Third-quarter net income for Pacific Telesis Group rose 16% to $253.8 million, the San Francisco-based parent of Pacific Bell reported Tuesday. Revenue for the quarter increased 7.1% to $2.01 billion.
For the first nine months of the year, Pacific Telesis' net income rose 14.9% to $720.9 million on revenue of $6.33 billion, an increase of 8.6%.
The company attributed the greater increase in earnings over revenue to what Pacific Telesis Chairman Donald E. Guinn called "our ongoing expense-control programs," which began several years before the breakup of the Bell System in January, 1984.
Those cost-cutting measures include the trimming of Pacific Telesis' payroll by 4,329 employees in the last year, leaving 73,784.
"While we'll continue to reduce the number of employees on the payroll in the future, we will do so at a slower rate than in the recent past," Guinn said.
The increase in revenue came from local telephone service, which increased 9.4% in the quarter, and network-access revenue contributed by long-distance carriers and phone customers, at an increase of 10.1%. Both the Pacific Bell and Nevada Bell units, which provide local telephone service in much of California and Nevada, experienced growth in customer demand, he added.
Pacific Telesis' return on its common shareholders' equity reached 14.9%, up from 13.9% a year ago. The California Public Utilities Commission has authorized Pacific Bell--by far the holding company's dominant subsidiary--to earn 16%. Pacific Bell has applied to increase that return to 17.5% next year.
In addition, Pacific Bell is currently earning less than the 12.64% profit on revenue that has been authorized by the PUC, Guinn said. The phone company has a $935-million rate increase pending before the PUC, and it also is seeking to increase its authorized rate of return to 13.95%.
"A reasonable rate decision . . . later this year could put the company in a position to reach its allowed return on investment and sustain these positive financial results," Guinn said.
However, Pacific Bell and the PUC's public staff--which represents all utility customers--are $1.4 billion apart in their respective estimates of Pacific Bell's revenue needs. The public staff in April recommended that the commission slash rates by $480 million, a 7.6% reduction. Typically, the commission's decision falls somewhere between the two extremes.