AFT OF PROBLEMS

AFT OF PROBLEMS. A variety of other knotty problems also loom large on the horizon. “We see nothing but additional problems for the next couple of years,” because of new tariffs and the deregulation of customer-premises equipment, asserts Page Montgomery, vice president of the Boston consulting firm, Economics & Technology Inc.

For example, the Federal Communications Commission (FCC) is allowing AT&T and its former Bell operating companies to share billing records until July 1985. But since local phone companies will have the records, and AT&T the telephone equipment, information on customers changing equipment will go first to AT&T and then be forwarded to the local company. That’s “two more changes for error,” says Mr. Montgomery.

Business can also expect more complexity ahead in the ordering of phone lines. Local Bell phone companies, now on their own, will want to be more careful about their own planning and investments. “They’ll want to lock in customers, as part of their marketing,” Mr. Montgomery declares. Thus, they’re bound to make obtaining telephone lines more of a longer-term “lease-like” arrangement and penalize month-to-month-type line rentals, Mr. Montgomery notes.

“Whereas a few years ago a company may have ordered telephone lines, say a month ahead of time, we see a situation emerging where people are going to have to plan and order their facilities and networks with much longer notice”–maybe even as much as two years in advance to be sure to get them, he says.

“Ultimately, business will have to be making much more of a capital investment in phones” as opposed to “month-to-month rentals.” And amortization of those investments, he speculates, will encourage companies to retain equipment longer.

ACCESS CHARGES. And beyond simple procedural changes lie other more complicated and unresolved issues: the whole issue of costs, in general, and access charges in particular.

On a cheerful note, overall costs aren’t–as was once feared–likely to double for most organizations in the next several years. In fact, one corporate telecommunications executive sees his company’s phone costs rising only about 7% to 8% in 1984–if access charges are imposed as expected in april.

However, that’s a big if. Neither the question of how state access charges will be applied to intrastate telephoning nor when the FCC-ordered access charges–once set to begin Jan. 1 but now postponed until April–will begin have yet been resolved.

A House-passed bill would eliminate the access charge for residential customers and single-line business users. A Senate version, due to be voted on this month, calls for a two-year moratorium on access charges for those two categories of phone users.

But if Congress vetoes the imposition of such charges, it would cause about a $2 billion shortfall. “And our feeling is that business would be asked to pick up that [deficit], which is unfair,” beefs James Carty, vice president for governmental regulations and competition at the National Assn. of Manufacturers.

Another point of controversy: that the access fee for users of Centrex–local operating companies’ central office equipment that provides direct connections to phones on a customer’s premises–is too high. Although the FCC has set this charge at $2 per line–less than the charge to other business customers–Centrex users, mostly big organizations, point out that each line in the Centrex system goes from the customer’s building to the central office’s switch, making access charges overall more costly than with a PBX–a system in which lines are bundled before going to the telephone company switch.

STALLED? Linked to the access-charge brouhaha is the question of long-distance phone rates. They were supposed to drop in 1984 since AT&T’s long-distance service would no longer be subsidizing local service. (Access charges were to help compensate local Bells.) But AT&T’s request to drop long-distance rates 10.5% has been postponed pending an agreement on access charges. (Still, all long-distance rates wouldn’t have tumbled. For instance, AT&T had sought an average 15% hike in private-line service and a 1% boost in 800-number service.)

But headaches and question marks aside, some good news can be unearthed about AT&T’s divestiture. Long term, the Bell breakup should uncork opportunities in cost savings, by creating more choices in telecommunications equipment. Companies can obtain equipment “that better serves their own needs,” points out Victor Kruegar, vice president of the market research firm, Dataquest Inc., San Jose, Calif. More options in pricing should also evolve as the already hot competition in telecommunications turns on to broil. There will be “more distinctions in the quality of service. For lower quality, a customer would pay less,” says Mr. Kruegar.

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Bill Moore stretches for staying power

Company social events also feed the new culture. Mr. Moore regularly meets with employees for breakfast and celebrates profitable quarters with after-hours “beer blasts.” After nine straight profitable quarters the flow of suds is impressive. “That’s just part of California high tech,” he says, smiling, “and another form of cheerleading.”

