Problem of Salem Telephone Company
Content
Salem Telephone Company
Salem telephone had currently established a subsidiary by the name of Salem data services, purpose of this subsidiary was to reduce the pressure for telephone rate increase. It was necessary for both companied to operate separately because Salem telephone is a regulated (prices could not change without approval of public services commission) and Salem data service’s prices was unregulated, wholly owned subsidiary. Only one restriction was posed by the commission that average monthly charges for services provided by Salem Data services to Salem Telephone not exceed $ 82000.(estimated cost of equivalent services used by the Salem telephone in 2000.) All accounts of Salem data services was separately maintained and each paid the other for services received from the other.
Problem area
In 2003 the income statement of Salem telephone was so low that the report to shareholders revealed the lowest return on investment in seven years. At that time, Flores felt it was necessary to reassess Salem Data services. The reports for the first quarter revealed a persistent problem: the hours still available to sell that did not provide revenue remained high. (Exhibit # 1)
Salem telephone had currently established a subsidiary by the name of Salem data services, purpose of this subsidiary was to reduce the pressure for telephone rate increase. It was necessary for both companied to operate separately because Salem telephone is a regulated (prices could not change without approval of public services commission) and Salem data service’s prices was unregulated, wholly owned subsidiary. Only one restriction was posed by the commission that average monthly charges for services provided by Salem Data services to Salem Telephone not exceed $ 82000.(estimated cost of equivalent services used by the Salem telephone in 2000.) All accounts of Salem data services was separately maintained and each paid the other for services received from the other.
Problem area
In 2003 the income statement of Salem telephone was so low that the report to shareholders revealed the lowest return on investment in seven years. At that time, Flores felt it was necessary to reassess Salem Data services. The reports for the first quarter revealed a persistent problem: the hours still available to sell that did not provide revenue remained high. (Exhibit # 1)
