Overview

To set the stage, let s start with a brief history of telephony in North America. It all began in 1876, when Alexander Graham Bell received a basic patent on his talking machine. With investment in hand, he formed the American Bell Telephone Company. In 1885, the American Telephone and Telegraph (AT&T) company was established as a subsidiary of the American Bell Telephone Company to operate the long distance connections among the rapidly growing local Bell telephone companies. These local Bell telephone companies operated throughout most of the nation.

In 1900, AT&T was reorganized into a holding company, becoming the parent of the Bell companies and making Western Electric the exclusive manufacturing arm of the Bell system. After a series of federal government investigations and court challenges throughout many years, the Bell system was broken up. On January 1, 1984, the divestiture went into effect, with AT&T providing long-distance services and equipment manufacture and sales, and seven regional holding companies comprising local telephone companies with separate, unregulated subsidiaries for competitive activities providing local telephone service.

During the more than 15 years since divestiture, the baby Bell companies have tried to protect their respective markets. Ultimately, the baby Bells sought permission to expand into new markets (including long distance), whereas the long distance service providers sought to leverage their way back into the local exchange market. The result was the Telecommunications Act of 1996. The divestiture of AT&T s local telephone properties and the Telecommunications Act of 1996 have served as...