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COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE.
Hous E OF REPRESENTATIVEs.
SIXTY-SIXTH CONGRESS.
JOHN J. ESCEI, Wisconsin, Chairman.
EDWARD L, HAMILTON, Michigan.
SAMUEL E. WINSLOW, Massachusetts.
JAMES S. PARKER, New York.
BURTON E. SWEET, Iowa.
WALTER R. STINESS, Rhode Island, .
JOHN G. COOPER, Ohio.
HENRY W. WATSON, Pennsylvania.
FRANKLIN F. ELLSWORTH, Minnesota.
EDWARD E. DENISON, Illinois.
EVERETT SANDERS, Indiana.
GEORGE ESCH,
SCHUYLER MERRITT, Connecticut.
J. STANLEY WEBSTER, Washington.
THETUS W. SIMS, Tennessee. -
FRANK E. DOREMUS, Michigan.
AlbFN W. BARKLEY, Kentucky.
| SAM RAYBURN, Texas.
ANDREW J. MONTAGUE, Virginia.
CHARLES P. COADY, Maryland.
ARTHUR. G. DEWALT, Pennsylvania.
JARIED Y. SANDERS, Louisiana.
clerk. .
A. H. CLARK, Assistant Clerk.
CONTENTS.
Statement of: - - - Page.
Mr. Carl D. Jackson---------------------------------------------------- 10
Mr. Nathan C. Kingsbury. -------------------------------------------- 15, 31
Mr. Edward Revnolds------------------------------------------------- 47
Mr. H. Linton Reber---------------------------- - - - - - - - - - - - - - - - - - - - - - - 71
Mr. Joseph P. Hayes--------------------------------------------------- 72
Mr. Newcomb Carlton..... • - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 81
3
RETURN OF THE WIRE SYSTEMS.
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,
Hous E OF REPRESENTATIVES,
Friday, May 30, 1919.
The committee met at 10.30 o'clock a. m., Hon. John. J. Esch
(chairman) presiding. -
The CHAIRMAN. Gentlemen, there has been set for this morning
hearing on resolutions and bills relating to return of the wire systems.
There are pending before this committee, House joint resolution
No. 2 presented by Congressman Steenerson of Minnesota, House
joint resolution No. 21, introduced by Congressman Ferris, of Okla-
homa, and House bill 421, introduced by myself. We will not con-
tinue the hearings this afternoon, and will try to conclude at 12
o'clock to-day, and the committee will determine whether they
desire to have a hearing to-morrow. We will determine that just
before the committee rises to-day at 12 o'clock.
Is there any one from the Post Office Department, representing
that department, who wants to be heard in regard to the proposition ?
(After a pause).
The Postmaster General, in response to my invitation to appear
this morning, forwarded to me copies of a letter he addressed to Judge
Moon, former chairman of the Committee on Post Offices and Post
Roads, as of date May 22, 1919, and also a letter which he addressed
to Mr. Sims, the former chairman of this committee, in explanation
or in reply to a letter addressed by Mr. Mackay to members of Con-
gress. Without objection, I will file those as part of the hearings.
(The letters referred to follow :) -
OFFICE OF THE POSTMASTER GENERAL,
Washington, D. C., May 28, 1919.
Hon. JoBN J. ESCH,
Chairman of House Committee on Interstate and Foreign Commerce,
Howse of Representatives, Washington, D. C.
MY DEAR M.R. EscH: Yours of the 27th instant, inclosing copy of House joint reso-
lution 2, introduced by Mr. Steenerson, House resolution No. 21, introduced by Mr.
Ferris, and H. R. No. 421, introduced by yourself, all on May 19, having reference to
return of the wire systems to their owners, received.
I note your statement that hearings will commence on these measures on Friday,
May 30, at 10.30 a. m., and will be pleased to furnish your committee any informa-
tion you may desire from the Post Office Department relative to these measures.
For your information I inclose copy of a communication sent by me to Representa-
tive Moon on the 22d instant, giving my views as to the Steenerson resolution, which
apply generally to the other measures now pending before your committee to which
you refer. Also a copy of a communication, and certain data, sent me by to Mr. Sims
of your committee on the 28th instant, all bearing upon the same matter.
Section 3 of your bill (H. R. 421), if enacted into law, can be complied with so far
as the duties imposed upon the Executive are concerned within the time therein fixed.
Very truly, yours,
A. S. BURLESON,
Postmaster General.
5
6 RETURN OF TEIE WIRE SYSTEMIS.
MAY 22, 1919.
Hon. JoHN A. Moon,
Howse of Representatives.
MY DEAR JUDGE Moon: I have before me the House Resolution No. 2 introduced
by the chairman of the Committee on Post Offices and Post Roads, proposing the
termination of Government supervision, control, and operation of the telegraph and
telephone systems. In my opinion the enactment of this resolution without legis-
lation to properly safeguard the various interests involved would be very unwise.
The vexatious problems confronting the wire companies will not be satisfactorily
Solved by a mere return of these properties to their owners. The extraordinary
increased cost of operation and maintenance which has been fastened on them as a
result of the war will continue for some time after control passes from the Government.
These increased costs of operation and other difficulties confronting these companies
are not the result of Government control, but had been imposed on these companies
as a result of the war. That this is true is conclusively shown by an examination of the
conditions of the street railway systems of the country or of any other public utility,
These wire properties can notin fairness to the owners or the general public be returned
under the burden of these increased costs of operation, without assurance of revenue
sufficient to meet such increased cost, for otherwise deterioration of the properties and
the service will inevitably result, and the public as well as the owners and investors
in the Securities of these companies will be disastrously affected.
Manifestly, the former rates are inadequate to produce the necessary revenue to
meet existing requirements to maintain and operate these properties. New materials
must be purchased at market prices and skilled labor employed at prevailing wages.
Because of these extraordinary changes in the operating conditions of these properties
a Serious responsibility rests on the Government to adopt every means possible con-
Sistent with sound policy to protect the public and enable the owners to operate their
properties free from the dangers of receiverships or the serious impairment of their
values or the deterioration of this important service. In my opinion Some legislation
to meet this situation is imperative.
In response to your verbal request, I will give you the views of the Wire Control
Board on the legislation which it is believed should be enacted before these properties
pass from the control of the Government. The members of the board are unanimously
of the opinion that in order to provide the most efficient wire service the various
Systems should be coordinated as to operation. This does' not require monopoly of
Ownership, but is necessary so that there can be a consistent and harmonious regulatory
policy. Through this means only can the attempts at wasteful competition and the
economic loss occasioned by duplication of plant and force be avoided. It is believed
that this desirable end can be reached by amending the law so as to provide that,
Subject to the approval of the Interstate Commerce Commission, any telegraph or
telephone company doing an interstate business may purchase the property of any
telegraph or telephone company, or any part thereof, or consolidate with any other
telegraph or telephone company, or pool its traffic and facilities with any other tele-
graph or telephone company, under provisions which will protect the interests of the
public and other near-by companies.
The Wire Control Board is also convinced that it is impossible to secure any uni-
formity of rates or to maintain adequate revenue for the service where a multiplicity
of unassociated, independent authorities or commissions, with full authority to act, are
&i ºnpting to function. Whereasit is recognized that the State has control over traffic
tº jºiy intrastate, yet it is believed that it is no longer open to the question that this
º, tº , not be exercised so as to interfere with interstate traffic.
tº rise it. 'tor of electrical communications the intrastate and interstate activities
3 ter.} : * 'til ºf that what affects one affects the other, and the character of this
tº.” uáš ºd ºil. . . . . ." "ough development that the interstate features have become
tº ; tı. . . . ºf . , . . . . . . . . . . . . g factors. Hence it is believed that the law should be so
amen, tº , s tº 34: , , , ; ; ; ; ; ; * *state Commerce Commission to fix rates for telegraph
and tele, sº tº jº, the provision of the act, and that any telegraph
or telephone ºr , , . . . . . . . ii., § 8, cated entirely within a State but which trans-
acts direct intele. . . . . . . . . e-- ' '... g. witching or other arrangements with other lines
should be made subjº, tº 3. ‘r, -
The public interests de : ... . . . . .ost efficient wire service possible. In order that
this end may be attained, adu (; ; ; e ſevenue must be provided. The plant and equip-
ment must be of the best constru :tion and of the very latest development of the art
and must be properly maintained, and depreciation and obsolescence with reasonable
reserves for surplus and contingencies must be provided and also a reasonable return on
the value of the property used to furnish the service. In order to make certain the
maintenance of these conditions the rates of the telegraph and telephone companies
RETURN OF THE WIRE SYSTEMS. 7.
falling under its jurisdiction should be fixed by the Interstate Commerce Commission,
so that they shall produce revenues sufficient to yield a reasonable return on the value
of the property used in rendering service, after paying operating and maintenance
expenses and providing for depreciation, obsolescence and maintenance of such
adjuncts as may be necessary for the development of the art and reservation out of
income for surplus and contingencies.
The board is also convinced that in order to provide satisfactory wire service the most
efficient personnel must be secured. In order to secure and retain the service of such
employees there must be assured proper working conditions, advancement of wages on
the basis of demonstrated efficiency or capability, and these conditions can only be
brought about by the adoption of a sound policy in the treatment of such employees.
In order to assure this, a tribunal should be provided upon which the public, the
employee, the managerial force, and capital shall be fairly represented and before
which all parties may be heard, so that prompt redress may be had for just grievances.
The wire-control board also suggests that it be provided by legislation that hereafter
when any change of wage schedules for employees is contemplated the same shall not
become effective until submitted to and approved by the Interstate Commerce Com-
mission, and that when same has been given approval by the Interstate Commerce
Commission the commission shall contemporaneously order such modification of rates
as will meet the proposed changes in the wage schedule. •
I feel constrained by sense of duty to urge upon the committee dealing with this
important matter that before action is taken a serious and unbiased consideration be
given to the necessity of some such legislation before these properties are returned to
their owners.
A. S. BURLESON,
Postmaster General.
OFFICE OF INFORMATION,
Post OFFICE DEPARTMENT,
May 28, 1919.
Postmaster General Burleson has sent to Congressman Sims, of the Commerce Com-
mittee of the House, a letterin reply to hisinquiries relative to the statement of Clarence
H. Mackay, president of the Postal Telegraph-Cable Co., of the 24th instant, which
was sent to Members of Congress and published in the newspapers, in which Mr.
Mackay, referring to the passage of the Steenerson resolution for the immediate return
of the wire properties to their owners, offered to reduce the telegraph rates for his com-
pany 20 per cent, and claimed that this would result in a saving to the public of over
a million dollars a month. In his letter to Mr. Sims the Postmaster General says:
“If the Postal Telegraph-Cable Co. were actually furnishing telegraph service
throughout the United States, this offer would seem to be a very magnanimous Sacrifice
On the part of its owners in the public interest, but a most casual examination of the
telegraph operations in the United States discloses the fact that this company owns
only 30,000 miles of the 200,000 miles of pole lines, and only 246,000 of the 840,000
miles of telegraph wire in the country; also that during the year 1918, it carried only
$14,930,896 out of a total of $90,000,000 of the telegraph business. In other words, the
Saving to the public which Mr. Mackay asserts he can accomplish by a 20 per cent
reduction in cost of messages over his lines, would necessarily be limited to less than
$3,000,000 instead of the $12,000,000.
“A further fact to be considered is that the Postal Co. carried only a small portion
of Government business, which increased from $600,000 a year in 1916 to about $6,000,-
000 in 1918, . If the Postal Co. had carried the same proportion of this Government
business, which was normally sent over its lines in prewar period, the existing high
operating cost and the low Government rate would have reduced its net revenues far
below the showing it is enabled to make as a result of its systematic policy of avoiding
Government telegraph business, and the Western Union Telegraph Co., upon which
the burden of carrying Government messages largely fall, would have been able to
make a correspondingly better showing. As the matter stands, the Postal claims a
net revenue of $4,200,000, while the Western Union claims a loss on account of operating
expenses in carrying Government messages of five or six million dollars, which loss, if
divided between the two companies, would go far toward wiping out the net revenues
claimed by the Postal Co. -
“As I view it, Congress is called upon to legislate with respect to the telegraph and
telephone industry as a whole and in the interest of the public service to be rendered
by that industry. -
8 FETURN OF THE WIRE SYSTEMS.
“The Postal Telegraph-Cable Co. operates in the United States at only 2,500 of
the 25,000 points at which telegraph service is rendered. Its proposition would there-
fore reduce the rates to only a portion of the telegraph-using public. Its assertion
that it will save to the public $12,000,000 a year by a reduction of 20 per cent in the
present rates rests upon the assumption that competition would force the other com-
panies to reduce their rates correspondingly. In view of the fact that it could not
With its present facilities carry more than one-half of the business offered at the points:
Which it serves, the effect of such reduction in rates would be somewhat problematical.
In any event the lowering of its rates could only force a reduction in the rates of other
Companies at points where the business is most profitable, thereby further compli-
Cating the general rate situation, if the other properties are to make operating ex-
penses and yield a fair return upon the investments therein.
‘In the situation now presented, it would seem to be a matter of public concern,
of which Congress might well take cognizance, that the present high operating ex-
penses have made it impossible to operate these properties at the prewar charges
for service. To turn the properties back without making some adjustment which
Would enable the companies to resume their operation on a basis comparatively equal
to that in which the Government took them, would affect their financial standing
materially, and in some cases, in my opinion, disastrously, and would cause not only
the investors, but the public to suffer. To reduce the rates to a point where the
earnings of the companies become insufficient for proper operation and maintenance
or to attract the necessary capital for extensions and improvements would be ruinous
to the investor and user alike.
“The whole scale of prices of commodities and services has been doubled by the
War. Some prices have risen more rapidly than others. The price for telegraph
and telephone service has risen less than 10 per cent previous to the recent increase
in telegraph rates. Such a price situation is not normal and can not endure. It
Can not again be stable until the price of every product and service covers the cost
of producing that service, including a fair return on the investment in plant. Tak-
ing the telegraph and telephone situation as a whole, Mr. Mackay’s suggestion does
not promise to help bring about this condition. To accept it at this time would not,
in my opinion, be to the best interest of the public. -
. “Mr. Mackay alleges that the legislation suggested by me in a recent communica-
tion, to Congressman Moon constitutes a program which, if enacted into legislation,
Would mean the legalizing of a country-wide monopoly of wire communication and
Would result in increased rates. The present situation requires the determination
at this time of a broad governmental policy with respect to electrical means of com-
munication which, it would seem, demands the careful consideration of Congress,
rather than the precipitate course advocated by Mr. Mackay in the passing of the
Steenerson resolution.
“This presents a large question, which should be handled in a broad way. It is a
Question which has received the careful consideration of numerous Postmasters
General who have preceded me. Of course, you know that my own view has been
that the transmission of intelligence by electrical means is a natural monopoly and
should be operat d by the Post Office Department in the same way as is done in the
transmission of intelligence through written or printed communications. There is
no greater need for two competing telephone companies in the same city or community
than there is for two competitive postal establishments in the same city or community,
and my observation is that the one would appeal just as much to the public as the
other. The consolidation of competitive telegraph or telephone companies in a given
field would result in one pole line where there are now three and sometimes four,
occupying the same highway, entailing immense waste. By the abolition of various
'supervisory forces of the wire systems which would then be unnecessary; by complete
unification of the systems, thereby eliminating the operating cost of the useless
system; by thoroughly coordinating the remaining telegraph and telephone services;
by the consolidation of offices; by the elimination of costly and complicated account-
ing, Savings could be effected which would enable material reduction in the cost of
the wire Service in normal times, and would result in a much more satisfactory service
to the public. -
“The legislation suggested in my letter to Judge Moon, referred to, does not require
monopoly of ownership, but provides for efficient wire service through coordination
as to operation, through consolidation in many competitive situations, especially in
the telephone business, and is necessary to eliminate waste and afford satisfactory
service. Such consolidation can not be effected in many cases without an amendment
to existing laws. There is nothing in the proposed measure which would force or
tend to force the Postal Telegraph Co. to sell its property to any other company, but full
opportunity would be afforded it as well as any other company to sell or purchase or
RETURN OF THE WIRE, SYSTEMS. 9
ºute or pool its traffic with any other company or companies if it wished to
O SO.” • -
The Postmaster General also called Mr. Sims's attention to the fact that the Mackay
companies, which operate the Postal Telegraph-Cable Co., is the only telegraph or
telephoné company whose property was taken over by the Government with which
the Postmaster General has had any differences with respect to the management and
that such differences with the Postal Company did not develop until some time after
the property was taken over by the Government, and grew out of a conflict between
the sworn statements of officers of that company to the Interstate Commerce Com-
mission for a series of years, and its sworn statement to the Postmaster General with
respect to the property and its operations, which was of such a nature that the Post-
master General declined to accept the proposal for compensation proposed by the
company and made an award of compensation based upon the best information obtain-
able and suggested to Mr. Mackay's representatives that they file a friendly suit in
the Court of Claims where all the facts could be developed. Thereupon the officials
of the Postal Co. began and have continued to this time a movement inside of the
Organization of the -company and in the public press, to hinder and embarrass the
Government's operation of this and other telegraph and telephone properties in every
possible way and which has been characterized by false and scandalous statements
with respect to the Postmaster General, too numerous to mention; that the sworn
Statements of the Postal Telegraph-Cable Co. to the Interstate Commerce Commission
showed an invested capital in that property of $6,647,472 upon which amount it seems
it was paying local taxes in the various States in which the property lies, while infor-
mation, before the Post Office Department indicated that the property was worth
Something like $28,000,000.
The compensation claimed by the Mackay Co., namely, $4,200,000, was 63 per
cent per annum on its investment of $6,647,472 as sworn to in its report to the Inter-
State Commerce Commission, and about 15 per cent on $28,000,000, the basis of value
used by the Postmaster General in fixing the award. The sworn statements before
the Interstate Commerce Commission showed depreciation charges on the property
for the year, 1916, to be $2,197,900, while the sworn statement of the company to the
Post Office Department showed only $427,803. For the year 1917 the sworn report
of the Interstate Commerce Commission showed depreciation charges on the property
to be $2,253,200, while the sworn statement of the company to the Postmaster General
showed only $448,975. -
For the year 1916, the gross revenue of the company as reported to the Interstate
Commerce Commission was $12,096,586, and the net income after deducting operating
expenses and taxes was shown to be $332,343, while in the sworn statement furnished
the Post Office Department the net operating income for the same period was shown
to be $4,157,670.44.
For the year 1917, the gross revenues of these telegraph lines was reported to the
Interstate Commerce Commission as $12,626,420, and the net income $117,264, while
in the sworn statement before the Post Office Department, the net income for the
same period was shown to be $4,485,593.34. -
These and other glaring differences in the sworn statements of the officials of this
company, convinced the Postmaster General that the only method of determining
a fair compensation for the property was to have the entire matter referred to the
Court of Claims. An award of compensation was made for the purpose of enabling
the company to receive 75 per cent thereof in monthly instalments and permit the
court to adjudicate whatever balance might be found properly due, in accordance
With the letter and spirit of the law under which the properties were taken over.
Since the officers of the Postal Co. were relieved of its management, a request has
been made to permit expert engineers and accountants employed by the Government
to examine the records of the company with respect to its plant, investment and
operations previous to August 1, 1918, in order that the Postmaster General might
obtain data upon which the award for compensation for the use of the Postal Telegraph
properties might be revised by the Postmaster General if the facts warranted, but
access to such records has been denied by the company.
The CHAIRMAN. Chairman Jackson, of the Railroad Commission of
Wisconsin, is here, and has to leave on a 1.30 p.m. train.
10 f{ETURN OF THE WIRE SYSTEMS.
STATEMENT OF MR, CARL D. JACKSON, CHAIRMAN OF THE
RAILROAD COMMISSION OF WISCONSIN, MADISON, WIS.
r
The CHAIRMAN. Mr. Jackson, give your name, official position, and
residence.
Mr. JACKSON. Carl D. Jackson, chairman of the Railroad Commis-
sion of Wisconsin, Madison, Wis.
§ Gentlemen of the committee, the sentiment of the State of Wis-
consin in regard to the return of the telephone companies to private
ownership and operation, and the relinquishment of Federal control,
is shown by the resolution passed by both houses of the Legislature
of Wisconsin now in session, memorializing Congress for their im-
mediate return. sº
The position of the patrons, and I should say the vast majority,
if not all, of the independent companies in the State of Wisconsin
is for the immediate return of those companies to private operation
and the relinquishment of Government control. There is nothing re-
lating to Government control since the Government has taken pos-
session of the telephone companies which has appealed to the patrons
of the telephone companies or makes them desire further continu-
ance of Federal control by the Post Office Department.
The situation, I may briefly state in regard to Wisconsin, because
I think it is typical perhaps of some other States, is this: There is
practically no duplication of telephone service in the State of Wis-
consin. Under the laws of the State of Wisconsin such duplications
can not take place, and what little there has been is being eliminated
and is almost entirely eliminated from the State. The service by
the companies has on the whole and before the war been very good.
There are about 1,000 independent telephone companies which do
not overlap each other or their territory. They are connected sys-
tems, and under the laws of the State of Wisconsin would be required
to connect. After the establishment of the constitutionality of the
physical connection law it has become practically unnecessary for
the commission to exercise its jurisdiction, as the companies now
connect voluntarily, so that every telephone user in the State of
Wisconsin has complete, full, distance telephone connection, not only
throughout the State but throughout the Union. *
I may say that whatever the position of independents here repre-
sented, I do know the situation in regard to the independent com-
panies in the State of Wisconsin, many of whom are very prosperous
and many of whom have some of the finest equipment of any tele-
phone companies in the State. There is no duplication. The service
is good. Those companies do not desire Federal control and opera-
tion, and they do not desire Federal control of their rates. The
State of Wisconsin has stood ready at all times to hear any com-
plaint in regard to rates and to give the companies adequate return
commensurate with any increased cost of operation.
The investment per phone in the State of Wisconsin is low and the
equipment compares well with the equipment anywhere in the
nited States. The service is probably better than almost anywhere
else in the United States and is rendered according to standards fixed
by the railroad commission of the State of Wisconsin. The invest-
ment per telephone in the State of Wisconsin, I believe, is the lowest
RETURN OF THE WIRE SYSTEMS. 11
in the United States, because of no duplication and because of regu-
lation by the railroad commission. -
Now, we desire the benefits of the conditions that exist in the State
of Wisconsin. We do not desire that if there are beneficial conditions
in the State of Wisconsin, that we shall be deprived of those benefits
in order to favor a situation not as favorable in some other State,
perhaps 1,000 miles away.
We do not believe that Mr. Burleson's idea that rates should be
uniform throughout the United States, either local or long distance.
I will state that when Mr. Burleson's order increasing in the State of
Wisconsin the long distance telephone rates by between 50 and 100
per cent—and that was what the increase was— went into effect, the
railroad commission of the State of Wisconsin said to the representa-
tives of Mr. Burleson that we would be perfectly willing to give them
an immediate hearing, and if there was any necessity for increased
tolls in the State of Wisconsin we would grant them, and give them
a very speedy hearing on it. They said they did not wish to make
any such showing. They practically admitted they could not make
such a showing, and that they would just rely on Mr. Burleson's
order. They declined to give evidence, declined to be heard, declined
to ask for an increase before a tribunal which would examine the
revenues and operating expenses of those companies.
Now, gentlemen, it is the position of the State of Wisconsin, and I
know I represent the sentiment there, that if increased rates are
necessary, they certainly should be granted; that they should be
granted upon a hearing and a fair investigation, and we have valua-
tions of most of the telephone companies in the State, and we stand
ready to do that and to grant increases that are necessary and proper.
We certainly are against any further control of the companies by
the Federal Government. We see no benefit to be derived from it,
and we ask that they be returned to private ownership and subject to
those jurisdictions in regard to rate making policies and practices as
formerly, and we now here again promise that if they need any
increased revenue in the State of Wisconsin from any of the operation
of those companies, to give them a very speedy hearing and do as we
have done in the cases of hundreds of telephone companies, grant
increases if they are warranted.
We ask that when these companies are to be returned—and they
will be returned soon without any legislation whatsoever—there be
not tied to any bill returning those companies to private operation,
anything which shall detract or take away from the jurisdiction of
the State the rights which it ought to have. .
It is incomprehensible, gentlemen, that the thousands of com-
plaints and the thousands of things which have to be inspected, the
thousands of local rates and practices could be adequately, in any
way, shape or manner, handled by a tribunal in Washington; and it
is necessary that those local matters be handled by local bodies.
Mr. DENISON. Mr. Jackson, you say there are 1,000 independent
companies in the State of Wisconsin':
Mr. JACKSON. Yes, sir.
Mr. DENISON. Do they have uniform rates?
Mr. JACKSON. No, sir.
Mr. DENISON. Different companies have different rates ?
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RETURN OF THE WIRE SYSTEMIS. 13
Mr. SIMs. I reached the natural conclusion that the logic of your
statement would be that so far as the local telephones are con-
cerned, so far as those operating wholly within the States are con-
cerned, they should not be interfered with or controlled by national
legislation. -
Mr. JACKSON. Yes, sir.
Mr. SIMs. Therefore, you see no reason for retaining them in Gov-
ernment control for the purpose of trying to work out legislation
touching intrastate wire transmission.
Mr. JACKSON. No reason at all with regard to intrastate, and I
do not think any legislation should be put through which can be
construed on any interstate basis as taking away intrastate rights.
Mr. SIMs. I further understood you to say that you are in favor
of the States, as a general proposition, retaining all the powers they
have to regulate interstate commerce in so far as they have juris-
diction to do so.
Mr. JACKSON. They do not regulate interstate commerce that I
know of. - -
Mr. SIMs. Well, indirectly in some respects they do.
Mr. JACKSON. We do not assume to do so.
Mr. SIMs. Does not your exercise of police powers indirectly affect
interstate commerce :
Mr. JACKSON. I do not think so. If you gave to “interstate com-
merce” that broad construction, you would simply deprive the State
of all police power whatsoever. Of course, the States still have police
power over railroads, grade crossings, and things of that sort, and
that could be considered in a railroad matter as taking away inter-
state jurisdiction, but I do not think it is in any way, shape, or
Iſla,D.I) 01". - -
Mr. SIMs. Has it not been held that the fixing of a rate is a police
matter 7
Mr. JACKSON. I think it is a police matter.
Mr. SIMs. And therefore that is very material both to intrastate
and interstate commence 2
Mr. JACKSON. Yes. Of course, I do not think the line between
interstate and State commerce has yet been obliterated.
Mr. SIMS. I want to say most frankly that so far as I am con-
cerned, I am in favor of the States retaining all the powers they have
and exercising them when the public interest seems to demand it,
not only with reference to wires, but with reference to railroads or
any other public utility.
Mr. JACKSON. Yes; I understood that that used to be your
position. -
Mr. SweET. Mr. Jackson, you are simply asking for the return of
the telephone companies to their private owners?
Mr. JACKSON. Yes.
Mr. SWEET. And you are not suggesting any legislation here rela-
tive to their return as to any compensation or damages or anything
of that kind, while they were under Federal control %
Mr. JACKSON. Well, if the Government, which took them over,
may owe them something, I am not here opposed to the Government
paying them. Although, of course, I will say frankly that I think
this a case where the woman proposed and §e man accepted more
than anything else. I do not think it is a case where the Government
14 RETURN OF THE WIRE SYSTEMs.
went out and seized them as much as it is a case of the telephone
º wanting to be seized. -
Mr. SWEET. You are not asking for any compensation, however,
at this time
Mr. JACKSON, I have not said anything about compensation. You
mean for the telephone companies? . -- - -
Mr. SWEET. Yes.
Mr. JACKSON. I understand the telephone companies claim now
that under their contracts they have not been compensated and that
the Government has not had revenue enough to compensate them.
I do not know whether that is true or not. I suppose the Govern-
ment will carry out its contracts. I do not know whether they will
or not. I had not come here to offer suggestions on that particular
point, being more interested in some of the more vital things, as it
seemed to me. I do not know what that situation is.
Mr. SweF.T. You are simply advocating the return of the companies
to their private owners. -
Mr. JACKSON. Yes. Of course, I have read. Mr. Kingsbury's
statement in the paper this morning as made before the Senate com-
mittee yesterday, and I understand he says that more money is
needed to compensate them. I do not know what the situation is.
The CHAIRMAN. Is Mr. Kingsbury present 7
Mr. KINGSBURY. Yes. {
The CHAIRMAN. We would like to hear you, Mr. Kingsbury.
Mr. MONTAGUE. I would just like to ask Mr. Jackson one question.
Mr. Jackson, you spoke of a resolution passed by the legislature of
your State. - -
Mr. JACKSON. Yes, sir; I have not them with me but I know they
were passed. -
Mr. MonTAGUE. Would you put in the record these resolutions as
a part of your remarks? s
Mr. JACKSON. Yes. -
(The resolutions referred to follow:)
JOINT RESOLUTION Relating to relinquishment of Federal control of the telephone systems.
Whereas the telephone industry is essentially a local business and 90 per cent of tele-
phone toll transactions are carried on and completed within a radius of 35 miles of
the local exchange; and -
Whereas there are in Wisconsin a large number of telephone plants owned, controlled,
and operated by local interest; and -
Whereas the results of Government operation of the telephones have been to deny to
the public in many localities adequate telephone service and to work hardship to
many telephone users and to hamper the telephone companies of Wisconsin by
unnecessary restrictions which have produced a loss of revenue and which have
engendered lack of confidence on the part of the public in the telephone business
and have produced great confusion in the operation of telephones; and
Whereas it appears to be the present plan and policy of the Federal Government to
seek authority to continue Federal operation of the telephones, which continued
Federal operation, we believe, will result in the entire elimination from the field
of the independent telephone companies of Wisconsin; and
Whereas if any actual occasion ever did in fact exist for the taking over of the tele-
phones by the Federal Government, such occasion by reason of the practical cessa-
tion of war operations has now become nonexistent: Now, therefore, be it .
Resolved by the assembly, the Senate concurring, That we request the Congress to take
the necessary steps to bring about the immediate relinquishment of all control of the
telephone systems by the Federal Government, and for the restoration of the status
which existed in the telephone business prior to July 16, 1918; and be it further
* . .
RETURN OF TEIE WIRE SYSTEMIS. 15.
r-
Resolved, That a copy of this resolution be transmitted to the President of the
United States to Albert Burleson, director of telephones and telegraphs, to John A.
Moon, chairman of the Post Office Committee, and to the Senators and Representa-
tives from Wisconsin.
EDwARD F. DITHMAR,
President of the Senate.
O. G. MUNSON,
Chief Clerk of the Senate.
RILEY S. YoUNG,
Speaker of the Assembly.
C. E. SHAFFER,
Chief Clerk of the Assembly.
STATEMENT OF MR. NATHAN C. KINGSBURY, WICE PRESI-
DENT AMERICAN TELEPHONE & TELEGRAPH CO., 195
BROADWAY, NEW YORK CITY.
The CHAIRMAN. Mr. Kingsbury, state your name and position and
official address. - - -
Mr. KINGSBURY. My name is Nathan C. Kingsbury; I am vice
president of the American Telephone & Telegraph Co.
The CHAIRMAN. And your office address?
Mr. KINGSBURY. No, 195 Broadway, New York City.
The CHAIRMAN. How much time will you need, Mr. Kingsbury'. . .
Mr. KINGSBURY. I do not need very much time, Mr. Chairman, for
my statement. It depends on how many questions the committee,
wishes to ask. I do not know about that, of course.
The CHAIRMAN. Do you wish to make a statement without inter-
fºuption 7 -
. KINGSBURY: No, sir; I do not mind interruptions at any time
the committee wishes to ask questions. Do you wish me to proceed
with a statement, sir? -
The CHAIRMAN. Yes. . . -
Mr. KINGSBURY. We understand from the bill which has been
introduced that Congress is giving its consideration now to the,
immediate return to the owners of the telephone companies which’
were taken over under the resolution of July 16, 1918, by the Presi-
dent on August 1, 1918. - -
In our opinion to do this without a proper understanding of the
situation in which the telephone companies find themselves, and
without passing some legislation to protect the revenues of the tele-
phone companies would result in a demoralization of the telephone
service, in the impairment of the credit of the telephone companies,
and serious financial embarrassment to most, if not all, of the tele-
phone companies of the country. " .
I, of course, am addressing myself to this matter from the stand-
point of the Bell system. w - e
During the period of Government control our expenses have been.
largely increased in three important directions. Take first, if you
please, the question of wages, and we find that during the last few
years our wages have been increased by large amounts. . -
In 1915 we increased wages $7,000,000; in 1916, $8,000,000; in
1917, $18,000,000; in 1918, $20,800,000; and in 1919, for the first
three months of the year, $11,200,000, making a total increase in
wages of $65,000,000 in round figures.
Mr. DENISON. That is per annum, is it
16. RETURN OF THE WIRE SYSTEMIS.
Mr. KINGSBURY. That is the rate per annum. The present pay roll
of the Bell system is $175,000,000 per annum.
Now, on the basis of the 1915 rates of pay with the number of
employees we have to-day, our present pay roll would be only $110,-
000,000. We have, therefore, increased our expenses for wages over
50 per cent. -
There have also been marked increases in the cost of materials
incident to building a telephone plant and maintaining that plant.
Take first the question of raw materials. The average increase in
the cost of raw materials in 1915, for instance, over the average cost
for the same materials in 1914, was 25 per cent. The increase of the
cost for those materials in 1916 over 1914 was 85 per cent; the increase
in 1917 over 1914 was 100 per cent. In 1918 that increase dropped
back to 90 per cent over the average figures for 1914, and for the first
three months in 1919 it dropped back to 50 per cent of the average
increase of 1914. •.
The CHAIRMAN. Was that due to the reduction in the cost of
copper ?
Mr. KINGSBURY. Largely, sir, because copper enters very largely
into the construction and maintenance of telephone properties. A
large item in that reduction, and in the increases also, would be in
the cost of copper. Now, so much for raw materials.
When it comes to manufactured materials, the increases are not
quite as large. We manufacture largely our own equipment. Our
manufacturing concern has absorbed a portion of the increase in
expense on manufactured materials, so that the increase in cost on
the manufactured materials manufactured by our own concern is
only 25 per cent above the cost of 1914.
When it comes to lead-covered cable, which forms a large item in
our purchases, those cables being used underground and for aerial
work as well, the increase in cost is 45 per cent. That increase in
cost goes up automatically with the increase in the price of lead and
COOO61”.
}. materials which we purchase from other manufacturers and
do not manufacture ourselves, the cost has increased 75 per cent over
the prevailing prices in 1914.
ow, besides that, the other great item of expense has been the
increase in the cost of capital. Telephone companies are a little dif-
ferent from almost any other kind of company. Every time a man
wants a new telephone, it normally requires an investment on an
average of approximately $150. It is not like building a building
and then renting it. You have got to keep on building all the time
every day. It is different from the telegraph companies in that par-
ticular. While, of course, they continue to extend their plant, it is
not anywhere near in the same proportion as it is necessary for tele-
phone companies to continually extend, and therefore to continually
need large amounts of new capital.
During the first three months of this year, for instance, we have
increased our numbers of telephones 168,000. If you will multiply
168,000 by $150, you will see what that means with respect to the
constant demand and necessity for new capital. We have to go
into the financial markets and procure that capital. Previous to the
war our credit has always been good, and we were able to get capital
at a comparatively low rate of interest; but during last year, for
RETURN OF THE WIRE SYSTEMS. 17
instance, we had to raise at one time about $50,000,000 of new capital.
