MorningBird

Whose pipes?

According to Chairman Edward R. Whitacre, "at&t will not give its pipes away."  Mr. Whitacre is a lifelong employee of the old AT&T and the Bell Telephone system, and no doubt (in his mind anyway) his crowning achievement was to put the telephone company back together--at least the parts not owned by Qwest and Verizon, which by-the-way, include MCI, that old Bell nemesis that started this mess back in the last century.

The pipes Mr. Whitacre is referring to are the last mile connections to our houses and places of business, favorite bars and so on.  The last mile is an industry buzzword for the copper wire that connects us to the old telephone network.  I say "old" for even though the telephone network is still the big kahuna for talking and faxing (about 180 million U.S. telephone subscribers use it every day), it is aging fast.  In fact it is technologically dead, a condition that Mr. Whitacre will not admit, for at&t is racing forward with a new hybrid system to transmit voice and data and video that relies on that poor, brittle, slow copper wire for the "last mile."   

Mr. Whitacre does not talk about the miles in between the last miles.  In the last few years, tens of thousands of miles of copper have been replaced by fiber optic cable. More than we need.  There are more unused strands of fiber-optic cable strung around the world than stars in the sky.  And those strands of glass connect population centers all over the world; East, West, North and South; yep it runs under the oceans too.  Compared to copper wire, fiber-optic cable is like a Ferrari is to a Volkswagen Beetle.  It ain't no contest Alice.

Messages race around the world on fiber (and satellite), but when they get to our neighborhoods they screech to a halt and crawl into the house on copper wire.  Mr. Whitacre likes it that way.  Now don't get me wrong; at&t (and Verizon and Qwest) have miles and miles of fiber-optic cable too, but they also have lots of competition for that long haul business.  And so they have staked out the last mile to defend their turfs; not with innovative products and services--no, with money.  Money thrown at the politicians in Washington.

Mr. Whitacre says he paid for that last mile and therefore deserves a decent rate of return on his investment.  (I'll get back to that in a  minute.)  And furthermore, he says, "I'm not going to let my competitors use it for nothing."  He claims to be talking about Yahoo and Google and Microsoft and a hundred other companies that are bringing new and better communications tools for us to use.  But he is really talking about us--the consumers.  He wants to build a fence around that last poor little strand of slow-poke copper and charge extra for certain Internet activity.  at&t can't compete with better products and services and so why not just lock the gate? Of course we, the poor lobby-less consumers, do not have a Congressman hooked on our tool belt, but if we did, we would point out that we already paid for access to our ISP--handsomely in fact, to the tune of $40 per month and up for broadband service.  And our ISP pays for every bit and byte of data that it transmits over Mr. Whitacre's slow poke last mile. 

Now back to Mr. Whitacre's  claim that at&t deserves a decent rate of return on its investment.  Why?  Is Disney guaranteed a decent rate of return when they make a bad movie? Remember the New Coke?  Was Coca-Cola rewarded for that flop?  If you're old enough, you surely remember the Edsel, the largest disaster in automotive history.  Who reimbursed Ford for that fiasco?  If at&t can't make money under the present Internet open source system, step aside.  Who cares if at&t carries Internet traffic or not?  Do you?  I don't?

Mr. Whitacre has worked for a monopoly for so long that he can't stop looking to the government to bail him out.  He's used to bullying his way to success, the consumer be damned. Sadly he has the money to do that in Washington.  But it will be a temporary victory, for the Googles and the Skypes of this new age will surely find a way around Mr. Whitacre's legislative roadblock.  Where will at&t turn then?  Probably to new management; executives seasoned in the rough and tough world of free enterprise.  at&t and the other Bell survivors will have to flush out the current crop of monopolist bred managers, if they are to survive.    

Hang-up on Spanish

The Spanish language is in the spotlight. Last month The U.S. Senate passed the immigration-reform bill (S.2611), including a provision declaring English the official national language of the United States. As I write this, there is a similar bill working its way through the House of Representatives (HR 5456). A lot of Americans, including me, are concerned that we are headed for a language duopoly, hence the flurry of activity on Capitol Hill.

Others pooh-pooh that notion and point to past generations of non-English speaking immigrants, primarily Europeans, whose offspring mastered the new language within a generation. But we did not genuflect before the Italian language; or the German language, or the Polish language. One could argue that learning the language of the land allowed the children of those immigrants to quickly move into the mainstream of society; and commerce.

