When the Bell System was broken up, the old AT&T was split into a new AT&T in ad

Question

When the Bell System was broken up, the old AT&T was split into a new AT&T in addition to seven regional telephone companies. The specific reason for forcing the breakup was to increase the degree of competition in the telephone industry. AT&T had a monopoly on local service, long distance, and the manufacture of all equipment used by telephone companies; and the breakup was expected to open most of those markets to competition. In the court order that set the terms of the breakup, the capital structures of the surviving companies were specified and much attention was given to the increased competition telephone companies could expect in the future.

1. Do you think the optimal capital structure after the breakup was the same as the pre-breakup optimal capital structure? Explain your position.

Explanation / Answer

no, the optimum capital structure is not like pre-brekup. here the capitalization needs and requirements of each division (the seven new divisions) is distingwished with the other. they planed their capital structure based on their business requirements, availabilities and based on the strategies.

usually, when a firm divided itself into different wings, each wing is called as a cost center and it has to look after its requirements. it should not depends on other centeres, it has to raise the required capital, deploy it based on its plans and strategies and it should gain the profits. in AT&T also the same thing happen, each individual center focuses on its requirements and plans, based on this they select an optimal capital structures.

here these seven divisions have seven different capital structures, and each one is satisify with its structure.

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