It was during the time when the Capital Issues Committee, Organized
under the Federal Reserve Board, had charge of the issuance of new
capital, and it was necessary for us to go to that committee to explain
the need for the money; and it had to be based on war needs,
because ordinary commercial needs were not very much considered
by that committee at that time. We had no difficulty in showing the
committee that the greater amount of that capital was required
because of war necessities; as a matter of fact, much more than half
of it. We spent about $14,000,000, for instance, in the city of Wash-
ington and its vicinity, and in adding new cables and wires and
switchboards for connecting Washington by long-distance equipment
with the rest of the country. My recollection is that that capital
cost us over 7 per cent.
I think it was in January of this year that we had to raise
$65,000,000 of new capital. -
Mr. BARKLEY. Was that $50,000,000 you speak of, when you went
before the Capital Issues Committee, before or after the Government
took them over ?
Mr. KINGSBURY. I think that was before Federal control, sir.
In January of this year, as I was saying, it was necessary to raise
$65,000,000 more of new capital. That capital cost us 6% per cent.
Now, not only is it true
Mr. MERRITT. How does that compare with prewar rates?
Mr. KINGSBURY. It is nearly 2 per cent higher, sir.
Not only is it true that we have to have constantly new capital—
and we shall probably have to have $25,000,000 more this year—
but when you get that new capital under present conditions
it will not do what the same amount of money would have done
before we had these war conditions. For instance, I should say that
under ordinary conditions the Bell system has required, and would
probably in the future require, something like $40,000,000 in new
capital each year. Now, that $40,000,000 of capital at the present
time would not be sufficient to meet the requirements, and in order
to do the same amount of work that we have been doing in the past
with $40,000,000 we should have to have $60,000,000 to meet pres–
ent increased prices of materials and wages. -
So we have got these three items—wages, cost of material, and cost
of capital, and in the cost of capital you must figure the necessity
for more capital to do the same amount of work than we have ever
needed before.
Up to the time we went to war in 1917 it had been possible to get
along without large increases in revenue. True, there had been
increases in expenses, but for the most part we were able to meet
those increases in expenses by increased efficiency; and by that I
do not mean only the increase which every man and woman was
expected to bring about by doing more work, but I mean also increased
efficiency in plant, in the method of transacting business, in the
facilities for passing more business over the same amount of plant,
and all other matters that might come under the general term of
increased efficiency; but it was getting apparent to everybody in
the telephone business that large increases in revenue were becoming
necessary in order to meet the increases in expenses. So we started
121695–19—2
18 RETURN OF THE WIRE SYSTEMS.

in on a nation-wide program for the raising of telephone rates. Our
plans were all perfected, and up to the time that the Government
took over the properties on August 1, 1918, we had been to the
proper regulatory bodies in the United States and had succeeded in
getting increases in rates aggregating somewhat over $6,000,000 per
annum. That was only the beginning of our plans.
MºBakkºry. Was that for all the telephone systems, or just
OUITS 6
y Mr. KINGSBURY. Only ours. These figures are only for the Bell
system, I might say. We had plans and necessity for still larger
increases and were going ahead in the process of securing them.
Before many commissions we had already had hearings. In several
instances the commissions had informally indicated that we had made
out good cases, and we expected to get increases; but when the Gov-
ernment took over these properties on the 1st of August that all
stopped. The question then immediately arose as to where, under
the joint resolution of July 16, the rate-making power actually re-
sided. The officials of the Government thought it resided with them.
The State commissions generally thought it remained with them, and
from that time to this there has been in many States serious contro-
versy on that legal question. The case is now before the Supreme
Court of the United States, and a decision is expected shortly. Of
course, what that decision will be nobody knows.
If the decision is in favor of the Government, the rates which have
been promulgated, put into effect, under the Orders of the Postmaster
General, will continue to be the legal rates so long as the properties
remain operated by the Government. If the decision should be
against the Government that will mean that the rates which have
been ordered during the period of Federal control by the Government
will be illegal rates, and the revenue from those rates will be taken
from the companies. In some States, in order to get rates accepted
by the commissions, the companies have agreed to refund the amounts
of the increases provided the decision is against the Government.
º DENISON. Has the Bell system made any agreement of that
&IIlCl
Mr. KINGSBURY. Yes, sir. Not the system as a whole, I should
say, Mr. Congressman, but several of the operating companies in the
Various States of the Union have made those agreements.
Mr. WATSON. How many miles of new lines have been constructed
since the period of Government control?
Mr. KINGSBURY. Since Government control %
Mr. WATSON. Yes.
Mr. KINGSBURY. Well, I do not think I have those figures. I think
my assistant here can get them for me very easily, however. -
Mr. WATSON. Did not the miles of new lines which were con-
structed greatly increase your revenue under war service?
Mr. KINGSBURY. Yes, sir.
Mr. WATSON. You stated that the wages had been increased more
than 50 per cent. Have you any data to show what your revenue
has increased since Federal control because of the extra Service
required by the Government 7
Mr. KINGSBURY. I will come to that a little later on, then if it is
not sufficient, I will give you anything else you want.
RETURN OF THE WIRE SYSTEMIS. º 19
Of course the great increase in business occurred in 1916, 1917,
and 1918. There was a little larger increase in business incident to
the war before the period of Government control than afterwards.
In other words, it reached high level before August 1, 1918. And
increases since then, I mean increases in business, have not been as
great. There was a brake, so to speak, put on those increases by the
institution of a connection charge, which was put on in order to de-
crease the amount of new business which was being offered. It was
not possible for us to get sufficient supplies, materials, and labor to
keep up with the demand for new telephones, and it was also neces-
sary for the companies, with the exorbitant prices they had to pay
for material and labor, to get some assistance in carrying the burden
of expense incident to the demands of new subscribers, and for that
reason there was instituted a connection charge.
Mr. HAMILTON. Does that mean that you had more business than
you could take care of, and you put on this connection charge to
prevent an increase in business 2
Mr. KINGSBURY. Absolutely so.
The CHAIRMAN. Wasn't one reason for that action the needs of the
Government 7
Mr. KINGSBURY. Certainly. We could not get material from the
War Industries Board, which denied materials to us again and again.
We could not get materials for buildings that we had to construct.
As an illustration I might say that we could not even get steel for a
building at as important a place to the Government as Norfolk
during the war, and we were just shut right down upon. I also
might add that we did not put on these connection charges; the
Government put them on.
Mr. BARKLEY. Where a new phone was put in, you charged a certain
amount for putting it in, and also for taking it out?
Mr. KINGSBURY. No; a certain amount to change it from one place
to another, but there is no charge for taking it out.
Mr. BARKLEY. A man told me the other day that he was charged
$10 to put a phone in, and then three weeks thereafter he wanted it
takén out and was charged $5 for that.
Mr. KINGSBURY. He was mistaken in thinking that he was charged
anything for taking it out, or if he was charged for such a service there
must have been some mistake. • *
Mr. BARKLEY. If he was so charged, then it was a disconnection
charge instead of a connection charge.
Mr. KINGSBURY. There was no disconnection charge made. He
may have had his phone moved from one place to another, and might
have been charged for that service.
Mr. WINSLow. What is the effect of that connection charge in
regard to new subscribers? **
Mr. KINGSBURY. It was to depress the demand for the installation of
new telephones, and right away.
Mr. HAMILTON. That was one purpose of it 2
Mr. KINGSBURY. Yes; perhaps the principal purpose.
Mr. HAMILTON. What was the effect on the number of new sub-
Scribers obtained 3
Mr. KINGSBURY. For the last quarter of 1918, which was the first
quarter during which this connection charge was in effect, the Bell
system lost 12,538 subscribers. In the present quarter, the first
20 RETURN OF TEIE WIRE SYSTEMS.
quarter of this year, during which time that connection charge has
been reduced to $3.50 a station, we have gained 168,000 subscribers.
as I said a while ago. So you can see the deterrent effect of that
DOlea,SULT6.
Mr. HAMILTON. Didn’t you want to gain these additional sub-
scribers?
Mr. KINGSBURY. No; we could not take care of them, and we were
losing money on every one put in. The Government would not let
us have the necessary materials to build the equipment to take care
of the subscribers; it just wasn’t here to be had.
Mr. HAMILTON. But a subscriber simply talks over existing lines,
doesn’t he? w
Mr. KINGSBURY. Yes; but he has to have one built to talk over.
Mr. HAMILTON. I beg pardon; but I did not hear your answer.
Mr. KINGSBURY. I say he has to have one built to talk over.
Mr. HAMILTON. You mean he simply has to have a telephone 3
Mr. KINGSBURY. Oh, no; not simply a telephone. Wires run from
the telephone to the central office switchboard, to which are con-
nected cables, which connect that office with every other office in the
exchange, and everything of that kind that goes into the building
up of a telephone plant. t
Mr. HAMILTON. In a large number of cases isn’t it simply the
attaching of a telephone to a wire and of using the general line going
to that particular building 3
Mr. KINGSBURY. By no means. The smallest part of a telephone
equipment for the installation of a telephone is what you see there
before you on the desk, which costs about $10. That is about one-
fifteenth, practically speaking, of the value of the equipment required
for that telephone to talk in the city of Washington. You see only
one-fifteenth of the cost there before you, practically speaking.
Now, gentlemen of the committee, I want to make it very clear that
this connection charge was not instituted by the companies but was
instituted by the Government.
Mr. HAMILTON. Well, the companies, as a matter of business,
would not have discouraged subscribers, would they'.
Mr. KINGSBURY. I think we should have discouraged subscribers
in every way we possibly could. e
Mr. MERRITT. Not in normal but in abnormal times.
Mr. KINGSBURY. Oh, no; we are talking about times and condi-
tions when we were at war.
Mr. HAMILTON. It will not be the policy of the companies to dis-
courage subscribers from now on ? -
Mr. KINGSBURY. Not if we can get capital enough to build lines.
If we can not it will; and it was suggested to me by a United States
Senator this morning that that was the thing for us to do if we found
ourselves in trouble in getting capital; that we should simply tell
the people they would have to wait, that we can not get capital and
therefore they can not get service. That was suggested to me this
gº by a member of the Interstate Commerce Committee in the
enate.
Mr. HAMILTON. Your argument is, then, that the business doesn’t
pay and that it is just as well to go out of the business in part.
Mr. KINGSBURY. Telephone companies can not go out of business,
RETURN OF TEIE WIRE SYSTEMS. 21
Mr. HAMILTON. I said in part. You are going out of business by
so much if you discourage connections.
Mr. KINGSBURY. We are speaking now of abnormal times.
Mr. HAMILTON. Exactly.
Mr. KINGSBURY. We are not speaking of normal times.
Mr. HAMILTON. I understood that, but I asked you what the
policy of the companies would be hereafter. s
Mr. KINGSBURY. The policy of the companies hereafter will be to
serve the public to the very tº of their ability, and that of course
includes taking care of new subscribers and new business as offered.
Mr. WINSLOW. Do you expect in the course of your statement to
make any comparison of the service as rendered under Government
direction as contrasted with service under your own companies’
direction ?
Mr. KINGSBURY. No.
Mr. WINSLOW. Well, then, would you mind a question on that
right now %
Mr. KINGSBURY. No, sir. -
Mr. WINSLOW. To what extent has Federal management changed
the methods of operating, of your service rendered the public 3
Mr. KINGSBURY. It has not changed it at all. -
Mr. WINSLOW. To what extent has it changed the personnel of the
managers of the company? -
Mr. KINGSBURY. So far as our system is concerned, it has changed
it very little indeed. I lost my job as the manager of the long-dis.
tance lines, but that has not hurt the service a particle. I have not
gone with the Government; I have no connection with Government
administration whatever. My work is all with the corporation.
Mr. WINSLOW. Do you expect finally to make a statement as to
what the Government has really done in connection with operating
the telephone companies } -
Mr. KINGSBURY. I am very willing to do it, and will give it right
now, if you wish. - -
Mr. WINSLow. Yes; I would like to have you go ahead.
Mr. KINGSBURY. So far as the Bell system is concerned, the Govern-
ment has requested that the operating officials of the various com-
panies carry on the operations of those companies as agents of the
Government. Is that clear?
Mr. WINSLow. Well, it is clear enough, but it does not say anything.
Mr. KINGSBURY. Well, that is all there is to it.
Mr. WINSLOW. I want to know if Government officials have butted
into the operation of the telephone matters. ... I want to know what
orders they have given you that appeared to be revolutionary, bene-
ficial, or otherwise; not in detail, but generally.
Mr. KINGSBURY. They have not interfered in any sense with the
operation of our companies. The operations have been carried on
by exactly, almost without exception, the same men and women that
carried them on before the period of Government control.
Mr. WINSLow. Well, leading on a little further, let me ask to what
extent have they introduced, recommended, or brought about
changes in operation or cost of installation which has either increased
or decreased the revenues of the company?
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RETURN OF THE WIRE SYSTEMS. 23
yesterday before the Senate committee that he repeatedly asked the
committee to give me an opportunity to appear in opposition to that
bill, but that the Senate repeatedly refused to hear me. Several other
Senators were present at the time, I am very glad to say, who were
also present on yesterday before the Senate committee, and assented
to the same condition of affairs, last year; that is, that I had asked for
an opportunity to appear before the committee, but that request was
denied. -
The CHAIRMAN. I did not understand your statement that you
were denied a hearing before this committee last year; did you mean,
before the last Congress? *
Mr. KINGSBURY. Yes, sir.
The CHAIRMAN. With reference to what proposition ?
Mr. KINGSBURY. In reference to the joint resolution.
The CHAIRMAN. That was last July 7
Mr. KINGSBURY. Yes, sir.
The CHAIRMAN. I was not aware that any request had been made
to the committee for a hearing.
Mr. KINGSBURY. We tried to get in a request through various
members. -
Mr. MONTAGUE. It is the first I have heard of it.
Mr. BARKLEY. It is the first I ever heard of it.
Mr. HAMILTON. I suppose you made your request to the chairman
of the committee 7
Mr. KINGSBURY. It was out of the committee before we could get
a chance to be heard.
Mr. HAMILTON. Then it got in and got out of the committee so
rapidly that you did not arrive in time, is that the situation ?
Mr. KINGSBURY. Yes; we did arrive in time for the Senate com-
mittee, but could not get in there either.
Mr. HAMILTON, Well, this committee moved very rapidly.
Mr. KINGSBURY. Yes, sir.
Mr. WINSLOw. Will you kindly state whether or not in your judg-
ment the control of your business by the Government injured the
service rendered by the company in any way, or benefited the service
in any way ?
Mr. KINGSBURY. You mean by “service” the giving of service º
Mr. WINSLOW. I mean the whole well-being of the telephone serv-
ice from any viewpoint.
Mr. KINGSBURY. I think it injured the service of the companies,
but not to any very great extent. The reason it injured the service
of the companies was because it depressed the morale of the operating
forces. People were uncertain as to their tenure of office; they did
not know . was going to happen. There was a great deal of
talk about a complete revolution in the affairs of the companies. We
lost Some good men. At the same time, it is very difficult to say how
much that interfered with the service, because at that same time
we had over 18,000 people in the Army and the Navy, and they were
people who could not be replaced; the services of those people were
missed; in fact, sorely missed, in the affairs of the companies. So it
is that I say, how much you can attribute to the loss of morale inci-.
dent to Government operation, and how much to the loss of those
pº people who were in war service, is very difficult for any-
Ody to state with any exactness.
24 RETURN OF TEIE WIRE SYSTEMIS. ,
Mr. WINSLow. Subject to all of the influences of the times, to
what extent, if any, did the orders coming out of the Government,
and to which their power was attached, interfere with the good serv-
ice and well being of the company'
Mr. KINGSBURY. I do not . it interfered very much.
Mr. WINSLow. Did it help it any ? *
Mr. KINGSBURY. I do not think it helped. I was trying to think
of some order that might have helped in the way of giving service,
but I do not think of any.
Mr. WINSLOW. Isn’t it fair to assume that the coming and going
of Federal administration is virtually a negative movement, both
in and out 7
Mr. KINGSBURY. If you address your mind entirely to service.
Mr. WINSLOW. Well, to the well-being of the public and everything.
Mr. KINGSBURY. Well, that is too broad a question to answer yes
or no. I would rather go ahead with my statement on that, if you
please.
Mr. WINSLOW. All right.
The CHAIRMAN. You may proceed.
Mr. KINGSBURY. I said that up to the beginning of Federal control,
August 1, 1918, we had succeeded in increasing rates throughout the
country to the extent of $6,000,000 annually. But with the period
of Federal control our plans were necessarily dropped. We had
nothing further to say in regard to rates. It was then a question as
to whether the Postmaster General or the various State commissions
had the rate-making power. But during that period of five months
our increase in sº went right on. And as I have already testified,
during that period of five months wages were increased more than
$11,000,000; I mean the five months $etween August 1, 1918, and
December 31, 1918. Those were increases by the Telephone Ad-
ministration of the Post Office Department. Now I do not mean by
increases in wages those natural increases that are occurring all the
time in the telephone business, where an operator or a man goes from
one grade of service to another, and his pay thereby increases, but I
mean increases in the basic rates of pay.
Now, since January 1, 1919, that is, for the first three months of
this year, wages have been increased another $11,000,000, so that
during the period of Federal control the wages of the Bell system
have been increased $22,600,000.
b Mr. WATSON. Will you state what the increase in revenue has
een 7
Mr. KINGSBURY. Yes, sir; I am coming to that. All of these
increases in wages, of course, are in addition to increases in cost of
materials and in cost of capital. Now, during the period of Govern-
ment operation—and this is the point you want, sir—our rates have
been increased so as to increase the revenue $23,750,000 annually,
which is about 7 per cent on the gross revenue of our system. I need
not tell you gentlemen how much other things have been increased,
railroad rates for instance, but I want to call your particular atten-
tion
Mr. WATSON (interposing). May I ask you if you desired to express
that the revenue last year was increased $23,000,000%
Mr. KINGSBURY. Yes. No; wait a minute. Since the beginning
of Government control, August 1, 1918, the increases in revenue, if
they continued for a year, would amount to that sum.
RETURN OF TEIE WIRE SYSTEMIS. 25.
Mr. WATSON. They have been at that rate }
Mr. KINGSBURY. Yes, sir. -
Mr. WATSON. At the rate of $23,000,000 a year?
Mr. KINGSBURY. At the rate of $23,750,000 a year for the Bell
system. Now I want to call your particular attention to the small
percentage, that is, on the gross revenue of the system. It is just
about 7 per cent.
To continue, the situation in which we find ourselves is this: We
have got this increased revenue. It just about takes care of the
increases in wages. It does not take care of the increases in the cost
of materials or the increase in the cost of capital.
The CHAIRMAN. Do you think that both will continue to increase,
or will hold their present level?
Mr. KINGSBURY. I think they will hold about their present level.
I do not believe that material or capital for some years to come will
get back to the prewar level. Whether they will stay as high as they
are now would be only a guess on my part and, I believe, on almost
anybody's part; but I think it quite evident, from all the indica-
tions that we can get, that neither capital nor materials are going
back within the next few years to their prewar level. Now, our
situation is this: We have got these rates; we have got these wages;
we have got these increases in expenses. But rates are in jeopardy
for two reasons: First, because the decision of the Supreme Court
of the United States is uncertain, and, secondly, even if the decision
of the Supreme Court is in favor of the Government, if Congress
should hand back the properties to their owners without some reme-
dial legislation, those rates will immediately be attacked by the com-
missions and will probably go back to the pregovernmentally
controlled level. Mr. Elmquist, president of the National Association
of Railway and Public Utility Commissioners, testified before the
Senate Committee on yesterday that in his opinion at the end of
Federal control these rates would go back to the level of the com-
mission rates which were in effect before Federal control, and that
is our fear.
Mr. BARKLEY. Just a question there. Is it your contention, or
was it his, that rates legally fixed by the power having authority to
fix rates during Government control would automatically drop back
upon the assumption of private control without any act by Congress'
Mr. KINGSBURY. Mr. Elmquist is here to speak for himself, and if I
do not correctly state his position I hope that he will set the matter
right, but I did not gather that as just his opinion. I understood
that his opinion was that where rates have been legally fixed during
the period of Government control they would of course continue to be
legal rates, but where rates have been established by the Government
without any action by a State commission those rates would drop
back to the prewar basis.
Mr. CHARLEs E. ELMQUIST. I am sure, Mr. Chairman, Mr. Kings-
bury does not wish to misquote anything I said before the Senate
committee on yesterday. What I did state was this: That in my
opinion when these wires are restored to private ownership that the
legal rates will be those rates which were in effect upon intrastate
commerce at the time the Government took them over. That is a
legal proposition. The practical proposition, of course, is for the
State commissions immediately to consider what to do with the rate
26 RETURN OF THE WIRE SYSTEMS.
structure that they then have filed with them. The legal question
is one thing and the practical consideration of the matter is entirely
another thing. I will deal with that problem when I testify before
this committee.
Mr. HAMILTON. For my information, what fixes what you call the
legal rate %
Mr. KINGSBURY. That depends upon what State or what city the
property is in. If it is an intrastate rate, in any State where the
commission controls the rate, then that commission would control
the situation. *
Mr. HAMILTON. That would be true in how many States?
Mr. KINGSBURY. In about 45 States. *
Mr. HAMILTON. Where it is in a State where a commission does
not control the matter, what power controls what you call the legal
rate
Mr. KINGSBURY. In the State of Texas, for instance, and I believe
I am right in this, that power lies with the cities if they see fit to
exercise it.
Mr. HAMILTON. With the cities of the State 3
Mr. KINGSBURY: Yes, sir; I think that is right.
Mr. RAYBURN. Yes; that is true.
Mr. KINGSBURY. In the State of Iowa. I think that power also
resides with the cities.
Mr. HAMILTON. Does that mean that one city may have one rate
and another city another rate .
Mr. KINGSBURY. Yes, sir.
The CHAIRMAN. I think they have that situation in Tennessee,
haven’t they, Judge Sims ?
Mr. Šms. I could not answer as to that.
Mr. KINGSBURY. They have recently passed a commission law,
I believe.
Mr. BARKLEY. The same rule applies in Kentucky, very largely.
City councils have the power to regulate rates.
Mr. HAMILTON. Isn’t that an illogical way to arrange rates ?
Mr. KINGSBURY. I do not think so.
Mr. HAMILTON. In that way one city will have a certain rate and
another city will have another rate, and yet conditions may be
substantially the same.
Mr. KINGSBURY. That may be true, and under such conditions it
would be illogical, if the cities and the telephone service were about
the same. But conditions in the various cities are most apt not to
be alike. It costs much more to build and operate a telephone
plant in some cities than in others. The size of the service has a
§º deal to do with the cost of the service. For instance, rates in
ew York are necessarily on a very different basis from rates in a
Small town, and the service is a very different service.
Mr. HAMILTON. Exactly.
Mr. KINGSBURY. A telephone subscriber in New York would con-
nect with something over 500,000 other subscribers, while in some
little town a subscriber might not be able to connect with more than
1, or with 5, or with 10, or perhaps 100,000 subscribers. In that
case you have a very different question of cost with respect to
giving service and building a plant.
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28. RETURN OF TEIE WIRE SYSTEMS.
Mr. MONTAGUE. Do you call each one a subsidiary company ?
Mr. KINGSBURY. Yes, sir.
Mr. MoRTAGUE. So the Southern Bell Telephone & Telegraph Co.
is an operating company itself in a number of Southern States?
Mr. KINGSBURY. It is an operating company itself, and does
business in a number of States in the South. It has its own officers
and board of directors.
Mr. MonTAGUE. And you have that one corporation for several
Southern States ?
Mr. KINGSBURY. Yes. I want to say in regard to the use of long-
distance lines that, of course, our associate companies, which are
operating companies, and we call them our associate companies,
originate the long-distance business. The American Telephone &
Telegraph Co. has no exchanges and no subscribers. A subscriber of
an operating company originates the long-distance call. If it is
over the lines of the A. T. & T. Co., the A. T. & T. Co. handles that
call. The operating company collects the money from the sub-
scriber in payment for the call, and receives for its services a per-
centage of the amount it collects for the call. That is the method of
that computation. -
Now, gentlemen of the committee, the difficulty of our situation is
the uncertainty as to what is to occur to these increases in telephone
rates. We have no uncertainty as to what is to happen to wages.
We can not decrease wages $22,000,000 when the properties are
materials. There is no existing uncertainty as to increased expenses,
handed back to us. We can not control the price of capital or of
but the uncertainty confronting us is as to what we can do as to
increases in rates. It takes some time to get increases through
State commissions. I could not estimate just how long it may
take, but sometimes it does take years to get a case before a com-
mission and get a decision from the commission.
Mr. HAMILTON. I suppose the average commission leans to the
interests of the average subscriber, the public generally, does it not ?
In other words, it is inclined to keep rates as low as possible for the
benefit of the public?
Mr. KINGSBURY. I think the average commission leans that way,
Mr. HAMILTON. Certainly, but I was trying simply to ascertain
the facts.
Mr. KINGSBURY. The commission is there to protect the sub-
scriber, and I think on the whole commissions mean to be absolutely
fair and honest.
Mr. HAMILTON. Certainly.
Mr. KINGSBURY. I should be perfectly willing, for instance, for
every telephone rate in this country to be studied by the Wisconsin
commission and to be made by that commission. I have never
heard any criticism on the part of telephone companies of any de-
cision made by the Wisconsin commission. And that does not mean
that the Wisconsin commission has failed to be alive to the interests
of the public. But it does mean that it has from the very beginning
of its existence studied carefully and systematically the questions of
telephone practice and rates. And there are many other commis-
sions in the country that are just as good as the Wisconsin commis-
SIOI).
-- ~~
RETURN OF TEIE WIRE SYSTEMS. 29
Gentlemen of the committee, my attitude here is not one of criti-
cism of State commissions. Far from it. It is one of extreme
anxiety because of the uncertain condition in which we now find
ourselves. If these properties are simply dumped back onto the
owners and nothing is done to validate present rates and present
wages are going to stay, and present costs of materials and capital
are going to remain, we are not going to have the revenues neces-
sary to meet these increases in expenses. e
Now, gentlemen of the committee, I anticipate some questions
will be asked in regard to dividends, interest, and all that sort of
thing... I want to say just a few words for the Bell system along
those lines.
Mr. MONTAGUE. Before you leave that subject, I would like to get
a little better in my mind one question: What is the gross income
of the Bell telephone system 7
Mr. KINGSBURY. About $350,000,000 a year.
Mr. MoWTAGUE. What is the total of the expenditures?
Mr. KINGSBURY. Well, now, I am just coming to that.
Mr. MONTAGUE. All right, I beg your pardon.
Mr. HAMILTON. Before you pass to that, and following the line of
what you were just saying a moment ago, and for illustration so that
we who have no technical knowledge of these matters may more
easily understand them, let me ask: Take a telephone exchange in a
town, say, of about 10,000 inhabitants; as to your operators, what has
been the range in wages in such a town'.
Mr. KINGSBURY. Well, Mr. Congressman, that would vary greatly
in different places, in different cities, in different sections of the
country. It would be almost impossible to give you an adequate
idea of that matter without furnishing you a book of figures.
Mr. HAMILTON. Do you mean to say that wages and salaries in
Michigan might be very different from wages and salaries in, say,
Tennessee and Kentucky : - -> -
Mr. KINGSBURY. Yes; and more especially in the rural districts.
Mr. HAMILTON. I was selecting a town of 10,000 people on the
assumption that that would give us an idea of the situation.
Mr. KINGSBURY. If you take towns of about the same size and
about the same sort of business, I do not suppose the difference
between Michigan and Tennessee would be great.
Mr. HAMILTON. I wouldn’t think it would.
Mr. KINGSBURY. It would depend a good deal on the local supply
of labor, if you are speaking of telephone operators?
Mr. HAMILTON. Yes.
Mr. KINGSBURY. That would depend greatly on the supply of
female labor. There are certain labor conditions where the rates
have been exceedingly high. Take, for instance, the city of Detroit,
where there has been a large demand always, or ever since I have
known about it, for female labor. There are a lot of overall factories
there, as you know, and a lot of other manufacturing establishments
which make a large demand for female labor. Rates have always
been high there. *
Mr. Hammon. That is due to local conditions.
Mr. KINGSBURY. That is due to local conditions, and those local
conditions do affect the situation all over the country.
30 RETURN OF THE WIRE SYSTEMs.
Mr. HAMILTON. Take a town like South Bend, Ind., a considerable
city, what would be the wages paid to operators there? \
Mr. KINGSBURY. I would rather be exact, if I can, and will ask my
assistant to get me that information.
Mr. HAMILTON. I shall be glad to have him do so. And while he is
getting that information, I will say that you spoke of rates and I want
to get at the matter from the standpoint of the individual. .
Mr. KINGSBURY. While he is getting that information let me say,
take Michigan, we have been trying I think for over five years to get
an increase in telephone rates in Detroit. They have not been in-
creased since 1900. In the interim that exchange has gone from an
exchange of 20,000 to an exchange at this time of nearly 120,000.
The wealth of Detroit has increased tremendously, by leaps and
bounds, still the city of Detroit will not permit us to have an increase
in rates, and we are losing money there every day of every year.
Mr. HAMILTON. At first blush one would think when your business
increases so greatly that your profits per unit, that is your aggregate
of profits per unit, would increase as the business increased and you
would not be compelled to ask an increase in rates.
Mr. KINGSBURY. It is not increased. The profit per unit decreases
as the number of units increases. - *
Mr. HAMILTON. I meant the aggregate of profits per unit.
Mr. KINGSBURY. The difficulty is that the larger the number of
units you serve in the telephone business, under conditions that exist,
requiring a larger and larger investment per unit, a larger and larger
operating cost per unit, that larger investment and larger cost goes
up so fast that the larger the number of units you serve, the more it
costs per unit to serve them. -
Mr. HAMILTON. Let us get at that for a moment, because to me
that is a very interesting proposition. v.
The CHAIRMAN. The hearing will have to suspend at this time, as
we must go over to the House.
Mr. HAMILTON. Mr. Kingsbury, I will suspend until we meet again,
when I wish to take this matter up more in detail.
The CHAIRMAN. Gentlemen of the committee, shall we meet again
to-morrow morning, at 10 o’clock, to resume this hearing . [After a
pause.] The Chair hearing no objection, the hearing will be resumed
to-morrow morning at 10 o’clock. I will ask the members of the
committee to remain a few minutes to consider a matter in executive
SGSS10]].
(And at 11.55 o'clock a.m. the committee recessed until to-morrow,
Saturday morning, May 31, 1919, at 10 o'clock.)
RETURN OF THE WIRE SYSTEMs. 31
COMMITTEE ON INTERSTATE
AND FOREIGN COMMERCE, -
Hous E OF REPRESENTATIVES,
Saturday, May 31, 1919.
The committee met at 10 o’clock a. m., Hon. John J. Esch (chair-
man) presiding.
STATEMENT OF MIR, NATHAN C. KINGSBURY, WICE PRESI-
DENT OF THE AMERICAN TELEPHONE & TELEGRAPH
C0.—Resumed.
The CHAIRMAN. Mr. Kingsbury, how much more time will you
need for your direct statement 7
Mr. KINGSBURY. I am practically through, Mr. Chairman, except
for questions. It will not take me more than a minute.
The CHAIRMAN. Very well, you may proceed.
Mr. KINGSBURY. I have the transcript of the testimony of yester-
day here, and Mr. Hamilton had just asked me a question, and if you
will permit me, I will read it, Mr. Hamilton:
At first blush one would think that when your business increases so greatly that
your profits per unit, that is, your aggregate of profits per unit, would increase as the
business increases, and you would not be compelled to ask for an increase in rates.
That is the question the reporter has down here, and I was about
to address myself to an answer to that question.
Of course, in general, as a telephone exchange in an American city
grows, the average investment per station increases. Suppose, Mr.
Hamilton, we take the city of Detroit, with which you and I are both
familiar. If the telephones located in the city of Detroit were within
the confines of that city as they existed 19 years ago, when we had
the last rate change in Detroit, we would have a very different con-
dition from what exists to-day, when as you know that city has
stretched out to the north and east and west tremendously. For
instance, just take the length of the line from the various central
offices to the subscriber stations, speaking of investment now, that
has increased very greatly. Besides that, as the city grows it is
necessary to install a larger and larger number of central offices
because a girl's arm is just so long, and as the manual switchboards
are constructed she can only reach about 10,000 stations with her
arm. So that when you get above that unit, or up close to that
unit—because you have got to keep some numbers always on your
switchboard for spares and you have got to keep some switchboard
space to make changes on your switchboard and to allow for some
growth within a certain area—when you get up above 7,000, you
ave got to begin to plan for another central office. Now, that
means not only a switchboard and the wires radiating from that
office, but it means the installation of very expensive lines which we
call trunk lines; connecting that new central office with every other
central office within the exchange area. I have forgotten the num-
ber of central offices in Detroit. I suppose there must be in the
neighborhood of 15, or perhaps there are more than that. So that
every new central office means that these large cables of copper wire
have got to extend from the new central office to every one of the
old central offices, so that you are constantly building up as your
32 RETURN OF THE WIRE SYSTEMS.
number of subscribers increases, and increasing in plant per unit
served. Do I make that clear?
Mr. HAMILTON. Yes; I catch that.
Mr. KINGSBURY. Besides that, your cost of operation is continu-
ally increasing. Where there is one office in a city, one operator com-
pletes a call. For instance, you put in a call in Niles—I think there
is only one office there—and the operator with whom you speak com-
pletes the connection. Now, just as soon as you get two offices or
more, you have to put in an entirely new set of operators which we
call B operators. Those operators are for the purpose of connecting
the two exchanges together. A subscriber never hears a B operator
or never should hear one. When you get a wrong number, it is gen-
erally because one operator has not understood the other operator in
passing the number you wish to the distant central office, or you have
been inarticulate somewhat yourself in putting in the call, and the
first operator has not understood you. R OW, the more central offices
that exist in an exchange the larger proportion of those B operators,
and the larger the proportion of calls that can not be completed in the
central office where they originate.
I have forgotten the exact figures, but in a large multioſfice like
New York, Chicago, or Detroit, 80 per cent would probably be a fair
percentage of the total number of calls which are not destined for the
office where they originate; that is, you call for some other exchange.
I simply mention that percenatge to show you the enormous percent-
age of calls that can not be completed in the exchanges where they
originate and must be trunked to a different exchange. That, of
course, increases your operating expense tremendously and, in general,
those are the reasons why plant expense increases with an increase in
in the number of units served and why operating expense also increases
as the number of units served increases.
The CHAIRMAN. in that connection, are there not automatic devices
being installed, and are they not practicable?
Mr. KINGSBURY. Yes, sir.
The CHAIRMAN. So as to avoid this physical limitation on the part
of any one operator in handling more than 10,000 keys?
Mr. KINGSBURY. Yes; there are automatic systems which are prac-
ticable and successful in operation. We are installing them right
along, and we shall install more in the future, increasingly more prob-
ably than we have in the past; but even there you soon reach an eco-
nomic limit for one central office, and the engineering study then becomes
this, and this is the question that must be answered: Which will be
the more economical, to install a new automatic central office and
connect it with trunks to the other central offices, or to keep it all in
One central office with correspondingly increased lengths of subscriber
..ines radiating from that large central office?
The CHAIRMAN. Have you got any memorandum with reference to
the financial situation of your company?
Mr. KINGSBURY. Yes, sir.
The CHAIRMAN. Under Federal control?
Mr. KINGSBURY. Yes, sir.
The CHAIRMAN. Can you put that in the record as a part of your
remarks?
Mr. KINGSBURY. Yes, sir.
RETURN OF THE WIRE SYSTEMS. 33.
I would just like to finish up this question, Mr. Chairman. I said
yesterday that the average cost per telephone station was about
$150. For new stations added now that cost has gone up so it would
be somewhere in the neighborhood of $220. By telephone station I
mean an installation for a subscriber such as you have there [indi-
cating]. That is a telephone station. How long these high costs will
continue, of course, we can only conjecture. As I said yesterday, in
our opinion they will not go back to the prewar level for a long time
to COme. -
Mr. BARKLEY. Would you permit a question just there? Do you
mean that if Bill Jones in any town in the United States wants a
telephone put in his house, that the actual, physical connection of
that telephone with the system costs $220%
Mr. KINGSBURY. Do you mean the labor of installing it?
