About Thomas A. Vanderslice
In 1980, Dr. Thomas A. Vanderslice was President and Chief Operating Officer at GTE.
The interview covers Dr. Vanderslice’s opinions about equipment depreciation rates and capital reinvestment in American industry, particularly in telephone operating companies. Vanderslice contrasts depreciation in the communications and computer industries, and hopes that deregulation will encourage productivity, competition, and an expanded job market. Vanderslice predicts higher telephone rates for residential customers and argues this is necessary in order to provide newer equipment and more efficient customer service. The interview concludes with Vanderslice’s call for greater capital investment in U.S. industry.
About the Interview
THOMAS A. VANDERSLICE: An Interview Conducted by Carol Lof, Center for the History of Electrical Engineering, 1980
Interview # 038 for the IEEE History Center, The Institute of Electrical and Electronics Engineers, Inc.
This manuscript is being made available for research purposes only. All literary rights in the manuscript, including the right to publish, are reserved to the IEEE History Center. No part of the manuscript may be quoted for publication without the written permission of the Director of IEEE History Center.
Request for permission to quote for publication should be addressed to the IEEE History Center Oral History Program, IEEE History Center at Stevens Institute of Technology, Castle Point on Hudson, Hoboken, NJ 07030 USA or firstname.lastname@example.org. It should include identification of the specific passages to be quoted, anticipated use of the passages, and identification of the user.
It is recommended that this oral history be cited as follows:
Thomas Vanderslice, an oral history conducted in 1980 by Carol Lof, IEEE History Center, Hoboken, NJ, USA.
Interview: Thomas Vanderslice, former President and Chief Operating Officer at GTE
Interviewer: Carol Lof
How do you feel about the recent FCC rulings in favor of more rapid capital recovery?
I think it's great. That's hopefully the beginning of a new look.
Do these rulings fulfill your objectives? Or, what remains to be done?
I'm not quite sure yet. We've been pushing heavily for faster depreciation for American industry in general because our plant is getting more and more obsolete. Not just telephone plants but American industry. The result of not having capital to reinvest in equipment is to make our factories less productive. We're getting further and further behind across the total U.S. industry. Of course, the depreciation schedules for the telephone operating companies are worst of all. We keep equipment around for an average of sixteen years—except for office switching, which is kept for a twelve-year minimum. Really, the phone system is a glorified computer system, and nobody keeps a computer system for sixteen years. So we need the same kind of depreciation scales as IBM.
How do your depreciation rates compare to those of IBM?
Oh, they are woefully inadequate. In fact, the utility industry as a whole has roughly half the depreciation reserves that a normal industrial firm would have. The rate commissions in the past have taken the position that if you depreciate slowly over, say, forty years, you'll have less charge to operations and the rates will be kept down. That may have been true fifty years ago, but with the cost of capital and with accelerating technology, what is needed is to put in the best technology as quickly as you can. This lowers maintenance costs and increases reliability. If you don't do that, you're going to wind up with older and older equipment which is progressively harder to maintain. Actually, the one who is paying the price is the consumer because the cost of operations stays up and is passed along. We have a chart showing the exact relationship, communications versus computer industry, in terms of depreciation time. Right now, if you take an old central office, which most of us are trying to replace, it's big because it's mechanical. It requires a great deal of cleaning and maintenance. However, if you go into a computer store program controller operation, it's quiet and the maintenance is done off line. It's worlds apart. So, fundamentally, it costs less to run a modern operation. But, you have to get the capital to buy it.
How do the views of GTE agree or disagree with those of AT&T regarding capital recovery?
GTE has taken the lead in pushing for this, but AT&T endorses our position. But this is just the beginning. Don't forget that the local commissions need to realize that by holding rates down, they are really impacting on the customers. They must allow the depreciation. We can write all our equipment off in one day if we want, but we have to get rate commissions to agree that we can do it. Also, they must give us the rates to go with it.
Deregulation and Competition
- Audio File
- MP3 Audio
Play (038 - vanderslice - clip 1.mp3)
We have a series of training classes. Already, 6000 people have attended. We've prepared a book. It's a dull subject in many ways, but it's extremely important. I think engineers always push to have the latest technology used, but don't understand the financial implications. You have to have capital to work with. The percent of disposable income saved by Americans and the percentage of plant and equipment that we reinvest every year, when compared to Germany and Japan, are different by factors of two and three. As a percent of the gross national product, we spend less than any other major industrial nation on plant modernization. That's appalling. The reasons for that are very much tied to capital recovery. Look at what General Motors has done. I think they have done a major job restructuring an entire company.
But, they had to be flat on their backs before they took any corrective measures. Do you think we're really frightened enough to take the bitter medicine needed to swing the economy around?
We're frightened enough because we think that without adequate capital, a capital intensive business like ours is heading for serious problems. The number one handicap to implementing technology is the lack of capital. Really, all the developing process, from basic research and development through engineering, is ten percent of the total. Ninety percent of the entire investment is when you start to build a plant and get ready to ship a product.
Thank you, Dr. Vanderslice.