But those immigrants arrived here legally. They were above board, and they jumped through hoops to become naturalized citizens. Now we have a flood in the Rio Grande; a flood of bodies. Never before have so many come so fast, and never have so many illegal immigrants crossed our border, doomed by their unauthorized entry to remain in the shadows. Remember when Jimmy Carter opened the door to Cuban's wanting to flee Fidel's iron hand? And Fidel opened the jailhouse doors and loaded the boats with criminals; remember that? I'm not suggesting that President Fox is pulling a Fidel, but you know there are a fair number of criminals among the hordes of people coming across our southern border. From the shadows to the shadows.

Spanish language newspapers, TV and Radio networks proliferate in the U.S. and they serve to isolate non-English speaking Mexicans even more. Why should they learn English? But why should we be concerned? I don't have to talk to the guy who mows my grass; if I have a complaint I go to his supervisor. And the guy who mows my grass does not have to communicate with me, because that same supervisor insulates him.

It's not hard to understand the motivation behind this flood. Jobs. Apparently there are no jobs in Mexico for these people; or if there are jobs, they do not pay a living wage. And so they come here, take jobs American's do not want (so they say) and send a large part of their earnings back across the border (over $20 billion in 2005). And so, let's assume for a moment that we could find all of them, and load them onto buses and airplanes, and send them home. All 10 million of them; or 15 million; or 20 million, depending on which estimate you believe. What would happen to Mexico's economy? Would that loss in income usher in another left-wing dictator as in Cuba and Venezuela? And then what? Nationalization of GM and Ford plants? Coca-Cola? More oil spikes?

We've allowed a cancer to metastasize before our eyes, afraid to go to the doctor, because we fear the cure more than the disease. Who would harvest our crops? Who would mow our grass? Who would clean our offices? Who would baby-sit our children?

Government--at all levels--contributed to this. Our schools permit Spanish-speaking students to use their English language deficiency as a crutch. We do not force them to learn English as a primary language, and in some school districts, not even as a second language. So much for the second generation learns English theory. In those communities, Spanish rules.

Election ballots are printed in Spanish (and dozens of other languages). What is that about? Doesn't a naturalized citizen have to learn English before they take the oath? Who are these people who vote in another language? Why do we allow that?

I could go on and on about the government's enabling policies and procedures, but government is not the problem. The government is a follower, not a leader. Governments typically react after the fact. They are ponderous, and for good reason.

Commerce is to blame. Without jobs there would be no immigration problem. Forged documents and no documents are the norm. Who checks papers? Who cares? OK, I can empathize with that. You have a business to run and a job you can't fill with legal applicants. You learn about a pool of immigrant workers--day laborers--and you do what you have to do. Meanwhile, the government looks the other way. This is how we got here; it happens hundreds of thousands of times every day and the result is that we have an underground pool of millions of illegal workers. The government ignores their presence, but their needs are not ignored; they are blessed with security blankets for medical care, education, driver's licenses, etc.

But here is my real gripe. The Captains of Commerce have endorsed the Spanish language. What is the first thing you hear when you call your cellular company, your rental car company, or your airline? "Press 1 for English, or 2 for Spanish." The business world has capitulated; greed rules. I suppose we should be grateful that English is the first option. How long will that last?

It's one thing to hire them. It's another thing to put their language on par with ours. We need to hang-up on Spanish.

INVESTING IN A DIGITAL AGE

WHAT HAPPENED TO MY PHONE BILL?

Don’t look now, but a digital communications world seemingly with unlimited choices, is about to come full circle.

In 1984, the government broke-up AT&T, and that left the parent company with only domestic and international long distance and the networks that supported long-haul communications. Everything else, including the newborn cellular service, was divvied up between eight Regional Bell Operating Companies, popularly known as the Baby Bells.

What changed in 1984? Not much, we already had the option of choosing a long distance carrier, we didn’t need to blowup the phone company to achieve that. Cellular was new and by government edict, we had at least two choices, neither one associated with the old AT&T. But after the divorce, we still had only one choice for a local telephone company. It had a new name, e.g. NYNEX, U.S. West, but that was about it, nothing else changed.

