During the heyday of AT&T, it was often said that the telephone system was the largest machine ever built. The "hello machine" certainly was vast, but whether or not you consider it to be a single machine raises challenging questions of definition. The Internet, I think we can all agree, is not a single machine but a system of interconnected ones. The telephone network, though, felt a lot more like one device. "One Policy, One System, Universal Service" was once the slogan of AT&T, a message that the telephone network is more than just a sum of parts. The third of these principles, "Universal Service," is a key point around which telecom policy pivots even today. As the telephone system was at its apex, Universal Service became its undoing.

We know the Internet to be a network of independent devices in part because of the wide variety of ways that we access it. Computer networks, almost to their origin, have emphasized independent implementations of standardized interfaces. Computers, as network nodes, are interchangeable. As a result, much of the complexity must be pushed to the edge, where end-user systems are most able to adapt to the unique needs of, well, the end-user. The telephone system was much different: few types of telephone instrument existed, largely from a single manufacturer. Complexity was drawn into the center where telephone offices could house the huge machinery required by mid-century automation. All of it was, for a very long time, hard-wired: central office switches and customer telephones were designed and installed to suit each other. This core difference, between the flexibility of computer networks and the central caretakership of telephone networks, was a core issue in the series of changes that rocked the telephone business in the early 1980s.

1984 is the K/T line of telecommunications, the year the sea peoples came. It is difficult to overstate the extent to which telephone technology, the communications industry, and the basic concept of what a telephone is changed between the 1970s and the 1980s. This was not a single, well-planned, carefully executed reform the way some accounts of divestiture can make it out to be. In practice, it was chaotic, messy, and often drawn out.

The deregulation, re-regulation, and fundamental reshaping of the American telecommunications industry is a complicated story. There are different actors, different agencies, different motives, and different outcomes. Nothing went quite as expected, and some of the consequences still remain to be seen. It is a hard story to tell. We can begin to understand it, though, by focusing in on just one part: the part in your house, the Customer Premises Equipment. Like the "Standard Oil" gas stations that you can still find here and there, the breakup of the Bell System left behind marks. More than anything else, it left behind telephones.

From the genesis of the Bell System, telephones were considered just as much part of the telephone system as the central office equipment that supported them. Despite some early uncertainty, AT&T quickly settled on a pattern in which most telephone users paid a single monthly rate that included local calling, maintenance of the local loop to their premises (which we might call "access"), and the telephone itself. When you signed up for service, Ma Bell sent someone to install your phone. When you had trouble, they sent someone again to fix it. When you canceled, or fell delinquent on the bill, they sent someone by to take the phone away.

From our modern perspective of the telephone as "consumer electronics," it's hard to picture paying rent on one. There were a number of reasons for leasing, which varied in prominence over time. Some of the uglier parts of the early 1980s involved disputes over which of these motives really mattered. Phones, we will see, were leased to consumers for many of the same reasons that early computers were mostly leased to businesses. This reflects a parallel shift in the computer industry, from "computer centers" to "personal computing," that happened around the same time and in a similar context. Before we get there, though, we need to understand how it came to be that telephones were "Bell System Property—Not For Sale."

First, we need to understand the nature of telephones and telephone wiring when the practice of telephone leasing was established. Consider, for example, that the first phones in common use were not yet "common battery"—they had local batteries, a wooden box full of big dry cells that required regular changes. Telephones were much more maintenance-intensive, and those maintenance requirements produced a troubling question of responsibility. Most people, if they attempted a telephone call and couldn't understand the other party, would blame the phone company. They'd blame the phone company even if it was the fault of the caller or callee, for not changing their phone batteries. Consider these two facts: telephones required regular service, and if they didn't receive it, the result would reflect poorly on the reputation of the phone company. For both consumer convenience and the integrity of the telephone system, it made sense for the phone company to take responsibility for the end-user's equipment.

Consider also the issue of compatibility. The type of telephone to be installed, the wiring conventions, and the configuration of the "network" of electronics in the phone could all depend on the type of exchange office it was connected to. Up until around 1970, party lines were very common (the majority of all telephones in the mid-century). They remained in use here and there into the 2000s. The problem was even more acute for party line customers: there were a half dozen fundamentally different selective ringing systems for party-line phones , and different basic wiring schemes to match. One of the dominant discussion topics in telephone collecting circles is how to wire and re-wire vintage phones to work with specific equipment. Bell System Practices told technicians which wires to connect to which terminals, and which terminals to strap to which other terminals, to get a standard phone model to work in a given situation. Some scenarios required add-on boards, external cabinets, or modifications. This could all be true even of simple single-line phones, but the moment a business or large residence wanted a more complex system (e.g. with intercom calling), the complexity multiplied.