Mr. BARKLEY. Yes.
Mr. KINGSBURY. No, sir.
Mr. BARKLEY. The labor and the material and all that goes into
the installation. -
Mr. KINGSBURY. I could pick out a Bill Jones or one particular
party, of course, where it might not cost $25, but if by Bill Jones you
mean the average man throughout the United States, and that is the
thing we have to figure on in financing, the average cost has been,
until 1916, approximately $150. That average cost now would run
up to $220 or perhaps a little more, but I could pick out a subscriber
where the cost would be very nominal at this time.
Mr. BARKLEY. That is what I wanted to clear up. The answer is
liable to lead to the conclusion that you might select any subscriber
premiscuously and the cost of his installing his telephone would be
$220. -
Mr. KINGSBURY. No ; that is the average.
Mr. HAMILTON. Suppose I have a telephone in my office at home
and am about to leave for Washington, and I request that the tele-
phone service be discontinued, and the instrument disconnected. I
come back at the end of say four or five months. The wire is there
and the connections are all there, and all they do is to hitch the instru-
ment on the wall and they make a charge for that.
Mr. KINGSBURY. That is not all they do.
Mr. HAMILTON. Well, apparently.
Mr. KINGSBURY. Yes. There is a good deal of work to do, Mr.
Hamilton, at the central office where your connection has to appear
upon the switchboard. Suppose you want to retain your number
while you are away, and if you are like most men you do. Here is a
switchboard investment that must be held idle all the while you are
away if you want to retain your number. That is laying there with
no earnings on it at all. Now, all that they do, as you expressed, costs
our system about $30,000,000 a year.
Mr. SIMs. Mr. Chairman, may I ask Mr. Kingsbury a question in
that connection ?
The CHAIRMAN. Certainly.
Mr. SIMs. Mr. Kingsbury, what is meant by installing a one-party
line. Does that mean that from the central it connects with to the
subscriber station, that that one subscriber has exclusive use of that
one wire from the central station to his station ?
121695–19—3
34 RETURN OF TEIE WIRE SYSTEMS.
Mr. KINGSBURY. I beg your pardon, I did not get the first part of
your question. -
Mr. SIMs. In installing what is called a one-party line—for instance,
I have one in my apartment and no one uses it but myself, does that
require the company to use a single wire from my telephone to the
central station with which it is connected devoted only to my use }
Mr. KINGSBURY. Two wires.
Mr. SIMs. Then during the four months that Mr. Hamilton is
away, those two wires or the investment they represent and also the
investment in the telephone receiver, represent idle capital.
Mr. KINGSBURY. Yes, sir; and the switchboard, if he retains his
number.
Mr. SIMs. And therefore, if I should cease using it altogether; that
is, if I should leave the city and discontinue the service, does the
company lose the use of that wire entirely, or can they divert it to
some other subscriber.
Mr. KINGSBURY. That differs in various instances. Sometimes we
take that wire down and sometimes they leave it up in the house for
future connection. *
Mr. SIMs. Somebody else may move in there and want a telephone.
Mr. KINGSBURY. Yes; but in our method of bookkeeping, when
that disconnection is made, there is taken out of the plant account
the value, as near as we can get at it, of the installation which is
thrown away or which is discontinued when you give up your tele-
phone, otherwise we would keep building up a false plant account of
a lot of old junk that was hanging around the country everywhere.
So we very carefully take that out of our plant account when you
give up your station. Now, when another man comes in there if
we use that same wire, that investment will then be credited back
into the plant account.
Mr. SIMs. And the cost of installing those two wires depends upon
the distance from the central office to the subscriber, to a large extent,
does it not; the amount of wire that is required ?
Mr. KINGSBURY. To some extent, although I should say that the
largest item in a cost of that sort, ordinarily, would not be in the
amount of wire used but in the labor necessary to string that wire.
Mr. SIMs. If in the case of one subscriber, it was only two or three
hundred yards away and in the case of another 1,000 yards away,
would not there be considerable difference in the cost 7 Perhaps,
that is impracticable, because perhaps none of them are 1,000 yards
º I merely cite that as an illustration.
r. KINGSBURY. Suppose you have got to string a wire, for
instance, over or through a lot of heavy shade trees or over railroad
tracks, or around a great factory yard, all of those circumstances are
occurring every day a great many times, so it would be very difficult
to average that sort of a condition. I remember once it came to me
to decide whether we should put in one telephone for the Grand
Trunk Railroad that cost $1,100 to put in that one telephone at their
roundhouse in Detroit, Mr. Hamilton, because you remember where
that roundhouse is situated. We had to go over a lot of railroad
tracks with very high construction. Now, if that roundhouse had
been situated somewhere else, it might not have cost $25 to install
the telephone. So we have got to speak always, in these cases, of
the general average. -
RETURN OF THE WIRE SYSTEMs. - 35
Mr. SIMS. The, expense varies, entirely with respect to the par-
ticular condition which surrounds each particular installation, as I
understand it.
Mr. KINGSBURY. Yes, sir. .
Mr. WEBSTER. Mr. Kingsbury, a moment ago in answer to Judge
Barkley's question, you said you could select a particular Bill Jones
in the country whose telephone would not cost to exceed $25 for
installation, but taking the average Bill Jones throughout the country,
the cost would be $220. Therefore, I assume that the cost of installing
some stations is greatly in excess of $220. -
Mr. KINGSBURY. Oh, yes. •
Mr. WEBSTER. What is the extreme cost for installing telephones
at your most expensive exchange
Mr. KINGSBURY. Well, that would be very difficult to say. Sup-
pose a great building is put up in New York City, such as the Equit-
able Building. Now, that building contributed largely to the neces-
sity of the investment of many millions of dollars, because that made
it necessary to build a new central office in that part of the city.
That involves buying land, erecting a very large and a very expensive
building, installing a switchboard that costs in the neighborhood of
$500,000, and that whole investment had to jump right up there,
and that is always true where several large buildings are erected in
a particular part of the city. It would be almost impossible to give
you the outside limit of the cost of any installation of a telephone.
Mr. WEBSTER. Then, do I understand that this $220 cost which
you have stated here is ascertained by dividing the total cost of
installing telephone stations by the number of persons served 7
Mr. KINGSBURY. No; that average would be obtained by dividing
the amount of your plant investment or the increase in your plant
investment during a certain period by the increase in the number of
telephones. That would give you the average cost of the new
telephones. w
The CHAIRMAN. Mr. Kingsbury, Mr. Winslow wants to ask you
Some questions. -
Mr. KINGSBURY. There is one other point I had in mind, but I
have lost it now. -
Mr. WINSLow. Mr. Kingsbury, in view of the increased cost of all
items which enter into the expense of maintenance, and so on, con-
sequent to war times, is it fair to presume that the cost of operating
your company will be increased indefinitely over previous periods'
Mr. KINGSBURY. We think so, Mr. Winslow. We can not see any
end to it.
Mr. WINSLow. So that when you said that whereas you needed
$40,000,000 increase of capital under ordinary circumstances and you
will now need $60,000,000, that means $20,000,000 is to be a carrying
charge for interest, etc., which is to be wiped out in the future, if it
ever is, and that becomes almost a fixed charge over what it would
be under normal conditions."
Mr. KINGSBURY. No; that is not just what I meant to convey.
What I meant to convey is this: Suppose that we grow, we will say,
200,000 telephones a year, just to take that figure, ordinarily in the
past, we will say, we could build the equipment involved in increas-
ing the number of telephones 200,000 with $40,000,000. At the
present time, in order to make the same growth of 200,000 telephones
36 RETURN OF THE WIRE SYSTEMIS.
Owing to the increased cost in getting the money, in paying for
labor and material, instead of requiring $40,000,000 we would require
$60,000,000. Now, of course, the extra carrying charge involved in
the difference between $40,000,000 and $60,000,000 is a continuing
charge. That is what you meant.
Mr. WINSLOW. And that will have to go on indefinitely, speaking
broadly 7 -
Mr. KINGSBURY. That will have to go on indefinitely because when
the investment is made in telephone property, it is there for good.
Mr. WINSLOW. Yes.
Mr. KINGSBURY. Or until it is worn out, because you can not
pull it up and take it away. It is right there and it must stay there.
Mr. WINSLOW. So that on that basis the increase in charges for
telephones will have to be greater indefinitely or until you can
furnish the service for less money through other arrangements in the
future. -
Mr. KINGSBURY. Yes, sir. e
Mr. WINSLow. Now, after allowing for all the exigencies of war-
time expenses and everything, would you say that in consequence
of the operation of the telephones or the direction of the operation
by the Federal Government that your future expenses would be
greater than they would have been had the Government not gone
into the management of them.
Mr. KINGSBURY. I think that perhaps our demands for increased
wages have been greater because of Government control and opera-
tion than they would have been if the companies had been left under
private control. I can think of no other reason why the operation
under Government control has increased our expenses. -
Mr. WINSLOW. The moral of that then is, I suspect in your mind,
that judging from the experience of your company under Government
control, it is more expensive to operate than you would have ex-
pected it to be under your own control
Mr. KINGSBURY. To that extent; that there have been larger
and more demands for increased wages than we would probably have
had under private control. -
Mr. BARKLEY. Will you permit me right there to ask whether the
increases actually made under Government control have been greater
than they probably would have been had they been left to their
private owners ? -
Mr. KINGSBURY... I think so. - e
Mr. BARKLEY. To what extent 7 -
Mr. KINGSBURY. That would be very hard to say.
Mr. BARKLEY. You do not know how much they would have been
increased if you had kept them "
Mr. KINGSBURY. No; that is only problematical. I could not
S8, W.
Mr. DENISON. Mr. Kingsbury, I believe you stated yesterday that
this increase in cost was due to three elements; the cost of labor,
the cost of materials, and the cost of capital. -
Mr. KINGSBURY. Yes, sir. k
Mr. DENISON. You do not figure there will be any decrease in
wages or the cost of labor at all? -
Mr. KINGSBURY. No; I do not.
RETURN OF THE WIRE SYSTEMS. 37
Mr. DENISON. Do you not think there will be cheapening of mate-
rials in the years to come 3
Mr. KINGSBURY. I said I thought it would be some time before
either materials or labor came down to the prewar level.
Mr. DENISON. Oh, to the prewar level.
Mr. KINGSBURY. Yes.
Mr. DENISON. But you do think they will become cheaper, do you
not
Mr. KINGSBURY. Somewhat, I think.
Mr. MERRITT. Your figures yesterday show that they have already
to a certain extent. . . .
Mr. KINGSBURY. I think they will be somewhat cheaper than now,
but, of course, that is a guess.
Mr. DENISON. Is it your judgment that capital will become cheaper
in a short time : -
Mr. KINGSBURY. I think so. I do not think capital can maintain
as high a price as it does now; but that, again, depends upon eco-
nomic conditions that are very hard to forecast.
Mr. DENISON. While I am asking you these questions, I would like
to ask one more question. I would like to know whether the Gov-
ernment received anything in the way of Service from the telephone
companies during this time of Government control that they could
not or would not have received if the telephones had remained in the
hands of their owners ?
Mr. KINGSBURY. I know of nothing.
Mr. HAMILTON. I would suggest in that connection that one of the
arguments made for taking over the telephones was that there was
danger of leakage in time of war.
Mr. KINGSBURY. I have never heard of an authenticated case of a.
leak in our service. I have had a great many investigations made of
reported leaks, but I have never known of one being authenticated.
I do not mean to say that there never have been any, but we have
never been able to find any. -
Mr. HAMILTON. I remember suggesting in that connection when
the hearings were on that if an operator wanted to divulge informa-
tion he could do it under Government control as well as he could
under private control.
Mr. KINGSBURY. Yes.
Mr. EscH. Did they administer the postal oath to your employees
when they took the lines over ?
Mr. KINGSBURY. No, sir.
Of course, all we are asking for here is to cover increased expenses.
All we have received so far is an increase of about 7 per cent in Our
I’OWO]]llêS.
Now, if I may, I would just like to say a few words along a general
line that may occur to you gentlemen afterwards. In speaking of
the Bell System, our total investment is approximately $1,400,000,000.
Our total investment in telephone plant is approximately $1,150,-
000,000. Now, the difference between the investment in plant and
the total investment are cash items, supplies on hand that are not
permanent plant at all, the ownership of various stocks in non-
operating or foreign telephone companies like the Bell of Canada, of
which we own a large part, and the Western Electric Co., our manu-
facturing concern. Now, on this investment of $1,400,000,000 We
38 RETURN OF THE WIRE SYSTEMIS.
pay dividends of $40,000,000, approximately, a year; that is, the
whole system, and we pay interest charges on bonds and bills payable
of approximately $25,000,000, which makes a total capital charge of
approximately $65,000,000. Now, $65,000,000 is 4.6 per cent on our
total investment, or 5.8 per cent on our plant investment. I simply
bring out these figures because somebody may say that here is a com-
pany that pays 8 per cent on its stock. That is true. We do pay
8 per cent on the stock of the American Telephone & Telegraph Co.,
of which there is outstanding $441,000,000 or a little over. 6, 8,163
enabled to pay that 8 per cent and only earn on our total investment
4.6 per cent because many of our companies do not pay any dividends
at all, and because we have always put our surplus and reserves back
into our physical plant, and on that surplus and reserves we pay no
dividends or interest whatever, and they amount to several hundred
million dollars. r
Now, if in this crisis—and perhaps I ought to say this—we have
no complaint against the State commissions in general and on the
average for the treatment we have received in the past; but we have
never been before confronted and the telephone companies have never
been before confronted with this sort of a condition, which is a crisis,
and this crisis, if you will permit me to say so, has been brought upon
us by enactment of Congress. We have not been able to proceed in
an orderly fashion with the securing of increases in rates to take care
of these mounting costs. That work has been taken out of our hands
and put, only the Supreme Court knows where.
Now, to just turn these properties back to us after this large increase
has been made, without giving us a chance to turn around while the
proper regulatory bodies can get to work and either approve these
rates or decide that they are exorbitant and wrong and change them,
it seems to us would be a matter which Congress would hesitate to
accomplish.
Mr. Swººt. Right in that connection, Mr. Kingsbury—you have
probably given the matter a great deal of thought—what do you
suggest to this committee that Congress should do by way of remedial
legislation along the rate fixing line to meet this crisis of which you
have just spoken?
Mr. KINGSBURY. Our suggestion would be, sir, that when Congress
returns these properties to us, it shall, of course, continue the obliga-
tion of the President to pay just compensation for the properties
during the time that they were under Federal control. That is the
first thing.
Mr. SANDERs, of Louisiana. Continue that indefinitely .
Mr. KINGSBURY. No, sir; during the period of Federal control.
The second thing we would like to have, and we think we should have,
would be an enactment providing that the rates made during the
period of Federal control shall continue to be the legal rates until
such time as the various regulatory bodies have a chance to investi-
gate those rates and decide whether or not they are just rates.
Mr. SweBT. And that, too, without reference to the decision that
. be made by the Supreme Court in the case which is now before
them.
Mr. KINGSBURY. Just so; yes.
Mr. SANDERs, of Louisiana. You mean intra as well as inter state 7
PETURN OF TEIE WIRE SYSTEMIS. 39
Mr. KINGSBURY. Yes, sir. . If the Supreme Court should decide
that the Postmaster General has no rate-making power and that all
the rates, which he had made under the joint resolution were illegal,
we would, of course, find ourselves in a very desperate situation.
Mr. MERRITT., Are you advised that intrastate rates made by act
of Congress would be legal? -
Mr. KINGSBURY. Yes, sir.
Mr. SANDERS, of Louisiana. Within the State 3
Mr. KINGSBURY. Yes, sir. .
Mr. BARKLEY. That is based upon the theory that they are now
under Government control and that any rate fixed by action of Con-
gress, without regard to whether it was interstate or intrastate would
be a legal rate.
Mr. KINGSBURY. Yes, sir.
Mr. BARKLEY. Just as the railroad rates are.
Mr. KINGSBURY: Yes, sir. Congress acted in this matter under
the war power of Congress.
Mr. DENISON. But after peace shall have been declared and the
war power ceases, do you still understand that we would have the
power to fix rates on local lines in various States?
Mr. KINGSBURY. Yes, sir.
Mr. DENISON. Under what power do you understand that to be so .
Mr. KINGSBURY. Under the war power.
Mr. DENISON. I understand that, but after the war has ceased.
Mr. KNGSBURY. The war has not ceased, legally.
Mr. DENISON. I am assuming that it will cease.
Mr. KINGSBURY. Yes; I am, too, but the war conditions
Mr. DENISON. Now, after it shall have ceased, do you still think
we would have the power to continue fixing rates on local lines?
Mr. KINGSBURY. I think so. The war conditions surrounding us
have not ceased. -
Mr. DENISON. I know the war conditions have not.
Mr. SANDERS of Louisiana. They never will cease.
Mr. DENISON. I am speaking about the actual state of war which
gives rise to this indefinite power known as the war power.
Mr. KINGSBURY. Suppose you were to hand the railroads back
before the period prescribed in the law, which is 21 months after the
proclamation of peace *
Mr. SANDERS of Louisiana (interposing). Will you permit me to
say that 21 months is not named as the time?
Mr. KINGSBURY. Yes, sir; of course, I will permit you to.
Mr. SANDERS of Louisiana. The resolution of Congress says not
exceeding 21 months, and therefore you can not say it is fixed for
21 months.
Mr. KINGSBURY. All right. Under what power of Congress, if you
deny that the war power continues, can the Railway Administration
continue the rates made during the war during that 21 months, or
any shorter period, after the declaration of peace? e
Mr. DENISON. That is the question that was in my mind.
Mr. GARRETT. The very language of the statute gives Congress
that power for a reasonable time and that is the only way we thought
the proposition was safe. - o
Mr. KINGSBURY. That is what we are asking, some language in the
statutes to give us that same power.
40 RETURN OF THE WIRE SYSTEMS.
The CHAIRMAN. Mr. Kingsbury, will you draft your suggestions in
the form of an amendment in writing'
Mr. KINGSBURY. Yes, sir.
The CHAIRMAN. And make them a part of your hearing'
Mr. KINGSBURY. Yes, sir; I have that right here.
The CHAIRMAN. Will you also include in your hearing a copy of
the contract made with the department by your company and put
that in the record 7 * - - .
Mr. KINGSBURY. Yes, sir."
May I say with reference to that contract that the amount
fixed in the contract is based on two things: First, the value of
our property and consideration was also given to the earnings of
the property during the three years preceding the time we were
taken over. That was not the whole consideration, because the
value of the property was also taken under consideration, but
the earnings, during the same period on which the railroad earnings
were estimated, were also taken into consideration. Our average
earnings during that period were at the rate of $70,422,700 and the
compensation asked by the company was that amount, $70,422,700.
The compensation granted by the Postmaster General was $65,148,641.
Mr. DENISON. That is, per year } e
Mr. KINGSBURY. Per year. -
Mr. STINEss. Mr. Chairman, as I understand it, these suggestions
are to be printed in the record. As a matter of fact, we will not get
that record and we will not have an opportunity to see these sugges-
tions for a good while, and it seems to me that as long as this gentle-
man is here to explain these matters, it would be well to have them
right now and let him comment on them, if the members of the com-
mittee wish to know about them, because otherwise we will not get
them for some time.
The CHAIRMAN. Have you duplicate copies of the proposed
legislation? - - -
Mr. KINGSBURY. Yes, I can read that. It is very short.
Mr. SWEET. I would like to hear those suggestions.
Mr. STINESS. We can then ask him about them if we care to.
Mr. KINGSBURY. Mr. Gifford calls my attention to the fact that
I did not finish what I was saying in regard to the State commis-
sions, and that was that here we had a crisis and the machinery of
the State commissions required so much time to put into effect
these rates that we would be subject to very severe embarrassment
and loss during the time necessary for the State commissions to
examine into these rates and give us decisions as to whether or not
they are just rates. Now, I apprehend that the statement may be
made before you that it would be possible for the telephone com-
panies to extend that time for long periods of time by appealing to
the courts and keeping these rates in effect during that period. I
have not the figures, but I am going to ask the privilege of getting
the figures and submitting them at a later date to this committee,
probably on Monday, giving the number of times in the United
States in the past under commission regulation telephone companies
have appealed to the courts from the decisions of the commissions.
1 Contract not printed.
FETURN OF THE WIRE SYSTEMS. 41
I do not know how many times and I am going to be interested to
find out. -
This is entitled:
A BILL For an act to terminate the supervision, possession, control, and operation by the President
of telegraph, telephone, marine cable, and radio systems, taken by him under authority of a joint reso-
lution of the second session of the Sixty-fifth Congress, approved July 16, 1918, and entitled “Joint
resolution to authorize the President in time of war to supervise or take possession and assume control
of any telegraph, telephone, marine cable, or radio system or systems, or any part thereof, and to operate
, the same in such manner as may be needſul or desirable for the duration of the war, and to provide just
compensation therefor.”
Be it enacted by the Senate and the JHouse of Representatives of the United States of
America in Congress assembled, That the supervision, possession, control, and opcra-
tion of all telegraph, telephone, marine cable, and radio systems, and all parts thereof,
taken and assumed by the President under authority of said joint resolution approved
July 16, 1918, and now exercised by him, be terminated at midnight on July 31,
1919, and that the President be, and he is hereby, authorized and directed, at mid-
night on July 31, 1919, to return and deliver to their owners all such systems and
parts thereof over which he is now exercising Supervision, possession, control, and
operation: Provided, however—
(1) That the first proviso of Said joint resolution, prescribing the just compensa-
tion to be paid for and on account of Said acts, shall continue in full force and effect
until such just compensation shall be fully paid and adjusted to and with the owners
of said systems, lines, and property, in accordance with any contracts which have
been made by the Postmaster General with the owners of such systems, or, in the
absence of such contracts, in the manner and according to the terms and conditions
set forth in said proviso; and that a report of all proceedings and acts done under
the authority of said proviso shall be transmitted to Congress at the beginning of its
next regular session; and -
(2) That after July 31, 1919, the rates and charges approved or ordered by Fed-
eral authority during the period of Federal control shall be charged and collected by
such owners, and shall remain in effect (1) until the proper regulatory body shall,
after hearing, determine that they are unreasonable and shall establish rates and
charges in lieu thereof, or (2) where no such regulatory body exists, until other reason-
able rates and charges have been regularly established by the owners in lieu thereof.
Now, I would like to address myself to one question in this bill,
and that is the date of return. It is specified here as July 31. If
Congress wants to act in this matter immediately, we have no objec-
tion to the properties going back on June 30. It ought to be at the
end of a calendar month, because there would be a tremendous con-
fusion in accounts, and all the telephone companies must have
upward of 10,000,000 accounts. If we had to make out a bill
under Government control, representing money which belonged to
the Government, and another bill for the other part of the month
representing money which would belong to the company, and when
you consider that there might be different rates, if these rates should
drop back, if the Supreme Court decides against the Government and
you gentlemen do not give us some relief, and when you realize that
in many cities we have measured service where the subscriber pays
not by the month but for the number of calls he uses, and we had to
make a separation of the account as to the number of calls, for in-
stance, before the 15th and the number after the 15th, and when you
recognize that there are millions of toll tickets, all of which would
have to be separated into two piles, you can see what we would be up
against, if, without thinking, you gentlemen returned these proper-
ties to us in the middle of the month. Literally, it would cost the
Bell system millions of dollars in extra accounting. Some of the
companies do their billing by the quarter, and it would be much
better to return the properties to us at the end of a quarter, which
would be at the end of June, for instance, rather than at the end of a
particular month. So, although it is put down here as July 31, I
42 TETURN OF THE WIRE SYSTEMS.
think the consensus of the telephone interests would be that June 30
would be a better date for us than July 31.
Mr. SweFT. In connection with the phrase you use in the bill you
have there, “Regulatory body,” what body do you refer to there as
now existing 7
Mr. KINGSBURY. Whatever the proper regulatory body might be—
whether the State commission for the intrastate rates or the Inter-
state Commerce Commission for interstate rates, or whatever that
body might be; the city council in those few States where the com-
missions have not control over rates. -
Mr. DENISON. Mr. Kingsbury, with reference to that proposed leg-
islation, as I remember the way you read it, it says that the com-
panies shall charge the present rates until such time, and so forth.
Mr. KINGSBURY. Yes, sir. -
Mr. DENISON. Now, suppose independent companies or other com-
panies did not desire to do that. They would not be permitted to do
so under your draft.
Mr. KINGSBURY. I do not understand you.
Mr. DENISON. I say they would not be permitted to go back to
the old charges or to cheapen their rates under the provisions you
have read. •
Mr. KINGSBURY. That is true.
Mr. DENISON. Do you mean you do not want to permit your com-
petitors or independent companies, or local companies, who are not
controlled by your company or any other concern, to go back to the
old rates if they wish to do so?
Mr. KINGSBURY. They, of course, could come to the commissions
and make the changes just as soon as the commissions could get to
it. It only crystallizes these rates until such time as the various
regulatory bodies have a chance to act with reference to them.
Mr. DENISON. Then, the companies have to get permission from
the regulatory bodies in order to cheapen their rates, do they'
Mr. KINGSBURY. Yes, sir. - -
Mr. DENISON. Ordinarily .
Mr. KINGSBURY. Yes. It is easy to get, though.
Mr. SANDERS of Louisiana. It is easier to get that than an increase.
Mr. DENISON. Under the draft you have read there, none of the
companies could cheapen their rates until such time as the regu-
latory bodies had permitted them to do so?
Mr. KINGSBURY. They could not anyway. The companies are re-
quired to file their rates with the commissions. Sometimes, in some
States, those rates go into effect immediately on filing unless there
is objection or unless the commission acts affirmatively one way or
the other, but in most States before the rates go into effect affirmative
action on the part of the commission is required.
Now, there is just one more thing I want to say, Mr. Chairman, if
you will bear with me just a moment. If loss occurs, it will not be
the loss of the Bell System or of any independent telephone company.
You have got to go beyond and through that in order to find out
where the loss will occur. In our system this loss will come upon
135,000 stockholders scattered all over the United States, and more
than half of those stockholders are women, peculiarly enough. Our
stock is not held in great blocks but is very widely disseminated.
Most of it is held in small lots of from 10 to 25 shares, and those are
the people who are going to bear this loss.
RETURN OF THE WIRE SYSTEMIS. 43
Mr. STINESS. Mr. Kingsbury, I would like to know whether you
have submitted this proposed law to the other telephone companies
and whether they approve it 7
Mr. KINGSBURY. º sir; we have had conferences with the lead-
ing independent companies represented by the Independent Tele-
phone Association and this proposed bill has been prepared in con-
nection with those gentlemen.
Mr. STINESS. '...i do any of the companies object to it in the form
in which you have presented it'.
Mr. KINGSBURY. I do not know, sir. I have not heard of any.
I can not speak for all of them because there are a great many thous-
ands, you know.
Mr. WEBSTER. Mr. Kingsbury, has your attention been directed
to this thought: However disposed Congress may be toward afford-
ing telephone concerns just relief, you appreciate that the activities
of the Congress must be confined to the powers expressly or im-
pliedly granted to it by the Federal Constitution?
Mr. KINGSBURY. Absolutely, of course.
Mr. WEBSTER. Now, if the power of the Federal Government under
the present status of things is to fix telephone rates, it is not so by
virtue of any war-time provision found in the present laws, is it?
Mr. KINGSBURY. No. -
Mr. WEBSTER. It is an incident of this indefinite war power arising
out of their authority to operate and control?
Mr. KINGSBURY. I think so. +
Mr. WEBSTER. Then when the war power ceases, I assume with the
theoretical termination of the war, will not the rate-making power
also cease. In other words, if the main thing to which this power is
incident dies, will not the incident also expire?
Mr. KINGSBURY. My answer to that must be, of course, argu-
mentative, and you will pardon me for that.
Mr. WEBSTER. Yes.
Mr. KINGSBURY. My contention about that is this: We are not
asking Congress to exercise any power it has not already exercised.
We are asking Congress to continue a power which it has presumed
to exercise in this instance because the conditions under which that
power was exercised—I mean the economic conditions under which
we find ourselves—are the same. We are not through with War Con-
ditions. They still continue, and during that period of continuance
we ask Congress to extend the power which it has already invoked.
Mr. WEBSTER. But does not that result in confusion? It is not
the economic conditions in the abstract which gives the power to the
Federal Congress. It is the state of war which carries that power.
Now, when the state of war ceases, does not the power necessarily
cease, and if we undertook to continue in force the present rates,
would we not be acting squarely against the limitations of the
Federal Constitution?
Mr. KINGSBURY. I do not think so, sir. When peace is declared
many, many things must still continue until the incidents of the War
are disposed of. Our Army and our Navy are still on a war footing,
if peace was declared to-day, and that must be gradually brought
down, and many other conditions of war must continue until they
can be readjusted.
44 RETURN OF THE WIRE SYSTEMs.
Mr. WEBSTER, That is, the war powers continue so long as the
conditions to which the war gave rise continue.
Mr. KINGSBURY. That is my contention.
Mr. HAMILTON. Are you entirely relegated to that ? Do not war
conditions continue until the treaty of peace?
Mr. KINGSBURY. Undoubtedly, that is true, but I am speaking of
even after the treaty of peace. Now, there is another proposition
I would like to present, if you will pardon me. I will get through
. as soon as I can because I know the chairman is anxious to get
8,10]]9.
The CHAIRMAN. There are several other gentlemen who want to
be heard.
Mr. KINGSBURY. There is another proposition which comes in
here if you need to invoke it. It has been held by the Interstate
Commerce Commission that a telephone connected with our system
or with any system that has interstate business is an instrument of
interstate commerce. That instrument there [indicating] is charged
with an interstate service. You can talk from here to New York
or San Francisco Over that instrument, and every instrument in our
system and in almost every other telephone system of any size in the
United States, is charged with an interstate service, and has an inter-
state character. Now, that telephone there ſindicating], if it were
constructed to talk in the District of Columbia only, and if it were
attached to a plant consisting of wires and cables and switchboards
and what not capable of talking only in the District of Columbia,
would be a very different device, indeed. You could talk on iron
wire strung on fence posts for that distance; but that equipment
and everything with it is charged with this interstate service, and is
built with that in view, and the increase in cost incident to that
Service and that type of construction is tremendously more than the
cost would be if we were simply doing a local service.
Mr. SweFT. Do you contend that Congress could legislate here
under the interstate-commerce clause of the Constitution in regard
to telephones?
Mr. KINGSBURY. I do.
Mr. SWEET. As to rates ?
Mr. KINGSBURY. I do. -
Mr. SWEET. As to the establishment of the rate 7
Mr. KINGSBURY. I do. The lawyers will probably come into this
matter and will be in much better condition to set forth their ideas,
and tell what they think the law is on this subject than I can, but I
should expect—in fact, I am very sure they will—will point to some
decisions of the Supreme Court along the line of my answer to your
question. -
Mr. HAMILTON. When you go over your statement, will you kindly
incorporate some of these decisions of the Supreme Court to which
you refer to sustain your statement'.
Mr. KINGSBURY. I will be very glad to.
Mr. SIMS. In effect, what difference is there in having a through
bill of lading issued by a local railroad company that is wholly within
a State to cover goods going over their lines into other States, and
using an instrumentality by which to transmit the human voice
beyond the line into another State . -
RETURN OF THE WIRE SYSTEMIS. 45
Mr. KINGSBURY. I think one is just as much interstate as the other.
The amount of our compensation as set out is this: It is set out as
to the amount of our interest and dividends paid on stock and bonds
in the hands of the public; that is, if we own the stock of a corporation
operating in the Bell system, as we do many of them, the amount of
the dividends of that stock is not figured into this compensation con-
tract, because that is represented by the A. T. & T. stock, which was
issued presumably for the purchase of the stock of our associate
company, so that the amount of our compensation is figured on the
amount of Our bond interest and dividends paid on our property, and,
as I told you awhile ago, on Our plantinvestment that is 5.8 per cent,
on our total investment 4.6 per cent. If we had been settled with
by the Postmaster General on the same basis as the railroads, instead
of receiving $65,148,064 per annum for the use of our property we
would be receiving $70,422,700. In other words, our contract is
$5,000,000 less than a contract with the railroad would be under the
terms the railway administration made its contracts. We are not
complaining of that at all, however.
Mr. MERRITT. You accepted that, did you?
Mr. REYNOLDs. Absolutely; that is all we needed, all we wanted,
and all that we could have done with the surplus of $5,000,000 was
to have put it back into the plant.
Mr. DENISON. Will you state whether or not the Government's net
receipts have exceeded or are less than the amount of the contract?
Mr. KINGSBURY. Yes, due to this increase in costs up to the last
day of April the Government had lost on the operation of our proper-
ties $9,623,477, about—those figures are subject to change, as
accounts change, but that is approximately it—$9,600,000 in round
figures. -
"Mr. Winslow. Have the properties been as well kept up since
the Government took hold as before ?
Mr. KINGSBURY. Yes, sir; there has been no change in that.
Mr. WINSLOW. What is the system of depreciation in your
company 7
Mr. KINGSBURY. We set aside a certain percentage of the plant
value. Under the contract with the Government it is 5.72 per cent
per year. That is set aside in a depreciation reserve fund; as recon-
struction is performed that account is charged with the amount of
the reconstruction. The balance is invested all the time from year
to year, in our plant. So our depreciation reserve unexpended is
always invested in our physical property.
Mr. BARKLEY. Has the increase in cost of operating telephones
been any larger under the Government control than it probably
would have been if the companies had maintained control?
Mr. KINGSBURY. I think I answered that question before you
came in, sir. I think, very little. I think we have had some de-
mands for increase in wages and perhaps have had to make greater
increase of wages on account of Government control than we might
have had otherwise. But it is very difficult to say how much that
announts to.
Mr. BARKLEY. So that the probabilities are that while the Gov-
ernment has paid you $65,000,000 and lost about $9,000,000 in the
period covered, that if the companies had maintained control of
their properties, assuming that the increase would have been prac-
46 RETURN OF TEIE WIRE SYSTEMS.
tically the same, your net income would have been about $9,000,000
less than the $65,000,000 which you will get 7
Mr. KINGSBURY. No; that is not the conclusion at all. During
this period of Government control our hands have been tied with
respect to our rates; that is the difficulty.
Mr. BARKLEY. You mean to intimate that the increases would
have been any larger than they have if private ownership had
continued' t
Mr. KINGSBURY. Yes, sir.
Mr. BARKLEY. It would have been 7
Mr. KINGSBURY. Yes, sir; I think so. + -
Mr. BARKLEY. So that the increases in rates which have been
inaugurated since the Government took over the property can not
be properly charged to the Government 3
Mr. KINGSBURY. Many of them can. -
Mr. BARKLEY. I mean that they can not be properly complained
against, because they would have been either as large or larger if they
had remained in private ownership 2
Mr. KINGSBURY. Our rates would have had to be increased or we
would have all been bankrupt.
Mr. BARKLEY. What I mean is, there seems to be a tendency in the
minds of some people to lay these increases to the fact that the
Government took the telephones over. What I mean to ask is, that
charge is not properly . against the Government, because it would
have been true no matter who kept the telephone.
Mr. KINGSBURY. We would have to have had increases if the prop-
erty had been left in our hands. I want to say that during the
period from the 1st of August to the 31st of December the Govern-
ment lost $5,968,000 in round figures in the operation of our prop-
erties. Then we began to get the increase in rates. You see how
long it took the Government to do it. So that in January the loss
was $1,480,000 in round figures; in February, $1,266,000; in March,
$657,000; and in April, only $250,000, which is practically earning
our compensation; $250,000 on a gross revenue of $350,000,000 a
year, you see, is a very small figure. -
Mr. HAMILTON. In brief, what are the prime reasons why the
Government has lost money on the operation of the lines'
Mr. KINGSBURY. Because it could not get the rates up as soon as
the expenses went up.
