Path: utzoo!utgpu!watserv1!watmath!iuvax!mailrus!accuvax.nwu.edu!nucsrl!telecom-request From: chris@com2serv.c2s.mn.org (Chris Johnson) Newsgroups: comp.dcom.telecom Subject: Re: Moving Information (was Re: FCC & Modem Charges) Message-ID: <3605@accuvax.nwu.edu> Date: 5 Feb 90 17:11:21 GMT Sender: news@accuvax.nwu.edu Reply-To: Chris Johnson Organization: Com Squared Systems, Mendota Heights, MN Lines: 120 Approved: Telecom@eecs.nwu.edu X-Submissions-To: telecom@eecs.nwu.edu X-Administrivia-To: telecom-request@eecs.nwu.edu X-Telecom-Digest: Volume 10, Issue 82, message 6 of 8 In article <3437@accuvax.nwu.edu> ms6b+@andrew.cmu.edu (Marvin Sirbu) writes: >X-Telecom-Digest: Volume 10, Issue 69, message 3 of 10 > _I_ write: >> 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. >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. Well, I could, I suppose, be generous and assume your comments were meant for other readers who you might suspect as being financially naive when it comes to the corporate world. But I'm in a rather nasty mood, so I'll point out that not only was I well aware of what return on investment is and its importance, but that the people who did the ranking for the Upper Midwest companies were even more aware of it. After all, that's their exact business. It ought to have been obvious, although I suppose I could have stated it more clearly by assuming their were people who might not know better, that the ranking was not by pure dollars of profit. That would make it pretty hard for any but the largest companies to ever make the list. No, as is typical for such lists, the ranking was determined by both profit returned per share of stock, and by percentage of gross revenues. Now, it's true that neither is an exact correlation to return on capital equipment, but that's irrelevant to the investors who bought the stock, since all they care about is the return on the money they spent on that stock. And the first measure I mentioned does that quite nicely. Furthermore, getting into the return on capital equipment argument is just opening a whole 'nother can of worms: many investor-owned regulated utilities engage in a practive of over-building, of over-investing in capital equipment purely for the reason of forcing the regulating body for the state to allow them to raise their rates. Now, I rather doubt that Northern States Power has gotten away with much of this, since their rates are among the lowest in the nation, although they do have a pair of very expensive nuclear power plants. But I know for a fact that an Illinois power company just recently spent some time (in court, perhaps) defending itself against such charges. They've built way over needed capacity. To say nothing of cost over-runs on actual needed capacity that just about any utility could probably get away with. I really don't know the specifics of Northwestern Bell nee U.S. West with regards to how much capital equipment they own and how much they really need. But, they have been involved in a lot of accusations of bribery and conflict of interest lobbying with the Public Utilities Comission. Furthermore, the State Attorney General of Minnesota just won a class action suit against them for excessive rates, and they now have to pay the consumers back something on the order of $30 million. Obviously, and it damn well ought to be obvious, if a U.S. West unit was guilty of that size of fraud, they are not as pure as the driven snow. And it's been pretty obvious to me as a consumer: when I moved here in 1979, my basic monthly rate was something like $7.97 a month. Within a month or two, it changed to $9.xx a month. There after, every year or two, it went up another $2.5x+, until my basic rate, even though I live in a cheaper zone (one tier closer to downtown), is presently about $21.xx a month. Inflation has not been double-digit the last 10 years, by any means! Meanwhile, friends and family in other US West areas, like Mountain Bell, continued to have much lower rates. It's hard for me to generate much sympathy for regulated monopolies. If the businesses don't like the restraints on their trade, rates, profits, whatever, then they can get the hell out of the regulated monopoly and into a "free" market. They are regulated precisely because society has decided that those services are critical necessities in our culture to which everyone is entitled at as low a cost as is feasible. Investor owned utilities are only one way of providing that service, but through their power, money and lobbying, they've gotten most people convinced that they are the only way and thus have been also able to get away with making large fortunes at it. Having once been a member of a consumer owned utility (often called coops), I know it does not have to be that way. Do a little reading on the Rural Electrification Act. Read about Lyndon Johnson and the Sad Irons to get an idea what rural life was like before they were allowed to have electricity like the city-folk. Uh huh, those investor owned utilities did not want to run their lines out into the country, were the number of customers per mile of wire made it a lot less lucrative. The point is, I don't think it's wise for the consumer public to trust their regulated utilities any further than they have to. They need to ride herd on them all the time, question all their investments, plans, rates and other financials. We've seen ample evidence in this newsgroup alone of lots of underhanded schemes designed to bilk the consumers of money to gain large profits. I'm not saying they are all corrupt to the core, nor am I saying they are all doing a lousy job. But to be complacent is to be stupid. Chris Johnson DOMAIN: chris@c2s.mn.org Com Squared Systems, Inc. ATT: +1 612 452 9522 Mendota Heights, MN USA FAX: +1 612 452 3607