What was even worse, especially in the case of party lines, is that a single malfunctioning or incorrectly installed phone could impact service along the entire phone line. In the worst case, even a humble single-party line could sap the capacity of the exchange's switching equipment if it stuck off hook.

I should also make sure to emphasize the way that telephones were connected. Today, all telephones use "modular connectors" that simply plug into a wall socket. We shouldn't take modular wiring for granted; telephones were usually hard-wired to screw terminals until the 1960s, and even once connectorized the connectors were not standardized until 1974. In 1980, as a dark storm rose over the horizon, many telephones were still hard-wired, some still to complicated wall ringers or terminal boxes.

Considering all these factors, it makes sense that telephones were professionally installed: it would have been difficult to instruct most telephone users on correct installation, and if they did it wrong you might have to send someone to urgently fix it anyway. Since telephone wiring of the era could physically pass through multiple residences, and telephones could impact the function of other parts of the system, the telephone company viewed access to customer premises and their equipment as a necessity to ensure good service. When it came to third-party equipment, well, nothing made Ma Bell more nervous. Western Electric telephones were carefully manufactured, thoroughly tested, and precisely adjusted for reliable and compatible operation. At the first sign of trouble with a telephone, the company would swap it out for a good one. If consumers connected equipment that didn't belong to the phone company, they would lose the ability to maintain and repair a key part of their product.

Besides, people liked it, or at least so the phone companies argued. Technology was quickly improving. If your local exchange went from pulse dialing to touch-tone, for example, it was convenient that the phone was leased and would be changed out for a new one at the telephone company's expense . When Western Electric introduced new, compact designs like the Princess and Trimline, customers had the option of upgrading their bulky phone to a slick modern one, for only a modest increase in their monthly rate (the Princess phone, introduced 1959, is also a late example of a phone that required a special wiring arrangement to power the lighted dial). When a customer redecorated, they could contact the phone company and ask that their phone be changed out for one of a different color—usually at no cost at all. Up until the 1970s, when telephone leasing started to show weakness, most of these services were accomplished by sending a technician straight to the customer's home.

As you can imagine, this level of service wasn't exactly cheap. The cost of leasing the phone was incorporated into your phone bill. If you wanted more phones, called extensions, you paid more—even if they were on a single line. If you wanted a fancier phone, you paid more. By the 1960s, leasing had clear downsides. Telephones were manufactured by Western Electric, a subsidiary of AT&T just like the operating companies, so any need to send a technician to service a phone was a hit to the shared bottom line. Western Electric emphasized reliability above all else, leading to phones that were fairly expensive to manufacture but could easily last 25 years in service. Bell operating companies, looking to cut costs, shifted towards a retail model in the 1970s in which customers were highly encouraged to take their phone to a PhoneCenter for exchange, rather than waiting for a technician to visit their home. The adoption of modular connectors was motivated in good part by the development of PhoneCenters.

If a telephone was something that you could pick up at a store, and then take home and plug in yourself, did it really make sense to lease? Did consumers have any reason to lease phones besides Ma Bell giving them no other option?

AT&T was never a stranger to antitrust action. The Department of Justice filed a suit in 1949, alleging illegal monopolization under the Sherman act. It was generally acknowledged that telephone service was a "natural monopoly," meaning that the cost of installing and maintaining the outside plant made it inevitable (and, on grounds of economic efficiency, preferable) that a single company would dominate each market. The Sherman act and the Department of Justice did not necessarily object to this form of monopoly. The problem, what Justice considered anti-competitive behavior, was when the phone companies used their natural monopoly on phone service to force customer's hands in markets that might otherwise be competitive.

One of the tricky problems, even in 1949, was interconnection of equipment. A vast and increasingly global electronics industry had come up with all kinds of new ways to use communications lines, but telephone customers could only use the equipment their phone company provided, and at rates set by the phone company. A fervent argument ended in the conclusion that AT&T had valid reasons to require customers to lease telephones, but that the anti-competitive impacts needed to be mitigated. This case, the first of a series of challenges to the Bell System, ended in a consent decree that shaped the future of both AT&T and, I do not think it is unfair to say, the entire American electronics and communications industry. AT&T would continue as a monopoly telephone carrier under state regulation (the principle of "common carrier"), but it would be prohibited from entering any industries in which it was not regulated.

In other words: telephone service was a regulated industry, with rates and service terms set by state public utility commissions, and the system of regulation was felt to be sufficient to temper AT&T's desire for domination. On the other hand, if AT&T entered an unregulated industry, there would be no public commission to slow them down—and they would inevitably use their foothold as a regulated monopoly to promote, perhaps even mandate, use of their unregulated service. I have so far described the settlement in abstract terms, but even at the time it had an obvious practical implication: "computers," in the modern sense, had only just been conceived. But they were rapidly advancing, and AT&T's considerable leadership in electronics, massive R&D center (Bell Laboratories), and integrated manufacturing (Western Electric) made the telephone company an obvious contender for the nation's leading manufacturer of computers.