Mr. HAMILTON. That is the whole story º
Mr. KINGSBURY. That is the whole story practically, and that is
going to be the reason. If these properties are turned back to us
without some legislation, we will not be able to get those rates up in
time to prevent very serious loss and financial embarrassment on the
part of these companies, which is going right down to our stockholders.
Mr. WINSLOW. Do you think the rates would have been as high as
they now are if the Government had not taken over the properties 7
Mr. KINGSBURY. I think the rates would probably have been as
high in some places—of course, that is an awfully big question to ask.
} tº: WINSLow. Do you think Bill Jones's bill would have run as
nigh'.
Mr. KINGSBURY. We needed about 7 per cent increase in order to
meet our increased expenses, and we would have had to go out and
get it from the commissions, and I think the commissions would have
granted it to us.
RETURN OF THE WIRE SYSTEMIS. 47
Mr. DENISON. If that is true, do you not think you can do the
same thing eventually • sº
Mr. KINGSBURY. But we complain of the months and month
which are going to be required before the commission can issue the
proper orders, and in the meantime we are in distress, and that is the
thing which Congress has laid upon us, not purposely, of course, but
in the regular working out of this legislation, and I think Congress
has a real duty here to our stockholders. *
Mr. BARKLEY. Your company is the biggest telephone company in
the United States, is it not
Mr. KINGSBURY. Yes, sir.
Mr. BARKLEY. If that is going to be the situation with the biggest
company, what would be the result with some of the little ones?
Mr. KINGSBURY. Of course, some of the small companies have not
been affected as much as the large ones. I can not speak for the
Small companies, but I think some of them have not been so seriously
affected in regard to their rates. But they are here, and they can
answer for themselves in regard to the independent situation. They
know much more about it than I do.
STATEMENT OF MR. EDWARD REYNOLDS, WICE PRESIDENT
POSTAL TELEGRAPH-CABLE CO., 253 BROADWAY, NEW
YORK CITY. -
The CHAIRMAN. Do you wish to make a preliminary statement
without interruption ?
Mr. REYNOLDs. I do not mind being interrupted.
The CHAIRMAN. How much time will you need . g
Mr. REYNOLDs. I can say all I have got to say in a very few
minutes, Mr. Chairman. -
The CHAIRMAN. Very well, proceed.
Mr. REYNOLDs. The Postal Telegraph-Cable Co., or the Postal
Telegraph System, has for many years operated at a very satisfactory
financial return. It was operating at a satisfactory profit on August
1, 1918, when the properties went under Government control. Since
they went under Government control it has continued to operate at
a profit, under the old rate. :
At the present time, our gross revenues are running about 35 per
cent higher than they were at this time a year ago, due partially to
an increase of 20 per cent in the rates that was ordered by the admin-
istration and made effective on April 1, 1919, so that you will see that
in addition to the increase of 20 per cent in rates our gross traffic has
increased. In other words, we are originating more domestic tele-
grams than we were originating a year ago, which is a very encour-
º: outlook. e
e believe we are facing an era of unusual prosperity in the tele-
graph business. We are so much impressed with that prospect that
within the past two or three weeks we have purchased, and our plant
department is now engaged in the work of erecting, 18,000 miles of
copper wire on the pole lines to take care of additional traffic that We
expect to have to handle, so that we may be able to handle that
increased traffic and maintain efficient service.
In that connection I would mention as bearing upon the prices of
commodities that enter into our service, that copper wire is one of the
48 - RETURN OF THE WIRE SYSTEMS.
most expensive articles that we use, and this 18,000 miles that we
have recently purchased has been purchased at about 17 and a frac-
tion cents per pound, which is practically a normal price for the
prewar period.
I have not got the exact figures, but the price before the war has
been running anywhere from 14 to 18 cents, so that 17 and a fraction
cents I regard as practically a normal price for copper wire.
Since the armistice was signed on November 11, 1918, the labor
conditions with us have become very much easier. The supply of
Morse telegraphers available has been increased by the return of men
from the military service and from the service of industrial concerns
with which they took employment during the war period. That
increase in the supply of men has made operating conditions easier,
and has automatically eliminated the need for excessive overtime,
which is paid for at a higher rate, and so any increase in wages that
we have made or have been required to make to satisfy our people
has been partially offset by the elimination of excessive overtime, and
I must say that we have not made any increases in wages that I do
not believe were justified by the living conditions, and that would not
have been made even though the properties had continued under
private operations. •
The Postal Telegraph Co. desires the immediate return of its prop-
erty, and it pledges itself now upon the date that the properties are
returned to private owners to cut off the 20 per cent increase in the
domestic telegraph rates that went into effect on April 1 and restore
the domestic telegraph rates to the former prewar level. We will not
ask the Government to pay us anything for any damage or any loss
that may have fell upon our company during the period of war. We
do ask, however, that we be permitted to retain what our lines have
actually earned during the period of Government control—the money.
which is still in our possession, Subject, of course, to the control of the
administration. e still have it, and we ask to be permitted to
retain just that which we have actually earned and no more, the
Government not to pay us one cent in addition to that.
Mr. SWEET. That is, at your old rate 7
Mr. REYNoLDs. At the old rate? Well, that is a question. Since
the 1st of April we have been collecting the increased rate, and we
have no objection to refunding that, if it is practical to do it. In
addition to that, we expect to maintain the wage standard that is in
effect to-day. We do not expect by the reduction in the telegraph
toll rates to be forced to reduce wages or bring any hardship upon
our employees.
The reason we are anxious for the immediate return of our proper-
ties is because we know that every day's delay is having a demoraliz-
ing effect upon the Spirit of our employees. Our business is now under
the control and management of officials of companies with which we
have had to compete for a great many years, and men who are not
familiar with our business. Our legal affairs are in the hands of
lawyers in the employ of competing companies, and the effect of all
this is demoralizing, and the longer that uncertainty continues the
more difficult it is going to be for us to restore the spirit of the organ-
ization; and in the telegraph service in my judgment, the earning
power of the system consists of 90 per cent personnel and 10 per cent
equipment. If you destroy the organization and the spirit of its
RETURN OF TETE WIRE SYSTEMS. 49
personnel, you are destroying the property of the company, and I am
appealing to this committee to-day to act promptly, as there is
absolutely nothing to be gained by continuing government control a
single day longer than necessary to bring about the passage of a bill
for that purpose.
I am not a lawyer. I have no lawyers here associated with me. I
can not prepare a draft of a bill to suggest to you. I think you are
the better able to do that than I am, but I approach the problem of
what should be done, as to what this committee should do, as a busi-
ness man looking for a practical Solution, and my idea is that, as a
legislative matter, these properties having been taken over—the tele-
phone, the telegraph lines—together under the act of Congress of last
July, 1918, that it will be simpler and avoid complications if they are
returned together in the same fashion they were taken over. Inas-
much as the bills, which I have seen and which I understand are
before you, now propose that that part of the resolution of July, 1918,
with reference to compensation is to be continued until all the
accounts of all the companies affected have been submitted and
passed upon, there is no possibility of any company suffering through
any lack of opportunity to secure compensation from the Govern-
ment for the period over which the Government is exercising control
over their properties.
So far as their rights and their compensation is concerned, they will
be protected by that compensation clause in the resolution or bills—
whatever you call it—before you.
I am only interested in the one thing, that is, the return of the
properties of the Postal Telegraph Co. to their owners, because we
have a good property, and a good, loyal Organization, and we want
to get back and protect our property and Organization just as quick
as we can get to it. -
The general public has a vital interest in the quick return of the
telegraph properties, because under this increase in rates there is
anywhere from $16,000,000 to $18,000,000 added to the telegraph
bills of the business public. The telegraphing public represents about
10 per cent of the total population. In other words, the telegraph is
a business man's instrument, and any increase in rates put on the
telegraph is a tax upon the business men. We are in a reconstruction
period now, and we should endeavor to help the business men by
removing every unnecessary tax that has been imposed upon him as
a result of the war, and this increase in telegraph rates, to my mind,
is not justified. I maintain that a telegraph company that is care-
fully and economically managed, and where a serious, careful attempt
is made to establish a cost basis for the service which it renders can
do business profitably under the old schedule of rates. The success
of the Postal Cable-Telegraph Co. is due to-day almost entirely to the
fact that it has set up standards of costs for various branches of its
Service, to which it endeavors to adhere as closely as possible.
Those costs have to be more or less elastic to meet the conditions
of different sections of the country, and the different character of the
work done, and the different wage conditions. But wherever a prob-
lem comes up affecting operating costs in any locality, the Postal
Telegraph Co. has some measure for judging what the cost to the
company is to be, and when the return from that business approaches
121695–19—4
50. RETURN OF TEIE WIRE SYSTEMS.
the cost and the company faces a prospective loss, it is very careful
ºring into that particular field or venture—whatever you may
call it. g
Our success in handling our men is due largely to the fact that we
make individual initiative and performance the basis of compensation.
That is the one and the only way you can satisfy the telegraph
operators—and I speak from an experience as a telegraph operator—
the only way you can remove from his mind the feeling of injustice in
the matter of fixing his wage rating is to pay him or her upon the
basis of what the individual does, and not as a class. And, following
this idea for the past five years, we have established a harmonious
feeling among our employees.
Mr. WINSLOw. Will you please elaborate that point % Do you
have a rate for the amount of service rendered by the operatives 3
Mr. REYNOLDs. Yes, sir.
Mr. WINSLow. How did you work that out 7
Mr. REYNOLDs. In our larger offices where the employee does
nothing but handle traffic, we tabulate his work for every hour of
the day and for every day of the week, and we carry that to the
records, so that at the end of any pay roll period, whether it is a
day, week, or month, we can establish the number of messages he
handled, the hours, he has to work, the errors he has made, the
general character of his work, and the total amount of his earnings,
which is carried out to a cost per message, so that each operator has
it within his power to establish his own wage rating by the unit
cost he establishes for his work, his wages being divided by his
messages.
At the close of the month, in order to prevent favoritism, a state-
ment is placed upon our bulletin board ranking the operators in
one, two, three order, not in accordance with their basis of pay, but
according to their record and quality of work done and their unit
cost. So that an operator who is rated at third-class pay, but who
ranks first in the character of his work, is in a position to immediately
demand first-class pay, and it can not be denied him. A chief
operator can not pay a first-class rate to a man who ranks 25 on the
list in the matter of performance; it stamps out favoritism and it
establishes an equal pay basis. That pay basis may not be more in
the aggregate than the amount earned, but there is no feeling of
humiliation or discontent on the part of any individual from the fact
that he is paid less for what he does than his neighbor. He knows
all are getting equal treatment and a square deal. When they
apply for more pay, they can say “Look at my card,” and if the
card warrants higher pay can demand and get it.
Mr. WINSLow. How about those operators who do not have a full
day’s work, whose messages, and so on, are not in sufficient number
or quantity to keep them busy %
Mr. REYNOLDs. That is regulated by the judgment of the chief
operator according to the nature of the wire. There are some wires
where the volume is light, but where the difficulties of operation call
for judgment rather than speed or skill in manipulations. Take a
line called a “way circuit,” having more than one office on the circuit.
All of these offices on the line are keenly desirous of getting their
business off first without regard to the other offices—in other words,
are contending for the circuit. The operator in the central office
RETURN OF THE WIRE SYSTEMS. 51
must be patient and diplomatic, and this calls for judgment, and his
rate of pay is usually based upon the nature of the wire and his
length of service and his general character. That is where we have
got to rely to a certain extent on the fairness and the good judgment
of the man under whom he works, but we do not seem to have any
trouble in that connection. -
I could talk about the telegraph business for a week, but I would
like to submit now for the record a letter from Mr. Clarence H.
Mackey, president of the Postal Telegraph Co., addressed to the
Members of Congress, in which he, in writing, submits his proposi-
tion to reduce the telegraph rates immediately upon return of his
properties, and his argument in behalf of the Postal Telegraph
Co.'s position in that connection. . .
(The letter submitted by Mr. Reynolds is here printed in full as
follows:) -
POSTAL TELEGRAPH-CABLE Co.,
º New York, May 24, 1919.
To the Members of Congress:
We beg to urge on you the importance of the prompt passage of the joint resolution
introduced by Congressman Steenerson in the House of Representatives on May 19,
1919, providing for the immediate and unconditional return to the owners of the
telegraph and telephone systems taken over by the Government under the joint
resolution of July 16, 1918. -
Immediately upon the return of the telegraph lines to us we shall reduce the tele-
graph rates by 20 per cent, thus restoring those rates to what they were before the
Postmaster General announced the increase of 20 per cent which took effect April 1,
1919, and thus saving the American public over $1,000,000 a month. We shall not
ask the Government to pay to the Postal Telegraph-Cable Co. $1 for the use of its lines
during the period of Government control, but shall merely ask to be allowed to keep
what our lines have actually earned from the transaction of the telegraph business
during the period of Government control.
Postmaster General Burleson, in a letter to Representative Moon, dated May 21,
1919, setting forth the recommendations of Mr. Burleson's wire-control board as to
what it considers necessary legislation to accompany the return of the wires to the
owners, announces a program which if enacted into legislation will mean the legal-
izing of a country-wide monopoly of wire communications and will mean increased
rates, just as was advocated for many years by Mr. Theodore N. Vail, the president
of the American Telephone & Telegraph Co., who is Mr. Burleson's personal adviser.
Mr. Burleson proposes that any telegraph or telephone company may purchase any
other telegraph or telephone company, or consolidate, or pool their traffic.
It would take just about 24 hours for the American Telephone & Telegraph Co.
and the Western Union Telegraph Co. to get together under any such act of Congress.
The voice is the voice of Mr. Burleson, but the hand is the hand of Mr. Vail. Six
years ago the present administration broke up just such an attempted monopoly by
forcing the Western Union and the American Telephone & Telegraph companies to
Separate. Mr. Burleson now proposes to reestablish that monopoly. What he and
Mr. Vail are aiming at is to wipe out the competition of the Postal Telegraph and
Commercial Cables, and to prevent the Postal Telegraph-Cable Co. from making the
20 per cent reduction in the telegraph rates. This country knows what a monopoly
is in the telegraph business, because it had such a monopoly by the Western Union
prior to 1884, when the Postal Telegraph-Commercial Cable. System came into ex-
istence. It formerly took 24 hours to send a telegram to California and get a reply.
The deteriorating service and the increasing rates during the past 10 months of control
of the wires by Mr. Burleson and Mr. Vail is just a sample of what the country Would
have to endure if the wire communications were allowed to pass into the control of
One man or set of men. The American people are opposed to monopoly in the Wire
service—they want competition restored with it superior service and its reasonable
rates, and such competition can only be restored by returning the wires to the owners
immediately and unconditionally and without any qualifying legislation.
Mr. Burleson has done four things:
(1) He has deadened the telegraph Service.
(2) He has increased the telegraph rates by 20 per cent.
52 RETURN OF TEIE WIRE SYSTEMIS.
(3) He has given the Postal Telegraph-Cable Co. only $1,680,000, although he admits,
it earned $4,269,000, even before the recent 20 per cent increase, while he has given
the Bell Telephone and Western Union more than they earned.
(4) He has removed from the operation of our lines our general manager, Mr. Rey-
Inolds: Our general Superintendent, Mr. Richards; our general counsel, Mr. Cook, and
myself as president, and he has placed in charge of such lines Mr. A. F. Adams, a
Kansas City telephone man, whose company is now being consolidated with the Bell
O.
All this is a gross abuse. It is in your power to correct it, and immediately upon
your doing So we will cut away the 20 per cent increase in telegraph rates.
We respectfully ask for the quick passage of the Steenerson Act, which will restore
our lines to us automatically.
Yours, respectfully, -
CLARENCE H. MACKAY, President.
I would also like to submit for the record a letter of May 3 from
Mr. Mackay, which explains in great detail the Postal Telegraph
organization and answers all the questions pertaining to the report
filed by the various companies in the ºf system and its reports
filed with the Postmaster General in connection with the compensa-
tion which we have asked, and answers all the questions, I think,
that have been raised in that connection, and I would like to have
that printed in the record also.
The CHAIRMAN. It may go in. - -
(The letter submitted by Mr. Reynolds is here printed in full, as
follows:)
- Post AL TELEGRAPH-CABLE Co.,
OFFICE OF THE PRESIDENT,
New York, May 3, 1919.
‘CLARENCE H. MACKAY. -
DEAR SIR: On October 28, 1918, I wrote Mr. Burleson, at the latter’s request,
describing the Mackay Companies' Postal Telegraph system and its plan of organiza-
tion. That letter was published in the public press. Notwithstanding this, Mr.
Burleson and his advisers continue to misrepresent the facts by claiming that the
reports by the subsidiary companies to the Interstate Commerce Commission were
incorrect. The simple story of our subsidiary companies is as follows: *
In 1890, my father, John W. Mackay, in building up the Postal Telegraph system
found it necessary to incorporate or purchase local companies in the different.States in
order to condemn rights of way on highways. The Western Union did not need this,
because that company had built on the railroads. In 1890, he had 34 local Postal
Telegraph companies scattered throughout the country. At the present time we have
39. All of the stocks of these 39 companies are owned by the Mackay Companies, an
unincorporated trusteeship. - -
In 1910, all telegraph companies were placed under the interstate commerce act,
and that included these 39 companies, but did not include the Mackay Companies,
because the latter was a trusteeship, and the interstate commerce act applied only to
corporations.
In 1916, the Interstate Commerce Commission ordered all telegraph companies
to make certain monthly and annual reports. Our 39 companies did so, and have
done so ever since. The Mackay companies were not called upon to make reports,
because, as state above, the act did not apply to them. No claim has ever been made
that it did apply. It is admitted, even by Mr. Burleson, and his advisers, that the
reports rendered by our subordinate companies to the commission are faithful trans-
cripts of the books of our subsidiary companies, as they had existed for 20 years. To
have rewritten these books, by increasing the plant values, would have raised the
cry of fraud. The representatives of the Interstate Commerce Commission and of the
Treasury Department have examined all of these books, time and time again, and they
made no criticisms. They were and are honest books. These subordinate companies
have a low capitalization compared with the values of their telegraph lines, but this
is the first time, we believe, in the history of this country, that under capitalization
has been complained of. The telegraph limes in the different States were turned
over to the subordinate companies in exchange for the nominal stock of the latter,
and any auditor will state that in order to have the books balance the value of the
property turned in is entered on the books at the par value of the stock issued for
the property. It will be noticed that our whole system of organization, including
RETURN OF THE WIRE SYSTEMS. 53.
the Mackay companies, was established many years before the interstate commerce
act was applied to telegraph companies in 1910, and a still greater number of years
before any reports were required by the Interstate Commerce Commission in 1916.
This shows that there was no premeditated plan to avoid or evade the interstate cem-
merce act or any other act. g
Therefore, at the present time the Postal Telegraph system consists of 39 companies
which report to the Interstate Commerce Commission, and 1 company (the Mackay
Companies) which does not report to the commission. The total earnings of the
Postal Telegraph system in 1917 was $4,269,000, and this is the amount on which our
compensation should be based; but Mr. Burleson maliciously persists in stating that.
the earnings of the Postal Telegraph system for 1917 as reported to the Interstate Com-
merce Commission were only $117,000. Mr. Burleson knows that this $117,000 repre-
sents only a small part of the earnings of the Postal Telegraph system, the balance of
the earnings belonging to the Mackay Companies, and he purposely and dishonestly
ignores the earnings of the Mackay Companies which were not reported to the Inter-
state Commerce Commission. *
Now this system of subordinate companies in different States is substantially the
same as the Bell Telephone system, which owns or controls three or four hundred
subordinate companies, the parent company being the American Telephone & Tele-
graph Co., which takes for itself nineteen-twentieths of the interstate telephone tolls:
between any two cities. The chief difference is that the American Telephone & Tele-
graph Co., being a telephone corporation, came under the interstate commerce act.
in 1910 and made reports, as required by the commission, in 1916.
Mr. Burleson Says that we avoid taxes. That is false. Our taxes are not based on
capital stock nor on reports to the Interstate Commerce Commission. They are
based on our property and business. For instance, our Ohio company has a capital.
stock of $100,000, but pays taxes on $875,000 of property. The par value of the capital
stock is ignored. All over the country our taxes are on practically the same basis as
the Western Union, his favorite. -
Mr. Burleson now digs up the reports to the commission of these 39 little Postal Tele-
graph companies and ignores the income of the Mackay Companies. The joint reso-
lution of Congress did not even mention interstate commerce reports in arriving at
compensation to be paid to the telegraph “system or systems.” That joint resolution
deliberately used the words telegraph “system or systems,” as distinguished from
telegraph companies or corporations. And, in fact, Mr. Burleson himself did not base
his compensation to us on the profits of our subordinate companies. According to the
reports filed with the Interstate Commerce Commission these 39 minor Postal Tele-
graph companies earned only $117,000 a year. If Mr. Burleson based his compensa-
tion on that, why did he give us $1,680,000? Neither did he base our compensation
on the book values of these 39 companies. That book value was $6,447,000. Those
companies so reported to the Interstate Commerce Commission by giving the values
*y appeared on the books of the company. Any other reports would bave been
2,ISG.
The Interstate Commerce Commission at no time required the companies to esti-
mate the physical values of their properties. What the commission did call for was
the values as they appear on the books of the company. We Would again Say that.
we have heard much in times past of overcapitalization of companies, but this is the
first time we have heard criticism of undercapitalization. And so Mr. Burleson
arbitrarily assumed a physical value of $28,000,000 for our property, and gave us 6
per cent on that, making $1,680,000, although the earnings of the Mackay Companies’
Postal Telegraph system were reported to him and verified carefully by his experts'
and certified to by Barrow, Wade, Guthrie & Co., chartered accountants of New York
and London, as being $4,269,000.
Physical valuation is not the proper basis for our compensation anyway. The
joint resolution of Congress did not make it so. In fact, the joint resolution of Con-
gress relative to taking over the railroads based on the compensation on three years'
previous profits. The Bell Telephone Co. has been given compensation by Mr.
Burleson on the basis of three years' profits, and it is cleraly SO stated in the annual
report of that company for 1918. The Western Union compensation was also based
on profits. - e º
The Supreme Court of the United States has held that the Government, in paying
for property, can not confine itself to physical valuation but must pay also for the
earning power. Why then was the Postal Co. singled out for compensation based
on physical valuation alone, and that physical valuation guessed at according to Mr.
Burleson’s own confession? -
There is some powerful hidden motive back of such treatment. -
And, after all, what has all this got to do with the 20 per cent increase in telegraph
rates? That is what the public is interested in. The public does not care about
54 RETURN OF THE WIRE SYSTEMS.
the capitalization of the Machey Companies' Postal System, nor about its profits,
nor about its system of organization. What the public cares about is why did Mr.
Burleson increase the telegraph rate 20 per cent? And under what right or power
or justification has he seized the lines of the Postal Telegraph system, turned out its
officers, stifled competition, as well as increased the telegraph rates? The whole
episode proves that he has done this because the Postal Telegraph Co. refused to
increase telegraph rates. Seven days after Mr. Burleson seized the Postal system
and put it in charge of his representatives, he increased telegraph rates 20 per cent.
Now, another thing: If $1,680,000 is all that the Postal system should have, Mr.
Burleson should have reduced the telegraph rates So that the Postal system could
collect only $1,680,000 from the public. Under the existing telegraph rates, before
Mr. Burleson increased them, the Postal system earned $4,300,000 a year. Logically
he should have reduced the telegraph rates So as to reduce that $4,300,000 to $1,680,000.
Instead of that he has increased the rates 20 per cent of $15,000,000 gross receipts, so
that the $4,300,000 will now amount to $7,300,000; and yet, according to his own
story, the Postal system should collect from the public only $1,680,000 of profit. In
other words, instead of reducing rates so that our profit is reduced from $4,300,000 to
$1,680,000, he has increased the rates so that our profit will be $7,300,000. This is
an inconsistency which has not been explained by him and can not be explained, and
it is pertinent to inquire as to what he proposes to do with the difference between
$7,300,000 and $1,680,000, namely, $5,620,000, which he takes from the public and
yet does not turn over to us. I want to say right now that I don’t think it would be
fair to the public for us to collect $7,300,000 of profit each year from our land line
system. According to Mr. Burleson's own fiat, as to our compensation, he should have
cut the telegraph rates in two instead of increasing them 20 per cent.
A few days ago the attorneys of the Postmaster General issued a legal pamphlet in
which they said: -
“The United States does not engage in business for profit any more than do the
States. The United States has taken these properties for a limited time only, not for
profit but in the public interest of the entire Nation, which includes all the States.”
How does Mr. Burleson reconcile these statements with the fact that we earned
$4,269,000, and he gives us but $1,680,000 and he keeps over $2,000,000? After
April 1, 1919, the amount he keeps will be very much more on account of the 20 per
cent increase in rates. . Mr. Burleson evidently proposes to make a profit on our lines
of $7,300,000 and of this Mr. Burleson proposes to give us only $1,680,000.
We have offered: w
(1) To restore the old rates if our lines are returned to us at once. The Postmaster
General has power under the proclamation of the President of July 22, 1918, to return
all or any part of the lines at any time. We see no reason why Mr. Burleson should
keep the Postal Telegraph Co.'s lines a day longer. We need no new legislation,
because we are not asking the United States Government to put up a dollar beyond
what our lines actually earned. -
(2) We will be content with such compensation as we have earned, without asking
the Sºmment for any pay for the Government's interference, changes, and use of
Olll ill].O.S.
We repeat those offers. -
Mr. Burleson had reléased some 8,000 Small telephone companies from his control.
Why does he not release our company? Certainly we want it, and the public wants
us to have it, and no one wants Mr. Burleson to keep it, and we know of no reason why
he does keep it, unless it is to confiscate our earnings and assist the Western Union
Telegraph Co. by an increase in rates. -
Yours, respectfully, — —,
- President.
Mr. REYNOLDs. I would also like to submit a letter of May 6,
1919, from Mr. A. F. Adams, the Federal director now in charge of
the Postal Telegraph system, and addressed to Mr. Clarence H.
Mackay, president of the Mackay Co., in which he made a demand for
the records of the corporation pertaining to its physical properties,
or those records pertaining to transactions prior to the period of
Government control, and which the corporation has refused to de-
liver to him. . -
I would also like to introduce into the record Mr. Mackay's reply
to the letter of Mr. Adams, on that subject, and in view of the fact
RETURN OF THE WIRE SYSTEMIS. 55
that the proceedings on this may not be printed for some time, as I
understand it
The CHAIRMAN (interposing). They will be printed as expeditiously
as possible; that is the reason we want the record revised by the wič.
nesses without delay.
Mr. REYNOLDs. If the committee feels it could spare the time, I
would be glad to read those two letters. -
The CHAIRMAN. How much time would it take
Mr. REYNOLDs. It would take probably 10 minutes.
The CHAIRMAN. Go ahead.
Mr. REYNOLDs. Under date of May 6 [reading]:
NEW YORK, May 6, 1919.
Post AL TELEGRAPH-CABLE Co., and
CLARENCE H. MACKAY, Esq.,
President, Mackay Companies,
353 Broadway, New York, N. Y.
GENTLEMEN: At the time I was placed in charge of the land lines of the Postal
Telegraph system by the Postmaster General, I was advised by him that he desired
me to Secure certain data for him. So that if just compensation has not been fixed for
your companies, due toinability to Secure from you the necessary correct and complete
information, that proper action might be taken by him. I was directed to report to
the Postmaster General as Soon as practicable on the following matters:
1. Make an audit of the books and report upon the financial results of operation
for the Government since August 1. As you º this audit has been under way
for several weeks. e
2. Current maintenance and repair. The Postmaster General desires information
so that we may know whether the plantis being adequately kept up from an operating
standpoint, and may also see that it does not deteriorate during the period of Govern-
ment possession and Operation.
3. Approximate physical valuation of plant. The Postmaster General desires
this information as bearing upon the amount of compensstion to be paid as provided
in the joint resolution of Congress. The Government has heretofore made an award
of compensation upon the best information it could obtain, at the same time pro-
testing that information and data requested was not furnished by you. Inasmuch as
you have rejected this award as inadequate and have protested against it, the Post-
master General desires to secure whatever information your plant records contain
to serve as a basis in part for arriving at the approximate physical value of plant.
In order to furnish the information and data stated in (2) and (3) above to the Post-
master General, I recently engaged Mr. W. C. Polk. a consulting engineer, to make the
necessary study and investigation, and he requires access to certain statistics relative
to your plant. Mr. Polk recently began an examination of some of your books and
records of plant statistics, but on or about April 23, Mr. Deegan took them into his
possession for the Mackay Companies and the Postal corporations, and is withholding
them, and denying Mr. Polk access to them for the purpose aforesaid.
This letter is written by order of the Postmaster General to make formal demand
upon you to give me, and such assistants as I may need to perform the Work, reasonable
access to and opportunity to examine, these records.
Will you be good enough to reply promptly?
Respectfully,
A. F. ADAMS.
Under date of May 16, 1919, this reply was made [reading]:
MAY 16, 1919.
A. F. ADAMS, Esq.,
Representing the Postmaster General,
253 Broadway, New York.
DEAR SIR: In reply to your letter of May 6 relative to certain construction records
in may possession pertaining to Postal Telegraph lines, would say that So far as you
actually need them in the operation of the Postal lines they will be produced, and are
being produced daily at the request of the construction department, but, We shall
not turn them over to persons connected directly or indirectly with the Bell Telephone
or Western Union. There is nothing secret about these records, they having been
repeatedly examined by representatives of the Interstate Commerce. Commission.
Bút on what theory does Mr. Burleson demand them now to make a physical valuation
56 RETURN OF THE WIRE SYSTEMS.
of our property? No one has deputized him to make a physical examination and
physical examination has nothing whatsoever to do with our compensation. Mr.
urleson gave compensation to the Bell Telephone and Western Union equal to and
very much more than they are earning, but when he comes to our compensation he
talks about physical valuation. The annual report of the Bell Telephone Co. for the
year 1918 clearly shows that the compensation to the Bell Telephone Co. was awarded
by Mr. Burleson on their actual revenue for the years 1915, 1916, and 1917, that report
stating as follows:
“It was suggested that a compensation should, as in the case of the railroads, be
based on these three years' performance, and that the Government should assume
the same current obligations of the Bell system and continue during the period of
control the same practices and the same policy that were being pursued.
“After an exhaustive discussion of all the features, not so much because of differ-
ence of opinion as for the purpose of arriving at a complete understanding, the post-
master General submitted to the President his recommendation that the compensa-
tion for the Bell System should be substantially in accord with our proposal.”
The above is conclusive and we don’t propose to be treated differently from the
favorites of the Postmaster General. We pointed out to the Postmaster General long
ago that the Supreme Court of the United States has held that the Government in
taking property must pay for the earning power and not merely for the physical
Yºlº That was in the Monongahela Canal Co. case where the court said (148
. S., 337): -
“After taking this property the Government will have the right to exact the same
tolls the navigation company has been receiving. It would seem strange that, if
by asserting its right to take the property, the Government could strip it largely of its
value, destroying all that value which comes from the receipt of tolls, and having
taken the property at this reduced valuation, immediately possess and enjoy all the
profits from the collection of the same tolls.”
A few months ago the Supreme Court again affirmed that principle of law when it
said (246 U. S., 192):
“That there is an element of value in an assembled and established plant, doing
business and earning money, over one not thus advanced is self-evident. This ele-
ment of value is a property right, and should be considering in determining the value
of the property, upon which the owner has a right to make a fair return then the same
is privately owned, although dedicated to public use.” -
This attempt to fix a physical value on our property, to arrive at what the Post-
master General is pleased to call a proper compensation, is merely an attempt to further
trick and cheat us out of our just compensation. The records which you seek (even
if physical valuation were a correct basis for compensation) would not enable you to
arrive at a proper valuation on our plant. The Postmaster General knows that we are
entitled to at least what our lines earned as compensation, and if he wishes to be just
he will award us that amount. He knows that for the six months ending January 31,
1919, while the lines were under his control, we earned $1,857,560.27, while under
the compensation he has fixed he will pay us but $840,000, and will thus keep $1,017,-
560.27. On the other hand, he knows that for the six months ending January 31, 1919,
instead of taking anything away from the Western Union Telegraph Co., he will have
to pay that company a sum approximating $3,000,000 over and above what that
company earned during that period, and he is now preparing to appeal to Congress to
make up this deficiency from the United States Treasury not only for the Western
TJnion but the Bell Telephone. Therefore, as stated above, this talk about a physical
value to enable him to arrive at a just compensation to us is not sincere and we refuse
to be a party to it. -
All the circumstances, from the very beginning, have indicated that at no time has
there been any intention of awarding us just compensation. We became convinced
of this during the meetings with the wire-control board, when Bell Telephone people
actually took part in fixing our compensation, and a deliberate attempt was made to
bring us to our knees by awarding us a compensation so low as to compel us to Submit
to the Bell Telephone and Western Union Cos. But that plan has been frustrated,
and Messrs. Burleson, Wail, and Carlton to-day stand discredited before the American
public. This present attempt of the Postmaster General to fix a physical value on our
plant merely substantiates our previous conviction that the purpose was to ruin us.
Yours, very truly, - -
PoSTAL TELEGRAPH-CABLE Co.,
|By CLARENCE EI. MACKAY, President.
RETURN OF THE WIRE SYSTEMS. 57
Mr. BARKLEY. What was the name of the men mentioned in con-
nection with the Postmaster General?
Mr. REYNOLDs. In the last paragraph, Burleson, Vail, and Carlton.
I read those letters into the record, Mr. Chairman, because in the
letter to Mr. Sims which has gone into the record in the last paragraph
the statement that this company refused to furnish necessary records
needed for the work of the auditors who were detailed by the Post-
master General to examine the books of account was merged with the
statement that we refused to furnish our records for the use of the
consulting engineer who had been detailed to make a physical valua-
tion, so as to make it appear that we had failed to produce the records
required for the work of both parties.
he accountants of the Post Office Department are at 253 Broad-
way, New York, now and have been there for some months, and they
have been given full access to every record they need to confirm every
item of receipts and expenses, and they have not been refused access
to anything whatsoever. We did refuse the consulting engineer
access to the property records of property acquired before Govern-
ment control, and it is to clear up any confusion that may be in your
mind in reference to the last paragraph of that letter to Congressman
Sims that I desire to put these letters in the record.
Mr. HAMILTON. Is it your contention that the Postmaster General
was intending to operate a different method of compensation for the
Postal Telegraph & Cable Co. than for the Bell Telephone and the
Western Union 3
Mr. REYNOLDs. That describes the situation; that is the primary
cause of our difference with the Postmaster General. *
Mr. HAMILTON. Now, does that letter sufficiently cover the point,
or do you desire to elaborate that %
Mr. REYNOLDs. The point I wish to make is that those letters are
submitted in answer to the statement that we have refused to give
the Postmaster General such records as he needed.
Mr. HAMILTON. But, is it true that the method of compensation
incorporated as to One company was different from the method of
compensation as to another ? -
Mr. REYNOLDs. Yes, sir; that is true.
Mr. HAMILTON. Why is that %
Mr. REYNOLDs. You will have to ask the Postmaster General.
Mr. HAMILTON. This committee is entitled to know.
Mr. REYNOLDs. I think the committee should be informed. Our
proposition in the beginning with the Postmaster General was that
we be allowed compensation equal to what the properties were
earning at the time the Government took the properties over, after
the Postmaster General had satisfied himself as to what those earnings
WGTG.
Mr. HAMILTON. Do you mean to say that there has been favoritism
here somewhere .
