Path: utzoo!utgpu!jarvis.csri.toronto.edu!mailrus!accuvax.nwu.edu!nucsrl!telecom-request
From: ms6b+@andrew.cmu.edu (Marvin Sirbu)
Newsgroups: comp.dcom.telecom
Subject: Re: Moving Information (was Re: FCC & Modem Charges)
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Date: 1 Feb 90 05:36:34 GMT
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X-Telecom-Digest: Volume 10, Issue 69, message 3 of 10


Chris Johnson <chris@com2serv.c2s.mn.org> writes:

> And this doesn't say a thing about the good arguments for reducing
> telephone rates, since most telephone companies are making obscene
> profits.  As a regulated utility which should make profits adequate to
> insure continued investor support to the extent that such is necessary
> for expansion and rennovation of their facitilities, they need not be
> the record profit-making enterprises that other companies are.  But in
> the "upper Midwest", the region consisting of Minnesota, Wisconsin,
> Iowa, North and South Dakota, guess which companies are in the Top 10
> most profitable corporation list, year after year?  Uh huh -- all of
> the regulated utilties: Northwestern Bell, Northern States Power, etc.
> Something is definitely fishy with that situation.

If you put $100 million on deposit in a bank and only earned $ 1
million per year in interest, you would think that was a lousy deal.
After all, you should get more than 1% interest on your money.  Yet
someone else might say "a million dollars a year is plenty of income
for anyone -- you don't 'deserve' to earn any more."  U.S. West -- which
serves the "upper Midwest" -- has at least $20 billion of invested
capital in telephone plant.  If you want investors to continue to put
up money, you have to "pay" them at least what they can earn in
comparable investments, or about $2 - 2.5 billion per year.  The total
amount of profits is not the right measure of whether the phone
companies are earning too much: it's the rate of return on the
invested capital which you want to look at.  I don't know what U.S.
West's rate of return is, and I won't defend it, but it's absurd to
say any company is earning "too much" money simply by looking at their
total profits.  You can't tell whether it's too much until you look at
how much the investors had to put up in order to earn those profits.
Typical utility profits are 12 - 14% return on equity.  Microsoft
makes at least twice that, and IBM traditionally has earned 19-20%.


Marvin Sirbu
Carnegie Mellon University
internet:  ms6b+@andrew.cmu.edu
bitnet:    ms6b+%andrew@CMCCVB