When the Bell System was originally broken up, the old AT&T was split into a new AT&T plus seven regional telephone companies. The specific reason for forcing the breakup was to increase the degree of competition in the telephone industry.

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.

How do you think the optimal capital structure after the breakup compared to the pre-breakup optimal capital structure? Using the concepts learned in this objective, explain your position. (Do not research AT&T’s financial statements—there is no need to do so).