RatcliffeBlog - Mitch Thinking Out Loud

Where are the savings?

Where are the savings?

New Networks Institute, a research group, says, "There is a recession at hand and every company is having its problems. However, It is clear the Bells' have decided to give the public, the press, and regulators a distorted picture of their current health so that they can get more financial relief, and higher prices for local phone customers and competitors using the Bell networks." This is a good read.

This is a great piece of research -- while the Bells bemoan their fates, they are burning everyone, from investors to customers, to enrich themselves. Note, however that Qwest, which was a long distance carrier moving into regional Bell land, is not on the list. Qwest is just plain losing money, having sunk billions of dollars into overseas and domestic long distance capacity.

From the report:

The Bells profits are still beyond anything that could be considered fair and reasonable for companies that are monopolies.

• Verizon, BellSouth and SBC had 122% higher return on equity than the Business Week Corporate Scoreboard for 2001.
  
• Instate local Bell return on equity went up 40% since 1996.
  
• Bell revenues from 2000-2001 increased --- Telecom and Directory generated $60 billion in cash.
  
• Yellow Pages and Directory have a 57% profit margin in 2001, making it one of the most profitable businesses in the US.
  
• 90% of all profits come directly from monopoly customers ---Local phone service is financing the other lines of business.
  
• SBC's second quarter 2002, shows dividends are up since 2001, "Free Cash Flow" went up 277%, expenses, including capital expenditures and employees are decreasing further while profits per-phone line increased.

Major Cuts in Expenses Should Be Leading To Lower Prices. Phone prices should be declining because the two major costs, construction and staff, are decreasing sharply.

• 107,000 cuts in staff in the last two years, mostly from the local phone companies.
  
• 50% drop in capital expenditures/construction, which will affect security and competition.