Too bad: computers were an unregulated industry, so AT&T had to keep their hands off. The consent decree forbade AT&T selling general-purpose computers, broadly limiting their involvement in the electronics industry to telephone switching equipment and government contracts. AT&T mainframes never happened; instead we got IBM. The capability was still there, though, and complex needs of the telephone kept AT&T a leader in computer technology even with zero sales. Consider, for example, UNIX: perhaps the single most influential operating system ever developed, but a product of a company that was expressly prohibited from selling computers. In an era where software was virtually always bundled with hardware sales, that put AT&T in a very odd position, and forced the odd licensing terms of UNIX that allowed it to proliferate and organically grow.

The 1949 consent decree held for decades, but it was always a bit uncomfortable. By the 1970s, AT&T's key regulator, the FCC, came to feel that it no longer made sense. The computer industry was much larger than before, interconnection of computers via telephone was becoming a common practice, and it was apparent that computers could both provide a communications service and be users of a communications service. AT&T built and used computers extensively, and one could argue that a telephone on an Electronic Switching System (ESS) was akin to a terminal on a mainframe computer. The first time-sharing services, such as BBN's introduced in 1962, might use the telephone network for communications but could also offer communications themselves in the form of electronic mail. Was the telephone system a computer service? Was time sharing a communications service? These were important questions that the existing regulatory and legal framework did not comfortably address, and they were only becoming more important as both AT&T and its competitors signaled a desire to try out the other side of the fence.

Moreover, the FCC was concerned that the regulatory environment was holding the industry back. AT&T's complete control over the phone system had already started to crumble, first when an appeals court overruled the FCC to allow the use of non-electrical third-party telephone accessories in Hush-A-Phone v. United States in 1956, and then again when the FCC's own Carterfone decision extended the privilege to even electrical equipment in 1968. While the Carterfone itself was a special-purpose device, the decision set a precedent that was immediately leveraged by third-party telephone manufacturers.

Given the dominance that AT&T has held in this discussion so far, and that it holds in telephone history in general, "third-party telephone manufacturers" might come as a surprise. Of course there were telephones made overseas, for example by Ericsson, and some were imported to the US. But the US had its own competitive telephone industry: Automatic Electric was the Western Electric of GTE, AT&T's main competitor, and manufactured the telephones they leased. GTE looked at the possibility of selling telephones to AT&T's much larger customer base and saw green. Railroads and independent telephone companies needed equipment, and while they did buy from Western Electric, they also supported other manufacturers like ITT.

Enterprising retailers started selling telephones from these companies outright (it is hard to tell who was first, but new department store chain Target was early to the game). The Bell System, in response, introduced harsh rules: customers could use third-party equipment, but only by connecting it to a device called a Protective Connecting Arrangement (PCA) leased from AT&T. The PCA was about as expensive as a telephone and installed the same way, requiring a separate PCA for each extension and preventing customers (or their chosen contractors) doing any work on the inside wiring, which remained Bell System property. This in-between state technically opened the telephone set market to competition, but in practice the rules and fees around PCAs were so onerous that few consumers were better off owning their own equipment.

Pressure from telephone manufacturers and consumer groups, and no doubt some fear of another appeals court loss after Carterfone's clear precedent, the FCC promulgated new rules for third-party telephones in 1975. These are basically the same rules we follow today: the customer owns inside wiring past the network interface device (often called a demarcation point for this reason), and can do whatever they want with it, subject to a requirement that interconnected electrical equipment be certified as compliant with Bell System technical rules and registered with the FCC. This was the true beginning of the customer-owned telephone era: many customers would sign up for telephone service, buy a phone, and then simply report the FCC registration number of their own telephone to the phone company. That was all that was required to have service connected.

Yet it creates a strange situation. You would have two options: you could pay the rate advertised by the phone company and receive a phone on lease, or you could buy your own phone and pay a somewhat lower rate. The latter was almost certainly a better deal, especially as the sudden creation of a retail telephone market drove prices radically lower. The former could look like a better deal, though, since the phone was "free" and its cost partially concealed in the phone bill. It could easily become even more confusing: let's say that you leased a phone from the phone company for years, and then went to check out this newfangled Target and set your eyes on a slick new ITT telephone. You buy it, take it home, and if you are lucky enough to have modularized connectors, you plug it right in (post-1975 wiring conversion kits were also readily available). Now you have a phone that you own, but you're still paying for the one that you leased, perhaps without even knowing. Hopefully you kept it: when you notice the overpayment and call the phone company to cancel the lease, they will expect you to return the phone, or otherwise pay them back for it.