The breakup of AT&T coincided with the introduction of cellular, and the FCC awarded a minimum of two wireless licenses in every territory, with one of the licenses reserved for the local Baby Bell. But Uncle Sam insisted the “dial-tone telephone business” not be used to subsidize the cellular business, and so the Baby Bells had to set up separate companies to handle cellular.

And telephone subscribers had the newfound option of choosing a long distance carrier, but it could not be the local telephone company. That resulted in a separate telephone bill from the long distance company, but the Baby Bell’s graciously agreed to stuff that bill in the same envelope with the local telephone bill.

And if they subscribed to cellular service, they found another telephone bill in the mailbox—even if the telephone company owned the cellular company. You see, the phone company was not allowed to mail a cellular bill from its sister company, even though they had the same family name. Got it?

Things rocked along for a few years; long distance rates plummeted, and cellular service steadily grew and expanded to include all U.S. metropolitan areas and most of the rural countryside. Over time new competitors entered the market and cellular rates declined too. But local dial tone service was stagnated with ho-hum technology and high rates; in fact the cost of local telephone service went up. In 1996, Congress stepped in and fixed everything with The Telecommunications Act of 1996—or so they thought.

The Telecommunications Act of 1996 was meant to introduce competition and hence, better service and lower costs. Instead it was the law from hell, and the landscape is littered with casualties. Hundreds of companies failed, including almost all of the Competitive Local Exchange Carriers (CLEC), that were formed to provide local competition and an alternative to the Baby Bell monopolies. Billions of investor dollars were washed down the drain.

What happened? Timing, for one. The act was passed in the early days of Internet incubation, and once the web took off, business plans bloomed—some on the back of napkins—investment bankers and venture capitalists poured in, speculators followed, a lottery mentality set in and the rest is history; too many gold-diggers, and too little gold. The newcomers were met by entrenched Baby Bell monopolies, veterans at manipulating regulations and regulators. Profits were illusory and when the capital markets ran dry, the new ventures went belly up along with thousands of small businesses that supported them with ancillary products and services.

The Baby Bells dug in their heels and refused to cooperate with those who would divvy up their gravy train. Don't forget, the Bell operating companies controlled the "last mile". The "last mile" being the copper wire that connects the telephone user to the telephone switch housed in a place called the central office. That's a lot of gobble-de-gook, which means that anyone who wants to provide a competitive service for you or me must rent that connection from the local telephone company. Or, build a new network. Can you imagine the cost and the time required to build another nationwide telephone network?

The Bells were required by law to make the network available to competition, but they shuffled their feet with the skill of hip-hop professionals. Onerous operating policies prevented or deferred competitors from attaching their equipment to the network. The Bells employed an army of well-paid lobbyists in Washington and in every state capitol to maintain their monopolies, and when that failed, they called on another army of well-paid attorneys to march in and appeal their case before the courts and the fifty public utility commissions that administer state regulations. We should not forget that we paid for those activities-the costs were buried in our telephone bills. Still are.

Pricing represented about the only leverage available to regulators, and a few states led the way by setting reasonable transfer prices that allowed local competitors e.g. WorldCom (now MCI) and the new AT&T to offer local telephone service at substantially lower rates. Of course the armies of Baby Bell attorneys fought those regulations tooth and nail, and when they won, it meant there would be no competition for local telephone service in that area.

Do you have an alternative for local telephone service? Have you looked at what you're paying for local service? How about five years ago? Ten years a go? Now compare that to your long distance bill for the same period. Since 1984, long distance rates have gone down 80% and local service has gone up 36%. The same local dial tone network arrangement vigorously resisted by The Baby Bells—sharing network resources with competition—financed the start-up of the long distance industry in the eighties. Good enough for the last century, but not this one.

Michael Powell, the soon departing FCC Chairman allowed this bloodbath to happen. Mr. Powell likes big. He said if we want choices, we should pay for another nationwide telephone network, even though we already paid for this one, and to insure that that happened, Mr. Powell wanted to freeze out competitors by de-regulating the wholesale rates paid to the Baby Bells. In other words allow The Baby Bells to set prices too high for anyone like AT&T or MCI to afford them. Mr. Powell said that encouraged competition.