Mr. REYNOLDs. Well, I do not know what you would call it.
Compensation was awarded the telephone company and the Western
Union based on their earnings three years prior to Government
control.
Mr. SANDERs. What you have been contending is that you should
have the same proposition as was made to the Western Union and
Bell Telephone companies?
Mr. REYNOLDs. Yes, sir; that is all we were asking.
58 RETURN OF TEIE WIRE SYSTEMIS.
Mr. SANDERs. That is all we want to know.
Mr. BARKLEY. What percentage of earnings were you making be-
fore the Government took you over ?
Mr. REYNOLDs. Out of a gross business of $15,000,000 or $16,-
000,000, our net profits were $4,269,000.
Mr. BARKLEY. What percentage is that ?
Mr. REYNOLDs. Our ratio of costs for those lines is about 71 per
Cent.
Mr. BARKLEY. Then you are making about 29 per cent on your
cost of operation 7
Mr. REYNOLDs. In the year 1917.
Mr. BARKLEY. Net.
Mr. REYNOLDs. And in that connection
Mr. WINSLow (interposing). You mean gross?
Mr. REYNOLDs. That is our gross operating profit.
Mr. BARKLEY. What I am trying to get at is your percentage of
profit upon the amount invested.
Mr. REYNOLDs. That I could not answer because the amount of
investment in our properties is not known.
Mr. BARKLEY. It is not 7
Mr. REYNOLDs. My company does not pay any dividends.
Mr. BARKLEY. Do you mean to say that the Postal Telegraph-
º: Co. does not know how much money it has invested in its
ant 7 w -
p Mr. REYNOLDs. That is the situation, which is covered in the
long letter I have read which has been made a part of the record.
Mr. BARKLEY. Does not the company keep a record of the amount
of money spent'.
Mr. REYNoLDs. They have been made by the Mackay Co., a holding
corporation, and not by any of the subsidiary companies.
Mr. BARKLEY. Is the Postal Telegraph-Cable Co. a corporation?
Mr. REYNOLDs. There are 39 companies duly incorporated in
various States. -
Mr. BARKLEY. Are they all incorporated under the name of the
Postal Telegraph Co?
Mr. REYNOLDs. Yes; with the addition, usually, of the State in
which incorporated, such as the Postal Telegraph-Cable Co. of Ohio,
to distinguish that.
Mr. BARKLEY. Those companies are owned by the Mackay Coº
Mr. REYNOLDs. The stock in those companies is owned entirely
by the Mackay Companies.
Mr. BARKLEY. Does the Mackay Companies operate any telegraph
companies itself';
. REYNOLDs. No, sir.
Mr. BARLKEY. It is merely a holding company'.
Mr. REYNOLDs. It is a trusteeship.
Mr. BARKLEY. Does the Mackay Co. control in any other industry
except the Postal Telegraph'. -
Mr. REYNOLDs. Yes; their stock ownership controls the Com-
mercial Cable Co., the United States & Haiti Cable Co., the Cuba
Cable Co., and the Halifax & Burmuda Co., and the Commercial
Pacific Cable Co., across the Pacific, and other minor -
Mr. BARKLEY. Are the accounts of these various subsidiary com-
panies kept separately by the Mackay Co. so that you can tell how
much money goes into each one of them " º
RETURN OF THE WIRE SYSTEMs. 59
Mr. REYNOLDs. You mean the earnings?
Mr. BARKLEY. Oh, I mean the money expended—the business
transacted by these telegraph companies? sº
Mr. REYNOLDs. Each of these companies keep separate sets of
books, each one being a separate corporate entity; each one has been
making reports as required by law to the Interstate Commerce Com-
IQISS101).
Mr. BARKLEY. You mean each one of these 31 companies?
Mr. REYNOLDs. Each one of these 39 companies.
Mr. BARKLEY. What I am trying to get at is this: These companies
are all owned by the Mackay Co., are they not ?
Mr. REYNOLDs. The stock of those companies?
Mr. BARKLEY. The stock of those companies?
Mr. REYNOLDs. It is entirely owned by the Mackay Companies.
Mr. BARKLEY. Does the Mackay Co. keep any books by which it
is able to tell how much money is expended on the Postal Telegraph-
Cable Co. lines, for instance? -
Mr. REYNOLDs. I do not think it does. *
Mr. BARKLEY. It does not &
Mr. REYNOLDs. I am not an officer in the Mackay Companies and
have no access to their records.
Mr. BARKLEY. Why does it not ? t
Mr. REYNOLDs. That is a question of policy of the company.
Mr. BARKLEY. So that you are not able to tell the committee what
the percentage of profits have been on the Postal telegraph business
up to the time the Government took it over ?
Mr. REYNOLDs. We can not tell what the per cent of earnings on
investment has been, but we do know we have earned $4,269,000 out of
$15,000,000 gross business.
Mr. BARKLEY. So that that means that upon $15,000,000 gross
business you have made over $4,000,000 net profits'
Mr. REYNOLDs. Gross operating profits.
Mr. BARKLEY. Have you figured out what percentage that is ?
Mr. REYNoLDs. Yes, sir. I was going to read into the record for
four or five years the ratio of operating expenses to operating re-
ceipts, which will give you that.
Mr. BARKLEY. It is about 30 per cent gross profit on the amount
of money spent for the operations.
Mr. REYNOLDs. I can not tell you what the profit on the amount
of money invested to profit is, because I do not know how much is
invested in the property.
Mr. BARKLEY. It is an easy matter to figure what per cent
$4,000,000 is of $15,000,000.
Mr. REYNOLDs. Oh, yes; that would be about 28 per gent,
Mr. BARKLEY. Without regard to the amount; that is, if the net
rofit or gross profit upon the amount of money that you put into the
usiness for any one year was 50 per cent, your contention is that
the Government ought to pay the Postal Telegraph Co. the same?
Mr. REYNoLDs. My thought was that the Government should pay
the Postal Telegraph Co. what it was actually earning out of its busi-
ness at the time the Government took it, after the Postal Telegraph-
Cable Co. had satisfied the Government as to what it had been earn-
ing, not a dollar more.
60 RETURN OF THE WIRE SYSTEMS.
Mr. BARKLEY. Is it your contention that your charges up to the
time the Government took your company over were reasonable %
Mr. REYNOLDs. They were reasonable and yielded a return that
was satisfactory to the owners of the business. -
Mr. BARKLEY. I do not think there ought to be any controversy
about the fact that they ought to be satisfactory to the owners of the
business. But what I am trying to get at is this: You say in your
statement of awhile ago that notwithstanding the increase in the cost
of labor, the increase in the cost of materials, and the increase in the
cost of operation of your company, that you can go back to the pre-
war charges that your company fixed for the sending of its messages
without decreasing the cost of labor, without decreasing the cost of
operation, and stifi be satisfied with the profits you have made 7
Mr. REYNOLDs. I make that statement, and for this reason, that
the telegraph business has never been carefully or systematically
managed until recent years, and there has been great waste, many
channels of waste; and by the elimination of the Waste and of the
losses through various channels of waste we have been able to over-
come the natural increase in labor and commodities that we have
had to meet; and I might add we have not reached the end of the
process for the elimination of Waste due to bad operating practices.
Mr. WINSLOW. So far as you can tell from your observation and
records and returns, how has your operating revenue compared with
that of the Western Union Telegraph Co.'
Mr. REYNOLDs. It is important for me to explain this matter for
the reason that the Postal Telegraph system only transacts a domestic
line business, and we have no revenues or operating expenses except
those pertaining to land lines. The Western Union Telegraph Co.,
on the other hand, in addition to its land lines, operates a cable system
with its land lines as one system, and their operating expenses and
revenues are reported in total for their entire system. Cable traffic
is highly profitable because cable rates are higher—that is, cable rates
return a very much greater percentage of profit over cost of operation
than land lines. Therefore by including cable traffic with domestic
traffic you would naturally expect to get a lower per cent of cost of
operation than if you deal with domestic traffic and cable traffic
separately.
Mr. WINSLOW. Do you happen to know what their percentage of
cost of operation is . -
Mr. REYNOLDs. My understanding is that, including cables, it
is above 80 per cent. Ours in the year 1917, which was the year
prior to governmental control, was 71.29 per cent. Instead of being
a higher percentage of cost our operating cost is lower than that of
the Western Union. *
Mr. WINSLOW. Would it be right for you to say that it would be a
fair inference that the Postmaster General had an idea of penalizing
you for greater efficiency -
Mr. REYNOLDs. Well, we naturally feel that way, but whether that
is true or not I do not know. -
Mr. WINSLOW. I asked you if it was a fair inference to draw .
Mr. REYNoLDs. One would think so. Now, gentlemen of the com-
mittee, if it is agreeable, I would like to give you the ratio of operating
expenses to operating receipts, beginning with 1914, in Order to show
you why we feel confident as to the future.
IRETURN OF THE WIRE SYSTEMIS. 61
Mr. BARKLEY. I would like to finish my line of examination before
you go into that. Mr. Chairman, may I continue?
The CHAIRMAN, Certainly, Judge Barkley; go ahead. gº
Mr. BARKLEY. Mr Reynolds, this is what is burdening my mind:
I would like for you to explain it if you can. If, notwithstanding the
increase in expenditure and cost of operation during the last two years,
you can still make a satisfactory profit on the old charges, then the
question that raises itself in my mind is whether or not your charges
previous to these high expenditures were not too large and your
profits too great'
Mr. REYNOLDS. Well, we have never thought so, and we feel now
that, in view of the fact that the rates have been increased 20 per
cent over our protest, it proves our contention that they were not
too high, although they were yielding us a satisfactory return. I
would say, speaking directly to the question, that the old rates
enabled us to pay a satisfactory return to the owners of the property,
provide a depreciation fund for the proper maintenance of the prop-
erty, etc., though they did not do much more than that. That is all
we have a right to ask the public to pay. -
Mr. BARKLEY. Just there: You do not think, though, that your
profits in normal times were any larger than they ought to have been 7
Mr. REYNOLDs. No ; I do not.
Mr. BARKLEY. So now with the increase in cost of operation, if
you should charge the same rates, and if your charges during normal
times were not too large for those times, would they be too small now %
Mr. REYNOLDs. I do not think so, from my knowledge of the busi-
ness and the control we have over it. We expect by a perfecting of
our operating methods to overcome any increase in wages, which is
the only item we have to consider, and thereby restore the ratio of
expenses to receipts. We believe we can do that; and particularly so
as I say labor conditions are very much easier. They are going to be
easier, and for several reasons: Old Operators are back and available,
while during the stress of war the shortage of operators caused
telegraph schools to be established, which turned out new operators,
and this eliminates the costly overtime pay, and that overtime pay
being eliminated will overcome a considerable portion of these ex-
penses.
Mr. BARKLEY. That is your view of the situation ?
Mr. REYNOLDs. Yes, sir.
Mr. HAMILTON. You referred a while ago (and I am quoting you
now as nearly as I can) to your “perfection of operating methods
Mr. REYNoLDs. Perfecting I meant to say. I maintain that they
are far from perfection, Mr. Congressman.
Mr. HAMILTON. Well, I did not mean it in exactly that Serse.
Perhaps I did not use exactly the word you used, but I thought I was
quoting you. Wherein do your operating methods differ from those
of the Western Union Telegraph Co.' For illustration, if you can
meet this new condition, as you suggest that you can do, it certainly
is a matter worth while for other folks to take your operating methods
under consideration. - , º
Mr. REYNOLDs. Well, I do not like to criticize the organization or
methods of a competitor. • *
Mr. HAMILTON. No; I did not intend the inquiry in that sense, but
you do raise a very interesting question by your statement. Here is
62 RETURN OF THE WIRE SYSTEMs.
a question of increases in salaries and wages all along the line, and
yet by reason of a perfecting of your operating methods you are able
to adjust yourself to that new condition. It is and must be very
interesting to any man who is giving consideration to these difficult
conditions that we are confronted with.
Mr. REYNOLDs. We would not •
Mr. SANDERS of Louisiana (interposing). I would like to ask a
question right there: All of the business that you got during the war
was in competition with the Western Union Telegraph Co., was it
not 7 - -
Mr. REYNOLDs. Yes, sir. t
Mr. SANDERS of Louisiana. And all that you get afterwards will be
in competition again }
Mr. REYNOLDs. Exactly. *
Mr. SANDERs of Louisiana. What difference does it make how much
money you make, if you can do it efficiently and make more money
than the Western Union ? Isn’t that your right 7
Mr. REYNOLDs. I think it is right and proper, answering the gen-
tleman's question
Mr. BARKLEY (interposing). You mean to say that the public has
no interest in a public-service corporation and its charges }
Mr. REYNOLDs. Certainly, I do not make that contention, and I
will go further and say that we are willing to submit to all of the regu-
latory bodies on the question of rates.
Mr. SANDERS of Louisiana. Don’t you have to submit to regulatory
bodies now % -
Mr. REYNOLDs. We do; and if any public body wants to question
the propriety of our rates—and I am speaking now of our old standard
rates—we will be glad to submit testimony at any hearings that they
may call for that purpose, and try to convince them that those rates
are adequate and not rates that impose an undue burden upon the
user of the telegraph lines.
Mr. HAMILTON. There was one thing that you said that I would
like to inquire about. You said that you adjusted a scale of com-
pensation based upon competency of telegraph operators. Does that
plan prevail with other companies'
Mr. REYNOLDs. I do not know. I understand -
Mr. HAMILTON (interposing). Some time ago in your statement you
stated that you kept tab on messages sent and various other things
in that connection and rated an operator according to the actual
work done. I want to know if that method is applied by other
companies.
. REYNOLDs. I am not familiar with their inside work or prac-
tices.
Mr. HAMILTON. Very well. I will drop that line of inquiry.
Mr. REYNOLDs. The only thing I might say in answer to your
thought is, how can we meet the increases in wages, and increases in
taxes, and increased duty put upon us, or how may we overcome
these things' I was going to say that we could not overcome that
condition if we had not been wasteful in our management in previous
years and proposed by a perfecting of methods to eliminate such
conditions to the greatest extent possible. That is what I have in
my mind. That may be done in any public-service corporation º
the managers thereof. It will naturally occur to you gentlemen wit
RETURN OF THE WIRE SYSTEMS. 63
reference to any corporation in which you might be interested that
by perfecting its methods it may be able to conduct its business in a
manner entirely satisfactory to itself as a corporation and to its
patrons without increasing rates.
Mr. HAMILTON. It seems to me that that is a very satisfactory
statement. sº º
The CHAIRMAN. How much more time do you want for the com-
pletion of your statement, Mr. Reynolds :
Mr. REYNoLDs. I only want to introduce another paper in my
statement, if I may do so.
The CHAIRMAN. Very well.
Mr. REYNOLDs. I have the statement here.
The CHAIRMAN. What is the tenor of that statement 2
Mr. REYNQLDS. It is a memorandum regarding Government
tºº, business handled by the Western Union Telegraph Co. and
the Postal º, O.
The CHAIRMAN. You may hand it to the shorthand reporter to be
incorporated with your statement.
Mr. REYNOLDs. Thank you.
MAY 31, 1919.
Memorandum regarding Government Telegraph Business handled by the Western
Union Telegraph Co. and Postal Telegraph-Cable Co.
President Carlton, of the Western Union Telegraph Co., testified before the Inter-
state and Foreign Commerce Committee of the United States Senate on Friday, May
30, 1919, that the Western Union º Co. handled a great proportion of the
telegraph business of the United States Government, and as this business is carried
at a very low rate, the Western Union in consequence thereof suffered a heavy loss
On Such business. He further stated that the Postal Co. sought to avoid carrying
Government business.
Postmaster General Burleson, in a letter to Congressman Sims, dated May 28, 1919,
made practically the same statement as the above, so this will serve to answer both.
The Postal Telegraph-Cable Co., according to the letter of Postmaster General
Burleson to Congressman Sims, transacts about $15,000,000 out of a total of $90,000,000
telegraph business of the United States, or about one-sixth (16 2/3 per cent) of the total
telegraph business. During the year 1918 the Postal Telegraph-Cable Co. handled
Government business to the amount of about $750,000 out of a total of $6,000,000
Government telegraph business, or 12% per cent. Thus it will be seen that there was
no great disparity between the percentage of the full-paid telegraph business of the
country carried by it as compared with the percentage of the Government business
carried by it, and that is practically carrying its share of the Government business.
I would further say that the Postal Co. has never avoided the handling of Gov-
ernment business, but has accepted all that has ever been offered, and given it the
best service. The Postal Co. has pony wires into all the principal departments of
Washington and must take all the business which comes over those wires. Further-
more, the Postal Co. has always gone out of its way to extend every telegraph facility
to the Government, and it is only a few months ago, namely, just before the signing
of the armistice, that the Postal system, at the request of the State Department,
placed at the disposal of that Department a special wire and cable from Washington to
Paris, such a special cable circuit having never been given before. We also arranged a
Special wire at the request of the State Department between New York and Washing-
ton, to connect with the South American cable running from New York, in order to
ive the State Department quicker service to and from South America. For this,
ecretary Lansing wrote us a letter of commendation. We also within the past month
have receive a letter from the War Department thanking us for our services to that
Department during the war. So much for that. g
I would further point out that due to the greater volume of Government business
handled by both companies during the war, great economies have been made possible
in its handling, as for instance, 8,000 telegrams were filed with the Postal Company
at Washington at one time by the Treasury Department, all the messages reading the
Same, except that they were addressed to 8,000 different people. These messages did
not require 8,000 separate transmissions but merely the transmission of the addresses,
and the transmission of the text but once. The charge for this, however, under the
64 RETURN OF TEIE WIRE SYSTEMIS.
telegraph rules of both companies, was for 8,000 separate messages. This is only one
instance, and while Government business in normal times is handled at a loss, I
venture to say that owing to its great volume during the war, it was handled possibly
at a profit, or at least with no loss, because of the economies possible in its handling.
Hence it comes with poor grace from Mr. Carlton to try and make it appear that his
º suffered a loss on behalf of the Government, when such undoubtedly is not
the Case. * &
As a matter of fact, it is remarkable that the Postal Co. handles as large a percentage
of the Government business as it does. The Western Union, in connection with this
Government business, pursues the same tactics as it does with the regular commercial
business, namely, to get the business away from the Postal Co. no matter what the
cost is. It maintains most elaborate and extravagant canvassing and Soliciting
departments, which create no new telegraph business, but whose sole purpose is to
get business away from the Postal Co.
The Western Union, during the war, has actively solicited the Government busi-
ness, while our company not maintaining such Solicitors has merely been able to get
Such business from the Government as has voluntarily come to us. The fact that the
Western Union sought so assiduously for this Government business substantiates my
Statement above, that during the war there was no loss in this Government business
and perhaps a Small profit. The Western Union,is not given to doing Something for
nothing, and it is a commentary on Western Union methods that after doing every-
thing in its power to corral all the Government business possible during the war, and
which I again Say was not handled at a loss, to denounce the Postal Co. for not having
handled more of this business.
EDWARD REYNOLDs,
Vice President, Postal Telegraph-Cable Co.
Mr. SANDERS of Louisiana. Mr. Chairman, may I ask a question ?
The CHAIRMAN. Certainly, Gov. Sanders, but before you do so, let
me make an inquiry: Mr. Stevens, I believe you wished some persons
to be heard as soon as convenient. Are they here and are they ready
to be heard?
Mr. STEVENs. There are two independent operators, who must
leave for home this afternoon. If you can listen to them for a few
minutes, they would be very glad, and would not take more than 10
minutes of your time. - - - r
Mr. SANDERS of Louisiana. I might suggest to the gentleman that
that is impossible to state, because they do not know how long they
may be examined.
Mr. STEVENS. I can assure you that I think they will only con-
sume that much time.
The CHAIRMAN. Very well. What else have you to present,
Mr. Reynolds 7 - -
Mr. REYNOLDs. I do not believe there is anything but this
Statement. - -
Mr. BARKLEY. I would like to ask a question or two more.
The CHAIRMAN. Very well.
Mr. BARKEEY. The witness who preceded you, Mr. Reynolds,
suggested the form of a bill providing for the rates now in force
fixed by the Government should be the legal rates of all these com-
panies until authorized regulatory bodies shall change them, or
until the companies themselves shall change them. So far as the
Postal Telegraph Co. is concerned, I understand that you do not
care for that provision to go in the bill, whatever it is.
Mr. REYNOLDs. No.
Mr. BARKLEY. If any provision of that kind is to be included,
you want to be excluded therefrom ?
Mr. REYNOLDs. We want to be excluded, and are not asking for
any remedial legislation or financial assistance from the Government.
RETURN OF TEIE WIRE SYSTEMIS. 65
What I said regarding putting these properties back at the same
time, I intended merely to suggest a smooth legislative act by which
they could go back. But if there is any reason why you can not
return the telephone properties—and I do not know about any diffi-
culties of the telephone companies, and after hearing some witnesses
tell about their troubles I will say that they seem to be real—but
as to the telegraph companies. I do not think their properties should
be burdened or injured by holding them together # it is possible to
separate them and return the telegraph properties instantly and let
us go our way. . Further, I would submit that every day's delay in
returning the telegraph . to their owners is putting $60,000
to $75,000 expense on the telegraphing public, and I think the public
has a right to demand this tax on them shall be taken off at the
earliest possible moment.
The CHAIRMAN. Will you file a copy of your contractº
Mr. REYNOLDs. We have no contract.
The CHAIRMAN. Will you file a statement of your expenses for the
past year under Government control? Have you got that?
Mr. REYNOLDs. I haven’t got it, but will be glad to get it and file it.
Mr. SANDERS of Indiana. I would like to ask a question or two,
Mr. Chairman.
The CHAIRMAN. Proceed.
Mr. SANDERS of Indiana. Referring again to the controversy with
the Postmaster General, it was your intention in adjusting compen-
sation under the terms of the act giving the Government control
that the measure of damages should be a just compensation and that
that just compensation was the earning power of the company 7
Mr. REYNOLDs. Yes, sir. -
Mr. SANDERS of Indiana. And the Postmaster General determined
the compensation to be paid to your competitor by adopting that
standard'. -
Mr. REYNOLDs. As I understand it.
Mr. SANDERs of Indiana. But he did not use that standard in
determining what the compensation to you should be?
Mr. REYNOLDs. No, sir. -
i. SANDERs of Indiana. And that was the ground of your com-
aint %
p Mr. REYNOLDs. He fixed an arbitrary physical value of $28,000,000
for our property and said he thought a just compensation would be
six per cent on that estimated value, which was purely a guess.
... WEBSTER. Following out the thought suggested by Judge
Barkley, that probably your rate under prewar conditions was exces:
sive, let me add: The fact remains that your profits were earned in
open competition and subject to all of the regulatory bodies in the
territory in which you operate, and when the Government took your
plant over it increased rates.
Mr. REYNOLDs. That is a fact.
Mr. BARKLEY. Is it your contention that a valuation of $28,000,000
is too small':
Mr. REYNOLDs. Altogether too small.
Mr. BARKLEY. How do you know if you have no record of ex-
enses : - - e
p Mr. REYNoLDs. I have been associated with the Postal Telegraph
Co. for 30 years, and have worked in every department of its service,
121695–19—5
66 RETURN OF THE WIRE SYSTEMS.
and have been in close contact with its business, so that I might make
a reasonable guess, but I do not believe that I am called upon out
of my impressions and my experiences to make a guess on a matter
as important as that, and more particularly when the Interstate Com-
merce Commission is now well along with a careful physical valuation
of our properties. Their engineers and accountants have been in our
executive offices in the city of New York for over a year. They are
right in our building now, and have eight men there, and have had
them for over a year, carefully going over our records and accounts,
and their engineers are out in the field to-day, provided with maps
of our lines, making a physical valuation. When the Interstate Com-
merce Commission gets through with this valuation, it will be time
enough for us to deal with our investment. But the point is that
we are doing business under competitive conditions that you business
men know put burdens upon us that the other company has to bear.
You know from your own experience, from the natural trend of
business, and the Western Union knows it, for it has a much larger
business, that we have no advantage in getting business, all of the
disadvantages being with us, a little company, and being the dis-
advantages that a little company always has. Every company that
has attempted to compete with the Western Union has failed in the
past, except the Postal. Seeing that the Postal has no favorable
position, and is living under competitive conditions, I think you will
agree with me that a company that has been able to build up a suc-
cessful business, and has been able to live under those conditions,
must naturally acquire certain elements of strength which will
sustain it in the future. We will have no trouble in going on in the
future under our old level of rates. -
Mr. PARKER. You said that all of the subsidiary companies are
owned by the Mackay Coº -
Mr. REYNOLDs. Yes, sir. .
Mr. PARKER. Do you remember off-hand what percentage of the
stock of the Mackay Co. is owned by Mr. Clarence Mackay 7
Mr. REYNOLDs. That I do not know. I wouldn’t care to say.
Mr. PARKER. He is practically the sole owner }
Mr. REYNOLDs. The Mackay family is practically the owners. We
have what we think is, for us, a large number of stockholders, but
they are practically the employees of the company, who own a small
number of shares each.
Mr. PARKER. The Mackay Co. is practically owned by Mr. Mackay
Mr. REYNOLDs. Mr. Mackay and his mother. There are no con-
flicting interests at all. - - -
Mr. PARKER. The figures which you quoted were $15,000,000 and
$4,000,000 of profitx. &. $4,000,000 was gross income 3 -
Mr. REYNOLDs. Gross revenue. - - -
Mr. PARKER. And your net income was practically $4,000,000?
Mr. REYNOLDs. Yes, sir.
Mr. WINSLOW. Do you mean net income 3
Mr. REYNOLDs. The gross operating income was $4,269,000.
That does not provide for interest. - -
Mr. BARKLEY. What I meant by that was net over your expenses.
Mr. REYNOLDs. Yes, sir.
Mr. BARKLEY. In other words, you paid your expenses and had
$4,000,000 left 7
Mr. REYNOLDs. Yes, sir.
RETURN OF THE WIRE SYSTEMs. 67
Mr. WINSLOW. Is that cleared up 3 Assuming that you had
$4,000,000 gross operating income, would you admit that that
$4,000,000 would be fairly applicable to dividends?
Mr. REYNOLDs. Yes, sir; we would be perfectly satisfied with that.
Mr. WINSLOW. Absolutely so, but would it be all applicable to
dividends 3
Mr. REYNOLDs. Oh, no. We would have to provide such interest
charges as might fall on us and for depreciation.
Mr. WINSLOW. Well, his contention was that that was made clear.
Mr. REYNOLDs. No. Let me say that Prof. Friday, a representa-
tive of the Postmaster General, came to New York last October and
did examine the land line books of the Mackay Co., and acknowl-
edged the accuracy of our figures, that we had made over $4,000,000.,
In addition to that, a firm of chartered accountants made an exami-
nation of those books and gave us a written certificate, and set out
in detail our revenues and expenses and net earnings, and declared
that in the year 1917 we had earned $4,269,000. So there is no
doubt in the mind of anybody connected with our property that we
were making over $4,000,000. Therefore we say that they had no
justification to ask us to take $1,680,000 and be content.
Mr. BARKLEY. You were making $4,000,000 net after paying oper-
ating expenses?
Mr. REYNOLDs. The difference between operating revenues and
expenses was $4,269,000.
. WINSLOW. That is not net. -
Mr. REYNOLDs. No; that is not net in the way that the word net
is understood. -
Mr. WINSLOW. It was not a fair term, and you do not care to leave
it that way.
Mr. REYNOLDs. I say, I was speaking from an operative standpoint.
Mr. SANDERs of Louisiana. I would like to ask some questions.
Mr. REYNOLDs. I will be here all the afternoon if you wish.
The CHAIRMAN. Very well. We will hear the gentlemen. Mr.
Stevens wishes to be heard before we take a recess if they will come
forward. Let the first gentleman state his name and connections for
the benefit of the committee and the stenographer.
The Mackay companies and postal telegraph system—Income and erpendilure account,
year ended Dec. 31, 1917.
Income:
Commercial telegraph tolls. . . . . . . . . . . . . . . . . . . . . . $13,067, 595.91
Telegraph tolls on cables. . . . . . . . . . . . . . . . . . . . . . . . 1, 122,092.32
Stocks and markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141, 648.00
Money transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107, 882.67
Messengers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284,047.83 *
leased wires. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187, 573.42
Telephone receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,348.88
--$15,082,089. 03
Bank interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 581. 31
& ------"
a 15, 004, 670.34
Expenditure:
Wages—
Testing and regulating. . . . . . . . $128, 242. 37
Supervision of operations. . . . . . 1,611, 732.95
Operators. . . . . . . . . . . . . . . . . . . . . 2,359,423.45
Rookkeepers and clerks. . . . . . . 1,071,139.05
Obtaining stock news. . . . . . . . . 6, 954. 51
62
5, 177,492. 33
68 RETURN of THE WIRE SYSTEMs.
Enpenditure—Continued.
Messenger expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,512, 555. 89
Salaries—
General officers. . . . . . . . . . . . . . . $68,921. 52
General office clerks. . . . . . . . . . 86,491.60
— 155, 413. 12
Commission. ---------------------------------- 197,906.98
Expenses: -
General officers and clerks. . . . . . . . . 11, ſ)06. 24
General office. . . . . . . . . . . . . . . . . . . . . 56,002. 19
Supply-store salaries and expenses. . 20, 372.04
Plant-supervision expense. . . . . . . . . 29, 804. 37
Operating power. . . . . . . . . . . . . . . . . . 66, 811. 56
Supervision of maintenance. . . . . . . . 23, 202.89
Engineering expense. . . . . . . . . . . . . . 46, 666. S2
Stationery and postage. . . . . . . . . . . . 275, 694.48
Repairs and office equipment. . . . . . 103, 522.09
Advertising-------------. . . . . . . . . . 1, 126.10
General law expense. . . . . . . . . . . . . . 34, 967. 13
Stable and garage expense. . . . . . . . 1,800. 96
Printing Telegraph Co. . . . . . . . . . . . 5, 820.00
Surety account. . . . . . . . . . - - - - - - - - - - 5, 249.58
Tight and fuel, etc. . . . . . . . . . . . . . . 116, 506.80
* - 798, 662.25
Tents of telegraph offices. . . . . . . . . . . 859,086. 48
Minor rents for property. . . . . . . . . . . 216,045.75
———— — J., 075,132. 23
Taxes----------------------------------------- 182,930. 52
Insurance. ------------------------------------ 1,044.40
Repairs of aerial plant. . . . . . . . . . . . 1, 108,674. 15
Teconstruction.... . . . . . . . . . . . . . . . . 448,975. 10
Tepairs of underground plant. . . . . 76, 590.99
- - 1, 634, 240.24
Floating equipment. . . . . . . . . . . . . . 25. 00
Railway equipment. . . . . . . . . . . . . . 191. 21
------ 216. 21
Employees’ relief... . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 560.46
Damages. ------------------------- - - - - - - - - - - - - 39, 697.91
Bad debts. ------------------------------------ 24, 270. 19
* $10,825, 122.73
Balance, being excess of income over expenditure... . . . . . . . . . . . . . . . . 4, 269, 547. 61
NEW YORK, Nov EMBER 14, 1918.
We have examined the books and accounts of the Mackay Companies' Postal Tele-
graph System for the year 1917 and hereby certify that the above statement, showing
a balance of $4,269,547.61, is correct, subject to a deduction of $800,000 for bond
interest.
BARROW, WADE, GUTIIRIE & Co.,
Chartered Accountants
RETURN OF THE WIRE SYSTEMs.
69

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(a) What basis, in your opinion, should be used in determining just compensation for your company?—Our profit for the year ended June 30, 1918, namely, $4,230,824.97 plus a
fair return on extensions, new wires, etc., newly installed, the income from which we believe will be $250,000 per annum. -
(b) What factors have been used in reaching conclusions in answer to question (a) and your reasons for such conclusions? State fully.—The profits for the past year ended June
30, 1918. We see no reason why they would not have been the same in the coming year, iſ we had continued to control and operate the property.
(c) Are the conditions such under your company management, keeping particularly in mind the present and prospective cost of labor and matérials, that the estimated net
earnings for the year beginning July 1, 1918, will be suſicient to cover the compensation referred to in your answer to question (a)? (If not, state fully what increase in revenue you
consider necessary to put the company on such basis. Estimates for Operating expenses should be shown in budget form.)—This would depend very largely on economy in the future
management, and also on the economies brought about by the elimination of solicitors, unnecessary branch offices, hotel commissions, rentals, closing of unprofitable offices, commis-
; to apartment houses, janitors, etc., elimination of bookkeeping on open accounts, unnecessary messenger and call box service and various other wastage incident to competi-
10Il.
(d) State the respondent’s “Totalinvestment in plant and equipment.”—Not known. State the respondent’s “Capital stock” outstanding.—$93,023,935. State the respondent's
‘‘Funded debt” outstanding.—$20,000,000. State the amount of other interest-bearing securities outstanding.—$600,000. State the number of offices.—992 main, 500 branches. State
the miles of pole line.—29,762.99 State the miles of wire (copper).-162,809.17. State the miles of wire (ironj Š3,333.06.
*
INSTRUCTIONS.
In accordance with joint resolution of Congress bearing date July 16, 1918, an abstract from which reads as follows: “That the President during the continuance of the present
war is authorized and empowered # * * to supervise or to take possession and assume control of any telegraph, telephone, marine cable, or radio system or systems, or any part
thereof, and to operate the same in such manner as may be needful or desirable for the duration of the war, 4 + +: Provided, That just compensation shall be made for such super-
vision, possession, control, or operation, to be determined by the President,” the company, the name of which appears on this sheet, is required to furnish the information indicated
by these instructions and the above Form BC1. e - e - º
Receipt of the form should be acknowledged at once with a statement on the inclosed card as to the date on which you expect to be able to return this questionnaire. The
blanks should be filled out and one completed sheet returned to the Postmaster General at the earliest possible date. A copy should be retained by the respondent. The name
and official title of the officer making same and the full address of such officer, as well as the exact corporate name of the company for which the report is made, should be shown
in the oath at the bottom of this sheet. e e e f -
Answers to questions appearing hereon should be complete; and full information as to the reasons for such conclusions, as well as detailed information as to the records or con-
ditions which, in the opinion of the reporting officer, justify the conclusions. The answers to question (d) should be as of j uly 1, 1918.
If sufficient space is not provided on the form för answers to the various questions, Separate Sheets may be used which should be securely fastened to the questionnaire.
A. S. BURLEson,
- Postmaster General.
- OATEI.
STATE of NEW YORK,
County of , SS. -
Clarence H. Mackay makes oath and says that he is president of the Mackay companies and the head of the companies making up the telegraph system; that he has carefully
examined the foregoing report; that he believes that all statements of fact contained in the said report are true; and that the said report is a correct and completestatement from
the records of the above-named respondent in accordance with the instructions pertaining to this form.
CLARENCE H. MACKAY,
- - 253 Broadway, New York.
Subscribed and sworn to before me, a notary public in and for the State and county above named, this 23 day of August, 1918.
[SEAL.] - THOMAS G. BARKER,
Notary Public, Kings County, No. 419, certificate filed in New York County, No. 529.
My commission expires March 30, 1919.
~I
RETURN OF THE WIRE SYSTEMS. 71
STATEMENT OF MR. H. LINTON REBER, PRESIDENT AND
GENERAL MANAGER, KINLOCH TELEPHONE SYSTEM, ST.
