Taking on AT&T
Despite AT&T being ordered to interconnect with MCI, they were still unresponsive. In order for MCI’s microwave system to work, it had to be able to interconnect with the existing telephone system, the same one owned and operated by AT&T. If unable to interconnect, MCI could not complete calls made on their system.
AT&T only interconnected with MCI when expressly ordered to do so, and even then, connections could be cut at any moment. McGowan anicipated early on that MCI would one day take anti-trust action against their reluctant competitor.
AT&T made it abundantly clear that they had no interest in competing with MCI. In the wake of public comments expressing that same sentiment, and McGowan’s meeting with AT&T Chairman John D. deButts, McGowan decided that anti-trust action was the only recourse for MCI to survive.
In 1974, MCI brought the anti-trust suit against AT&T. McGowan staked his reputation and the survival of MCI on the chance that he, David, could beat Goliath. Both AT&T and MCI felt they had extremely strong cases. The big question was whether or not McGowan could prove that MCI would have been profitable and a viable competitor if AT&T had provided interconnections as ordered. The discovery process for the trial took six years, and the case finally went to trial in 1980.
At the same time that MCI vs. AT&T began, the Department of Justice brought a Sherman Anti-Trust case against AT&T. MCI’s case and strategy provided the Department of Justice with a blueprint for how to proceed with their own case.
On June 16, 1980 the jury awarded MCI a record $1.8 billion settlement. AT&T appealed, and the amount was drastically reduced.
Despite the reduction of damages from $1.8 billion to $113.3 million, MCI struck a major blow against AT&T. Their success paved the way for the Department of Justice to reach an out-of-court settlement with AT&T. They agreed to divest themselves of the regional Bell holding companies, or "Baby Bells." Divestiture took place in 1984, opening the door for free competition in the telecommunications industry.