decree. Nine Baby Bells were assigned a portion of the Bell trademark — seven Baby Bells or Regional Bell Operating Companies, as well as two smaller companies held by AT&T.

Understanding the Baby Bells

The federal government filed a lawsuit in 1974 to break up AT&T. The suit, which was based on Section 2 of the Sherman Antitrust Act, was not meant to create the Baby Bell system but to force the company to divest its subsidiary, Western Electric. At the time, AT&T was the only provider of telephone services in much of the United States, providing anywhere between 80% to 85% of lines in 1982, while most of the telephone equipment used was produced by Western Electric. This gave AT&T nearly complete control over both telephone service and equipment in the country.

AT&T felt it was going to lose the case and decided to propose an alternative — a self-imposed breakup of one of the largest companies in America. The proposal was accepted with some modifications. After the divestiture, the Baby Bell regional holding companies retained the Bell trademark. They also kept about half of Bell Labs, AT&T's research and development (R&D) subsidiary, and the Yellow Pages directory business.

AT&T officially broke up on Jan. 1, 1984. Its 22 members were formed into seven independent Regional Holding Companies or the Baby Bells. They were as follows:

The breakup also led to two smaller companies partially owned by AT&T — Cincinnati Bell and Southern New England Telephone, although these two entities were technically not RBOCs. Both are now fully independent.

Special Considerations

The rise of smartphones and other devices began to change the telecom industry once more. In fact, many of these Baby Bells were reincorporated into AT&T once again, introducing more competition from firms like T-Mobile. Regulators felt comfortable approving mergers and acquisitions (M&A) involving AT&T and the Baby Bells in this environment.

In other cases, Baby Bells evolved into direct competitors of AT&T, such as Verizon. As a result, the concept of Baby Bells became less relevant in the 21st century.

The Baby Bells have grown up and changed to the point that the term is no longer used but the idea remains useful for understanding the late 20th-century telecommunications market, especially when reading primary sources.

Advantages of the Baby Bells

The Baby Bells helped to free consumers from the drawbacks of AT&T's monopoly in the telephone business. Although they had monopolies over local phone service in their respective areas, long-distance phone service opened up to the competition. In the 1980s, AT&T had to compete with Sprint and MCI for long-distance customers. This intense competition drove prices down for consumers.

Another advantage of the Baby Bells is that they did not control telephone equipment the way that AT&T did. The Baby Bells allowed consumers to use phones made by any manufacturer. The prices of phones fell dramatically. Phones with additional features, such as speakerphones, also became more common.