Finance Discussion Question
In 1983 the Bell Telephone System, which operated as AT&T, was broken up resulting in the creation of seven regional telephone companies. AT&T stockholders received shares of the new companies and the continuing AT&T, which handled long distance services. Prior to the breakup, telephone service was a regulated public utility. That meant AT&T had a monopoly on the sale of its service, but couldn’t charge excessive prices due to government regulation. Regulated utilities are classic examples of low risk – modest return companies. After the breakup, the “Baby Bells,” as they were called, were freed from many of the regulatory constraints under which the Bell System operated, and at the same time had a great deal of money. The managements of these young giants were determined to be more than the staid old-line telephone companies they’d been in the past. They were quite vocal in declaring their intentions to undertake ventures in any number of new fields, despite the fact that virtually all of their experience was in the regulated environment of the old telephone system. Many stockholders were alarmed and concerned by these statements. Comment on what their concerns may have been.