LOUIS. -
Mr. REBER. We operate in the States of Kansas, Missouri, Illi-
nois, Indiana, operating local exchanges and a system of long-dis-
tance lines. We find that as the result of Federal control if our
properties were returned to us immediately we would suffer great
inconvene.ince and be seriously embarrassed. Up to the time of the
outbreak of the war our properties had been operated at a fair profit,
satisfactory to the stockholders, but at the same time under State
control. Since that time our expenses have been greatly increased,
so that if the properties were returned to us and without some relief
we would secure or have practically no net income, the added expenses
taking up all our former net income. We are not in the position
of some other companies. We are a so-called independent company,
operating in competition in all our towns with the so-called Bell
system. We have no pending increases in rates, so that if the
properties were returned to us without relief we would have practi-
cally no net income. This condition has arisen through Federal
control, and we feel that Congress, in view of the fact that our prop-
erties were taken from us by the Government, should afford us some
, relief in their return. . -
The CHAIRMAN. Any questions :
Mr. Swººt. Is this bill which has been proposed by the represen-
tatives of the Bell Co. satisfactory to you ?
Mr. REBER. No. sir. . As explained, we have no pending increases
of rates, and no increases in our rates have been granted. In fact,
we have had none since we began operations something over 20 years
ago. Under present conditions, with the high rate of wages and the
high cost of materials, and increase in taxes, we are now placed in the
position that all our surplus earnings are absorbed. It has occurred
entirely during the priod of Federal control, and we attribute the
condition of our business at this time largely to that situation, or
as the result thereof.
Mr. SWEET. Have you any suggestions along legislative lines that
would meet your case ?
Mr. REBER. Yes, sir. That should the Supreme Court find that
the Postmaster General has authority under the act of Congress, to
increase rates, then some action on the part of Congress extending
such rates as the Postmaster General will promulgate until a review
on the part of the commissions or the regulatory bodies should be
had. But if the Supreme Court finds that no such power has been
granted the Postmaster General by the act of Congress of last July,
then we feel that Congress should extend the period of Federal
control until the 30th of September or the 31st of December in order
to enable those companies which have suffered great increase of
expenses without adding to their revenue to secure added revenue
through applications to the proper bodies. It is an alternative
proposition. But we do not know what finding the Supreme Court
may make. -
Mr. BARKLEY. Have you gotten any increase in rates? In other
words, if the Postmaster General, as I understand, has not increased
72 RETURN OF THE WIRE SYSTEMS.
the rates of your companies, the decision of the Supreme Court will
not have any effect on you, will it?
Mr. REBER. Well, but he may do so. If he has that authority, he
can make those increases. t
Mr. BARKLEY. At this time he has made none. The Postmaster
General has made no increases on your lines 7 .
Mr. REBER. He has attempted to make an increase in the toll rate,
but was enjoined by the State commissions in our territory.
Mr. BARKLEY. Then, he has made an order, and if the Supreme
Court sustains his action these rates go into effect 2
Mr. REBER. As far as toll rates are concerned, but the most
important matter is that of local commercial service rates. That is
where about 90 per cent of our revenue is obtained.
The CHAIRMAN. The committee will now recess until 2 o’clock.
º,
AFTER REO ESS.
The CHAIRMAN. The committee will come to order. Mr. Hayes,
you may now proceed. How long will you require to make your state-
ment -
Mr. HAYEs. About 10 minutes.
The CHAIRMAN. Give your name and address to the stenographer.
STATEMENT OF MR. JOSEPH P. HAYES, NATIONAL PRESI-
DENT ASSOCIATION WESTERN UNION EMPLOYEES, CHI-
CAGO, ILL.
The CHAIRMAN. You may proceed.
Mr. HAYEs. On the 25th of last July the Association Western
Union Employees, which is made up of all classes of employees without
reference to departmental lines, concluded an agreement in which it
was mutually agreed by both sides to take up the general wage situa-
tion at a later date, and one of the provisions of that agreement was
that whatever came out of the wage conference, and it was so pro-
vided in the agreement later consummated on October 12, the pay
would be retroactive. This morning in a conversation with the
Postmaster General, he told me that the retroactive pay could not
be granted because it was not lawful. If it was lawful in the case
of the railroad worker, we can not see why it should not be lawful in
our case, and I am here for the purpose of asking that the Western
Union Telegraph workers be protected under the terms of the agree-
ments that they have made and entered into with the company in
good faith.
Our association is operating under the principle of arbitration, it
stands against the strike weapon in favor of arbitration. Now,
gentlemen of the committee, we hold that if the principle of arbi-
tration is to be respected, and if both sides are to abide by it, then
whatever comes out of arbitration should be religiously observed by
both sides.
The failure to do so by either party is a body blow at that principle.
Our conference which grew out of the agreement of July 25, 1918,
opened on September 25 and came to an end on October 12, and a
RETURN OF THE WIRE SYSTEMS. 73
few days later we presented the proposition as agreed upon between
the operating vice presidents of the Western Union and the chosen
representatives of the association to the Postmaster General, or
rather to the First Assistant Postmaster General, General Koons,
Mr. Burleson at the time being out of Washington. Very shortly
after that the war came to an end and our schedule as presented to
the Postmaster General was held up till the first of the year. One of
the reasons was that the Postmaster General's office, or the wage
committee of the Post Office Department, encountered some diffi-
culty in obtaining certain information it was seeking from the Postal
Telegraph Co. with reference to the application of our schedule to
the employees of that company. Anyhow the schedule, greatly
modified, was put into effect by the Postmaster General on December
31 and became Operative January 1, 1919.
Our schedule was modest; it called for a 5, 10, and 15 per cent
increase, based upon length of service, the maximum percentage of
increase being 15 per cent. The larger percentage of increase was
reduced by the Postmaster General in his order from 15 to 10 per
cent, and Sunday time, which we had been enjoying prior to going
under Government operation, was pared from time and a half to
straight time. I find to-day that this is one of the sore spots among
the telegraph workers because we can not understand why we were
deprived of something under Government control that we had under.
private operation and besides every employee places a greater value
upon his Sunday time for it is the only day of real recreation that a
man can have and enjoy the companionship unstinted of his family.
No man or woman cares to put in a full day on Sunday without
proper compensation for it. In addition the Postmaster General
cut out the retroactive pay entirely. - -
I might say the retroactive pay was to start from the date on which
formal control was assumed by the Post Office Department, August 1,
and I believe it would have involved about $1,000,000 or less. This
thing hung fire from October 12 to January 1. We feel that the
Western Union workers are entitled to this retroactive pay and the
restoration of the time and a half under our agreements. The
Postmaster General knew that we were going into that wage con-
ference because preliminary to it. I wrote him that I was on my way
to New York to meet the operating vice presidents of the Western
Union Telegraph Co. for a wage conference, so it was of proper record
in his department.
Now, gentlemen of the committee, what we ask is that we shall be
given the full benefit of the agreements that we made and entered
into with the company officials acting as administrative officers for
the Government. - - Af
I recall one of the members of your committee to-day asking Mr.
Kingsbury, of the telephone company, whether, the employees
received more under Government operation than they would have
gotten under private control. In our case we got less, because had
we been under private control, the company would have given us
the benefit of the full working schedule conceded and agreed upon;
which was reached after a three weeks' conference, so in the case of
the Western Union Telegraph worker, he got the short end of the
stick by far.
74 RETURN OF TEIE WIRE SYSTEMS.
Furthermore, I find that our people, the workers, as a whole
throughout the country, unlike the railroad workers, are very much
committed to private control. In other words, they are perfectly
willing to take their chances under private initiative and stand upon
their own feet and are not trying to seek protection under the cloak
of civil service. We know very well if we deliver the goods our jobs
are safe, just as safe as they would be under civil service. What we
are asking you gentlemen of the committee is that the worker shall
be afforded the same protection as is given the company; if it is fair
to give the company the full amount covered by its contract with
the Government, it is likewise only fair that we be treated the same.
I do believe that some increase in rates is necessary to bring that
about. For instance, I know for a fact in the case of the Postal
Telegraph worker that the employees of the San Francisco office
complained that their ratings were very much lower than the Western
Union ratings. I do not think the satisfaction exists there as
claimed by Mr. Reynolds, of the Postal Telegraph Co. We find that
the Postal Telegraph workers are mainly instrumental in creating a
great deal of dissatisfaction in our own ranks by calling upon our
people to line up with them and if they were satisfied, as alleged,
they would not be doing anything of that sort.
Finally, gentlemen, if we are to abide by the principle of arbitra-
tion and hold it sacred, we must be given the benefit of its blessings
without restraint.
Gentlemen of the committee, I thank you.
Mr. HAMILTON. May I ask a question ?
Mr. HAYEs. Yes, sir.
Mr. HAMILTON. As I understand, this original agreement was
entered into upon July 25%
Mr. HAYEs. Yes, sir. - -
Mr. HAMILTON. And you presented a statement to the Postmaster
General some time in October and he agreed with you as to the
schedule which you had arranged for with the company; that
subsequently, about the latter part of December, he ordered the
schedule to go into effect on January 1 following; that he now finds
that that part of the agreement involving retroactive compensation
can not be complied with, or at least he so asserts. Is that the gist
Of it, 7
Mr. HAYES. Yes, sir; because he says it is unlawful. He also
reduced pay for Sunday work from time and a half basis to a straight
time basis and cut down the maximum percentage increase from 15
to 10 per cent. Furthermore, General Koons told me at the time
that another reason was the fact—that the then revenues were not
sufficient to meet it. You must appreciate that since that time the
Government has increased the telegraph rates by 20 per cent, and,
having increased the rates by that amount, it should be in a position
in a very large measure to take care of that additional sum.
Mr. HAMILTON. What are his grounds for claiming that it is
unlawful? - -
Mr. HAYES. I think in the last session of Congress one of you
gentlemen raised the question that the action of Mr. McAdoo in
granting the railroad workers retroactive pay was unlawful, and I
remember in one of my conversations with the Postmaster General
that he told me it would probably be necessary for him to submit
RETURN OF THE WIRE SYSTEMS. 75
the matter to the Attorney General for an opinion after that remark
was made.
Mr. HAMILTON. The mere fact that some Member of Congress
raised the question of legality does not in itself make it unlawful.
Mr. HAYES. I realize that. -
Mr. HAMILTON. Members of Congress are raising all sorts of points.
Mr. HAYES. That is perfectly true. But in the issue between
employer and employee all that we ask is a square deal. We are
not asking for any more for our side than we are for the other. We
feel that the company has shown an inclination to deal with us so
squarely and fairly that we can get what is fair from the company;
in fact, only in the last week I have been invited to form a com:
mittee to take up a profit-sharing plan, which is especially in accord
with modern industrial thought. -
Mr. BARKLEY. Without expressing any opinion as to the merits of
the controversy about lawfulness or unlawfulness of the retroactive
feature, wasn’t the Postmaster General's contention based upon the
fact that the Government could not make a regulation or agree to
One, that antedated the taking over of the property by the Govern-
ment'ſ
Mr. HAYES. As I understand the situation it is simply this: I
believe announcement was made by the Postmaster General that
whatever agreements were in force at the time the telegraph proper-
ties were formally taken over by the Government, and it seems to be
a well-defined policy, would continue without any abridgment. Our
first agreement was made and entered into July 25. This provided
for time and a half for Sunday and agreed as to the date on which
the retroactive pay would begin. The Government formally took
Over the telegraph properties by presidential proclamation August 1,
1918; the telegraph companies passed under the jurisdiction of the
Postmaster General on that date. .
Mr. BARKLEY. I say, that is the contention that the Postmaster
General made, that he had no authority to go back anterior to the
time of assuming control by the Government. -
. Mr. HAYES. I believe the real reason underlying his objection was
against establishing a precedent in the Government service. One
remark he made was “When we establish a precedent in the Govern-
ment we establish it for 75 or 80 years” and consequently I believe
that is one of the underlying reasons for his objection. The point
advanced by you was not raised as the schedule was to become
effective from August 1.
Mr. BARKLEY. How many employees are there in the Western
Union System 7 - -
Mr. HAYEs. Approximately 55,000, 15,000 of whom are messengers.
Mr. BARKLEY. How many are there in the Postal Service—I
mean the Postal Telegraph Co-do you know Ż
Mr. HAYEs. That I could not say. We have about 26,000 offices.
The Western Union Telegraph Co. reaches into every large city,
town, hamlet, and village in the country. The Postal Telegraph Co.
Only takes the cream of the cities, the profit-paying cities.
Mr. BARKLEY. They do not go into points of the country where
there is liable to be no profit in the business?
Mr. HAYEs. No, sir.
The CHAIRMAN. Any other questions, gentlemen?
76 º RETURN OF THE WIRE SYSTEMS.
Mr. SweBT. How much, approximately, would the employees of
the Western Union Telegraph Co., if they were given this pay that is
involved in this retroactive proposition receive
Mr. HAYES. It would only involve a certain number. Only those
who were in the service six months prior to October 1, 1918, would
participate. The schedule was tied down by certain restrictions;
that is, we agreed that any increase made during 1918 exceeding or
reaching $35 would prevent the employee receiving such an increase
from participating in this percentage increase. This feature we tried
to get the wage committee to later lift because many employees
objected to the limitation. The wage committee took the stand
that any employee who had received an increase of $420 per year
had received a substantial sum, and that it was largely in excess of
what the Government itself gave its employees, which I believe at
that time was $120 a year, and, if you please, then only for the
period of one year. -
The CHAIRMAN. You mean $240 for the Government.
Mr. HAYES. Well, it was $120 then. -
Mr. SweET. What percentage of your employees would it affect'
Mr. HAYES. I should say, roughly speaking, 65 to 75 per cent.
Mr. SwitHT. And about how much money is involved -
Mr. HAYES. About a million dollars You see, had the Postmaster
General adopted our schedule shortly after it was agreed upon, it
would not appear so great, as you can appreciate, but as it was
stretched out over a long period, it naturally appears greater than
it would otherwise.
Mr. BARKLEY. As I understand, a million dollars is what you
would get if the retroactive feature were put into effect.
Mr. HAYES. Yes.
Mr. BARKLEY. That does not reach the entire features.
Mr. HAYES. No. I see by the last annual report of the Western
Union that the bonus which was made permanent, plus the January
increase, amounted to $2,000,000, which is very much less than we
were led to believe it would total. We had a bonus, which at that
time was an exclusive product of the Western Union. You realize.
that the bonus is the modern way of raising a man's salary without
raising it; if the receipts rise you get the bonus, if they decline the
bonus evaporates. Later on there was a 5 per cent increase made
which was covered by the Postmaster General's order of December 31.
If Sunday time were restored to the old basis it would probably make
a total of one million and a half. As the force has been very mate-
rially reduced since January 1, I think the amount would show a
sharp decline. One of the reasons given at the time the Sunday time
was reduced was to make it conform to the practice then in vogue in
the Post Office Department. The Post Office Department employees
are not getting anything but straight time for Sunday work. Our
work requires highly technically trained employees who put in a long
period of study. They are like all other human souls, they like to get
off on Sundays if they possibly can. Consequently, if they are
required to work on Sunday they place a greater value on their time
on that day. -
Mr. BARKLEY. If you will permit me right there, you made a sugges-
tion a while ago that you could not understand why the retroactive
feature would apply to railroad employees and could not be made to
apply to telegraph employees. •
RETURN OF TEIE WIRE SYSTEMS. 77 .
Mr. HAYEs. Exactly.
Mr. BARKLEY. I would like just to call your attention to this fact,
that the increase in wages of the railroad men did not extend back of
Government control. It extended back to the 1st of January, 1918,
which was the time when the Government took the railroads over.
The award was not made until along in the summer, perhaps, but it
was understood that whatever award was made should extend back
to the time when the Government took the railroads over. So the
uestion of back pay for railroad employees does not extend beyond
the time of Government control.
Mr. HAYES. That is also true in our case, because the Government
formally took control the 1st of August, the date the retroactive pay
was to COmmence.
nº BARKLEY. I thought you said this action was entered into in
y.
Mr. HAYES. On the 25th of July the company agreed with us that
whatever would come out of the wage conference later to be held it
would date from August 1st.
Mr. SweFT. That is only a question of six days.
Mr. HAYES. Yes; but at the same time I should imagine the
Postmaster General would have raised the question at the time the
Western Union submitted the agreements to him for approval.
Mr. SweFT. That is your situation.
Mr. HAYES. Yes.
Mr. BARKLEY. I am not taking sides with the Postmaster General
in the matter, except I thought perhaps you were confused on account
of the fact that the railroad situation was a little different.
Mr. HAYEs. Of course, you folks realize what brought about Gov-
ernmental control. It was that so-called threatened strike last year.
Mr. HAMILTON. I will say to the gentleman that at the hearing
certain eminent gentlemen denied that the strike influenced them.
Mr. HAYES. I might say that the telegraph worker thinks other-
W1Se. -> -
The CHAIRMAN. Any other questions'
Mr. SANDERs of Indiana. Is the organization which you repre-
sent affiliated with the American Federation of Labor 7
Mr. HAYEs. No; we could not see what particular advantage could
be gained by that. As long as the company shows an inclination to
j with us fairly and squarely, that is all that we ask.
Mr. SANDERs of Indiana. Was your organization threatening to
strike prior to that time
Mr. HAYEs. No; we have come into existence since last July.
Mr. HAMILTON. All that you claim has been agreed to by the Post-
master General except the retroactive pay ? *
Mr. HAYEs. Retroactive pay, and he also reduced our Sunday time
from time and a half to a straight time basis. Now, gentlemen of
the committee, we had Sunday time on a time and a half basis prior
to going under Government control itself; in fact, Sunday time was
not a part of the last schedule because we were already in the enjoy-
ment of it. But there was a little jockeying around, I suppose to
make the best distribution possible of the amount that the Postmaster
General was willing to give, with the result that we got cut out of
Sunday time, which of course works a severe hardship on those earn-
ing none too much. As a matter of fact, some of our employees
, 78 RETURN OF TEIE WIRE SYSTEMIS.
who only received a 5 per cent increase suffered an actual decrease,
for the reason that the 5 per cent increase granted was not enough
to make up for the loss of the reduced pay for Sunday time and,
further, those who did not participate at all in the increase were
actually penalized by a reduction in pay.
The CHAIRMAN. Mr. Hayes, when your testimony is sent to you,
will you please correct it and return it promptly 7
Mr. HAYES. I will. *
Mr. WINSLOW. Do you think that time and a half for Sunday time
would form a good excuse for a man in the post office being treated
likewise? •
Mr. HAYEs. Well, I think that also had considerable bearing,
because if we were straight Government employees, and whatever we
enjoyed the other departments would naturally be after, too. But
that was something we had prior to Government control.
Mr. DENISON. It has been stated here, I believe, that the Govern-
ment has been operating the Western Union Telegraph Co. at a loss
each month. Do you understand that to be the case, or have you
any information on that ?
Mr. HAYEs. Well, I could not say that that was true—that is, up
to the time of the signing of the armistice—as up to that time the
business was very heavy. As you can appreciate, the company was
handling all it could take care of. One of the heavy losses in the
telegraph business is Government business, the tolls being very much
lower than the tolls received for commercial traffic. I believe I
noticed in the annual report of the company it stated that the oper-
ating loss on the Government business alone was over $5,000,000.
I have no way of knowing this to be a fact.
Mr. DENISON. But if it is true, as stated by some witness, that
Government operation increased that part of the telegraph service so
as to show a loss do you imagine that they could and should go ahead
and pay it regardless of the fact that the Government is operating the
lines at a loss? - - -
Mr. HAYES. Well, I feel this, that the Postmaster General has
made a contract with the company by which it receives $8,000,000
based upon the net profits of the last three years, that end of it is
perfectly protected. Why shouldn’t we be protected . Why should
there be any difference? The 20 per cent increase in telegraph rates
ought to more than take care of it. We entered into this agreement
in good faith and the Government should set a good example, the
same as is expected of its citizens. As I said, we adopted the princi-
ple of arbitration, which we believed to be the correct view, and we
would like to get exactly what the other fellow gets—a square
deal—the full benefit of the terms of the agreements mutually
reached. -
Mr. DENISON. Although it is to be raised by taxes'.
Mr. HAYES. That is going on all over this country at this time.
The Western Union Telegraph Co. has been hit like every other
enterprise and so has its employees. The increased rates should take
care of it and the Government should assume whatever burden it
undertakes when it takes charge of any properties privately controlled,
the same as any private individual or firm.
Mr. DENISON. Let me ask you this: One company here has stated
that if the lines are returned to the owners it will reduce rates to the
RETURN OF THE WIRE SYSTEMS. 79
extent of 20 per cent immediately. Now, if the Western Union should
do that, what do you think about claiming this bonus, under those
conditions? -
Mr. HAYES. Well, I am of the opinion that the Western Union
Telegraph Co. would probably not be able to meet it. But with the
other company, I should imagine if it brings up its standards to those
of the Western Union Telegraph Co.—and by the way, the Post-
master General made our schedule applicable to the Postal Telegraph
Co., although there were conditions in that company which differed
from ours, such as their not having what is called a nonfunctional
office—it will probably have to increase its revenues. Conditions
yary. If that company is brought up to date as to wages and other
features I assume it will need more revenue through increased rates,
notwithstanding its solicitude for the business man, which I do
not believe is sincere. Mr. Reynolds made the statement that the
old management was very lax and that the new management was
Very efficient. Now I can go back, and I want to say I have been
in the Western Union Telegraph Co.'s service 30 years, coming in as
a messenger, and also worked as a messenger for the Postal Co. I
resigned from the latter company as a messenger because they wanted
to shoot me out about 3 . without car fare, and that was about
5 minutes to 6 and I was off at 6, so I quit them then and there.
At that time it was considered that the Postal Telegraph Co. was pay-
ing better wages than the Western Union Telegraph Co., but things
have changed in favor of the Western Union owing to its having men
of broad vision at its head, and we are enjoying to-day many con-
cessions that the Postal Telegraph worker is not enjoying, unless he
has got them recently. We have two weeks' vacation with pay, sick-
ness disability benefits, and life insurance. Taking my own case, if I
were to die my wife would receive a year's salary, which is a mighty
good thing. *
The Western Union provides its operators with free typewriters
which is not true in the case of the other company. I do not think
that the Postal’s working conditions are anywhere near as broad as
ours on that account. Also our association has been the instrumen-
tality by which the Postal employees have been given an eight-hour
day. In other words, when this schedule went into effect the Post-
master General made the eight-hour day applicable to all telegraph
companies. -
Mr. DENISON. Your idea is then that in whatever legislation is
enacted by Congress, it should provide for the payment of the back
payment by the Government'
Mr. HAYEs. Yes on the broad principle that arbitration should be
protected and justice prevail, if it is going to mean anything to the
worker, it must be protected.. *
Mr. SweF.T. Yes, and in addition to that you should receive from
the Government as good pay for your services as you might have
received, or would have received, from the Western Union Tele-
graph Co.
Mr. HAYES. Yes, sir.
Mr. MERRITT. Have you a suggestion of the actual clause for the
bill which you would like to have put in
Mr. HAYEs. No, not at this moment, except that in whateyer
agreement is reached on the bill, it should afford the Western Union
:80 RETURN OF THE WIRE SYSTEMS.
worker ample protection, granting retroactive pay restoring time
and a half for Sunday work. Besides this we took the stand in our
conference that the older employees in the service should receive
the larger percentage of increase, because they were the people who
stabilized the service and remained loyal to it in the face of oppor-
tunities on the outside. Those employees had a record of service to
maintain and they did not want to make a getaway by going into
some other concern paying temporarily, perhaps, higher wages, and
then, when business dropped, have to return to the Western Union
‘SGI’W1C0. -
Mr. SANDERs of Indiana. How does the present pay of the Western
Union employees compare with the pay of the Postal Telegraph
employees? -
Mr. HAYES. I could not say as to that offhand, but I might tell
you my own case: I happened to be commercial agent in San Fan-
cisco, the duties of which were to handle complaints, etc., and yet
I was within $5 of what the assistant manager of their office received.
Mr. SANDERS of Indiana. But more than ordinary telegraphers
TOCQ1W.G. -
Mr. HAYES. I think there is a differential of as much as $10 or $15
'Or even more.
Mr. SANDERs of Indiana. In favor of whom 7
Mr. HAYEs. The Western Union operator.
Mr. SANDERS of Indiana. If you were to suggest a clause in this
bill would you have that clause deal only with the Western Union
Telegraph Co. or embrace all telegraphers? . . -
Mr. HAYES. Our association, of course, only covers the Western
Union workers. In other words, we feel, that our family is large
enough to work out our own conditions among ourselves. I will
offer a clause later.
Mr. PARKER. Mr. Hayes, in your agreement, which was reached
by the Western Union Telegraph Co. with you, you were to have an
increase of 5 per cent to 10 per cent, but the agreement still carried a
clause that you were to have only single time on Sunday.
Mr. HAYES. No, sir.
Mr. PARKER. I thought the agreement carried that proposition.
Mr. HAYES No; our agreement had nothing with reference to
Sunday time; our last agreement, I mean.
Mr PARKER. I mean the one that was ratified in October.
Mr. HAYES. No; that question had already been disposed of prior
to that time. Prior to the time we came under Government con-
trol that had been disposed of, but the Postmaster General reduced
Our Sunday time after we passed under Government control.
Mr. PARKER. I thought it was carried in your agreement.
Mr. HAYES. The Sunday time was provided for in the agreement
of July 25. I shall submit extract from the agreement of July 25
relating to retroactive pay and Sunday time.
Extract from agreement of July 25:
3. That on and after August 1 overtime and Sunday time shall be computed at
time and a half.
4. We further agree, on the part of the company, that any readjustment of wages
will be as and from August 1, 1918.
RETURN OF THE WIRE SYSTEMS. 81
Suggested addition to section 3:
Provided, however, That there shall be paid to the employees of the Western Union
Telegraph Company within a period not exceeding sixty days from and after the
date this act becomes effective, such sum or sums of money as may be due them on
account of retroactive pay, provided for under an agreement made and entered into
between the Said Western Union Telegraph Company, by its duly authorized officers,
acting also as administrative officers of the Government, and the Association Western
Union Employees; and it is further provided that any and all agreements between
said telegraph company and said association of employees, effective prior to date
August 1, 1918, and thereafter, be, and the same shall remain, in full force and effect,
and that all employees of said Western Union Telegraph Company who since J anuary
1, 1919, shall have worked on Sundays must be compensated therefor on the basis of
time and a half as provided in the said agreement between said telegraph company
and Said association of employees bearing date July 25, 1918. - -
Mr. HAYES. Mr. Chairman and gentlemen of the committee, I
thank you for this opportunity to present what I have to say.
The CHAIRMAN. Is Mr. Carlton ready?
Mr. CARLTON. Yes, sir.
The CHAIRMAN. Just give your name and position to the stenog-
rapher and the committee.
STATEMENT BY MR. NEW COMB CARLTON, PRESIDENT
WESTERN UNION TELEGRAPH Co.
The CHAIRMAN. Do you desire to make a statement before you
are interrogated 2 -
Mr. CARLTON. Yes, sir.
The CHAIRMAN. You may proceed. -
Mr. CARETON. I am here to ask no remedial legislation. My com-
pany, is not desirous of any assistance from Congress. It is quite
content to receive its property back when in the wisdom of Congress
it may be returned. We do ask that you make that return on a
date corresponding with the end of a month, in the interest of our
accounting. It would be very irksome, a very irksome thing if, for
example, you named a day in the middle of the month. So I would
ask you to make that date the end of a month.
My object in coming here to-day is to give you a very brief sketch
of the Western Union Telegraph Co., and to suggest something of a
constructive character. The Western Union Telegraph Co. has been
in business a long time, and the name “Western Union” is a synonym
for telegraph service, as perhaps you all know. It does 85 per cent
of the total business of the United States. It reaches 26,000 places.
About 20,000 of our offices do not pay the cost of maintaining them.
We have a competitor for about 80 per cent of the total business of
the country, but that competitor succeeds in getting only about 15
per cent of the total business, i. e., it gets about 20 per cent of the
business for which it competes and about 15 per cent of the total.
Why is that? The reason is quite clear. Our competitor's policy
is not to maintain a great national institution, giving universal
service. He has his own reasons for that, and I am not criticising
them. He has just as much right to run his business as we have to
run ours. I do not propose to try to run his. But I contend that
a telegraph business that goes only a part of the way is not of national
value. I dare say that in your constituencies we are represented by
121695–19 6
82 RETURN OF TEIE WIRE SYSTEMS.
a large number of Small offices; measured by volume of business alone
they are not important, but measured by importance to the com-
munity they serve they are essential for the prosperity and develop-
ment of such community. , You can not conceive a homegeneous
and prosperous country with its frontiers and smaller places de-
prived of telegraph service. The Western Union Telegraph Co. un-
dertakes the burden of supplying these unremunerative places with
telegraph service. It has always done so, and will continue to do so.
We can not operate our telegraph business as cheaply as our
worthy competitor, and it is because we operate in so many places
that do not pay the cost of conducting the offices. Obviously the
system of telegraph rates that was inaugurated 30 years ago must
either have done violence to the pockets of the people who used the
telegraph service in the past, or they must be inadequate to-day.
Everybody knows what has happened. I do not need to elaborate
that subject here. As to wages, I know in the year 1918 my own
company increased wages almost $11,000,000, which amounted to
25 per cent increase in pay roll. Everybody knows what has hap-
pened to material prices. Everyone who possesses a spark of na-
tional feeling knows also that unless we find some way to treat labor
better than we have been treating it in the past democracy will be
nothing but a name. I do not need to lecture you gentlemen on
that. . We of the Western Union are ambitious to give labor a greater
participation in the fruits of the telegraph business. Heretofore,
and up to the present time, the telegraph employee has been very
modestly paid, too modestly paid. &
The Western Union Telegraph Co., when Mr. Vail came in as presi-
dent in 1911, started out to raise wages and improve conditions for
the employees. I remember very well when Mr. Vail, after a trip to
Some important points in the West, said to me: “There is no use
trying to have a decent telegraph system until we get some spirit into
the hearts of our workers. They are dispirited. They are dis-
couraged. They have only stuck to the telegraph business because
there were no other means of livelihood open to them.” So he inaugu-
rated what you have recently heard alluded to—pensions, sickness bene-
fits, life insurance, vacations with pay, typewriters, etc. He built new
offices to give better sanitary conditions. The result of all this has
been a much improved personnel, a very much improved spirit; and
that has helped very materially to improve the financial condition of
the Western Union Telegraph Co. •
Mr. Vail inaugurated a very much broader policy than had pre-
viously existed by the expenditure of large sums of money, extending
the service, and making as nearly as possible a national institution of
the Western Union, and to his credit he succeeded. I do not know
how closely you have kept track of Mr. Vail's prognosis of public-
service enterprises, but in my opinion he is the most forward-looking
and ablest man of the generation on public-service problems.
Mr. Vail has done more for the employees and more for the public
than anyone else in public-service enterprises. I speak of this be-
cause in these troublesome times when we are all looking for a solu-
tion of the great public-service questions there is one man who in my
opinion is clear, able, and experienced, and who by his accomplish-
ments justifies his preeminent position in the public-service world of
RETURN OF THE WIRE SYSTEMS. 83
to-day. It is out of his loins that the Western Union has grown into
its present position.
I have heard some of the testimony about reducing rates. Such
action is an entirely new idea in the minds of our worthy competitors.
I purpose to read to you a few extracts from some of the previous
reports of the Postal Co. in which their complaint was that we were
gutting rates. It is therefore a most extraordinary change of policy
for them to say now, after all that they have said in the past, that
they are anxious to cut rates 20 per cent.
And who is to pay for this reduction ? Labor is going to pay for
most of it. If the public-service companies and the workers are to
adopt a system of participation in the profits, whatever form that
participation may take there must be reasonable profits for distri-
bution. . We can not treat labor as it deserves to be treated by start-
ing reprisals On Our competitor. º
Obviously a property like the Western Union, doing 85 per cent of
the business, is quite secure for a time against any attack of rate
reduction. A person with a jitney bus announcing broadcast that he
is going to reduce the fare for carrying people to three cents in the
city of Washington can not create a panic on the great system of
street cars in this city. The Postal Telegraph Co., with its limited
carrying capacity, is unable to make a reduction of 20 per cent and
take care of the public business. Take the years 1916, 1917 and 1918,
when the telegraph companies were doing their utmost to carry the
business necessary for the conduct of the war, each doing conscien-
tiously as much as it could. The Western Union increased its busi-
ness 40 per cent, while the Postal was able to increase its business only
9 per cent. In other words, the Postal plant in 1916, 1917, and 1918
was up to its capacity. So this somewhat spectacular proposition to
reduce rates 20 per cent covers a very small amount of the telegraph
business of this country. t
How is it going to affect us? If they are successful in carrying out
this reduction and we are not successful in instituting reprisals to do
them damage, and they build a plant in time to carry an important
volume of traffic, we shall have to curtail by closing many small offices
which do not pay, thereby depriving almost 50 per cent of the popu-
lation of this country of adequate telegraph service.
That is what the Postal's destructive policy will mean to the great
rural communities throughout the United States. Will not this re-
duction in telegraph facilities retard the growth of the country'
Most assuredly. Was there ever a time when national cohesion was
more essential than to-day ? Is there a more effective method of
securing that cohesion than by an inefficient telegraph service? I do
not know of any. Our telegraph business Ought to be three times as
large as it is. We carry 150,000,000 messages a year. That is indeed
small when compared with the country's population. It should be
three or four times that amount and we hope to make it so. To make
º we must go farther afield. We must add, not close, telegraph
OTTICeS.
I am now coming to a point that I think constructive. Obviously
we can not build a system of telegraph lines to cover all the towns
and villages of this country. We could not get the money to do it.
The Bell telephone companies, and the independent telephone com-
panies do, however, reach almost 4,000,000 of the 6,000,000 habita-
84 RETURN OF TEIE WIRE SYSTEMS.
tions in the United States. I believe this Congress should enact leg-
islation empowering both the Western Union and the Postal and any
other telegraph company to make any kind of arrangement approved
by the Interstate Commerce Commission with the telephone companies
to extend the use of the telegraph as far as it is possible to do so. We
went far enough when we were controlled by the Bell Telephone Co.
to know that a very important and very valuable extension of the
telegraph service would be made by cooperation with the telephone
Company.
If you gentlemen put these properties into the hands of their
owners—and we are perfectly willing and will be glad to receive
ours—you will have anticipated what will automatically happen
within 30, 60, or 90 days. That will be the net fruit of your labors
and there will be nothing constructive in the legislation. I believe if
you will empower the companies, subject to the approval of the Inter-
state Commerce Commission, to enter into arrangements with the
telephone companies for the extension of telegraph service, that you
would find we would very quickly, and to the very great benefit of
this country, extend the telegraph so that practically every telephone
in the United States would become a telegraph station. And that is
what should be done. A man living in a remote part of one of your
constituencies and having a telephone ought not to have to use his
automobile or employ some other elaborate proceeding to send a tele-
gram. He ought to be able to send that telegram from his telephone.
We have developed that business sufficiently to know that it can be
done. It is not a profitable business in itself, but it has value as a
feeder. Our conception of the telegraph follows that of horticulture;
to grow a telegraph system you must grow it as you would a tree.
Our worthy competitors adopt a different policy; if they find a shoot
is not bearing fruit they clip it off. We have more patience than they
have. We believe that the telegraph office that is not bearing fruit at
present should be nursed and tended. We have a great many that
do not bear fruit. But many of them will ultimately come into flower
and then bear fruit. That is one of the reasons why we do 85 per
cent and they 15 per cent of the total business; it is a difference of
conception of a public enterprise. The Postal go in to get the cream
of the business, while we go in to establish a national system of
telegraph. -
Now, in order to show you that this idea of reducing rates 20 per
cent is a novel and a new conception on the part of the Postal Co., I
would like to read a few extracts.
I first have an extract from the Postal Co.'s annual report of 1912.
