Many of us are old enough to remember the breakup of the AT&T System aka “Ma Bell.” The recent wave of consolidations is taking us back towards a more consolidated telco world.

Ma Bell – 107 Years in the Making, 8 Years in the Breaking

The Bell Telephone company was born in 1877 and was the parent of what became the Bell System. There was an initial breakup in 1956 when some international holdings were divested, including some other international companies such as Bell Canada, Nortel, NTT and NEC. 

In 1984 the Bell System had four main constituents in the US:

  • AT&T Long Lines: the long distance business
  • Western Electric: the equipment manufacturing business
  • Bell Labs: the R&D arm
  • The Bell Operating Companies (BOCs): the 21 regulated utility monopolies providing local phone service

The Bell System had been in place for over 100 years when the US Department of Justice filed an antitrust suit against AT&T in 1974. The suit ground on for eight years until a settlement was reached on January 8, 1982. Under the settlement, the Bell System agreed to divest its BOCs, and received the right to go into the computer business in return. The breakup became effective January 1, 1984.

As a result of the breakup, there was increased competition in the long-distance market from companies such as MCI and Sprint. In addition, there emerged a new class of company – the competitive local exchange carrier or CLEC. These new CLECs were enabled by the rules for “special access”. However, the local access market was still dominated by the BOCs.

The Bell Reconsolidation

The figure below was adapted from “A Tangled Family Tree” (subscription required) and “The Regulatory Inefficiency Theorem” to show the evolution after the breakup. Acquisitions from the last three years are shown in red.

As shown, the seven BOCs have now been consolidated back into three major players (Verizon, AT&T and CenturyLink) along with wireless provider Sprint. Also, note that AT&T and Verizon have broadened their targets: AT&T picked up satellite player DirecTV and content provider Time Warner, while Verizon has grabbed AOL and Yahoo!

Not Just the Bells

The rollups haven’t been limited to the original BOCs. The diagram below shows some other major consolidations that have been happening at the same time. As before, acquisitions from the last three years are shown in red.

In this case, most of this activity has been straight acquisitions of companies or wireline assets in the case of Frontier.

When Will It Stop?

In my view, not anytime soon. There is a continued desire to get bigger and stronger, and acquisitions are the fastest way to do so. In addition, the cable operators and the webscale cloud providers are lurking in the background, doing rollups of their own. Expect the unexpected!

Note: Parts of this blog were adapted from a previous blog, “Special Access, Part 1: How Did We Get Here?