Path: utzoo!telecom-request Date: Tue, 7 May 91 10:43 PDT From: John Higdon Newsgroups: comp.dcom.telecom Subject: Re: Hollings and the RBOCs Reply-To: John Higdon Message-ID: Organization: Green Hills and Cows Sender: Telecom@eecs.nwu.edu Approved: Telecom@eecs.nwu.edu X-Submissions-To: telecom@eecs.nwu.edu X-Administrivia-To: telecom-request@eecs.nwu.edu X-Telecom-Digest: Volume 11, Issue 343, Message 7 of 13 Lines: 67 Marvin Sirbu writes: > In several recent messages John Higdon has asserted that Pacific Bell > is "guaranteed" a cushy rate of return. > However, the cap is AUTOMATICALLY cut each year in real terms by 4.5% > (Federal) or 6.5%(State). Thus, unless Pacific Bell is continually > lowering its costs by at least that much, it will find itself making > less than the initial 11-13%. And guess who wrote this procedure in general and in detail. And then fought tooth and nail, making promises that still have not been kept to convince public opinion and the regulatory bodies to embrace it. Currently, the profits are obscene under the price cap regulation. Bells all over the country have blown vast portions of labor forces out the door. Labor costs have dropped DRAMATICALLY and equipment costs and maintenance have dropped as well and yet -- and YET -- the average LEC customer is paying MORE for his service than five years ago. It does not take a master mathematician to uncover the fact that RBOCs are cleaning up. > In 1988 Nynex agreed to a price cap plan where it promised to cut > rates in real terms at the same rate as inflation -- about 4.5% per > year (What it actually agreed to was to freeze prices in nominal > dollars which amounts to the same thing.) Compared to the headroom of the intitial agreement and the real difference between cost and revenue this is chump change. > By the end of three years > its rate of return had dropped to about 8%, or less than you could get > by buying a truly no-risk Treasury Bond. Nynex was unable to meet the > productivity target it had agreed to with the NY PSC and saw its > profits drop substantially. As determined by whom? When was the last time you ever heard of a full audit of an LEC by either legislative or regulatory entities? How short your memory is (or how gullible you are)! Nynex, if you will recall, got zinged for its "creative accounting" (which was so blatant that it did not require a full audit) in which it sold equipment to itself via its unregulated division at list-plus prices. This had the effect of showing a substantial expense on the part of the regulated side, reducing profits considerably. Where did all this ratepayer money go? To the unregulated division, of course. And this was just something one RBOC got caught at. This is most likely the tip of the iceberg in regards to telco scams. It might even have been done so that Nynex would be caught and would take the heat (and light) away from some more nefarious schemes. BTW, if Nynex told the PUC-equivalent that it could no longer survive under the current regulations, do you suppose it would be told "too bad"? > I'm sure that there is plenty of slack at Pacific Bell so that it can > achieve 6.5% reduction in real terms for a few years. It will be > interesting to see for how long they can keep it up. If the Hollings bill passes, it should survive indefinitely and then some. The telephone company will just take care of us as it used to. In whatever manner it chooses. John Higdon | P. O. Box 7648 | +1 408 723 1395 john@zygot.ati.com | San Jose, CA 95150 | M o o !