The past year has witnessed reckless and unnecessary reductions of certain Atlantic
cable rates. The Commercial Cable Co. has consistently refused to reduce rates where
it has been felt that reductions were unreasonable and uncalled for. Freight rates
are being advanced by the railroads throughout the country. Steamboat rates have
also advanced. The cost of living generally has gone up. Operating expenses, labor,
Supplies, and general maintenance of all industries have been constantly increasing
in cost. These are riot the days for reductions in rates. Prices and cost of operation
are going up instead of down. Even the United States Government, which owns the
telegraph lines in the Philippine Islands, raised the telegraph rates over 35 per cent,
on the average, on Tebruary 1, 1913. The Commercial Cable Co. will refuse to cut
rates where it is apparent that the business under such cut rate will be conducted at
a loss. Its policy in this respect has been fully justified thus far, in that its business
and profit show no diminution, but have actually increased during the past year.
RETURN OF THE WIRE SYSTEMIS. 85.
From Mackay Companies’ Annual Report for 1913:
The Commercial Cable Co. continues to maintain its rate of 10 cents a word for
carrying press matter during the busy hours of the day. The Western Union has
reduced its rate to 5 cents a word regardless of the fact that 5 cents a word is an
unremunerative rate. The Commercial Cable Co. considers it only just to the busi-
ness community that its cables during the busy hours should be devoted to the rapid
transmission of regular commercial cablegrams. The Commercial Cable Co. gives a.
deferred press service at 5 cents a word.
From Mackay Companies’ Annual Report for 1914:
Your dividends have been earned, and as in previous years reconstruction has been
charged to operating expenses, and your properties have been maintained in a high
state of efficiency. Nevertheless should wages and material continue to increase in
value, as they have in the past, it may be necessary to increase telegraph rates just
as it has been found necessary to increase railway rates. Unremunerative rates.
always mean hardship to the operating force and detriment to good service, and it
may be that the time has come to take measures to prevent the telegraph companies
from falling into the condition of the railroad companies. The fact is also thereby
emphasized that the reductions in telegraph rates and cable rates on certain classes
of business during the past few years have been without justification and such land-
line telegraph rates as are now more or less inconsistent with other existing land-line
rates may have to be changed. A readjustment of rates may not be undertaken
immediately, but the contingency may arise in the near future, and if so, an increase.
will be as justifiable as the recent increase of railroad rates throughout the United.
States and as proposed in Canada. * &
Mr. CARLTON. I shall not read more at this time; but will ask per-
mission to file as a part of my statement two or three other papers.
[From Postal Telegraph (Mackay Companies Monthly Bulletin), March, 1913.]
ANOTHER SINISTER REDUCTION BY THE WESTERN UNION.
The Western Union about a month ago reduced throughout the United States the
telegraph rate for the transfer of money, and the Postal Telegraph Co., in order to
retain its business, was obliged to make the same reduction. The Western Union
indirectly controls the Great Northwestern Telegraph Co. in Canada and does its
business in Canada through the latter company, and yet it has not caused the latter
company to give the same reduced rates in Canada for the transfer of money. Such
a reduction in Canada would not have injured the Postal Telegraph Co., inasmuch
as the Postal Telegraph has no lines in Canada, its business in that country being
transacted through the Canadian Pacific Railway Telegraphs. Every day it grows
more apparent that the reductions made by the Western Union in telegraph rates
are to force the Mackay Companies to sell out to the interests or else conduct business
at a loss. In the meantime the Western Union is utterly reckless as to its own losses.
Its balance sheet shows that it is barely earning its 3 per cent dividends. But what
does that matter if it can accomplish its purpose?
[From Postal Telegraph (monthly bulletin of Mackay Companies), July, 1913.]
Now, we are not opposed to increasing railroad rates. What we are opposed to is
decreasing telegraph and cable rates.
[From telephone and telegraph letter to Mr. Sims.]
The Postmaster General also called Mr. Sims's attention to the fact that the Mackay
Companies, which operate the Postal Telegraph-Cable Co., is the chly telegraph or
telephone company whose property was taken over by the Government with which the
Postmaster General has had any differences with respect to the management, and that
such differences with the Postal Co. did not develop until some time after the property
was taken over by the Government, and grew out of a conflict between the Sworm
statements of officers of that company to the Interstate Commerce Commission for a
series of years and its sworn statement to the Postmaster General with respect to the
property and its operations which was of such a nature that the Postmaster General
declined to accept the proposal for compensation proposed by the company and made
an award of compensation based upon the best information obtainable and suggested
86 RETURN OF TEIE WIRE SYSTEMS.
to Mr. Mackay's representatives that they file a friendly suit in the Court of Claims,
where all the facts could be developed.
. Thereupon the officials of the Postal Co. began and have continued to this time a
movement inside of the organization of the company and in the public press, to hinder
and embarrass the Government's operation of this and other telegraph and telephone
properties in every possible way and which has been characterized by false and scan-
dalous statements with respect to the Postmaster General too numerous to mention;
that the sworn statements of the Postal Telegraph-Cable Co. to the Interstate Commerce
Commission showed an invested capital in that property of $6,647,472, upon which
amount it seems it was paying local taxes in the various States in which the property
lies, while information before the Post Office Department indicated that the property
was worth something like $28,000,000.
The compensation claimed by the Mackay Co., namely, $4,200,000, was 63 per cent
per annum on its investment of $6,647,472 as sworn to in its report to the Interstate
Commerce Commission, and about 15 per cent on $28,000,000, the basis of value used
by the Postmaster General in fixing the award. The sworn statements before the
Interstate Commerce Commission showed depreciation charges on the property for
the year 1916 to be $2,197,900, while the sworn statement of the company to the Post
Office Department showed only $427,803. For the year 1917, the sworn report of the
Interstate Commerce Commission showed depreciation charges on the property to be
$2,253,200, while the sworn statement of the company to the Postmaster General
showed only $448,975. . -
For the year 1916, the gross revenue of the company, as reported to the Interstate
Commerce Commission, was $12,096,586, and the net income after deducting the oper-
ating expenses and taxes was shown to be $332,343, while the sworn statement fur-
nished the Post Office Department the net operating income for the same period was
shown to be $4,157,670.44. -
For the year 1917 the gross revenues of these telegraph lines was reported to the
Interstate Commerce Commission as $12,626,420, and the net income $117,264, while
in the sworn statement before the Post Office Department, the net income for the same
period was shown to be $4,485,593.34.
These and other glaring differences in the sworn statements of the officials of this
company convinced the Postmaster General that the only method of determining a
fair compensation for the property was to have the entire matter referred to the Court
of Claims. An award of compensation was made for the purpose of enabling the com-
pany to receive 75 per cent thereof in monthly installments and permit the court to
adjudicate whatever balance might be found properly due, in accordance with the
letter and spirit of the law under which the properties were taken over.
Since the officers of the Postal Co. were relieved of its management, a request has
been made to permit expert engineers and accountants employed by the Government
to examine the record of the company with respect to its plant, investment, and opera-
tions previous to August 1, 1918, in order that the Postmaster General might obtain
data upon which the award for compensation for the use of the Postal Telegraph
properties might be revised by the Postmaster General, if the facts warranted, but
access to such records has been denied by the company.
Mr. CARLTON. Now, gentlemen, of the committee, I want to say one
more word. When a large company has something to say about a
Smaller one, there at once grows up in the heart of a chivalrous man
the thought, “I wonder if they are not out to kill the little fellow.”
I want to take just a moment of your time to show you how valuable
the little fellow is to us. We have some fifty-odd thousand people,
including our cable staff, scattered in small groups all over this
country and somewhat in Europe. You have all had business expe-
rience and know how difficult it is to keep up the spirit and effective-
ness of small groups of employees, far away from headquarters.
The telegraph business does not sell anything but service, which is
a physical manifestation. Good service depends upon alacrity of
mind and body, to secure which requires a great deal of supervision.
Suppose you had a business employing that number of people and
doing a large volume, and suppose you were responsible for keeping
it up to concert pitch. Can you imagine any better stimulus to that
large number of employees, in these scattered groups, than to have
RETURN OF THE WIRE SYSTEMIS. 87
a competitor, at the expense of only 15 per cent of the country's
business, than to have a small competitor kept constantly before
your forces as some one to watch—some one to guard against, lest
they get your business? In other words, you use such a competitor
as we used to use the bogey. He is a very valuable means of super-
vision and stimulus to our forces. .i.
I should not want to be entrusted, nor should I want to have any-
thing to do, with a public-service company that was in the telegraph
business as a monopoly. There is room for two in the telegraph
business. I wish the Postal Telegraph Co. would extend its lines
and come to every point where we do business... Obviously it would
be a much fairer competition, but that they will not do. And they
would be unwise from their standpoint, if they did because they
would be taking on a part of the burden of serving the smaller places.
I like the idea of competition in the telegraph business and I do not
want to see anything happend to the Postal. I wish you could
stretch out your legislative arms, and keep them from doing what
they say they are going to do, which is the extreme of folly. But
that is their business.
Mr. DENISON. Mr. Carlton, is it your idea that Congress, by legis-
lation, should forbid the Postal to make a reduction in rates?
Mr. CARLTON. Certainly not. -
Mr. DENISON. What is your suggestion to relieve that situation?
Mr. CARLTON. I think that what the various telephone companies
have suggested in the way of legislating existing rates would be
sufficient and proper. . . Of course that would not prevent any company
from reducing rates if they wanted to. There isn't any power to
prevent the Postal Co. from reducing rates and I should not want
Congress to use that power if it had it. But I was trying to point
out that the reduction in rates which they propose is hollow and
incongruous as affecting the general public and how serious it may
be when applied to the improvement of labor and service conditions.
Mr. DENISON. I caught the full force of your argument, but I
understood you to say that we should stretch out our legislative
arms and prevent them from entering upon a folly.
Mr. CARLTON. No; I said I wished you might, but that was a sort
of poetic hope. -
The CHAIRMAN. Any other questions?
Mr. SIMs. I would like to ask a few questions.
The CHAIRMAN. Proceed, Judge Sims. - &
Mr. SIMs. Mr. Carlton, this may be off the proposition of returning
the telegraph wires to their owners, but I live in Tennessee, and for
several years we have had great inconvenience to many people,
growing out of the fact that the Western Union wires have ceased
to function, or have been refused permission to function along cer:
tain railroads. A person who used to be able to send, commercial
messages over certain lines of railroad are now prohibited from doing
so; and the Western Union has no offices or agents along some rail-
roads and consequently we have to patronize both the telephone
and the Western Union if we are to patronize the Western Union at
all. Do you know the reason why that was done?
Mr. CARLTON. I do. . . . .
Mr. SIMs. If you can, please give me the reason. And if it can
be done in one section as to one railroad, I presume that it may be
done in other sections.
88 IRETURN OF THE WIRE SYSTEMS.
Mr. CARLTON. Yes; it might, but I am glad to say that the chances
are that it will not happen in other communities. But I am very
glad you brought that out, because if your constituents have been
caused inconvenience by having those offices closed—every one of
which along that railroad was from the standpoint of money an
unprofitable office—you may well imagine what the result would be
if such offices were closed on a large scale. It came about in this way:
Perhaps some of you know Mr. Milton Smith, president of the Louis-
ville & Nashville Railroad; a remarkable man, somewhat independent
in his disposition. We came into a serious dispute with Mr. Smith
as to the maintenance of Our poles on his right of way, and Mr.
Smith took steps which resulted in temporarily putting us out of
certain sections along certain railroads which he and his company
control. . But I can say to you, sir, that we are in process of coming
back to those places in Tennessee, and I hope we will be there without
very much delay.
Mr. SIMs. On how many railroad lines does that condition prevail?
Mr. CARLTON. Only on the Louisville & Nashville system, and that
amounts to three railroads, as I recall it.
Mr. SIMs. While, we are legislating on this subject, I am very
anxious that we should put some paragraph in any bill we may
recommend that will not only permit but will require this service
to be reestablished on all railroads and permit the Western Union
to give the same service that it used to give; because those people
are very much interested, and they have suffered a very great hard-
ship. That hardship has been put upon them by depriving them of
the Western Union service along these lines.
Mr. CARLTON. We have attempted and are now in process of arrang-
ing that matter by having the Railroad Administration permit us
to reestablish and reopen offices along those lines and make them
subject to final adjudication. The whole question is involved in
the constitutionality of telegraph rights of eminent domain, or right
to condemn along the rights of way of railroads. That is a very long
and tedious process. We want the Railroad Administration to let
us go back and maintain these offices, subject to final adjudication
by the Supreme Court. I think it can be arranged without serious
delay. I do not think it necessary to have any legislation because
we are very anxióus to get back, and the Railroad Administration
is anxious for us to go back.
Mr. SIMs. When the railroads go back to their owners why can
not Mr. Smith's ideas become dominant again, and what is there to
prevent him putting you off again?
- Mr. CARLTON. Wiś. I do not wish Mr. Smith any untimely end,
I do hope by that time that he may be retired or gone home to his
fathers and that we may have some other person to deal with.
Mr. SIMS. If Congress could make it certain when it returns the
railroads to their owners that they should permit telegraph com-
panies, and not only the Western Union but others
Mr. CARLTON (interposing). Quite right.
Mr. SIMS (continuing). To serve the public over the rights of way
of those railroads, I think it ought to do it.
Mr. CARLTON. We will cooperate with you in every way toward
that end. We are very anxious to do it.
RETURN OF TEIE WIRE SYSTEMS. 89
Mr. SIMs. One means of cooperation would be to have proper men
under you. Just draw an amendment to be put into the railroad
bill, whatever it may be, that it may become a part of that legislation.
Mr. CARLTON. I will take it up right away.
Mr. SIMS. That is local to Tennessee but affects a considerable
number of people. ... No, it is not local to Tennessee, I believe, as the
Louisville & Nashville extends over several States in its operations.
Mr. CARLTON. It does not affect all the States through which it
runs. The law in some States is quite clear, and we are there defi-
nitely. Only in certain States where there has been some question
about the law has this matter come up.
Mr. SIMS. The Louisville & Nashville has not put you off its entire
system : -
Mr. CARLTON. Not as vet.
Mr. SIMs. They are willing to do so? •
Mr. CARLTON. They have shown that disposition. •
Mr. SIMS. Can you tell the committee, if you know, why the cables
were taken over at the time they were taken over ?
Mr. CARLTON. I can tell you, yes. I would a good deal rather have
you ask the Postmaster General. I think it would be a great deal
more courteous to him. es
Mr. SIMS. I do not mean anything discourteous, because I suppose,
of course, in taking them over, it was done within the law.
Mr. CARLTON. Oh, quite so.
Mr. SIMS. But if it is any embarrassment to you at all, I will with-
draw the question.
Mr. CARLTON. I would rather have you ask the Postmaster General
why the cables were taken over, because if I answered that success-
fully, and if you asked why the telegraph lines were taken over I
would be completely flunked on that question, because I do not know.
Mr. SIMs. Well, I have only heard the rumor, and I do not ask you
to make reply, because it was more hearsay than otherwise, but that
some of the Government departments—the War, the Navy, or the
State Department—desired to have the exclusive use of the cables.
Mr. CARLTON. No; that is not true. I was the Federal cable
director during the period of Government control. It was only a
nominal control, and my position was largely that of title. I did not
conceive that it was my d; to inquire into the business of my asso-
ciates who in ordinary times were my competitors. I asked them
for no information except the physical information as to how much
delay there was on the cables so that we might work together in
handling expeditiously the great European traffic at that time. I
say this because I know the traffic regulations covering the cables
between here and Europe and there is no ground for suspicion that
there was any desire on the part of the Government to unduly censor
messages or exercise the exclusive right to the cables. The Com-
mercial Cable system did have a cable running from Washington
through to Paris which carried a good deal of cable matter of a
national character. We always have given the Government messages
preference on the cable lines, and we always will.
Mr. SIMs. Another matter I wish to ask you about which I suppose
applies to both telegraph companies, is as to business taken for the
Government, what is called Government business. Is that done at
90 RETURN OF THE WIRE SYSTEMS.
about 40 per cent in the way of tolls, 40 per cent of ordinary commer-
cial rate on messages 3 - o *
Mr. CARLTON. Yes; that is true. The Government rate is fixed on
a zone system and was fixed arbitrarily by some patriot a good many
years ago and has never been revised. The Government rate now
carries a 20 per cent increase, just as the commercial business does,
but the rate is altogether inadequate. It does not give a new dollar
for an old one. Unquestionably we carried during the war about
95 per cent of the Government business. The Government telegraph
and cable business handled by us increased from about $600,000 per
annum to about $11,000,000 per annum. The cable business was
done at one-half rate, and consequently at a little more profit than
the land line business. It was all a very unprofitable business, but
that was an obligation that we could not very well avoid, being the
only comprehensive national system. Our lines being so much more
extensive than the Postal's, we were able to reach all of the canton-
ments, all of the flying fields, all of the mobilization centers, in fact
every national war activity had in it a Western Union office. That
brought about this very large volume of Government business, and
led to rebuilding our office in Washington on a much larger scale.
We spent a good many million dollars in taking care of this Govern-
ment business, but, that, too is the obligation of a national system,
which we recognize. . - - . . . .
Mr. SIMs. The amount you received for Government business did
not cover the cost of operation and maintenance % . . . . .
Mr. CARLTON. No, sir; it did not. - + -
Mr. SIMs. About how much of that business represented a loss?
Mr. CARLTON. Our comptroller made a careful study and his
estimate, which was presented to the Post Office officials—and they
accepted the principle of it—showed that our loss in 1917–18, for
the year, was just over $5,000,000. . . * * * . . .
Mr. SIMs. Do you mean $5,000,000 for each year?
Mr. CARLTON. Yes, sir; at the rate of $5,000,000 a year.
Mr. SIMs. Absolute loss?
Mr. CARLTON. Yes, sir. -
Mr. SIMs. With the increase of 20 per cent, which also applies to
the Government rate, as I understand?
Mr. CARLTON. Yes, sir. -
Mr. SIMs. That would reduce it 3
Mr. CARLTON. Yes, sir. - - &
Mr. SIMs. Do you know whether the same rate applied to the
Postal Telegraph Co. 7 *
Mr. CARLTON. They charged the same rate.
Mr. SIMs. They lost money, then, too : -
Mr. CARLTON. I do not know how much they lost. I have not
seen their figures.
Mr. SIMs. They lost something?
. Mr. CARLTON. Yes, sir; presumably the loss was represented by
the volume of Government business, of which they carried only 5
Der cent. -
| Mr. SIMs. Do I understand from the proposition the gentleman
[Mr. Reynolds] made this morning that they do not expect that the
20 per cent increase will apply to Government business? -
Mr. CARLTON. I do not know. l -
RETURN OF TEIE WIRE SYSTEMS. 91
Mr. SIMS. The gentleman over beyond you bows to that.
Mr. CARLTON. They do not handle any Government business to
speak of, and I rather think they would reduce it the 20 per cent.
It is rather an inexpensive move on their part.
#: Mr. SIMS. Compared with the Western Union ? * -
*Mr. CARLTON. That is one thing I will say we will not do. We
willinot reduce our Government rate 20 per cent, because the more
of that our competitor will take the better we will be pleased. . So if
they reduce the rate 20 per cent I will promise they shall have all the
Government business they can handle.
HMr. SIMS. The thought occurs to me if you do Government busi-
ness in large volume at a loss to the company, that loss must be
made up, and, consequently, it must come out of those who pay
full rate. -
Mr. CARLTON. That is true.
Mr. SIMs. As to that 40 per cent Government rate; was that
established by the companies themselves? -
Mr. CARLTON. No; it was fixed by a Postmaster General, who has
the arbitrary right to fix the rate, and I think this rate was fixed by
Postmaster General Bissell. I believe there was a lawsuit over the
rate fixed by Postmaster General Wanamaker. He fixed the rate at
a mill a word, and we had no trouble in proving to the Supreme
Court that it was confiscatory, and then I think his successor fixed
this arbitrary rate, which has never been changed until Mr. Burleson
added on 20 per cent. -
Mr. SIMs. Was that authorized by a law of Congress'
Mr. CARLTON. No, sir.
Mr. SIMs. What authority did he have 7 - -
Mr. CARLTON. Congress authorized the Postmaster General under
the law to arbitrarily determine and fix a rate which the commercial
companies were to be paid for handling the Government messages.
... SIMs. The law did not fix it? - - -
. CARLTON. No, sir. -
. SIMs. But authorized the Postmaster General to fix the rate %
. CARLTON. Yes, sir. . . .
. SIMs. Which law remains on the statute books at this time 3
. CARLTON. Yes, sir. - -
. SANDERs of Indiana. You suggested that some legislation was
needed to bring about cooperation between telegraph companies, and
long-distance telephone companies. What kind of legislation have
you to suggest ? - w - tº
Mr. CARETON. I should be very glad to hand to your chairman the
few words that I think would be necessary to bring that about.
The CHAIRMAN. Incorporate that also in you hearing.
Mr. CARLTON. Yes, sir.
The CHAIRMAN. Any other questions? -
Mr. WINSLow. I would like to ask a question: In what respect, if
any, has the service with respect to the public improved under the
direction and authority of the Government? o
Mr. CARLTON. I am glad you have asked that, because I, think
we all want to be fair to one another. The telegraph service, as
well as the telephone service, was on the down grade when the
companies were taken over by the Government...In my judgment
no power under heaven could have prevented either the telephone
or the telegraph service from deterioration during the War. Obvi-
i
92 RETURN OF THE WIRE SYSTEMS.
ously, you could not take out of the telegraph service, as we did,
thousands of our best men, for the Government service, to help
carry on the war, without serious deterioration in the service. You
could not have that condition of unstable labor, which existed,
especially during the year 1918, when our overturn was almost 46
per cent, without injury to the business. The Postmaster General
was no more responsible for the deterioration of the telegraph and
telephone service than I was, perhaps not so much so; I was almost
going to say, no more than any gentleman sitting before us. His
instructions to me when he asked me to operate the Western Union
system were contained in about these words: “I want you to operate
the Western Union just as well as you can. I am not going to ask
you to do anything that is unreasonable. I am not going to place
any onerous conditions around your service, and I want everything
done that can be done to make the telegraph service better for the
people of this country.” I did the best I could.
I never received any instructions, nor do I know of any action on
the part of the Postmaster General that did anything to impair the
character of the telegraph service. We differed on some questions,
but they were not material as factors in the service. While I hold
no brief for him—and my rate of remuneration does not necessarily
make me his slave, as I am on the usual stipend of $1 a year—yet I
think I Ought to say for him that to our property he has been fair,
considerate, and constructive. He has done the best he could. He
knew nothing about the telegraph business. I did not agree with
him in his theory of Government ownership, which I think was his
ambition, and a perfectly proper one if you agree with it. His atti-
tude of mind was such that . me to believe he was susceptible to
fair treatment. I did not try to deceive him. I did not try to play
sharp with him. I had no embarrassing conflicting affidavits. I
went to him frankly with the facts. He knew all the figures of the
Western Union, from the Interstate Commerce Commission, and our
figures agreed with theirs. There was nothing to hide. We fought
up and down the room before we made our compensation contract,
but we made one controlled by sound business principles, which
every one of you gentlemen have used every day in your business
life. I say to you that in my judgment the Postmaster General is a
man with whom any reasonable man can do business.
Mr. SweFT. Was the increase of 20 per cent in the rate on your
advice and suggestion to the Postmaster General?
Mr. CARLTON. I urged the Postmaster General in September, 1918,
to increase the Government rate. I pointed out that the volume of
the Government business was then very high, and if he did not do
something he would have a loss in the operation of the Western
Union of several million dollars that would have to be made up in
some other way. But he didn’t do it. I do not know why. That
is his business. He put it off and did not raise that rate until last
April. If he had acted on my advice and raised the inadequate
Government rate, there would have been no deficit so far as the West-
ern Union guaranty is concerned. So far as the 20 per cent increase on
commercial rates is concerned, I was not consulted, although had Ibeen
consulted I probably would have advised such an increase in the rates.
Mr. WINSLOW. It is fair to assume from what you have just stated
that the influence of the Government on the telegraph service was
negligible in a practical sense. I do not care to go into the personnel.
RETURN OF THE WIRE SYSTEMS. 93
Mr. CARLTON. If you are buttressed by a guaranty of the Govern-
ment and do not have to worry so much about how you are coming
out, you do let down a little. I think all our employees did let down
more or less, as is the usual custom on the part of Government em-
ployees. After all, they are made of flesh and blood, and dependence
on the Government tends to reduce that eagerness and energy which
they must necessarily have under private ownership. *
Mr. WINSLOW. Would it be fair to assume from your statement
that you feel that would be the natural outcome of general Govern-
ment ownership 2 • *
Mr. CARLTON. I most certainly think so. -
Mr. WINSLOW. And aside from the financial relief which the com-
pany got very properly at the time and attributable to the control of
the Government, the company received more assistance from the
Government in a concrete form.
Mr. CARLTON. No. I think the effect of Government control was
to somewhat stabilize a rather unsettled labor condition; and I think
there was some benefit there. .
Mr. WINSLOW. Was there anything accomplished through Govern-
ment ownership which you would not have accomplished as a private
measure had you been able to control the man power and the money?
Mr. CARLTON. No; I think the net would have been about the same.
Mr. WINSLOW. A better spirit and greater production from em-
ployees? .
Mr. CARLTON. Yes. You can not get anything out of me—any
sentiment out of me—that applauds Government control or Gov-
ernment operation. I am with you entirely in opposing that, be-
cause I have seen it; and yet I have had a pleasant experience with
the Post Office people.
Mr. DENISON. Did you ask or in any way solicit the Post Office
Department to take over the cable and telegraph service, or did any
One representing the company, that you know of Ż Tºº-
Mr. CARLTON. I think I can tell you, if you are interested to hear,
just what took place, and since the water has gone over the dam, I
do not suppose there is any reason why I should not repeat the con-
Versation. -
It was in October, 1918, that I said to the Postmaster General,
“My judgment is that the taking over of the wires was a great political
liability, that you will get nothing but abuse out of their administra-
tion; the service is bound to deteriorate, and you will be blamed for a
great deal over which you have no control. There is nothing con-
structive that you will be able to accomplish in the short time that
you will hold them. But there is something that I believe you can
do of a constructive character, and that will be of infinite value to
this Nation in the days that are to follow the war.” g
And then I briefly outlined a plan for extending the American cable
systems, of which there are three principal ones, to foreign points, in
order that American merchants and American merchant marine
might have direct communication over American cables, and thus
avoid the censorship and at times the unfriendly attitude of foreign
powers. I suggested that he should ask the President to take over
the cables, and that they should at once begin a constructive plan,
not for amalgamating the companies—it was far too early to talk
about that—but with the assistance of Congress to lend the companies
94 RETURN OF THE WIRE SYSTEMS.
a sum of about $10,000,000, at a low rate of interest, the principal to
be paid over a period of 20 years, and thus enable us to take the
large number of cables—there are 13 controlled by American compa-
nies across the North Atlantic—and extend them to points in Europe.
I suggested that it would be possible to spread these cables, taking
one of them to Italy; one into Austria, because it was patent that
the German cables were gone; another to the Scandinavian Penin-
sula; another to an all-winter port of Russia; and then spread
the South American system so as to bring the great East Coast of
Brazil, to which there is now no American cable, directly into cable
connection with the eastern shores of the United States.
The Postmaster General liked the idea, but of course, I do not
know how much it influenced him, or whether it influenced the
President at all in taking over the cables. But that was my con-
versation and it was subsequent to that conversation that the cables
were taken over.
Mr. DENISON. Of course, you know, I assume, Mr. Carlton, that
that was not in the thought of Congress when they gave the Presi-
dent the power to take them over; they gave him that as a war
measure to more successfully prosecute this war, in view of the fact
that the purpose of the Enabling Act was simply a war measure.
Did you recommend him to go ahead and do this for commercial
purposes after the war &
Mr. CARLTON. That was my idea. There was no war measure in
my recommendation, because obviously you could not do much
during the progress of the war.
Mr. DENISON. Another question I had in mind was this: The
Government got nothing by way of efficient service out of the tele-
graph companies and cable companies that they could not have
gotten or would not have gotten if your company had retained the
management of them, did it 3
Mr. CARLTON. As to service per se; I think nothing was gained
in point of efficient telegraph service by the Government taking
over the wires. I was the only one, by the way, of all the com-
panies—telephone or telegraph—to come to Washington and protest
before they were taken over. I did not appear before this committee,
but I did appear before the Senate committee. s
Mr. DENISON. Your policy had always been that you favored the
Government in all kinds of Government business? -
Mr. CARLTON. We knew that we were doing for the Government
everything that the Government could do for itself, and probably
doing it a little better.
Mr. BARKLEY. Mr. Reynolds this morning in his testimony and
in the copies of letters which he filed with it, made the statement
that the reason the Postal Telegraph Co. had refused to divulge
certain information and facts that the Postmaster General desired,
in order that he might fix the compensation for Government opera-
tion, said that they did not want to turn that information over to
their competitors, the chief of which, I suppose, is the Western Union.
Can you give any enlightenment upon that phase of the contro-
versy between the Postal and the Post Office Department'
Mr. CARLTON. No. That never interested me much; I do not
mean to be discourteous in answering your question. It seemed to
me rather too trivial to pay any attention to. I do not know what
RETURN OF THE WIRE SYSTEMs. 95
took place. There is nothing about the Postal Co. that I want to
know. They leave it to us to make the development in the art. In
the 10 years I have been connected with the telegraph business we
have made all the progress that has been made in improving the art
of telegraphy. That is usually the way with the little companies—
they let the big companies go to the expense of improving the art,
and then they trail along.
Mr. BARKLEY. In order that your answer may go into the record,
because Mr. Clarence H. Mackay has frequently through the press
given a good deal of publicity to the fact that the Post Office Depart-
ment or the director general apparently was using your company as
a favorite or pet of his in order to stifle or put out of business the
Postal Telegraph Co. The answer of Mr. Reynolds is in line with
that propaganda that has been going on through the press since this
controversy arose between Mr. Burleson and Mr. Mackay, and in
order that your answer may go into the record unequivocally I will
ask you this: Whether there has ever been any suggestion on the
part of the Western Union or anybody representing it to the Post-
master General seeking to obtain any information with reference to
the private business affairs of the Postal or any other telegraph com-
pany that is its competitor' - -
Mr. CARLTON. I can answer that unequivocally; absolutely none.
I would like to say, if I may, since you have brought up the subject—
I do not know that it is of any interest—but you know that there is a
certain type of person in this world who has a touch of megalomania;
he thinks all the girls want to marry him and that all the men Want
to destroy him. There is one of this type in the Postal Company
and he is a member of the bar. It is nº Mackay. Mr. Mackay
is a perfectly peaceful person. I have not the pleasure of knowing
him, but he is merely a name. He does not write these things. He
is not concerned in these matters. He is a wealthy young man of
social and sporting proclivities. But a Mr. Cook, who runs the Postal
Co., has this kink of thinking everybody is sitting up nights plotting
against him and, assisted by my friend Reynolds, has created con-
siderable atmosphere of popular and public support. There is noth-
ing to it. We do not want to know anything about the Postal Co.
We are very busy with our own affairs, and we have never found
anybody was sitting up nights to sandbag us if we minded our own
business, and that is our golden text. -
Mr. BARKLEY. Have you a copy of the contract between you ?
Mr. CARLTON. I have it here.
Mr. BARKLEY. Will you file it with your testimony?
Mr. CARLTON. Yes, sir. -
Mr. BARKLEY. Will you file them with your testimony ?
Mr. CARLTON. Yes, sir.
(The documents submitted by Mr. Carlton are here printed in full,
as follows:) -
APPENDICES REFERRED TO ON PAGE 5 OF FOREGOING REPORT.
POST OFFICE DEPARTMENT, .
Washington, October 9, 1918.
Order No. 2114. 0.
The proposal of the Western Union Telegraph Co., dated October 9, 1918, with
respect to just compensation for the use of the properties owned by them during the
period of Federal control provided for in the joint resolution of Congress approved
96 RETURN OF TEIE WIRE SYSTEMS.
July 16, 1918, and the proclamation of the President with respect thereto dated July 22,
1918, and the order of the Postmaster General assuming supervision, possession, con-
trol, and operation of this and other telephone and telegraph properties, dated August
1, 1918, is hereby accepted on behalf of the United States, and compensation will be
paid in accordance with the terms and provisions thereof.
A. S. BURLESON,
Postmaster General.
The Western Union Telegraph Co., hereafter referred to as owner, hereby offers to
accept a just compensation for the Supervision, possession, control, and operation of
the telegraph system of the owner taken by the President of the United States, under
a joint resolution of the Senate and House of Representatives, dated July 16, 1918,
Which supervision, possession, control, and operation commenced at twelve (12)
o'clock midnight on the 31st day of July, 1918, and is referred to as Federal control,
to be fixed as follows: ..
SECTION 1. The owner's telegraph system of which the President has taken such
Supervision, possession, control, and operation includes:
(a) All of the telegraph property operated by the owner as parts of its telegraph
system, whether owned, leased or controlled, and all additions, including those
through consolidations and purchases made thereto during the period of Federal
control, being its system of land lines and articulated cables forming a component
part thereof within the jurisdiction of the United States.
(b) All materials and supplies on hand at midnight July 31, 1918, pertaining to such
landline System. As soon as practicable a separate inventory of said materials and
supplies shall be made and authenticated for him by the signature of such persons as
the Postmaster General may designate for that purpose, and for the owner by the
signature of the president or a vice president of the owner, which inventory when so
authenticated shall constitute a part of the proposal. -
(c) The net balance as of midnight July 31, 1918, in the accounts shown on the books
of the owner and under the uniform system of accounts for landline system telegraph
Companies prescribed by the Interstate Commerce Commission as follows: (1) number
108, employees’ working funds, (2), number lll, due from customers and agents, (3)
number 112, accounts receivable from system corporations, (4) number 113, miscel-
laneous accounts receivable, (5) number 116, other current assets, (6) number 107,
special deposits.
(d) Three million ($3,000,000) dollars in cash for working capital, the use of which
the Postmaster General is to have during the period of Federal control without interest,
which amount is the amount of working capital which the owner had on hand August 1,
1918, attritubale to such landline system. -
SEC. 2. During the period of Federal control, the operation of the property of the
Owner shall be continued at a standard of efficiency relatively equal to that of the past.
SEC. 3. (a) During the period of Federal control, through current repairs, main-
tenance and reconstruction, the property of the owner shall be maintained by the
Postmaster General up to a standard relatively equal to that existing on July 31, 1918,
So that its state of repair and operating condition will be relatively the same at the
expiration of the period of Federal control as at its beginning.
(b) In order to make the provision for depreciation and obsolescence relatively equal
to that of the past, during the period of Federal control the Postmaster General shall
Set aside in each year (and at the same rate for each fraction of a year) the sum of four
million ($4,000,000.00) dollars and an amount equal to 2% per centum of the cost of each
addition to the property of the owner during the period of Federal control, including
additions made through consolidations and purchases. It is understood that the
owner of the property has at the present a large number of operating contracts in
existence with various railroads in the United States which provide generally that the
latter shall perform certain services in connection with repairs and renewals of the
telegraph property in exchange for telegraph service rendered, and if for any reason
during Federal control such contracts are terminated or amended without the consent
of the owner in such a manner as substantially to affect such services rendered by the
railroad companies so as to diminish the value of such services rendered to the telegraph
company, then the Postmaster General shall correspondingly increase the amount
set aside each year for maintenance, depreciation, and obsolescence as to reimburse
the telegraph company for such diminished service. * * * º
(c) The Postmaster General shall further make provision for the amortization of
intangible capital, right of way, and land and, debt discount, including additions to
these accounts because of additions as aforesaid to the property during the period of
Federal control, upon a basis substantially equal to the established practice of the
owner prior to Federal control. -
RETURN OF THE WIRE SYSTEMS. 97
(?) The amounts so set aside shall be credited in monthly installmentsin accordance
with the present established practice of the owner.
