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195 Broadway: Where enough may never be enough By Jack Hopper “In some other states, commissions have apptoved an altogether insufficient fraction of the increases we sought. We shall not shrink from the responsibility to present our case for higher rates vigorously and forthrightly.” J. D. deButts, chairman, AT&T 195 Broadway, New York AT&T is no shrinking violet when it comes to “presenting [its] case for higher rates.” Its regional subsidiary, Southwestern Bell, announced in November that it would file with the Texas Public Utility Commission for a $231 million rate hikeless than a year after the PUC granted the phone company an increase. The new figure is nearly the amount the commission cut from the 1976 Bell request. Last fall, SW Bell put in for $298 million, but the PUC approved only a $58 million boost. At the same time, the PUC allowed the company to begin charging for directory assistance but neglected to reckon on the $10 million that the new toll would bring into the SW Bell exchequer. So the difference between the company’s request and what it got last time out was about $230 million. Bell appealed the PUC’s decision but lost its case in district court. However, the Third Court of Civil Appeals reversed the district court two weeks ago and ordered a new hearing. The PUC, in turn, will ask the appeals court for a rehearing and is prepared to got to the Supreme Court if necessary to defend its original decision. The upshot is that it will be months before last year’s rate request is finally settled. So, while SW Bell continues to pursue the extra $230 million it wants in the courts, it will try to get the money from the PUC by filing for a new round of rate increases. Since the company hasn’t actually filed yet, no one knows what argument will be made in support of the request. But it’s not hard to figur,e out why SW Bell is after more money: it wants to imearnings level for AT&T. The phone monopoly’s stock has been acting more like a growth item than the safe, bluechip investment it traditionally has been. During the past 12 months, AT&T revenues increased by 10 percent. Income was up by 19 percent and earnings on each share of common stock rose by 18 percent. On the strength of such a performance, the price of AT&T stock has risen 50 percent. AT&T, with nearly 1111111011111 $100 billion in assets, collects $35 billion in annual revenues and pays dividends totaling $4 billion a year to the holders of its 640 million shares of stock. In mid-November, AT&T raised $718 million through the sale of a 12-million share stock issue, the largest public offering ever made by a private corporationalbeit the world’s largest private corporation. Investors like AT&T stock: as they say in the trade, the offer was “snapped up.” All 12 million shares were sold the day they were offered. Said one Texas stockbroker: “We could have sold many, many more [shares] than we were allotted.” AT&T will use the income to retire some of its debt early, thus reducing its interest costs and decreasing its debt ratio. The practical effect for the corporation should be a reduction in the cost of its capital. The move is part of a broad AT&T effort to hike its own rate of return above the level that has long been considered reasonable by regulators. For years federal and state regulators earn 8 to 10 percent on common equity investment \(the cash furnished by the considerably less than the 11 to 15 percent earned by competitive or unregu lated companies, and AT&T decided in the mid-’60s to do what it could to move into the higher range. It began to argue in rate hearings around the country and before the FCC that its rate of return had to rise to 11 or 12 percent; otherwise it would be unable to sell more stock, compete with other companies in the capital markets, and corner the cash it needed to meet customer demand for more service. But regulators told AT&T that its debt \(less than 35 percent of total capital, compared to 50 to 60 percent for most high. AT&T proceeded to increase its debt, and regulators at state and federal commissions began to grant higher rates of return. Last year AT&T earned a rate of return of 11 percent, its highest ever. Apparently, that isn’t enough. Now the phone giant wants to be allowed to earn what the “highest quality” unregulated companies earn. Last year; SW Bell asked the PUC for 14.5 percent on its equity; the total dollar amount requested$298 millionshowed it was really asking for 17 percent. The PUC granted 12.75 percent and the company claimed the lower rate was “confiscatory.” Another reason why SW Bell is pressing so hard for more revenue is real or imagined competition. Several specialized long distance competitors and numerous equipment suppliers have begun to offer communication service and equipment as alternatives to SW Bell’s. Not that these competitors are more than a minor annoyance: the FCC has determined that only about 10 percent of AT&T’s telephone business is subject to competitive loss, and less than 1 percent has actually been lost. Nonetheless, AT&T fears that competitors may encroach on its preserve. It has mounted a heavy corporate campaign in Congress, in the media, and at regulatory proceedings detailing the dangers of competition. Board chairman deButts has warned, “There is no question in my mind that if we continue down this road to greater competition, the avr erage consumer is going to be hurt.” \(On the strength of this remark, deButts ran well in this year’s competition for the Doublespeak Awarda dishonor bestowed by the National Council of Teachers of English for exceptionally meretricious service in duping, gulling, It’s hard to tell whether AT&T, with its vast resources and influence, really worries about its competition or whether it is using the take-it-to-the-people ploy to insure higher earnings. To us old Bell-Natchers, it looks like there’s no limit to what AT&T management think they can get from their ratepayers. We wonder if they haven’t set their sights on the monopoly-level profits enjoyed by IBM and General Motors, and plan to ask for 20 percent on common equity in their next case. At 195 Broadway, enough may never be enough. Jack Hopper is an Austin consulting economist and an Observer contributor. THE TEXAS OBSERVER 13