Despite periodic government restraints, AT&T survived intact until 1984. In 1969, the recently licensed Microwave Communications Incorporated (MCI) obtained FCC approval to connect its microwave long-distance service to the local Bell networks. With major changes in the offing, including the expansion of mobile telephone services, the FCC decided to challenge AT&T’s monopoly in a landmark 1974 antitrust suit, with the initial intention of separating its manufacturing and service functions. After prolonged pretrial hearings, the case finally reached the trial stage in 1981. Only a year later, AT&T surprisingly agreed to a negotiated settlement whereby the company was dismantled to create eight separate companies. The settlement was approved by the courts in 1983 and took effect in January 1984.

Prior to divestiture, AT&T was the world’s largest private company by such a large margin that the downsized AT&T was still in the world’s top three. AT&T retained its long-distance telephone network, its international telephone services, its manufacturing function (Western Electric), and its research and development function (Bell Laboratories). It also gained the right to branch out into data communications, an activity previously prohibited by the FCC. AT&T lost the twenty-two Bell System local networks, which were restructured to form seven regional operating companies, nicknamed the “Baby Bells”—Nynex, Bell Atlantic, Bell South, Southwestern Bell, Ameritech, U.S. West, and Pacific Telesis. Deregulation did not end there, as the Baby Bells began to test the regulatory limits by applying to expand both geographically and functionally. Moreover, in 1995, AT&T announced a voluntary demerger, whereby it would split into three independent companies. In October 1996, AT&T’s manufacturing and research business was reconstituted as Lucent Technologies. Two months later, its computer business, the NCR Corporation followed. (NCR had been acquired after the original divestiture.) This left AT&T, now redesignated the AT&T Corporation, with the long-distance telephone network, cellular phone services, a business-communications consultancy, a credit facility, and Internet services.