The Baby Bells run roughshod over the FCC, the Congress and many of the state Public Utility Commissions. With few exceptions those regulators are rubber stamps for The Baby Bell monopolists. One of those exceptions occurred February 27, 2003 when FCC Commissioners rebelled and rebuffed Mr. Powell and his Baby Bell partners by giving wholesale transfer-pricing authority to the states. That was good news for consumers who lived in states with consumer oriented public utility commissions, but meaningless for others.

I can't help but recall another FCC ruling concerning my other favorite monopoly, cable TV. At about the same time The FCC was giving a green light to local telephone competition, it declined to approve a satellite TV merger, because it would have ''killed competition''. Ostensibly the commissioners were worried that rural satellite customers, adrift with only one satellite carrier and with no access to cable, would have no options. Hello? What options does a Comcast cable customer have? Or Cox? Or Time-Warner? Or Charter? Theoretically satellite is an option for everyone, but innumerable restrictions and obstructions, e.g. high-rise buildings, onerous homeowner associations, etc., make that problematical.

The FCC also ruled that cable companies could wall off their lines to competitors, thus assuring there would be no alternative for cable-or for that matter, broadband Internet access via cable. (VOIP is another issue and I will get to that.) Twenty years ago, before the break-up of the old AT&T, we had one choice for local telephone service and one choice for cable TV. Has anything changed?

The Baby Bells own the central offices (remember that place where the switching equipment is located?). They claim that, because of their miserable profit margins, much of the equipment there remains outdated and inadequate for today's applications, and they can't afford to upgrade it, recognizing that to do so would mean upgrading their competition as well.

OK, let's look at DSL, the broadband Internet service provided by The Baby Bells. Much of the country is without DSL service because the Bells have neglected to upgrade the central office technology that restricts the effective DSL range to about 18,000 ft. That means your house must be within 18,000 ft. of the central office (not as the crow flies, but as the wire winds its way from the central office to your house), but new technology extends that range. Broadband is hot, why haven't they upgraded the network? Because that would open the gates to competition. And so, the network we paid for has remained devoid of new technology, because the monopolists want another exclusive license, or prohibitive pricing, either of which would condemn competition.

Well, they got it. On the same day the FCC gave the states authority to set wholesale pricing for local telephone service, they took the opposite tack with broadband service, and gave the Baby Bells unlimited flexibility to set their own rates. In effect, the telephone network is now off limits to other broadband providers. The FCC gave with one hand, and took away with the other. Go figure.

Fast forward. Later the FCC rescinded the wholesale dial-tone rate regulations, thus permitting the Baby Bells to price out their competitors. And so, the local telephone network we financed with high monopolistic rates and numerous local, state and federal excise taxes (look at your bill) for over 100 years is off limits to all competition.

On the other hand the communications landscape is undergoing tumultuous change. Cellular has become a way of life, and for many consumers, their only telephone. And when did you last see a teenager without a cell phone glued to his ear?

Inside the house and the office, Voice Over IP (VOIP) is catching on fast. Anyone with a high-speed broadband connection can talk over the Internet, and wave bye-bye to the local telephone company. The standard features included with VOIP dwarf the Plain-Jane dial-tone services we are accustomed to. And at this early stage, the rates are significantly lower, including the absence of any sales and excise taxes. The savings can be dramatic. The Baby Bells and the cable operators are getting into this business. Watch for another blood bath; independents will be priced out or gobbled up.

OK, we’ve had cellular for twenty years and now we have the option of VOIP, isn’t that enough? For many, maybe so, but not for all.

Because of competition, cellular rates have declined over the years, but when compared to standard, no frills local dial-tone service, cellular remains expensive. And it has other limitations too. Family plans, that include multiple handsets and group billing plans are fine for those who can afford them, but prohibitive for low-income households. And cellular is a personal service, not a family service; voice mail and other features are not shared.

Voice Over IP is the biggest threat the Baby Bells have faced in their short lives, but VOIP is only available to those who can afford an expensive two-way cable connection. Add the cost for VOIP and the cost for broadband ISP to a basic cable TV subscription and you get a big number, over $100.00. Again, not an option for low-income households.

The brave new world of digital communications is exciting; it connects us in ways not imaginable even a generation ago, but it leaves others behind. Who is looking out for them? Will the FCC and the state Public Utility Commissions mandate continued universal telephone service that guarantees basic dial-tone service to rural communities, shut-ins and others? What will happen to local dial-tone rates as more and more users abandon the copper-wire telephone network for newer digital services?

