LV profit margin worries Sprint official

Thursday, Feb. 25, 1999 | 11:07 a.m.

CARSON CITY -- A Sprint official says the company is worried about its profit picture in Southern Nevada.

Michael F. Fuller, president of the local telecommunications division of Sprint, told the Senate Commerce and Labor Committee Wednesday its Las Vegas operation has been unable in the past four years to pay a dividend to the Kansas City-based parent company.

"I'm really concerned about the ability to earn a rate of return," in Southern Nevada, Fuller said.

The company this month filed an application with the state Public Utilities Commission to boost residential and business rates by $3.90 a month. The present $7.10 homeowner rate is below the $12 average rate charged by Sprint in its operations in 17 other states.

If the PUC grants the increase, Fuller said the rate would still be comparable to other cities in the West, which range from $13 to $17 a month for homeowners.

In Las Vegas, Sprint charges long distance carriers 1 cent per minute for access to its lines, compared to 4 cents in the rest of the country.

The rate of return on equity now is 5.8 percent, he said.

The rate increase, he stressed, was due to the unexpected large investment that has been made in Southern Nevada to keep up with the "phenomenal growth." In 1996, the company adopted a five-year plan to spend $375 million in Southern Nevada but it has already invested $447 million and will end up spending $800 million in the five years.

Despite the lagging profit margin, Fuller said Las Vegas is a "very attractive market," and the largest of its local telephone companies across the nation. The company, he said, is able to test and deploy many new services in Las Vegas that can then be used in other areas.

"It's a leading edge market," he told the committee.

And competition is "very intense" for telephone service in Southern Nevada, he said. So far, the company has lost about 40,000 customers -- 2 percent residential and 8.6 percent commercial -- to other companies.

One of Sprint's competitors in Nevada, MGC Communications Inc., filed a lawsuit earlier this month accusing Sprint of monopolizing the local telephone market.

MGC's suit says that Sprint subsidizes its local telephone service with revenues generated by advertising sold in the yellow pages of Sprint's First Source telephone directory. MGC believes the telephone and directory industries operate as monopolies in the local market and that it should be entitled to the benefits of directory advertising.

MGC is asking the court to order Sprint to pay an amount for each customer MGC has generated and for Sprint to continue to allow the directory "subsidy" to follow the customer if the customer chooses MGC as its local telephone service provider.

In the rest of the states, Fuller said it has lost only 1 percent of its customers. And the company is "pro-competition," he said.

"It's not the competitive losses that concern us, we will deal with that," he said, stressing that the challenge is to keep up with the fast increasing customer base.

While the bulk of the $800 million investment will be used for new growth, there will be portions spent to rehabilitate plants that serve the older sections of the Las Vegas Valley. Many people now want a second or third line in their homes for the Internet or for fax machines.