He also mixes cheers and beers with chills: he wasted no time in pointing to another Dallas neighbor, Braniff Airlines, as an example of what could happen if REI didn’t get its act together. SECOND MESSAGE

Now he’s spreading a second message, one that inspires rewards, not repose: optical character recognition, or “scanning”–which is REI’s No. 1 technological tack–is back in vogue after some years of growing pains. Scanning is simply the best way for offices everywhere to get paper-based information into computer-based systems, he reasons. And since REI is the reputed leader, “we’re in the catbird seat,” declares Mr. Moore, “but we have to manage this opportunity.”

It knocks on several doors. For example, scanning fits almost perfectly into optical disk-based information-storage systems. He vows to take advantage of such a match and talks of joining forces with other office-automation concerns–suggesting that REI will play the leading role in any partnerships. At the same time, he douses speculation that a recent cross-licensing pact with IBM Corp. will ultimately bind the two. “You work months and years with IBM, not days and weeks,” he comments. “More important, that’s never been discussed.”

He predicts a “mega-event” in the next 18 months will “change the complexion of the corporation” and spike its targeted 30% to 40% earnings curve. “We’ll slow growth if it’s not profitable,” Mr. Moore vows.

REI’s competitors are formidable. But that won’t scare Bill Moore, because he has already endured his “life crisis”: a sudden, heartstopping attack while on a patrol boat in Vietnam in 1962. “I thought that was it,” he vividly recalls. And after it ended abruptly, “I figured everything else was pure profit.” Will Russell Luigs’ rigs sink or swim?

At first sight–and even at second sight — it appears to be shaping up into a corporate parallel of the sinking of the Titanic.

Threatened by treacherous fiscal seas, Global Marine Inc., Houston, is confronted with monumental perils: A debt of nearly $1 billion, a glacial market fraught with danger, and an ominous list in the company’s shares, which fell from $23 a share to $5.50 per share in the last two years.

Enough, you would think, to make the most confident skipper jump ship.

Not so, however, with Texas oil driller C. Russell Luigs, chairman, president, and CEO of beleaguered Global Marine.

He’s convinced he can bring Global through the tempestuous seas into the happy harbor of profitability.

Mr. Luigs, it should be made clear, is not blind to the challenges confronting Global, the third-largest offshore oil and gas drilling contractor in the country.

“If oil prices go down and drilling activity remains at or below current levels for two years or more, it’s possible . . . our existing resources [net worth of $628 million, annual revenues last year of $447 million] would be exhausted.”

Yet clearly that’s not what Mr. Luigs expects to happen, even though an oil glut and falling prices have forced Global to lease its rigs at lower rates and on shorter terms. That could mean over $100 million in losses in the next five quarters.

Mr. Luigs is banking that better leasing rates and Global’s drilling technology will enable it to survive.

Global, which invented the drill ship, has come up with still another breakthrough: the concrete island drilling system that can be towed to an arctic drill site and sunk in up to 50 ft of water at a cost of about $75 million. This would replace the conventional man-made “island” of dumped gravel–a system that costs $50 million to $100 million and requires the removal of the gravel after drilling.

Global plans to use the new concrete drilling island next year when it begins drilling for Exxon Corp. in the Beaufort Sea off the coast of Alaska and Canada. The question, however, is: Will Global still be around then?

Security analysts Arthur Smith and Paul Shiverick of Oppenheimer & Co. don’t think so. Merrill Lynch is a bit more optimistic. It recommends Global as a long-term buy with profits possibly reappearing by the second half of 1985. Mr. Luig’s view? “Within the next 12 months, the offshore drilling industry [will return] to profitable levels.” Delivery time for George Ashmore

George Ashmore used to curse unreliable suppliers in the 1960s when he was with the Aerospace Div. of International Telephone & Telegraph Corp. (ITT).

But since becoming president in late 1983 of ITT’s faltering Cannon Div.–it’s no longer the largest electrical-connector manufacturer, having fallen behind AMP Inc.–Mr. Ashmore is the one customers now berate for untimely delivery, a no-no in that business. “The Lord gave me this job for sins” in the past, he bemoans.