And how will more consolidation benefit users? Thanks to competition, long distance rates have fallen 80% since 1984. And thanks to an environment that forced wide-open competition we enjoy nationwide cellular service at rates that have fallen dramatically since the technology was introduced in 1985. But basic local telephone service has increased 36% since the breakup of the old AT&T. Where would rates be today if the Baby Bells had faced competition for dial-tone service?

Did you notice, the original eight Baby Bells have merged into the Gang of Four? And that soon AT&T will be gone for good, absorbed by a charter member of that Gang, namely SBC. And do you remember MCI, the company that started it all in 1968 when it challenged AT&T’s long distance monopoly? They’ll soon be history, too. MCI, later acquired by crooks at WorldCom, barely escaped that kidnapping, only to be swallowed up by another Gang member, Verizon. (That adoption is in limbo, pending a higher offer from Qwest, who previously gobbled up U.S. West).

Cellular is on a similar diet program. Two industry founders, Cellular One and Nextel will disappear in 2005, absorbed by larger players. As I write this, in early 2005, two Baby Bell cellular offspring’s, Cingular and Verizon Cellular, control over 50% of the cellular market and they are stalking for more.

Where are we headed? The experts claim that everything that came before were only prelims for the big fights to come between the telephone companies and the cable TV companies. Read American and United my friends; there will be no Southwest in this fight.

Hold on to your wallet; your communications bill will soon look like a car payment.

Dust off my resume, Momma

HEADLINE: “HP's Fiorina Walks Away with $45 Million”

That was the latest headline I read last night; Ms. Fiorina’s kiss-off award is up a mere $24MM from the original $21MM estimate published last week. I didn’t read the fine print, but I think the $45MM was only a near-term projection, and implied that more stock options are over the horizon for the banished Chairwoman. And if the next CEO brings the stock out of the doldrums (something Ms. Fiorina could not do), presumably her options will be worth a lot more. When has ineptness been so rewarding?

This is not a diatribe on Ms Fiorina’s performance (the board decided that), but I couldn’t help but notice that she shepherded a stock worth $40 on the day she became CEO in September 2001 straight downhill to $20 on the day she left the company. I don’t know what they paid her for working there, but can you tell me why she was awarded such an outrageous amount for not working there? Is executive talent in such short supply that HP must pay $45 million for failure? What will they pay for success? Dust off my resume, momma.

I blame the board of directors. Every board member who signed-off on Carly’s pre-nuptial unemployment contract should resign. Thank God, I"m not an HP shareowner, but if I were, I would be hunting for scalps.

“LET THEM EAT SHOPPING CARDS”

Acme, Clemens, Giant, Pathmark, Red Lion, Safeway (Genaurdi’s), Super Fresh, and Wegmans are grocery stores I frequent, and that require me to identify myself with a plastic card, key ring tag, or phone number, before they will grant me, the customer, the most favorable pricing. Prices that I can get anyway, simply by telling the cashier that I forgot my plastic card, key ring tag, or phone number. ("I forgot my phone number," is only believable if over 60, as I am.)

What has happened to us? Is there a more competitive industry than groceries? The grocery chains sell the same stuff and they compete on price—nothing more. They cannot raise prices and stay in business. Yet we allow them to herd us about like cattle in the slaughterhouse. They will not grant us the best prices unless we join their "Frequent Shoppers Club".

Presumably, the “Frequent Shoppers Club” is for capturing vital data on consumer behavior. Ha! For what purpose? The point-of-sale system automatically records product and pricing data without any input from the customer. Why do they need my ID? The only visible reason I have noticed, is so they can look at the register tape, find my name, smile sweetly, and cheerfully recite, "Thank you Mr. V." For this, I carry eight plastic cards in my wallet?

How does belonging to The Frequent Shoppers Club, help you? Has it made the shopping experience more pleasant? Have you received any rewards from your grocer tied to your specific purchases? Have you received any compensation for the data you freely key-in and swipe for them in a lane-clogging exercise, and carry around in your wallet, presumably, like mine, bulging with multiple "Shoppers Club Cards"?

