In 1983 the Bell Telephone System was broken up resulting in the creation of sev
ID: 2687096 • Letter: I
Question
In 1983 the Bell Telephone System was broken up resulting in the creation of seven regional telephone companies. 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.Explanation / Answer
The stockholders probably invested in phone company stocks at least partially because of the stability and low risk of regulated public utilities.
If the Baby Bells expanded into risky unregulated businesses in which they had little experience, the nature of the companies could shift toward higher risk.
This would clearly be upsetting to people who had invested for stability in the first place.