w HaRvaRD|BUSINESS| SCHOOL 9-104-088 Salem Telephone Company In Apel 24, Petr Peres, pint of Salem Telephone Company, ws preparing fra meeting wth Cjthi Wi tanager of Sal Data Services As agpenet th tha sate Pac Serie Comins had ported Sulem Tlepoe to etl Som Dota Series a compat data fence mbar, to peann dia paces forthe lpn comgany and Yo se cmpulet fence t ster Compan and ergata It wa rwcesar for fee Go tna 1 be Separate bene Sal Telephone war 4 pst ty, and Sstom Dns Servier a 3m ‘Sreguloted company. ver ad tld the Public Ssvie Commission fn 2000 tht 2 prose npr servi subidry Would reduce pressive for ekpone rate erases, However by the ru of 2n3 Sem Dat Servic had eto expert apoftae ah Wf he bats was Frresng wl sd aly ewe tne warned unl Salen an Servic ard 2 pe, at Foes action wae cen ord the ain on Sle Telephone Company rere Salem Data Services ha grown out ofthe nen of Sle Telephone for compte evi plan, control and aso forts operations nthe mtropolan rion served. However, sen $e Telephane managinentreshoed that oer fusinsas nthe metopolian ron ented Similar services snd Wl suazed servic cold be provided over tpane ce ty Suggested that Salem Tekptone could sl compute te not ned by telephone peat futon, the sate Pub Servi Commision fod encourged all puble ue under [iwstaton to eck new sour of rvenoe and pts fo rede the need forte incre at igher costo there rg, sc operat elated pi wit, Sle Telephone Company col ot change te rates for telephone service out the approval the Pub Serice Comstn presen props forthe ne sua, Fresh arsed ora separate bt wholly owed cpa Whose prio forserice would nt be pated Int ay Salem Date Serie oul amet with ter “omputer serve onanartone ins dynam eld The eomensionaceptd sproponal ute? ‘nly he wetton thatthe aera monthly changes for mvs prod by Slam Dat Servo te fale Telephone nt ceced $2000, the ited costo ull series used by Salem ‘Teepe Campesy f 200, Te mains the spaaion between Salen Telephone etd it ‘Telephone and each pald thw other for sorviesresived fam the other. SEES =iseee SEEGERSsatan Seta Teepe open ‘Stl Data Service stared persons in 20, anda was yp form sta, heed cen sme prcets: qupment livre were layed Peso hed command ge sles than expected Art st mporenl estore were Rater ald tha ater eae ad ed Uo ‘mpany 1 expect: Othe eel 2 st of thee probles had ben overt 1201, he incon of Sale Telephone vs 0 fw thatthe report arbors eve! he ‘owe crm on investment nseven feat Atha ne, lows na ess fo eases ae ‘ta Sevco, Who sh for ore ime ae he fl Sls Da Seles would pf by March Bat when the quartet sop came (ahi 1a 2) Fors clad Wu fo srange ie meting ores rece wo report on the operations of Sle Dat Seis, The sno ompter ulation in Et 1 shows the oars of computer ine da were aval sad bow they ee ‘sed Computer service ay fered commer cuss 24 hu da an ecg al ight hous on Saturday, An uti contactor who took tbe comptes ine fr elt each week for tating provide ute maintenance ofthe comer and peep dng te weekend shit ‘wel for conver easter The rept foe sates reveled pratense ours St ave to sl fo shown te Exh that dao provide even ean ph Revenue ard east data were summarize in the quarry report om rele of operations exhibit 2) mtacepany wk wa ble tS) pr on te aed cn use eins or 200 te the Plc Servne Conus etic cet Slr Flephone ould nt eect ‘erage of 58200 per menh Coruerl sales wer bil 5 80 per ho White moet expenses sumaton nthe rept were se-explnaory, Flares minded bins of ‘he chractrsis ofa eS cst were lp to Salem Telepon Sam Data Servs eed tho ground flor o conta ethane bling wre by Sam Teepne fer S00 per mon it Mito, Sai Data Servic pal charge for catilmivie awed Sle Telos ‘Stites per agate ntl prs roi hse serve, ‘Computer equipment had ben suited byl and by purchases ees hd four ys fo an and were noncancisle Own equipment wal salable probably could ot bing mare tan ibook alvin thounedegipnet markt Woget and salar were spat nth opt to sho the eens of ive diferent Kinds of ct. Operations sale eluded hos ofthe people esse 9 ra he eer around the ‘lek in adion there wre apeatirs wages paid hoy workers ko were gud when the omar was n operate Series ofthe progrmming sal thar provided service to shee od ‘mained the operating sysem mere sepia sje develope ond mnrance. Sot Pesonnd, ho called upon sid served presen and prospective commer cent, wee 0 ‘Sd were she amis of aon Date Sie Because of is reionship ith Slam Telephon, Slam Data Services was ale avoid many soa an macpendent company Would have. for stamps, ephne company persone di al pyro billng caleton and aeuntag Porthos teeth nahin? a cpone serves, ‘Silom Data Secs paid SakenTelepane an amount hase Tacos Hh a age hd ‘Sls lal econt eet athe mum pase oss ally sles promotion wat the amount ta th naps chow to spend on asin aa the “ater promos! acest thy aed tino peoptve eto et sevice and Yo the activites ofthe ales penne: Ths anaunt was ttle the cert evel Of ‘Work but Instead depended how sch ty ema Hey meted spend fo Aeclans. Sin Duis Servi anager tleved ht thi espeme wold remain at seta evel it ‘wars Marc, ltinagh Hy were svlanting whether higher xpenites were warrant Aug Fores was courage by rset dts, he war ect tog to We that Salem Date Serves be oe dw oral He tha tat the apport to have thi ny est ene too gon give ap easly Besises he wae oti Ht acount ep eal eve ‘he conbuton tat Slem Data Serves was making fo an Texpne Inet sans ead ‘eve in pst heft hat the procedures aed in sang for cpa avs ne ‘company tended fo obscusthe casts aa Kents they pried Aor examining the ropots ly, lores sos ota thom in proparanfr aking Wi state the posse effets on profits of canary the price to estima oer ta Salen “Telphone ring ps aed ceasing sles tort Questions 1, "Reyne hours erent he Key ality dat dives cae Saker Das Serves. Which ‘specs in Exhibit ae atin withseapect io svenuc hour? Which exper re ed 2. Foreach expense at vale wih respect to even hus calculate the it por reves ‘8. Geet a contin margin icone sae fr Salem Data Serves. Assume that into mpi rage hour: Asse commer sage a th March oe 4 Assuming the lnexcomgny demand fr servis wl average 205 hours pe nth what es ‘tcommerctat rene lows of computer ane wold Be nec obese ven eae TA ‘See the inacmpany demain to be 205 hur, te contribution from these sles is ‘soured coer 3 pron of ts For cor Tht Geese the fev! of om revtnie ours tga to Eck ewen te ntti fom conn sls nly rede sve the fod ots emaiing ster subtacag Une ted cats en cavred bythe cotati fo Inracorpany sales 5 Estimate thot income of ea ofthe options Fores has sagged i Ws atinatr at fstows 1+ tarsi the ceo commercial customers $1.00 per hor wo se demi ya 1+ Reducing the pce to commer sles lo SD pr hour would Ineroee dann yam e “+ ncact promotion woul! ince vende hours by upto SO. Wa sama hoe uch prostatic thas would ke eow mack coud pot snd il eve Saar at tvs ith report ou ach mon mse har wey nes 37) 6 Based on your anys ave, Salen Du Series relly problem to Salem Telephone (Comp? Wha should Rese do ou Sam Data Savi?