Path: utzoo!utgpu!jarvis.csri.toronto.edu!mailrus!ames!sun-barr!texsun!texbell!vector!telecom-gateway From: goldstein@delni.enet.dec.com Newsgroups: comp.dcom.telecom Subject: Re: In Defense of GTE and their Apparatus Message-ID: Date: 12 Sep 89 15:47:12 GMT Sender: news@vector.Dallas.TX.US Organization: Digital Equipment Corporation, Littleton MA USA Lines: 44 Approved: telecom-request@vector.dallas.tx.us X-Submissions-To: telecom@eecs.nwu.edu X-Administrivia-To: telecom-request@vector.dallas.tx.us X-TELECOM-Digest: volume 9, issue 377, message 2 of 9 I rather enjoyed Larry Lippman's defense of GTE and AECo. It's good to refresh the memory. And yes, it is widely believed that Strowger the undertaker was upset that his competitor's wife was the local telephone operator. I don't doubt it -- it's a gruesome business to think about though. GTE-Pacific has had some particular problems, though. It's not apocryphal that many (many!) of their customers are very upset. I once spoke to the mayor of Santa Monica, who was quite upset about it too, like most of her townspeople. So why is this true? I don't blame entirely blame GTE Corp. for this. California's regulatory system has at times been just plain nuts. All states regulate local telcos based on Return on Investment. All investments go into a Rate Base, against which all revenues minus expenses are compared. That provides an ROI figure. If it's too low, the telco gets a rate increase. If it's high, they cut rates. Most of rate hearings are devoted to determining the "right" ROI, comparing stock market expectations of return on equity along with money market debt costs. Telco capitalization is a mix of the two; it's all bundled into ROI calculations. The California PUC historically has given GTE (and the old PacTel) very low ROI, often a couple of percentage points or more below everybody else. When most states were allowing 13% and California was allowing 10%, which state would YOU invest in? To make matters worse, C-PUC would penalize GTE for its poor performance by lowering its ROI even more. AT&T was too proud of its "Bell System" reputation to let PacTel go down the tubes, so they dumped money into CA even with a cruddy rate of return. But GTE had other fish to fry with its cash, so they gave the state pretty much what it paid for. It looked bad, because it was bad, but it was a sound business decision. I don't know the current authorized ROI in CA, but I suspect it's higher, and GTE service should improve over time as a result. BTW this ties in to Steve Elias' distrust of DA charging. ALL such expenses are counted in computing rates. If telco saves money, it raises their ROI, which is made up for by lowering other rates (usually at the time of the next general rate case). They don't get to "keep" the savings. They still benefit but it's not the ripoff that the Mass. legislature pretends it is. fred