However, the soft-spoken executive whose manner of speech is reminiscent of former President Jimmy Carter thinks those days of late delivery are behind Cannon and that he can bring Cannon back to its leadership position. The reason: at a cost of $5 million, it has moved to shorter setup times on jobs, added an automatic storage-and-retrieval system, and most recently, installed a computerized machine-loading system to identify manufacturing bottlenecks and keep track of the 100,000 different types of connectors Cannon makes. (Cannon’s sales in 1983 were $250 million, with a 19% increase projected for this year.)

“The pieces are just about falling into place,” says Mr. Ashmore, a highly organized and cost-conscious type with an electrical engineering and applied physics background. “We’re now reaching the point where we are making rapid improvements in delivery.”

To convince customers that Cannon has done a flip-flop on delivery reliability, Mr. Ashmore reached into his public-relations bag. Since May he has been offering customers a rebate on any portion of a direct order that is delinquent in delivery. “It’s a good way to call attention to the customer” that Cannon is serious about on-time deliveries, he says. “If you don’t do something [like that], it might take three years.”

Besides, he believes the rebate incentive will also prove to be an incentive internally to improve operations. “If a customer sends me a letter, and I send him a check, I’m aware of which customers are unhappy, and I’m going to go after a manager,” he says. “In a sense, we’re enlisting the customers to tell us where the continuing problems are.”

So far, he thinks the rebate is working. Cannon, he says, received of “several, not a great bunch,” letters in the first six months of the rebate program. His next step? Make the several letters none. Geoffrey Fear — out to be different

He sounds like someone direct from Hollywood who would be perfect for the role of everybody’s favorite British uncle. But listen to Geoffrey Fear’s lilting accent for a few minutes and it becomes clear that his ideas about running a business, specifically Chicago Metallic Products Inc., based in Lake Zurich, Ill., would raise eyebrows on both sides of the Atlantic.

A strategy of controlled growth, personnel policies that encourage nepotism, and bonuses for losing weight and quitting smoking. Is this any way to run a 250-employee bakeware operation that turns out everything from Sara Lee aluminum foil containers to gourmet cookie sheets to Pizza Hut pie pans?

The 56-year-old Mr. Fear thinks so. When he left his native Great Britain 30 years ago, one reason was to escape a fractious labor-management climate.

Consequently, when he bought the commercial bakeware division from his former employer, Alcan Aluminum, in 1975, he vowed to do things differently.

First, Mr. Fear and his partners purposely cut Chicago Metallic’s sales from $14 million to $10 million in their first year of operation. It’s a move Mr. Fear compares to pruning a tree. “The only thing you do by trying to maximize sales is guarantee a recession.”

The initial cut-and-slash methods seem to have paid off; sales are expected to hit $35 million in 1984, to go along with a 14% annual growth rate after inflation.

Describing himself as “a benign Socialist,” Mr. Fear tries to perpetuate a family atmosphere in the workplace. “We’re in a good neighborhood [35 miles north of Chicago] for attracting a solid labor force,” he says. “We have husbands and wives, mothers and daughters working here.”

Obviously, Mr. Fear doesn’t think much of corporate prohibitions on hiring relatives, or, for that matter, much else about the way larger concerns conduct their business. “Everyone babbles about his ultimate responsbility to the shareholder, so why are hundreds of millions of shares traded each year” and business pages filled with stories of greenmail, takeovers, and other signs of self-interest? he asks rhetorically.

Sobering thoughts from a man whose livelihood depends on the sweeter things in life. Nelson Schwab is riding high

You’ve just completed a leveraged buyout that has ladened you with debt. Your former parent, Taft Broadcasting, has retained only a 33% interest. And you now must compete alone against corporate giants like Marriott, Bally Corp., and Walt Disney.

What’s more, the timing isn’t the best. Amusement-park attendance nationwide is down; the parks you’ve bought have had a falling bottom line. Operating profits have slipped from $22.4 million in 1982 to $17.4 million in the fiscal year ended Mar. 31, 1984.

Then, in your first season under private ownership, your newest thrill ride, the stand-up coaster King Cobra at your flagship park, Kings Island near Cincinnati, has an accident (no one is hurt).