And thus came the first blow to telephone leasing: state regulators increasingly required telephone companies to separately itemize the cost of a telephone lease on bills.

At the same time that Carterfone and its consequences shook up the rules around third-party equipment, the FCC initiated a more radical rework of telephone regulation. The computer had raised many questions, and especially the rise of time-sharing services and the nascent field of "information services" seemed to create a second, shadow communications industry that was unregulated (and thus competitive) but incredibly vulnerable to the whims of the regulated (and thus monopolized) telephone industry that provided the actual wiring. In keeping with the political winds, the FCC strongly favored market competition. It feared that AT&T had become "too big to regulate" and would use its chokehold on the nation's primary communications infrastructure to stamp out computer-based competition before it could bloom.

To consider this thorny problem, the Commission had opened a broad docket called the Computer inquiry in 1966. Among the conclusions of that multi-year series of working papers and hearings was a new regulatory framework that differentiated between "communications" and "data processing" as industries. "Communications" was a natural monopoly like the phone system, and would carry on under regulation. "Data processing" was an increasingly competitive industry with lower barriers to entry, so it would remain unregulated.

The FCC's largest concern, as in the 1949 Sherman act case, was what would happen when one company drove in both lanes—as AT&T still wanted to do. Such a company could probably use its regulated monopoly services to subsidize its competitive service (even if regulators tried to stop it, since accounting for what investment went where would be very difficult), unfairly blocking the efforts of competitors and driving up prices for consumers that had no other choice.

On the other hand, completely prohibiting regulated common carriers from participating in competitive markets was, by this time, clearly having a negative impact on the development of computer technology. AT&T was a major center of expertise in computers that had to keep most of that expertise to itself, and innovative computer companies like Tymshare were nervous about offering communications features (and sometimes prohibited or arbitrarily limited them) for fear of straying into common carrier territory and, ironically, being forced to abandon their original unregulated services.

The FCC attempted to address this conundrum through a rule of separation. One company would be allowed to participate in both regulated and unregulated markets if, and only if, the two activities were strictly separated into two different entities (one presumably a subsidiary of the other) with accounting and policy firewalls between them.

In practice, the Computer inquiry was a mess. The information services industry was still in its infancy in the 1960s, so the FCC was writing rules without knowing very much at all about the companies they would apply to. The FCC acknowledged that there remained a clear gray area between "communications" and "data processing" (with, once again, electronic mail as the clearest example) but still wrote the rules around "pure communications" and "pure data processing" as two separate domains. The existence of a "hybrid" category was acknowledged but little discussed. One of the key problems related to the actual technical implementation of computer networks: telephone networks all used circuit-switching of analog signals and so there was, at the very least, a logical fiction that all information passed through unmodified. Computer networks, on the other hand, were adopting more sophisticated architectures that often involved rewriting, modifying, or converting messages along the way. Indeed, the lack of standardization of computer communications prior to their domination by the Internet meant that some amount of protocol conversion was practically required for widely-available services. And yet, this type of manipulation of messages appeared to be data processing, not communications. In practice, almost everything turned out to be "hybrid."

This is why the Computer inquiry is now widely known as Computer I: it was almost completely replaced by the second Computer inquiry, or Computer II, in in 1976. Computer II kept the same basic principles as Computer I except that it completely redefined the two categories in terms of functionality, rather than technology. The Computer II categories are "basic services" and "enhanced services." Enhanced services were those that involved manipulation or storage of data, but the FCC made that determination from the perspective of a user rather than an engineer. If the purpose of a service, or the activity in the FCC's words, was manipulation, storage, or retrieval of data, it was an enhanced service. If not, it was a basic service, even if the technical implementation involved some degree of manipulation, storage, and retrieval. This had the effect of making the telephone network a basic service, and computer networks an enhanced service .

The separation rule remained the same: one company could offer both basic and enhanced services, but only under terms of strict separation.

To the FCC, Computer II seemed a relatively elegant solution to one of their major problems. Under the definitions adopted, basic services were limited to the actual communications network. Just about everything else would be an enhanced service, firewalled away from any benefit from the regulated monopoly.

Simultaneously with Computer II, the advent of retail telephone sales (remember, despite appearances, this is actually an article about telephone leasing) triggered several lawsuits and petitions to the FCC. The general theory was the telephone companies used their monopoly status to do everything possible to steer customers towards leasing phones, even requiring at least one leased phone in some cases. The FCC recognized that this issue was not totally unrelated to the Computer inquiries: Computer II in particular had led to consideration of very similar problems around modems and the ability of basic service providers to restrict enhanced services over their network (during this period, for example, you could either lease a modem from the telephone company or buy one from IBM—they were functionally identical, but it was not always clear which option was more legally appropriate).

