The breakup of AT&T's Bell System marked a pivotal moment in American telecommunications. The U.S. Department of Justice had pursued an antitrust case against AT&T for nearly a decade, alleging that the company's control over local and long-distance telephone service stifled competition and innovation within the industry. In January 1982, AT&T formally agreed to divest itself of 22 local telephone companies, effectively dissolving its monopoly that had spanned nearly a century. This agreement was part of a larger settlement in which AT&T would also reduce its market dominance in long-distance services.

The divestiture led to the creation of seven independent Regional Bell Operating Companies (RBOCs), colloquially referred to as “Baby Bells.” These companies included Bell Atlantic, BellSouth, Pacific Telesis, Southwestern Bell, and others, which were tasked with providing local telephone services in their respective regions. This restructuring was designed to foster a competitive marketplace by allowing new entrants to provide services without being overshadowed by AT&T's massive infrastructure and customer base. The changes spurred technological advancements and innovations in telecommunications over the following decades.

The breakup also had significant implications for telecommunications regulation. It led to further deregulation in the industry, setting the stage for the eventual emergence of cellular phones, internet services, and other advanced communication technologies. Consumers began to experience greater choice and lower prices as competition among the newly formed companies intensified. The divestiture is often cited as a case study in antitrust policy and economic reform, featuring themes of deregulation, competition, and consumer protection.