But if you think any of that has Nelson Schwab III ready to tie himself to the coaster tracks, you’re wrong. Nelson Schwab doesn’t scare easily. In fact, he stepped into the last car of the King Cobra for its first test run after the repairs. And just as that run was flawless, so too was the way Nelson Schwab guided Kings Entertainment Co. (KECO), the second-largest theme-park operation in the U.S., through its first season.

KECO’s four major parks bucked a 3% industry-wide attendance slide to post a 7% attendance increase. “All our parks had record years as it relates to revenues and profits” boasts Mr. Schwab.

Going private was a plus. “Everyone can now devote his or her efforts in the same direction,” he explains. “There is no competition for capital; no intracompany rivalry.” The 39-year-old Wharton School graduate has also built enthusiasm by heeding employee suggestions. Since going private seven months ago, he has added a dental plan and service awards, and extended an incentive program–that had existed for only about 25% of the workforce–to everyone. (Employees receive a discretionary bonus of 5% to 20% of their salary based on targets geared to their job.)

Being a single-focus company, KECO was also able to hone in on one of the keys to theme-park profitability: in-park spending (which accounts for 50% of total revenues). What sold and what didn’t were monitored with greater frequency. And when its children-oriented minipark, Hanna-Barbera Land in Houston, proved a hit in its first season with kids under 8, but not 9-to-12 years, he gave the go-ahead to add “water-oriented attractions” for 1985.

Mr. Schwab–who has run the KECO parks for four years now–also moved quickly to land a management contract to run the Great America park in Santa Clara, Calif., formerly operated by Marriott (assuming that a dispute over use of the land is resolved).

“We can now pursue acquisitions or businesses that may have been too small for Taft Broadcasting,” he explains. For example, KECO, while part of Taft, had marketed shows from its parks to industrial firms like AT&T and Procter & Gamble. Now it plans to sell those same shows to meetings and conventions. And it’s working with developers to “create some kind of entertainment at shopping malls.”

What else is up Mr. Schwab’s sleeve? He isn’t saying. But you can be quite sure that anyone who has been daring enough in the past to introduce backward coasters, stand-up coasters, and coasters that drop 140 feet into a tunnel is already planning how to throw his competitors for a loop.

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Conair Brings Japanese Mystique To Hair-Care Market

Times sure have changed. Back in the 1960s, American consumers thought Japanese products were flimsy and cheap. Then in the 1970s they considered them durable and practical. For most of the 1980s the Eastern imports were smart, compact and affordable. Now Japanese merchandise is luxurious and expensive.

One American company hoping to capitalize on this shift in perception is the Conair Corp., which is marketing a line of five hair-care products under the Ginza brand name. The line was introduced in July, and the launch has been so successful that the company plans new Ginza products next year.

Print ads that broke in September issues of magazines such as Vogue and Cosmopolitan tout Ginza’s Eastern ingredients, such as ginseng and jasmine. The ads also imply that the brand will provide Occidental users with the same rich luster found in Oriental hair.

“The Orient has made tremendous inroads in this country,” says Jaime Morozowski, Conair’s vice president of marketing, citing the proliferation of Oriental perfumes, cosmetics, cars and food. In addition, he says, Oriental hair is perceived as being extremely thick and healthy by the 18-to-34-year-old women Conair hopes to reach.

The Ginza line includes a shampoo, conditioner, deep-penetrating conditioner, designing spritz and finishing gel. They are packaged in sleek black bottles or tubes decorated with colorful Oriental fans. The products cost between $3 and $3.50, and they are distributed through major drugstore chains and mass merchants such as Walgreens and Wal-Mart.

Morozowski says the Stamford, Conn. company spent about a year bringing Ginza to market, and focus groups that tried the line reportedly liked the shampoo’s pearly texture, violet color and aromatic fragrance.

To wedge its way into the ever-more-crowded $3-billion hair-care market, Conair is placing coupons good for $1 off the price of any Ginza product in ads and freestanding inserts. A national rebate program offers consumers $3 back on the purchase of any two items. Trial sizes of shampoo and spritz are also available for 99 cents.

The company is also providing countertop display and point-of-purchase rebate information at stores and asking retailers to group the products together on store shelves.

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