More than one court ruled that, to settle the antitrust problem, the telephone monopoly needed to get out of the leasing business. The FCC agreed in principle and, even better, in practice: it was a simple and obvious step to sweep "provision of terminal equipment" under the same rug as "enhanced services." Telephones, like enhanced services, were a competitive industry with lower barriers to entry. Therefore, like enhanced services, the FCC ruled that a regulated telephone company could only lease terminal equipment through a strictly separated subsidiary.

Finally, the two threads of computer-related antitrust action and telephone leasing converge, in the curious form of the short-lived American Bell.

Immediately following the conclusion of Computer II in 1980, AT&T disclosed to the FCC that it intended to take advantage of the new rules by forming a strictly separated subsidiary just as the FCC had contemplated (this was no surprise, as AT&T had been extensively involved in the inquiries). The mechanics were tricky, as AT&T had to come up with the capital to start a completely new subsidiary, with its own offices, support functions, equipment, etc., all without the appearance of subsidizing it with funds from their regulated business. Negotiations between the FCC and AT&T over these details delayed the incorporation of the subsidiary until 1982, when it emerged under the brand name American Bell.

American Bell had two different divisions, in a way that seems quite incongruous without the lengthy regulatory context I have just unloaded on you: Advanced Information Systems, a computer and information services company widely expected to rival the likes of IBM, and Consumer Products, which manufactured and sold telephones.

As a result of the strict separation rules, American Bell would have to replace the telephone leasing functions of the Bell Operating Companies (which were, in 1982, still part of AT&T). The storefronts the BOCs had opened to handle phones, the PhoneCenters, were quickly rebranded from the BOC logos to American Bell. AT&T also launched an expansion campaign that saw, for example, a PhoneCenter as a department in every Sears. They even sold phones wholesale to retailers, where erstwhile Western Electric products sat alongside those from ITT, AE, and the new bevy of imported Asian products . Most consumers, when they signed up for telephone service, would just go to a PhoneCenter or any other store and buy a phone.

In fact, starting in 1982, leasing might not even be an option: the FCC had agreed to soften the blow to AT&T's balance sheet by allowing the BOCs to continue to sell or lease the telephones they already had in inventory. It was clear that this was a temporary accommodation only, though, as the FCC ordered that the BOCs could not purchase any additional inventory of customer premises equipment, and ordered state regulators to begin the process of removing telephone leases from the tariffs. Telephone company representatives told newspapers across the country that, starting in 1982, they would still "provide" a phone if they had one—but they might not, and customers couldn't be picky about the color. Some predicted their inventory would run out during 1983, and then customers would truly be on their own.

Of course, customers didn't take this as hard as the phone companies did: retail phones were quite popular, and leasing numbers had been in decline since the late 1970s. We should finally talk about prices. From New York Telephone in 1983, as an example, you could lease a 500-style rotary dial phone for $3.03 a month. Purchasing the same phone at a PhoneCenter cost $45—so if you expected to have the phone for two years, you were better off buying. And we must keep in mind that Western Electric phones, while not totally immune to cost engineering, were still built to very high standards and came with a price tag to match. A more inexpensive phone, say one imported from Asia, was available at Radio Shack for $15. AT&T representatives discouraged the use of these cheap and ostensibly lower-quality phones, but struggled to say anything negative about a phone from, say, ITT, given that they were built to the same standards and sometimes to the exact same designs.

The phone was no longer part of the telephone system. It was merely a consumer device, subject to the same forces as every other.

But what of the many leased telephones already in service? The FCC referred to these as "embedded" phones, and had a very hard time deciding what to do about them. Because local telephone companies were prohibited from the leasing business, and the phones had always been handled under the auspices of Western Electric anyway, all of the leased phones were property of AT&T. The local telephone companies installed them, but the rent went to the parent company.

The FCC could require the telephone companies to stop leasing phones and return them all to Western Electric, but that would leave AT&T with a huge financial loss as they wrote off millions of phones they were no longer allowed to sell. They could require the telephone companies to offer customers a buy-out offer, but that created most of the same problems as having the companies lease them in the first place. Who would set the price? presumably the regulator, but how? Would they come with a warranty? For the time being, the FCC settled on a temporary solution: the embedded leased telephones would be left as-is.

AT&T stridently objected. They were being told three things: that they needed to come up with the money to fund a new independent subsidiary to sell telephones, that they had to keep servicing the existing fleet of leased phones, and that in no way could money from the latter be used for the former. AT&T suggested that the FCC should instead let them offer a buy-out on all leased phones, and then use the revenue to bankroll American Bell Consumer Products. The FCC brought back the question of how to set the price, especially given that some of these leased phones were very old. Would they need to be appraised? This stalemate lasted long enough for the ground to once again shake under the feet of the telephone industry.

