I was talking with a guy a while back, who worked for the phone company. He was a little shaken up because he almost lost his job.

He was in charge of the tool crib when an installer came to him looking for a new screw driver. When he went back to screw driver bin, he realized that his shipment of Western Electric tools had not arrived yet.

Feeling bad about not having a screw driver for the installer, he told him to stop back after lunch and he would have a screw driver for him. He then ran down the street during his lunch hour to the local hardware store where he purchased a screw driver for $1.00.

When he returned, he checked his Western Electric catalog for the price of a Western Electric screw driver. It was $10.00.

At first, he thought it to be a misprint. But, when he checked previous invoices, he discovered that they were, indeed, $10.00.

Concerned that the telephone company was being over charged by Western Electric, he sent a letter to his superiors. Why should the telephone company pay $10.00 for a tool that the hardware store sells for $1.00? After all, a screw driver was a screw driver.

The answer is quite simple. The telephone company is regulated as to how much money they can make. But, Western Electric, a subsidiary, is not. Therefore, Western Electric can make as much money as they want. And the money that they make translates into profits for the share holders.

So, the phone company buys everything from high priced Western Electric. And, the high priced equipment cuts into the phone company’s profits so that they are barely breaking even. And when they are barely breaking even, they show the government their books and ask for a rate increase. Meanwhile, Western Electric shows record profits.