I shop at three other establishments. Two of them, Whole Foods and Food Source, are upscale grocers, and both allow me to pass through the checkout line without a Shoppers Card, Social Security No., Photo ID, or fingerprint. Cool.

The other one, COSTCO, will not allow me in the store without first showing my member card, but for good reason; the prices are stupendous. And where else could I find mustard in gallon jars?

Merchants that require us to lug about proof of ID, without corresponding benefits, do us no favors. What would they do if we burned our cards?

I vote for a grocery store "Shoppers Card" burning ceremony in the parking lot. Who will join me? (We must coordinate the dates; I have several stops to make.)

EXECUTIVE SEARCH

As I watched the Best of Breed debate the issues Thursday night, the last day of September, I wondered, how did they get there? I also wondered, what would happen if we submitted political candidates to the same scrutiny we subject business executives?

Picture you and me on the Board of Directors of a very large enterprise. The CEO's contract expires next year and things have been a little shaky. With only four months left for him to turn things around, we cannot avoid our fiduciary responsibility, and the Board is interviewing candidates for the position.

This is an important decision for us; the company is at a crossroad and we need a top-notch leader. Fortunately we have a big package to dangle in front of the right person; four-year contract, big house with staff, weekend retreat (also staffed), chauffeured cars, company jet, unlimited expense account, spectacular retirement benefits, and other perks befitting the position.

The Current CEO has been in the position for 3+ years. When he started the job, he inherited a strong revenue stream and positive cash flow that his predecessor used to payoff old debt. Although customers were paying premium prices for our products, the company lulled them to sleep with easy installment payments; they didn't feel the pinch. Factories were running flat out, workers were gainfully employed, and the unions were happy.

And what has the current CEO done for us?

The first thing he did was lower prices; he said we were overcharging our customers. Revenues plummeted and three years later, they have not recovered. Next he added costly features to a couple of old products, but we could not justify charging higher prices for them, and margins went through the floor.

Then he expanded markets beyond our borders and we are now in a war with our most hated competitor in a territory we know nothing about. The cost for that venture is off the charts. When we questioned this decision, the CEO said market research told him that we had to invade the competitor's territory before they invaded us. He promised things would get better.

Meanwhile, strapped for cash, we stopped paying down old debt and now we are incurring new debt; gobs of new debt.

The Board is in a quandary; half of us want to believe him and renew his contract; the other half want to throw him out.

We interviewed several candidates for the job and narrowed the field down to one man. He has a first rate education and he was a war hero to boot, but he spent his entire 20-year business career in staff positions, and a follower at that. "How does that prepare one for the hot seat?" a board member asked. "Don't forget the current guy ran a smaller company, before we hired him."

Other members are bothered by the candidate's fixation on his early years; he is ebullient and long-winded when talking about his medals, but opaque when asked about his business accomplishments. And he seems to ponder things; more like a college professor, than a decision maker.

But he is very decisive about other things. For example, he said he would immediately raise prices back to their old levels. Our Vice President of Marketing went into orbit. "You can't do that," the VP screamed.

And the candidate said he would pull back from the overseas market expansion. "Ill conceived and poorly executed," he said.

"Do we just walk away from new customers?" the VP of Marketing roared.

But the man is a very polished candidate and some of us are charmed by his scholarly, patrician manner. Still, others are concerned that turning the keys over to a person with negligible management experience would be a tragic mistake.

What should we do?

US Airways & Uncle Sam

US Airways is back for more food stamps; they filed Chapter 11—again. We gave them $650,000,000.00 after 9-11, but that ran out. Actually, we (the taxpayers) did not give it to them then, we simply guaranteed their loans; the loans they can’t pay now. Now we’ll give it to them, so they can pay the banks.

But there is more. US Airways wants us to pick-up their pension costs too. And to get our attention, they stopped making payments to the machinist’s and flight attendant’s retirement funds.

The employees and retirees covered by those plans are remarkably silent. Why aren’t they screaming their heads off? Because the Federal Pension Benefit Guaranty Corporation will pick up the tab. Who is the Federal Pension Benefit Guaranty Corporation? You got it; taxpayers to the rescue again. If US Airways goes down for the count, retirees will get their pension checks from Uncle Sam.