In 1974, as Computer II was just about to begin, the Department of Justice had decided to take action for the same reasons as the FCC. The monopoly questions around the telephone market, mitigated but not totally addressed by the consent decree in the 1949 case, had become clearer and more urgent. Here is where the story of telephone deregulation falls apart, and where I introduce the character we all know best: United States v. AT&T, the second one, a Sherman act antitrust case that ran in parallel to, but almost completely independent from, Computer II. Judge Harold Greene would have to answer the same questions as the FCC, and he did not answer them the same way.

The breakup of the Bell System is a fairly well known topic, so I will keep my explanation brief. The main outcome of the later United States v. AT&T, set in a 1982 settlement called the Modified Final Judgment (MFJ), was a requirement that AT&T divest itself of the local operating companies.

This was a very different outcome from Computer II, but the reasoning along the way was similar: the two inquiries were just looking at different aspects of the problem. Computer II was motivated mostly by the up-and-coming world of computerized information services, so the FCC focused on AT&T's use of the telephone network to bolster its information services business. The MFJ, on the other hand, was mostly motivated by the rise of competitive long-distance carriers like Sprint and MCI.

That problem caused the court to draw a different distinction: local telephone service was deemed a natural monopoly, because of the massive outside plant required. On the other hand, the development of microwave and fiber optic technology had radically reduced the cost of long-distance connections. Through products like Execunet, AT&T's competitors were already proving the viability of competitive long-distance services that interconnected with the Bell System at the local exchange.

While the story of United States v. AT&T is a complex one, it goes roughly like this: the court initially favored a solution that seems more similar to that of Computer II, by ordering AT&T to separate itself from its vertically integrated but non-regulated components. That would mean separating AT&T's local and long-distance telephone operations from Western Electric and likely Bell Laboratories, probably by spin-out into a completely independent company. Ironically, this was the ultimate (and perhaps foreseeable) outcome, but nonetheless AT&T fervently opposed the loss of the division that would lead it into the computer future.

Instead, AT&T got a very different outcome: if local service was the real problem, the antitrust problem could be addressed by breaking out local service instead. AT&T seems to have preferred this route, but it was no less traumatic. The MFJ set a timeline of two years to implement the judgment: On January 1, 1984, the Bell Operating Companies became independent of their former corporate parent. AT&T was prohibited from local telephone service, but in exchange, was permitted to continue its long-distance business with few compromises—besides the big one, that it would now face competition.

For the parallel story of leased telephones, this was a huge wrench in the gears. Leased telephones had always fallen under the purview of Western Electric (which operated the service centers, for example), and local telephone companies were now prohibited from leasing phones anyway, so embedded leased telephones had been moved under the American Bell Consumer Products brand. But American Bell would now be not just a separate subsidiary from the telephone company, but a separate subsidiary of another company that the telephone company just paid for long distance service. Closely following state regulator decisions about separating phone lease billing, they became even more separate: starting in 1984, consumers with leased telephones would receive two completely separate bills, one from the bell operating company and one from American Bell.

But there was another problem: The "Bell System" as it was known was the AT&T monopoly, and the court made sure to take it from AT&T with the rest of the monopolized service. Among the terms of the 1982 MFJ was a prohibition on AT&T using the Bell trademark and name (except in limited circumstances), a rule that the still-new American Bell directly violated. Beginning in 1984, American Bell was rebranded once again to AT&T Technologies, with AT&T Information Systems as one subsidiary and AT&T Consumer Products as another. The signs of over a thousand PhoneCenters were swapped out yet again .

Ironically, the local operating companies, prohibited from leasing telephones since 1982, actually regained that ability post-divestiture. Since they were completely separate companies from AT&T in 1984, they were free to form their own "strictly separated" subsidiaries to offer unregulated services. You will notice the overlapping timelines: the Computer II-era prohibition on leasing took effect in 1982, the same year that the MFJ was signed. When the BOCs were telling newspapers that they didn't know how long their phones would last, they already knew that they would be permitted to resume leasing operations in 1984, they just weren't sure if they would. This did little for consumer confidence in leasing telephones. In practice, as a business decision, most of the BOCs never leased telephones again. The market was already going downhill, and they would have to try to sign up customers against the competition of both cheap retail phones and existing lease arrangements with AT&T Consumer Products.

Along the way, state regulators had slowly come up to speed with the FCC's rulings on leasing. The details here are very hard to tell, in part because they seem to have been different across both jurisdictions (different state regulators took different approaches) and markets (different Bell operating companies lobbied their regulators for different approaches). Further confusing things, some states seem to have adopted an approach to embedded leased telephones before 1984, and others after. These decisions were made in very different contexts and led to different outcomes.

