Dial "M" for Monopoly

In the brave new world of telecommunications, US West has an ace up its sleeve: the residential phone customer.

Solomon Trujillo, president and chief executive officer of US West Communications Group, is known for blunt talk. Trujillo, who started with the phone company in 1974 in an entry-level position, worked his way to the top through a combination of long hours and fierce dedication to the company. Those qualities were all apparent when Trujillo spoke to 300 US West managers in February, outlining the company's goals for the coming year. "The new telecommunications era is turning customers into consumers," Trujillo said. "And if we're the first company to understand and respond to that, then we'll win big in the marketplace."

Trujillo went on to vow that the notoriously poor service offered by US West in its fourteen-state area--including waits of several weeks for new telephone lines--would improve. He outlined the company's plans to become a power in the video and wireless-telephone business. Then, like any good executive, he got to the bottom line.

"Another challenge is to improve net cash flow by $1 billion by 1998," Trujillo told his audience. "I'm on a mission to generate cash. This cash is needed to jump-start new businesses. It's the engine that powers our growth. What we do in 1996 will position 1997 as our take-off year, and that's when we take US West Communications to new heights."

Trujillo has kept his word. So far this year US West, a government-regulated monopoly that's virtually guaranteed to make a profit, has filed for huge rate increases in Washington state, Iowa and Colorado. US West proposes raising residential rates in Colorado by about 20 percent, or $3 a month for each of the company's 1.5 million residential phone lines. That would be the largest dollar increase ever for residential phone rates in Colorado, and the company has made it clear it wants to institute similar rate hikes in every state it serves.

Despite the much-ballyhooed new Colorado law allowing for competition in local telephone service, the vast majority of Coloradans won't have any alternative to US West for the next several years. While a half-dozen companies have plans in the works to offer business customers a choice, competition for residential service is still a long way off. Consumer advocates believe US West wants to hike rates for residents so it can stockpile profits before it's forced to compete for local customers.

"US West has decided competition is coming, and it's coming to business first," says Chuck Malick, legislative director for the Colorado Public Interest Research Group (CoPIRG). "The only cash cow they can keep and soak is residential service. They want to get as much profit from that monopoly as they can."

Over the last decade US West has become much more than just a regional telephone company that calls Denver home. An extra billion dollars of monopoly-generated cash would come in handy for a company that's been buying cable-television systems around the world, investing in cellular phone service in places as far-flung as India and Slovakia, and publishing telephone directories from Santa Fe to Sao Paulo. Executives of the once staid telephone company now face down some of the most powerful figures in the entertainment industry in bitter courtroom confrontations that make the evening news, and US West is the subject of analysis by the London Financial Times and Japanese television shows.

It's all in a day's work for a company intent on creating a telecommunications empire with operations spanning the globe. The days of fussy old Mountain Bell--with its company picnics and operators who called customers "honey"--are gone forever, and in their place is an aggressive corporate behemoth. Like most private ventures, the investments US West is making involve risk. But unlike most companies, US West has a guaranteed source of profits to help fund its new endeavors: the monopoly phone service that provides it with more than 90 percent of its profits.

Last year US West posted $1.1 billion in profits from telephone operations in its territories, which stretch from Minnesota to the Pacific Northwest and from Montana to Arizona. Seven of the ten fastest-growing states are in US West's bailiwick, including booming cities like Denver, Phoenix and Seattle. All those new residents have boosted US West revenues, even though the company has done such a poor job of providing new telephone service that it's been fined more than $5 million by state regulators in Colorado alone.

US West insists that the $14.95 per month most Coloradans now pay for home telephone lines doesn't begin to cover its costs. The company wants to boost the price of a single residential line in Colorado by 20 percent, to $17.95 a month. US West claims that residential service is being subsidized by the higher rates business customers pay, typically $37.39 per month for one line.

"Currently our prices for some services are based on a system that requires some customers to pay artificially high prices in order to keep prices low for other customers," US West vice president for Colorado John Scully said in May, when the company asked the Colorado Public Utilities Commission (PUC) to approve the rate increase.

However, many consumer advocates and government regulators believe it costs US West as little as $4.42 per month to serve each home telephone line. And while in the past US West often got what it wanted from state regulators throughout its huge service area, the company's current push for higher rates has generated surprisingly stubborn opposition from government officials. They're now challenging the company's longstanding claim that residential service is being subsidized by business customers.

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