The airline industry is in the pits. A lot of things are going on; 9-11 was one factor, but other structural changes were in the works long before that. Low cost airlines, for one. Years ago, Southwest Air pioneered a novel concept, which was that low-cost, no frills, on time service would sell. And that with rigid attention to costs—like flying one product, the Boeing 737, which simplified training of pilots and maintenance personnel, not to mention the savings and efficiency of maintaining one spare parts inventory—it could make a reasonable profit. They have. Eventually others saw the light, and now we have a plethora of low cost alternatives, e.g. Jet Blue, Air Tran, Frontier and others. (US Airways is not one of them.)

How do they do that? There are two major cost centers in the airline business, fuel and labor; everything else takes a back seat. Fuel is fuel; they all use the same stuff. Costs can be shaved by gambling on the future price of fuel (they call that hedging and Southwest is good at it), but still, they all use the same fuel. It’s not as if they can wean themselves off premium.

However, labor costs are another matter; not all airlines were created equal, with the same inalienable rights to manage their destiny. A long time ago, before the airline industry was deregulated, the government regulated airline prices and we all know what that means. High prices and high costs were the rule. Airline pilots were paid like rock stars, and worked less. That privileged concept rippled throughout the industry and flight attendants, ticket agents and machinists reaped the benefits of an inflated wage structure. Today, US Airways and other traditional carriers are shackled with those out-of-date labor contracts. According to those who know, workers take home 40% of the ticket price.

The unions are not blind; they have made concessions, but still, US Airways cannot survive with its current wage structure. So what will happen? I do not know, but here is one scenario:

US Airways will fail. Employees will lose their jobs. Discount airlines will move in, hire the same employees, and pay them less.

Meanwhile the Federal Pension Benefit Guaranty Corporation will make good on the pension payments to the US Airways employees who now work at a discount airline for the same wages they rejected at US Airways. Guess who will pick up the tab.

Michael Moore

I watched Michael Moore's performance at the Academy Awards last night. If he had any credibility outside the Hollywood set, he destroyed it. You can dress em up, but you can't take em out. Mr. Moore’s appearance reminded me of when he first achieved fame with “Roger & Me,” that vicious “documentary” on GM and its chairman, Roger Smith. It was received by many as a serious piece of journalism, but it could not have been more off target.

Roger Smith was cast, then and now, as the architect and symbol of GM's bumbling, fumbling efforts to combat the Japanese and other offshore automobile manufacturers. It is true that GM went through a dismal period, and maybe the company is not through it yet, but I remember thinking at the time that Roger Smith was one person who "got it".

How did he “get it?" Because he attempted to reach outside GM's stodgy, entrenched bureaucracy and bring new blood to the table. New blood consisted of new technology—EDS and Hughes Aerospace—and new people. I thought both technologies were a good fit for GM. At that time, GM was the largest company in the world, but hobbled to a hodge-podge of stodgy car labels (and fiefs), coupled to disparate computing systems that did not share crucial information. Surely, EDS brought order to that confusion. (Ross Perot was another matter.)

And anyone who is familiar with Onstar, GM's superb satellite based communications system, cannot deny that Hughes brought something to the table, although I suspect Onstar, a stunning marketing achievement, made a lesser contribution to technology than other less visible inventions. And you cannot deny Hughes' contribution to GM's financial health. At the time, GM decided to divest the Hughes satellite TV business, the division was worth more than the car business. (The divestiture is pending, because the FCC, led by its myopic chairman, Michael Powell rejected the sale—stay tuned.)

So, why did GM management decide to sell Hughes? Why not sell the car business instead? Because that is what they know. They build cars. Do not confuse them with facts—like shareholder equity.
Michael Moore thought (or pretended to think; after last night who can be sure) that Roger Smith was in a fog. Instead, Roger Smith saw through the fog. He was a visionary, and it has taken 15 years for his successors to put the blinders back on GM.

Once again, GM is comfortably selling cars, competing on price, and susceptible to the whims of the economy with rebates flying about like migratory butterflies. Meanwhile the assembly plant in Flint, Michigan that employed Michael Moore's relatives (maybe even Mr. Moore himself) is closed--forever. The $100,000 assembly line jobs are in Mexico (at a fraction of the cost). The car people pissed away the investments in EDS and Hughes, companies that could have provided well paid, on-shore jobs for displaced GM workers.

This will tell you something about Mr. Moore's logic. But what the hell, he has an Oscar.