It shook out along these lines: starting in 1982, the FCC required AT&T to keep supporting leased phones for at least 18 months. AT&T offered to continue leasing services indefinitely, which was ultimately permitted. Still, the FCC was making (halting) efforts to implement Computer II, and pushed states to disposition the embedded leased phones. Most states did so by requiring, or perhaps more accurately allowing (since it had been their preference to begin with) AT&T to offer buy-outs to existing lease customers. Most of these buy-outs had to settle by 1984 as divestiture radically complicated the servicing of leased phones—sending a technician to repair or even retrieve one now required a complicated cost-sharing arrangement between the local operating company (which employed the technicians) and AT&T, all closely scrutinized by the FCC.

Quite a few customers took the buy-out offers, but many did not, and by around 1985 the buy-out programs had faded away.

For those customers who had leased telephones, and did not respond to mailings about the buy-out option, they simply remained lease customers of AT&T Consumer Products which issued a separate quarterly bill. And this is where the long twilight of the leased telephone begins.

The 1982 Computer II restrictions and the 1984 United States v. AT&T restrictions came in rapid succession and, it was quickly observed, seemed to contradict each other in goals. You could be either a local telephone company or a long-distance telephone company but not both... or you could be a regulated company or an unregulated company but not both. The original goal of separating monopoly telephone service from "enhanced services" had effectively happened twice, by requiring AT&T to form a separate subsidiary for unregulated services and then two years later requiring them to divest most of the regulate services that had prompted the separate subsidiary to begin with.

AT&T was mad, of course, but even the FCC came to agree that their attempts to promote free market competition had probably actually undermined it by taking away AT&T's ability to meaningfully compete. In 1986, a series of comparatively minor FCC decisions rolled back some of Computer II's implications, including the strict separation rule for AT&T. Free of the regulatory requirement for the business complexity (which had led to frustrations like the famous exclusion of AT&T Technologies employees from the Bell Laboratories library), AT&T reabsorbed its separate subsidiary. AT&T Consumer Products was once again just another division of the faltering giant.

AT&T's computer ambitions were ill-fated. Despite the introduction of the 3B line of UNIX-powered minicomputers, and even a line of PCs, AT&T never achieved meaningful success as a computer company. AT&T entered a broad financial decline after the breakup, and the faltering computer business wasn't helping. Still, AT&T Technologies—the division made up mostly of the former Western Electric and Bell Laboratories business units—had potential, or at least they liked to think so.

In 1996, AT&T Technologies once again spun out, this time into a completely independent company called Lucent Technologies. Lucent became the home of the manufacturing and research operations, but because of the circuitous history of AT&T Consumer Products, the embedded leased telephones came along for the ride. There were, as best I can find, approximately one million telephones still under lease when Lucent became the lessor. As an accommodation for billing and to reduce consumer confusion, AT&T granted Lucent a license to continue to use the name "AT&T Consumer Products" for leasing.

Lucent didn't do all that much better than AT&T had, and it was more or less stripped for parts over the following decade, leading to a 2006 acquisition by French communications technology company Alcatel—creating Alcatel-Lucent, later part of Nokia. The leased phones took a different path, though. The consumer telephone business was not profitable for Lucent, and the PhoneCenters closed in 1995. In 1996, the division took on the name Lucent Consumer Products and shifted its focus to wholesale, although it continued to use AT&T branding in connection to leasing.

In 2000, it all had to go. Lucent eliminated almost the entirety of its manufacturing capability, mostly as Avaya which produced networking products and business telephone systems. The consumer products division mostly went to the well-established Hong Kong manufacturer VTech, which continued Lucent's consumer products under the name Advanced American Telephones. But there was an exception: the lease contracts. In the year 2000, there were still several hundred thousand.

That is where the story becomes especially difficult to follow. Lucent sold the phone leasing business to what Wikipedia calls "Consumer Phone Services," although I am now quite confident this company was properly called North Street Consumer Phone Services LLC. I do not know the meaning of "North Street," and I have found conflicting information on whether the company was based in New York, Miami, or somewhere in New Jersey. It probably moved around a bit. North Street seems to have incorporated in 1999, suggesting it may have been formed for this purpose. Further confusing things, as late as 2004 the leasing program was still "managed by" Lucent. I am unclear on what "managed" meant, but newspaper articles about phone leases in the era often feature statements from Lucent spokespeople despite the sale. At the least, Lucent was allowing North Street Consumer Phone Services to continue to use the AT&T name under license.

Around 2006, perhaps in connection to Lucent's sale to Alcatel, the "managed by" relationship apparently ended. In 2008, North Street Consumer Phone Services was replaced by QLT Consumer Lease Services. I know very little about this company, I am not even sure if it is a descendant of North Street Consumer Phone Services or a result of another sale of the lease contracts. There can't be very many lease contracts left. Considering that most marketing for phone leases ended in 1982, anyone still leasing a phone today has most likely been making payments for the last 45 years.

