Salem Telephone Company Is A Regulated Utility Company

1947 Words8 Pages
Case Overview
Salem Telephone Company is a regulated utility company. As a regulated utility, Salem Telephone Company needs the approval of the Public Service Commission in order to change its rates for telephone service. Finding low cost and effective ways to provide public utility service to its customers is important to such a highly regulated industry. The state Public Service Commission had encouraged all public utilities to find new revenue generating sources for profit in order to reduce high costs and lower the need for rate increases (Bruins, 2005). Operating a telephone company require various computer services to plan, control, and account for its operations. Rather than outsource its data processing to a non-related third
…show more content…
The data service company was designed as an effective and low cost revenue generating business that would operate at a profit for its parent company.
For three years, Salem Data Services failed to meet profit expectations. First Quarter 2004 losses totaled $105,982 (Bruins, 2005). Unable to make a profit and with excess capacity to sell additional support time, Salem Data Services management felt the company was moving in the right direction and needed more time to build its external customers to show a profit. By 2004, Salem Data Services had not shown a profit. Revenue hours represent the key activity cost driver at Salem Data Services. Based on first quarter 2004 financials, Salem Data Services had only sold 60.4% of revenue hours, leaving 39.6% unsold revenue hours for the quarter. The impact of the unsold revenue hours totals $526,400 out of $843,200 commercial sales revenue potential. Management of the Telephone company felt that immediate action was necessary in order to reduce losses on Salem Telephone Company resources. According to the case, in the 2003 report the shareholders, the income for Salem Telephone Company was so low that it was the lowest return on shareholder investment in seven years (Blocher, 2012). This proved to be a crucial time in the life of both companies in that creating shareholder value is imperative to continue operations. One of the ultimate measures of a
Get Access