A.T.& T., U.S. Agree on Final Aspects of Bell Breakup

By Andrew Pollack
The New York Times

August 4, 1983

The American Telephone and Telegraph Company and the United States Justice Department yesterday agreed to a Federal judge's final changes in their antitrust settlement, effectively clearing the way for A.T.& T. to dismantle the Bell system on Jan. 1.

Among the changes American Telephone accepted, although reluctantly, was a requirement that it give up use of the name Bell, a name that has been connected with A.T.& T. almost since Alexander Graham Bell invented the telephone in 1876.

As a result, millions of Americans who have referred to A.T.& T. as ''Ma Bell'' will no longer be legally correct. The Bell name will be used instead by Ma's offspring - the 22 local operating companies that are to be split from American Telephone on Jan. 1. They provide 80 percent of the nation's local telephone service.

Changes Ordered July 8

The final changes in the divestiture plan were ordered on July 8 by Federal District Judge Harold H. Greene, who presided over the original lawsuit and the settlement of it on Jan. 8, 1982. Judge Greene must still give final approval to the plan, but he has already said he would do so if the changes he requested were accepted.

''The decks are clear for completing the divestiture,'' Charles L. Brown, the chairman and chief executive officer of American Telephone, said at a news conference in New York yesterday. ''So today signals the beginning of the end of an institution - the 107-year-old Bell system - and the start of a new era in telecommunications in this nation.''

The divestiture could still be derailed legally, but the chances of that happening are considered extremely small. The Federal Communications Commission has authority to regulate the actual transfer of assets and radio frequency licenses from American Telephone to the operating companies. The commission, which is now reviewing the divestiture, could conceivably issue a ruling that would conflict with Judge Greene's. That is unlikely, however, because the commission has already expressed general support for divestiture.

In addition, about 100 organizations, representing Bell customers, competitors and state regulatory agencies, were earlier granted status by Judge Greene to appeal the divestiture plan to a higher court.

''It's possible you might see some appeals,'' said James P. Denvir, the Justice Department's top lawyer on the case. But he said the chances an appeal would succeed ''are pretty slim.''

The Justice Department sued American Telephone in 1974, charging it with illegally attempting to monopolize the telephone business. Under the terms of the settlement, first announced in January 1982, A.T.& T. will keep its long-distance operations, its Western Electric manufacturing arm and its Bell Laboratories research arm and will be allowed to expand beyond telecommunications into new markets, such as computers.

The local companies, grouped into seven regional holding companies, will provide local telephone service and can sell, but not manufacture, telephone equipment.

Judge Greene approved the basic framework of the settlement, in the form of a consent decree, last August. What he is now expected to approve is the roughly 500 pages of details for actually carrying out the breakup.

Largest Corporate Reorganization

If yesterday's agreement ends the lawsuit, much still remains to be done. American Telephone must now actually put into effect the largest corporate reorganization in history. American Telephone's $153.5 billion in assets, the most of any company in the world, must be divided up among A.T.& T. and the seven regional holding companies. Stock must be issued in all the new companies. Trading in the stock of the new regional companies is expected to start in December.

There are also some regulatory decisions that must be made by the F.C.C. And some Congressional leaders are fighting to pass legislation to keep local telephone rates from rising as fast as they are expected to because of the divestiture and F.C.C. decisions.

An argument against divestiture has been that it will end the practice of using revenues from profitable long-distance service to subsidize local operations, thus keeping down local rates. At the news conference, Mr. Brown of American Telephone said the company had only reluctantly agreed to give up the name Bell to avoid protracted legal fighting and uncertainty. Judge Greene had ordered that the name be used only by the operating companies, in part because the familiar Bell name would be helpful in selling equipment to consumers.

To allow both A.T.& T. and the divested companies to share the name would imply that there was still a link between the companies, the judge said. The only two exceptions allowed by the judge were Bell Laboratories and the use of Bell in the names of A.T.& T.'s overseas operations.

American Telephone also introduced a corporate logo to replace the familiar bell inside a circle, which the company said could be traced back to an 1889 design. The new symbol is a blue globe crossed by wavy white lines, which A.T.& T. said symbolized its new attempts to reach worldwide markets in electronics. That symbol has already been used by American Bell, a new subsidiary formed in January to market equipment and data processing services.

A.T.& T. to Have 5 Divisions

American Telephone will have five divisions: A.T.& T. Communications will provide long-distance service. Western Electric will do manufacturing and Bell Laboratories will do research and development, as in the past. A.T.& T. International will sell equipment overseas, and A.T.& T. Information Systems, the new name for American Bell, will sell some equipment in the United States.

A.T.& T. has said it spent $30 million promoting the American Bell name before Judge Greene ordered it changed.

A.T.& T. also agreed to two other changes ordered July 8 by Judge Greene. One would give the divested companies the right to sublicense Bell system patents to companies that would make equipment for them.

The second would require A.T.& T. to reimburse the operating companies if they failed by 1994 to recover the costs of converting their networks to provide equal quality connections for all long-distance companies.

The estimated cost for that conversion is expected to be $2.5 billion, which the local companies are supposed to collect from the long-distance companies. Judge Greene said A.T.& T. should pay the difference, to prevent any unrecovered costs from being passed on to ratepayers.

A.T.& T. protested that provision and convinced Judge Greene last week to change his ruling partly. Under the new wording, A.T.& T. will not have to pay unrecovered costs if the operating companies purposely try to shift the costs to it.

The Justice Department in the future will be responsible for overseeing the implementation of the divestiture and for enforcing the provision of the settlement. It can apply to Judge Greene for court orders if it believes A.T.& T. is not abiding by the agreement. ''He's leaving it to us from now on,'' said Mr. Denvir of the Justice Department.

A.T.& T. stock yesterday rose $2.12 1/2 to $62.87 1/2 and was the most actively traded issue on the New York Stock Exchange.

GRAPHIC: chart of A.T.& T. structure after breakup

Copyright 1983 The New York Times Company