Are leased telephones a scam? Perhaps, even probably. By the mid-1990s, the FCC and Federal Trade Commission realized that an inadvertent effect of the 1980s regulatory chaos was that consumers who had dutifully paid their phone bills but not otherwise paid much attention were likely still making lease payments. That probably described most telephone customers who had started service before '82, but by the mid-'90s leased telephones were already becoming a distant memory for most Americans. How many people had a leased phone that they had forgotten about? How many people had a leased phone that they had replaced with one they bought, but never returned?

In theory the separate billing rules mitigated the problem, but it was clear that not everyone read their bills closely. The fact that the Bell Operating Companies and American Bell Consumer Products had switched to billing on separate days was intended to reduce confusion by making sure the bills arrived completely separately, but especially after phone leases switched to quarterly billing (due to their small amounts) it probably made it more likely that people would think both were the phone bill and simply not notice that they were getting two different sets.

In 1996, the FCC and FTC issued a press release warning consumers to check their phone bills for forgotten lease payments. An accusation was made that Lucent Consumer Products was functionally exploiting the elderly, since older people were more likely to have had the same telephone service for decades and probably less likely to critically consider a $15 quarterly lease bill. When you did the math, it was easy to find customers who had had the same leased phone for the last 20 years and paid over one thousand dollars for it. As time passed, more and more of those customers didn't even have the phone any more, but they still got the bills, and they still paid. When asked, many thought the prominently AT&T-branded lease bill was for long-distance calling (it didn't help that Lucent seems to have used some very non-specific language on the bill like "equipment fee").

In 2002, lawsuits in several states were combined into a national class action case that alleged that AT&T and its various successors had scammed vulnerable Americans out of many millions of dollars by simply continuing to bill them. While no one involved admitted fault, they did settle by creating a fund of up to $300 million to reimburse customers who filed claims that they were paying a lease for a phone they did not use. The reimbursement program ultimately paid out less than $10 million due to lack of claims, which consumer advocates quickly criticized on the grounds that people who did not realize they were paying a lease bill probably weren't following developments closely enough to find out about a class action settlement they needed to apply to.

Interestingly, even the composition of the settlement fund was complex. The billing at issue had happened under multiple companies, and many of the rounds of divestiture and acquisitions had come with contractual allocations of liability. AT&T (the original parent company) and Lucent (the spinoff) ended up bearing most of it, but amusingly, National Cash Register was hit for a few million dollars because of liability assignments during the brief period that it was part of AT&T Technologies (the spinoff of Lucent included NCR, and assigned part of AT&T Technologies' liability to NCR that conveyed with the company when Lucent spun it out again). NCR basically caught a stray for a business they were never involved in.

And yet this is still going—in 2004, 2005, 2008, it's easy to find newspaper articles, cable news segments, and AARP columns recounting mostly elderly people who had paid thousands of dollars in lease fees for telephones they no longer had. AT&T, Lucent, and QLT have never had much to say in their defense. In the late '90s, Lucent pointed out that phone lessees got all kinds of fringe benefits, not only the ability to exchange their phone for a different color but a "lease rewards" discount program. QLT offers the same discount program today, the same type of pharmacy discount and coupon card that you can get dozens of other ways.

It's very hard to find much information on QLT, although they're clearly still alive and issuing a charming thrice-yearly newsletter called Lease News & Views, presumably as a bill insert. Well, I say still alive, but the Spring 2026 issue is late and it seems like Summer 2026 ought to come out any day now. I have a lot of basic questions about QLT. For one, what does QLT mean? Well, I figured that one out: it doesn't mean anything, it's just supposed to sound like "quality" when said out loud. I can't find this clearly stated anywhere, but my assumption is that either AT&T revoked the license agreement to the AT&T brand or QLT independently decided that it was better to stop using it—either way, in response to the press coverage and lawsuits that attributed consumer confusion to the phone company branding on bills.

I also wonder how many customers they have. In 2012, QLT responded to a CBS article on yet another elderly person paying for a leased phone for 30 years by noting that they have over 300,000 customers. How many of them are still paying, 14 years further on? QLT has "11-50 employees" per LinkedIn, several of which have been with the operation since divestiture.

In response to a 2019 article on elderly people still paying phone leases, QLT shared that "Our customer research data shows that approximately three quarters of our surveyed leasing customers also have at least one purchased phone in their home." To me, this seems to undermine QLT by suggesting that many of their customers are making lease payments for no reason, but they spin it by positing that these customers demand the reliability of a leased phone as a backup option.

What I can tell you is this: If you want a Western Electric 500, or really a Cortelco 2500, they're only $5.95 a month from QLT in touch-tone. Or $45 to buy outright.