(e) The charges affecting construction, maintenance, depreciation, reserves for
accrued depreciation and amortization of landed and intengible capital and for the
amortization of debt discount shall during Federal control be made according to the
System of accounts prescribed by the commission.
(f) The reserves for amortization of intangible capital, for right of Way and land and
for the amortization of debt discount, set up as aforesaid together with any balance
remaining in the depreciation reserve (set up and created as aforesaid) shall first be
expended by the Postmaster General for additions, approved by the owner, to the
property as and to the extent needed. If such expenditure does not absorb all said
reserve and balance, then the Postmaster General may divert and use such remaining
portion for such purpose, in connection with the development.of the company's such
landline property, as he sees fit and the United States shall thereupon and thereby
become obligated to pay an amount equal to the sum so diverted and used, to the
owner at the end of the period of Federal control. without interest, subject to the
provisions of the last clause of section 6, clause a.
SEC 4: The owner shall have the right to inspect its property at all times during the
period of Federal control and the Postmaster & eneral shall provide reasonable oppor-
tunities for such inspection, but such inspection shall not interfere with the operation
of the property.
SEC. 5. (a) During the period of Federal control, the owner's plan or practice for com-
pensating employees on account of injury, disability and death and likewise its pension
plan, shall be continued, except as modified by mutual agreement by the owner and
the Postmaster General. The Postmaster General shall pay allinstallments or pensions
granted prior to August 1, 1918. - g
(b) The owner shall, before they become delinquent, pay all taxes, license fees
and charges, and the expense of suits in respect thereof which can or may lawfully be
imposed during the period of Federal control by Federal or other governmental author-
ity upon any part of the property described in paragraph (a) of section l hereof, and
also such other taxes, license fees and charges as during the period of Federal control
become the obligations of the owner.
(g) The owner shall render bills to the Postmaster General for such taxes, license fees
and charges and operating expenses incident thereto as the same are paid, which
bills shall be accompanied by receipts of the proper tax collecting officials, and shall be
paid by the Postmaster General within five days after their rendition, except that said
bills shall not include and the Postmaster General shall not pay to the owner, the
portion of Such taxes, license fees and charges properly apportionable to property not
taken under Federal control and to the revenue from said last mentioned property.
(d) If any such tax, license fee or charge is for a period which began before July 31,
1918, or continues beyond the period of Federal control, such portion of such tax,
license fee or charge as may be apportionable to the period of Federal control shall be
paid by the Postmaster General and the remainder shall be paid by the owner.
Whenever a period for which a tax, license fee or charge is imposed can not be
definitely determined, so much of such charge as is payable in any calendar year shall
be treated as imposed for such year.
(e) During the period of Federal control, the Postmaster General shall pay all rentals
for property, guaranteed interest, guaranteed dividends and contract payments for
property used in the operation of the property of the owner as per schedule attached.
(f) Said taxes and rentals shall be allocated between the expenses of operation and
capital accounts in accordance with the accounting rules prescribed by the Commission.
SEC. 6. (a) For the use of the Postmaster General the owner shall, out of the com-
pensation hereafter mentioned to be paid by the Postmaster General for the use of
said property, loan to the United States from time to time upon reasonable notice
during the period of Federal control, without interest, the sum of one million dollars
($1,000,000.00) per annum to be used by the Postmaster General in additions and
extensions of the owner's property. Such proposed additions and extensions
shall be submitted to the owner for approval or disapproval in writing. If approved
then such extension or addition upon completion shall be a discharge of the
Postmaster General to the amount of the cost thereof to repay to the owner Such
part of said loan. If such extension or addition is disapproved by the owner then the
Postmaster General may if he so desires proceed to make the addition or extension,
and at the termination of Federal control, the Interstate Commerce Commission if the
parties then disagree shall determine the value to the owner of such added facilities
or extensions, and the sum due to or payable by the owner, as the case may be. . Such
procedure shall also govern any unexpended portion of the depreciation reserve herein
121695–19 7
98 RETURN OF TEIE WIRE SYSTEMIS.
provided. The word additions shall include additions made by consolidations and
Burchases. º
| The title to all such additions made in accordance with the above arrangements shall
immediately vest in the owner.
(b) The cost of any additions and extensions made by the Postmaster General outside
of the said million dollar fund and the unexpended portion of depreciation reserve,
and agreed to by the owner, and the value of any additions and extensions which the
owner may have disapproved, but which the Interstate Commerce Commission has
decided shall be charged to the owner, the cost of such additions shall be repaid to the
Postmaster General by the owner in twenty (20) equal annual installments; payable one
at the expiration of one year after Federal control and one at the end of each year
thereafter until all are paid, with interest from the date of the end of Federal control
at º rate of five (5%) per cent per annum, payable annually upon all unpaid
balances. -
(c) The Postmaster General shall render to the owner on the 15th day of each
month accurate statements of the cost of all material and labor furnished by him for
account of the owner for such construction during the preceding month, which state-
ments shall be based upon and be in accordance with the accounting rules and classifi-
cations prescribed for the owner by the commission and in force July 31, 1918, as from
time to time amended.
SEC. 7. (a) The Postmaster General shall pay to the owner for each year and pro
rata for each fractional part of a year during the period of Federal control, an amount
equal to the sum of the following items: (1) All interest upon the bonds and obliga-
tions of the owner outstanding, as of July 31, 1918, as per schedule attached, except
bills payable. It is agreed that the Postmaster General shall assume all bills payable
made subsequent to July 31, 1918, and shall immediately return the collateral pledged
in negotiation of such bills. (2) Seven million nine hundred and eighty-five thousand
seventy dollars and eighty-seven cents ($7,985,070.87), less an amount equal to the
net income of the owner's office at Havana, Cuba.
Any securities or obligations issued or guaranteed by the owner and purchased by
and in the hands of trustees, shall be treated as outstanding in the hands of the public.
It is hereby provided, however, that the owner shall not declare and pay to its stock-
holders any dividends in excess of seven (7%) per cent annually during the period of
Federal control. *
(b) The amounts provided for under subdivision (a) hereof shall be paid to the
owner in monthly instalments on the last day of each calendar month during the
period of Federal control except that instalments which have accrued prior to the
acceptance of this proposal shall be payable at the date of such acceptance; such
payments to the owner to fully satisfy and discharge all claims of the owner on account
of the amounts so paid.
SEC. 8. (a) All amounts received by the Postmaster General under paragraphs
(a) and (c) of section 1 hereof, and all other amounts, whether received from the owner
in cash or collected or realized by him from prepayments and current operating assets
belonging to the owner or arising from telegraph operations prior to midnight of July
31, 1918, shall be credited by him to the owner and the Postmaster General shall, to
the extent of the cash so received or realized, pay and charge to the owner all expenses
arising out of its telegraph operation prior to August 1, 1918, and unless objected to by
the owner, may pay and charge to such owner any of such expenses in excess of the cash
so received or realized. Balances of the above accounts shall be struck monthly as
of the last day of August, 1918, and as of the last day of each calendar month thereafter,
within fifteen days, and the cash balance found on Such adjustments to be due either
party shall be then payable within five days.
(b) Telegraph operating expenses, rent, contract payment deductions shall be
allocated with reference to the time when incurred as between the periods prior and
subsequent to midnight of July 31, 1918, and between the period of Federal control
and the period subsequent thereto, in each instance in accordance with the present
established accrual practices of the owner, telegraph operating revenues and rent
revenues shall be allocated as between the periods prior and subsequent to midnight
of July 31, 1918, and as between the period of Federal control and the period subse-
quent thereto, in each instance in accordance with the present established accrual
practices of the owner. .
(c) Items included in the accounts (1) number 121 prepaid rents, (2) number 122,
prepaid taxes, (3) number 123, prepaid insurance, (4) number 124, other prepay-
ments, as prescribed by the commission shall be allocated as between the periods
prior and subsequent to midnight of July 31, 1918, and as between the period of Fed-
eral control and subsequent thereto in each instance, in accordance with the present
established practices of the owner. -
RETURN OF THE WIRE SYSTEMIS. - 99
(d) There may be used for additions to the owner's property, approved by the
Postmaster General, any of the materials and supplies taken over under paragraph
(b) of Section l hereof, or purchased by him and held for use in connection with such
property, in So far as in his judgment this may be done with due regard to his own
requirements. Materials and supplies so furnished shall be charged to the owner at
ºry prices in the case of those taken over and at cost in the case of those pur-
Cha,SGC: . *
(e) The Postmaster General shall pay, or Save the owner harmless from, all expenses
incident to or growing out of the possession, operation, and use of the property taken
over during the period of Federal control. He shall also pay or save the owner harm-
less from all judgments or decrees that may be recovered or issued against, and all
fines and penalties that may be imposed upon it by reason of any cause of action
arising out of Federal control or anything done or omitted in the possession, operation,
use, or control of its property during the period of Federal control, except judgments
§ decrees founded on obligations of the owner to the Postmaster General or the United
States. -
(f) The Postmaster General shall Save the owner harmless from any and all liability,
loss, or expense resulting from or incident to any claim made against it growing out of
anything done or omitted during the period of Federal control in connection with or
incident to operation or existing contracts relating to operations, and shall do and
perform so far as is requisite during the period of Federal control for the protection of
owner all and singular the things, of which he may have notice, necessary and appro-
priate to prevent, because of Federal control or by reason of anything done or omitted
thereunder, the forfeiture or loss by the owner of any of its property, rights, ordinance
rights, or franchises, or of its connecting or other contracts involving a facility of
operation. The Postmaster General shall also save the owner harmless from any and
all claims for breach of covenant heretofore entered into by it or by any predecessor
in title or interest in any mortgage or other instrument in respect of insurance against
losses by fire.
Nothing in this or in the preceding paragraph shall be construed to be an assumption
by the Postmaster General of, or to make him liable on, any obligation of the Owner
to pay a debt Secured by a mortgage.
(g) In carrying out the provisions of this section, the Postmaster General shall not
settle any claim by or against the owner against the objection in writing of the president
or any other duly authorized officer of the owner. The conduct of all litigation arising
out of such disputed claims or out of operation prior to Federal control shall be in
charge of the owner's legal force and the expense thereof shall be paid by the OWner,
but the Postmaster General shall render to the owner all reasonable assistance in the
conduct of such litigation. This paragraph shall not apply to any litigation between
the owner and the United States.
(h) The owner shall have the right at all reasonable times to inspect the books and
accounts kept by the Postmaster General relating to the property of the OWner or to
the operation thereof, and the Postmaster General shall, during the period of Federal
control, furnish to the owner periodically copies of operating reports after the end of
each fiscal year, the statistical data for such year substantially as heretofore compiled.
(i) All payments to be made under this proposal which are not paid Within, five
days after due shall draw interest from the date of their maturity until paid at the of
five per cent (5%) per annum. * g
SEc. 9. At the end of the period of Federal control all the §º. described in
paragraph (a) of section l hereof, and also all additions (including those made by
consolidations and purchases) to the property of the owner made during the period
of Federal control out of unexpended reserves, out of the proceeds of Securities, or
otherwise, together with all repairs, renewals, and replacements thereof, shall, be
returned to the owner in a state of repair and in an operating condition equivalent to
that of the owner's telegraph system of July 31, 1918.
Sec. 10. (a) Inasmuch as the cables of the owner from Key West to Habana have
been operated in connection with the land lines directly from New York to Habana
without relaying the messages and such cables are to all intents, and purposes ºn
integral part of the owner's land-line system, the owner reserves the right to retain
said cabies from Key West to Habana and to maintain its office in the City of Habana
and to operate the same as heretofore and will also maintain the cables connecting
such office with the office at Key West. º tº .
(b) The owner operates either through ownership or under lease certain telegraph
lines and system in New Foundland, Prince Edward Island, and the Maritime Prov-
inces, and also a line to Vancouver. The construction, Operation, and maintenance
of these lines and systems shall continued as heretofore under the directiºn of the
owners, using the supervisory operating staff of the land lines in the United States for
100 RETURN OF THE WIRE SYSTEMS.
that purpose. In the discharge of the duties of construction, operation, and mainte-
nance such supervisory employees, however, shall be considered as employees of the
owner, and they shall be paid by the Postmaster General for the owner's account.
Separate account of such operations shall be kept and settled at the end of each month.
In settling such accounts the expenses and, actual disbursements chargeable to the
owner shall be those actually incurred by the Postmaster General on behalf of the
owner, and the revenues and interchange of business shall be determined in conformity
with the provision of the contract for the interchange of business between the Western
Jnion Telegraph Co. and the Canadian Northern Telegraph Co. and the Great North
Western Telegraph Co. dated January 1, 1915, and such provisions of Said contract
are here referred to and made part of this agreement as if attached hereto. The fore-
going arrangement to continue so long as the owner continues obligated to operate the
said telegraph lines and systems as above described. It is understood that any or
all of these lines and systems may at the option of the owner be disposed of or become
a part of the Great North Western Telegraph system, and in either event shall be subject
to the existing contract now in force between the company and the owner.
(c) The owner owns a substantial share in and operates a company known as the
American District Telegraph Co. of New Jersey and its controlled companies,
doing a general fire-alarm, burglar-alarm, and Sprinkler Supervisory business through-
out the United States. The owner proposes that the present relationship between the
landline offices and the American District Telegraph Co. shall continue during the
period of Federal control. Under existing contracts the American District Tele-
graph Co. of New York and the American District Telegraph Co. of New Jersey and
controlled companies operate a joint messenger Service for the collection and delivery
of telegrams and cablegrams. It is proposed by the owner to purchase one or both of
the plants and thus do away with existing contract obligations. The owner proposes
to furnish the money necessary for acquiring one or both of Said plants and the Post-
master General shall pay interest upon such sum or sums at the rate of six per centum
(6%) per annum until the expiration of Federal control. Before concluding any
contract for the purchase of the plant of the American District of New Jersey the
owner shall procure the consent of the Postmaster General. -
(d) The owner operates under lease a system of trans-Atlantic cables under separate
accounts, part of which system has been for over forty years operated in conjunction
and con-jointly with the landline system now taken over by the Postmaster General.
In order that the owner shall not suffer loss through the taking over of the landline
system the Postmaster General agrees that the owner shall have the right to maintain
and operate independently cable offices for receiving and delivering such cable
messages in any cities wherever the owner desires to do so. All cable messages col-
lected or delivered from such offices shall be free of any charge by the Postmaster
General, and the expense of operating such offices and delivering such messages to be
borne solely by the owner. The Postmaster General furthermore agrees to respect all
vias attached to outgoing or incoming messages in accordance with the Berne conven-
tion. Cable messages filed at landline offices, and not routed by the sender, to be
divided between the Western Union cable system and the Commercial Cable system,
upon an equitable basis as the Postmaster General may direct, the compensation to the
Postmaster General for the transmission and accounting of such messages shall be in
accordance with the zone rates prevailing prior to July 31, 1918. The same compen-
sation shall attach to messages delivered to landlines at the cable termini, to-wit: New
York or Boston, for transmission and delivery to destination. The Postmaster General
agrees to maintain all cable connections and wire facilities incident to handling cable
messages as heretofore, the division of revenues and expenses as between cable lines
and landlines to be as heretofore.
SEC. 11. At the end of the period of Federal control the Postmaster General shall
return to the owner an equal quantity and quality of materials and Supplies of equal
relative usefulness to that of the materials and supplies which he received, and to the
extent that the Postmaster General does not return Such materials and supplies he
shall account to the owner for the same as prices prevailing at the end of the period
of Federal control. To the extent that the owner may then receive materials and
supplies in excess of those delivered by it to the Postmaster General, it shall account
for the same at the prices prevailing at the end of the period of Federal control, and
the balance shall be adjusted in cash.
SEC. 12. (a) At the end of the period of Federal control there shall be paid to the
Owner an amount of money equal to the cash working capital without interest received
by the Postmaster General from the owner, and also an amount equal to any other cash
and special deposits received by him from the owner at the beginning of the period of
Federal control and not theretofore accounted for by him, together with any unpaid
interest which may have accrued upon the said other cash and deposits under this
RETURN OF TEIE WIRE SYSTEMIS. 101
proposal. There shall be paid to the owner any funds created under the provisions
of this agreement, except to the extent that such funds may have been properly used
under this proposal.
SEC. 13. In addition to the items of compensation enumerated in section 7, the Post-
master General will pay to the owner the annual charge for such interest and dividends
as the owner may be required to pay on new securities, obligations or share capital
issued for the discharge, conversion or renewal of present obligations, and for addi-
tional interest and charges to Secure extension of existing securities or obligations.
SEC. 14. The owner has a new building in the city of Chicago in process of construc-
tion. The owner undertakes to complete this building and upon completion to turn
it over to the Postmaster General for occupancy and use. The Postmaster General
thereupon agrees to vacate the present building in Chicago and thereafter to have no
claim to possession or use of such building and to accept the new building in full
substitution therefor, without any modification of this proposalin any other particular.
SEC. 15. In presenting this proposal it is understood that only the salient features
incident to the relations of the parties have been described and that further details
not covered arising from the operation of the property by the Postmaster General shall
be settled in conformity with the broad principles herein enunciated.
SEC. 16. (a) In this proposal the words “Postmaster General” are used to designate
Albert S. Burleson, or such other person as the President may from time to time
appoint to exercise the powers conferred on him by law with reference to Federal
control; the word “Commission” is used to designate the Interstate Commerge Com-
mission: the word “additions” as used herein shall be understood to mean additions,
betterments or replacements as defined by the commission's system of accounts (in-
cluding extensions and improvements made through consolidations and purchases),
the met cost of which, under such system of accounts, is properly chargeable to fixed
capital, that is to say, accounts:
o. 100. Fixed capital installed prior to January 1, 1914.
No. 101. Fixed capital installed since December 31, 1913.
No. 102. Construction work in progress.
(b) Whenever reference is made herein to the System of Accounts of the Commission,
it shall be understood to mean the uniform system of accounts and rules for telegraph
companies prescribed by the commission as such system existed at midnight July 31,
1918.
(c) Any patents or licenses thereof discoveries, inventions, ideas or devices owned
or controlled by the owner may be used by the Postmaster General without charge by
the owner during the period of Federal control, but the right to such use shall not
extend beyond said period. Nor shall the use of patented devices owned by other
individuals or companies, be construed to confer any right upon the owner herein to
use or to control the use of such devices subsequent to the termination of Federal
control; nor shall the use during the period of Federal control of patented devices
covered by patents of the owner on property other than that of the owner be con-
strued to confer the right to continue such use after the termination of such period;
(d) This proposal, if accepted by the Postmaster General, shall be effective on and
from midnight July 31, 1918.
Dated this 9th day of October, 1918.
- THE WESTERN UNION TELEGRAPH CO.
By NEwco MB CARITON, President.
Hon. A. S. BURLESON,
Postmaster General, Washington, D. C.
DEAR SIR: The term “net income” as employed in section 7, paragraph (a) of pro-
posal submitted herewith is intended to include all earnings of the Havana office less
fixed charges and expenses of its operation and maintenance and the fixed charges and
expense of the maintenance and operations of the cables and connecting lines between
the Havana office and Key West office. It is also intended that standard rates of
charge for cable ship when required and cable materials shall be charged in said
accounts.
Respectfully, yours, e
NEwcom B CARLTON, President.
(). K. h
J. C. Koons,
Acting Postmaster General.
OCTOBER 9, 1918.
102
RETURN OF THE WIRE SYSTEMS.
Post OFFICE DEPARTMENT, OFFICE OF THE POSTMASTER GENERAL.
TELEGRAPH QUESTIONNAIRE NO. BC1.
Basis of compensation—(Land line system only).
[Name of company: The Western Union Telegraph Co.]
WASHINGTON, D. C., October 9, 1918.

Six months
Six months Year ended Dec. 31—
ended - ended
Item. Dec. 31, June 30,
1914. 1915 1916 1917 -
300. Telegraph operating revenues. . . . . . . . . $20,512,526 |$43,825,393 |$54,016, 171 |$66,528,711 $36,468,347.
301. Telegraph operating expenses. . . . . . . . . 17, 108,074 || 33,201,236 || 41,301,285 50,816,789 || 29,797,450
Net telegraph operating revenues..... 3,404,452 || 10,624, 157 12,714,886 || 15,711,922 6, 670,897
304. Uncollectible operating revenues. . . . . . 172,956 241,352 297,458 377,953 205,123
305. Taxes assignable to operations. . . . . . . . 558,000 | 1, 162,500 | 1,286,000 || 2,562, 110 1,005,000
Deductions from met operating reve-
lllleS- - - - - - - - - - - - - - - - ---------------- 730,956 1,403,852 1,533,458 2,940,072 1,210,123
Operating income (exclusive of - -
aCCounts 302 and 303). . . . . . . . . . . . . 2,673,496 || 9,220,305 || 11, 181,428 12,771,850 5,460,774
310. Income from lease of plant. . . . . . . . . . . . . . . . - - - - - - - - I - - - - - - - - - - - - I - - - - - - - - - - - - I - - - - - - - - - - - - I - - - - - - - - - - - -
Total.---------------------...... 2,673,496 || 9,220,305 || 11, 181,428 || 12,771,850 5,460,774
320. Rent for lease of plant... . . . . . . . . . . . . . . 559,802 | 1,098,975 | 1,014,557 | 1,002,741 359,032
321. Miscellaneous rents (in connection -
With telegraph operations only). . . . . 112,684 225,597. 227,330 221,461 117, 176
Total (accounts 320 and 321)..... 672,486 || 1,324,572 | 1,241,887 1,224,202 476,208
Net-------------------------.... 2,001,010 || 7,895,733 || 9,939, 541 11,547,648 4,984,566
322. Interest on funded debt............... 668,617 | 1,335,588 1,331,850 | 1,331,850 665,925
323. Qther interest deductions............. 1,865 12,500 2,325 1,778 14,281
331. Pividend appropriations of income....|------------|------------|------------|------------|-----------.
412. Dividend appropriationsoſ surplus. ... 1,994,458 || 4,986,364 5,984,567 6,982,298. 3,491, 178
101. Plant and equipment installed (net).| 2,479,045 12,593,864 3,104,247 || 5,149,047 3,013,728
300. Operating revenues:
Total revenues from transmission— º -
telegraph......................... 19,750,856 || 42,025,354 || 52,025,354 || 64,815,989 || 35,559,528
Total revenues from transmission—
Cable-----------------------------------------|------------------------|------------------------
Total nontransmission revenues.....| 1,311,604 2,913,835 | 3,312,030 || 3,297,505 1,677,945
Contract revenues—Dr. . . . . . . . . . . . . . 549,934 1,113,796 || 1,321,213 | 1,584,783 769,126
1 Decrease.
cations:
[Telegram from Nemcomb Carlton to the Postmaster General.]
Hon. A. S. PURLEson,
Washington, D. C.
Mr. CARLTON. I would also like to submit the following communi-
PETERSBURG, WA., October 28, 1919.
We have received letter in substance as follows:
\
“Chief of staff with concurrence of Secretary of War has requested Chief Signal
Oſſicer investigate possibility of leasing at early date Atlantic cable for exclusive use
of War Department.
Therefore requested you advise this office earliest possible
moment if your company can arrange lease to United States Government a trans-
What approximate rental would
Atlantic cable working from New York to London.
be involved.
“Lieut. Col. J. O. MAU BORGNE.”
Since State Department has made informal inquiries through Navy Communications
covering exclusive use of a cable for State Department, we would propose answer to
the effect that having received these two requests we do not deem it expedient to
cut out of the Western Union system at this time two cables for exclusive governmental
RETURN OF THE WIRE SYSTEMs. 103
use unless some plan is devised by which the Government shall throw all of the
Atlantic cables into one system and thereby equalize the commercial load. . If this
answer meets your approval, will you please notify Mr. Taff and he will wire me?
NEWCOMB CARLTON.
OCTOBER 30, 1918.
CHIEF SIGNAL OFFICER,
War Department, Washington, D. C.
Attention Lieut.-Col. J. O. Mauborgne, Engineering and Research Division.
DEAR SIR: Your letter of October 28 relative to leasing a New York-London cable
for the exclusive use of the War Department has received every consideration, and I
have to say in reply that we do not deem it expedient to cut out of the Western Union
system at this time one or two cables for exclusive governmental use, unless some plan
is devised by which the Government shall throw all of the Atlantic cables into one
system and thereby equalize the Government and commercial load.
Faithfully, yours,
NEWCOMB CARLTON,
President.
Mr. BARKLEY. Can you state briefly the basis of the contract
between your company and the Government?
Mr. CARLTON. The general structure of the contract is based on
the railroad contracts and the average earnings of certain years—not
the highest years, but an average of the good years—resulting in a
compensation for the use of our land lines of $8,000,000 per annum.
In addition to this amount, we retained our revenue from invest-
ments and from the cables, or a grand total of $10,000,000 to
$10,500,000 for 1918. We have invested about $160,000,000 in the
property and plant of the Western Union. -
Mr. HAMILTON, $11,000,000 per annum ? e "º -
Mr. CARLTON. Yes; equal to 6 per cent on the capital invested,
including, of course, the cable business, on which there was no
guarantee, - -
Mr. BARKLEY. What was your operating income for the year 1917,
if you recall? & -
Mr. CARLTON. In 1917—I am speaking subject to correction—it
was about $10,500,000; that is, the land lines and cables.
Mr. BARKLEY. Net operating? .
Mr. CARLTON. That is, applicable to dividends.
Mr. BARKLEY. What per cent of your total income was that?
Mr. CARLTON. That was 11 per cent on capital stock of $100,000,000
as distinct from investment in property of $152,000,000 in 1917.
Mr. BARKLEY. I am speaking of your gross income. You remem-
ber what percent of your total income that was for that year?
Mr. CARLTON. No; you can find it for 1918 in this report I have
just submitted, and I will give you 1917. I have not the exact
figures in mind. º
(The figures subsequently submitted by Mr. Carlton are as follows:)

1917 1918
Net income derived from land lines and cables... ---------------------cent. $10,980, º $9,228, º
Per cent to plant and investment. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - per - - *. *_0 < *.
Add income (from investment). - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $1,484,700 $1,391, 100
,í ſº : $10,619, 700
Total. . . . . . . .--------------------------------------------------------- $12,463,300 || $10sºlº
Deduct depreciation of securities. . . . . . . . . . . . . . . . . . --- - - - - - - - - - - - - - - - - - - - - - - - $750,000 siąż,800
Net income available for dividends.... -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $11,715,300 || $10,466,900
NotE.—In 1918 cºmpensation payable by Government for five months for use of land line System su ly
stituted for actual operating results.
104 RETURN OF THE WIRE SYSTEMS.
Mr. BARKLEY. The object of that question was to try to compare
your figures with those of the Postal, which were testified to this
morning by Mr. Reynolds as being $15,000,000 approximately as
gross income and operating receipts, and a little over $4,000,000 as
net income, subject to some reductions for interest charges.
Mr. CARLTON. I think we did about $80,000,000 that year. But
the reason you can not compare, is because we have an entirely
different conception of reserves for maintenance and depreciation.
The Postal Co. does not report to the public; it has no stockholders
to speak of. It reports to a sequestered corporation in the State of
Massachusetts, called the “Mackay companies,” and that has a few
shareholders. … -
We report to some 22,000 shareholders, of which over 20,000 own
less than a hundred shares each. We have a different problem. We
have to keep up our property; we have to set aside a sufficient sum
for maintenance. We can not have 20,000 shareholders saying,
‘‘You have let your property run down in order to make a big
showing.” We have to have a different consciousness.
...And when you get down to the bottom of all this dispute and the
difference between the Postal Co. and the Postmaster General, you
will find it is the question not of how much the property has made,
but a question of how large earnings you can appear to have made
just before negotiating a contract for compensation. That is where
the trouble lies. Dr. David Friday told me that the Postal Co. had
only set aside $450,000 for current depreciation and reserve, which is
an utterly inadequate sum, as everybody knows. That is why it is
no use trying to compare these two things. If we wanted to make
some arbitrary statement to the Postmaster General, we could have
made a tremendous showing of a temporary character. But it
would not have been the truth, because it would not have told the
whole story. Compare, if you will, the figures reported by the Postal
Co. to the Interstate Commerce Commission and those reported to
the Postmaster General as a basis for compensation.
Mr. WEBSTER. Mr. Carlton, may I draw your attention again to
the conversation between you and the Postmaster General in October
of 1918 relative to the taking over of the cables?
Did the plan that you outlined to the Postmaster General have
any relation to the national security or defense ? -
Mr. CARLTON. No, sir. -
Mr. WEBSTER. Then, however desirable that plan may have been,
from your standpoint, the carrying of it out by the Government
involved a misuse of the power conferred by that resolution, did it
not -
Mr. CARLTON. You won’t expect me to answer that. I do not
want to critizise the Postmaster General or the President. I do not
know what controlling reasons led them to finally take over the cables.
I am only telling you all I know about the conversation with the
Postmaster General. It may have had no influence on him what-
ever; but, it had nothing whatever to do with the security of the
country.
Mr. WEBSTER. Then, if your plan had no relation to the national
security or defense, the irresistible logic of the thing, without the
Opinion of anybody, must see that to then act under this law was to
misuse the law.
RETURN OF THE WIRE SYSTEMS. 105
Mr. BARKLEY. Do you know that the Postmaster General ever
communicated your conversation to the President?
Mr. CARLTQN. I should think it was very unlikely that my Sug-
gestion would ever reach so high a place as that.
Mr, BARKLEY. I do not mean that they were unworthy to reach
that high a place.
Mr. CARLTON; No, but I am of the other political faith.
Mr. WINSLOW. That is not very far away by cable, is it?
[Laughter.] tº * -
Mr. SIMS. May I inject an inquiry right there? Mr. Carlton, if I
understood you properly, in your conversation with the Postmaster
General, in October, 1918, you thought that was a good thing to do,
War or not war, and you did not have the power, but thought that
Congress could give the power by subsequent legislation?
Mr. QARLTON. You mean the question of taking over the cables?
Mr. SIMs. Yes; and extending the cable service, as you suggested?
Mr. CARLTON. Yes. I understood—and I think ëverybºd else
did who heard the plan—that it would require some action of Con-
gress in Order to make it effective 7 -
Mr. SIMS. Additional legislation?
Mr. CARLTON. Yes, additional legislation.
Mr. SIMS. And you were for it, even if it did require additional
legislation? -
Mr. CARLTON. I was for it very much, and I am for it to-day. It
is what this country needs.
I happen to be a director of the American International Co.,
which is very much concerned in the building of merchant ships.
We have had plans for overseas development. We appreciate the
obligation to the country, but running parallel to and the irresistible
result of planning for that expansion lies in terms of better cable
communication. You can not run foreign trade and have an effective
merchant marine without having better and a more extended cable
System than the United States has to-day.
Mr. BARKLEY. Has Brazil and other parts of South America direct
cable communication with Europe?
Mr. CARLTON. Brazil is surrounded—the whole coast is wonderfully
developed by a great English cable system. My company went to
Brazil, secured a concession to connect Rio and one other point with
the United States. The English company, when I was in London in
January, made a contract whereby, under very stringent regulations,
which provide for no discrimination against the United States, they
agreed to connect with us at Barbados and give us all their great
distributing system as a connection with our telegraph system.
Mr. HAMILTON. What was the exact date when the Government
took over the cables? ge
Mr. CARITON. Several days after the armistice, I believe. I think
they took it the 16th or something like that, although I think the
President signed the document somewhat before that.
Mr. HAMILTON. That is to say, it has been so reported 3
Mr. CARLTON. I did see the document with his signature and the
date, which did antedate the date of the armistice.
Mr. HAMILTON. Could you state the date which appeared upon the
document which you saw Ż
106 RETURN OF THE WIRE SYSTEMIS.
Mr. CARLTON. This sounds like cross-examination to me. I think
I will qualify by saying “I think”—I think it was the 4th or 6th of
November.
Mr. HAMILTON. I think there was some such report as that.
ſº CARLTON. But the document was not attested by the Secretary
Of State.
Mr. HAMILTON. You recommended the extension of certain cable
lines in the conversation which you detailed with the Postmaster
General. Have any of those enterprises been undertaken
Mr. CARLTON. None, excepting this building of a line to Barbados,
§ order to bring the eastern coast of South America to the United
tates.
Mr. HAMILTON. And that was not among the extensions that you
suggested
Mr. CARLTON. That is one of things my company is doing.
Mr. HAMILTON. Yes; but that was not among the things that you
suggested.
Mr. CARLTON. That specific feature was not suggested, but a
Brazilian connection was suggested, which required the laying of
some 6,000 miles of cable. But we were able to connect with Brazil
under this arrangement so much more quickly and effectively that
we substituted the present for the proposed plan. But there has not
been anything done about the European connection. -
Mr. HAMILTON. You do not think your suggestion as to the ex-
tension of the cable had any influence upon the administration in the
taking over of the cable lines do you? [After a pause.] If you can
answer easily. I do not want to press the question at all.
Mr. CARLTON. I do not know. I think it is a matter of consider-
able speculation as to just what does influence the administration.
Mr. HAMILTON. Well, psychological things do apparently influence
the administration, and I observe you are rather strong in the
psychological region. - -
Mr. MonTAGUE. You say America has about 13 cables?
Mr. CARLTON. Yes; the Commercial Co. have five and we have
eight across the North Atlantic. There are nominally two French
cables owned by a French company. There were two German
cables, one of which has since been taken over by the French com-
- Pºº. the other by the British Government.
. MONTAGUE. But they are not among the 13%
Mr. CARLTON. They are not among the 13.
Mr. MonTAGUE. How many cables has Great Britain }
Mr. CARLTON. Great Britain has no North Atlantic cables except
the one which they have taken from Germany crossing the North
Atlantic; that is, they do not operate any. They own a number.
They own—
:. MonTAGUE. I did not mean, when I said “Great Britain,”
Great Britain as a government. I meant Great Britain both as a
nation and individuals.
Mr. CARLTON. The British public own six of the eight cables that
we operate. We have them under a 99-year lease.
Mr. MonTAGUE. How many cables are there from Great Britain
to South America º º
Mr. CARLTON. Great Britain owns cable systems over the whole
coast to South America, and a system on the west coast crossing
the Andes, and running as far north as Lima, Peru.
RETURN OF THE WIRE SYSTEMS. 107
Mr. MonTAGUE. Cables going to South America from Great
Britain-do they all go through the Island of St. Vincent
Mr. CARLTON. No.
Mr. MONTAGUE. Do any of them go south or north of that?
Mr. CARLTON. Yes; there are two routes from Great Britain for
British messages. One goes via the Ascension Island, to Buenos
Aires; and the other is the St. Vincent Cable, two of which go to
Pernambuco and Rio.
Mr. MonTAGUE. Do any of the American cables go through St.
Vincent
Mr. CARLTON. No, sir. e
Mr. MONTAGUE. Mr. Carlton, I understood you to intimate that,
with respect to the inquiry propounded by Judge Sims as to the
refusal of the president of a railroad there to operate—that that
matter was under process of adjustment
Mr. CARLTON. Yes. -
Mr. MONTAGUE. Did you leave it open with the intimation that
there might be litigation ?
Mr. CARLTON. There is litigation now. -
Mr. MONTAGUE. Has there been litigation on that particular
subject before ?
Mr. CARLTON. Yes; that is a regular order of business with us, and
it has been going on for some years.
Mr. MONTAGUE. What was the name of the company that cut
down all the poles . * - .
Mr. CARLTON. That was the dispute between Mr. George Gould and
Mr. Cassatt, of the Pennsylvania Railroad, back in 1904.
Mr. MONTAGUE. That found its way to the Supreme Court, did it
not s
Mr. CARLTON. The Supreme Court, I believe, declined to adjudicate.
But, showing how time does heal the wounds, our company has been
restored to the whole of the Pennsylvania system, and now nothing
but Western Union signs can be found there.
The CHAIRMAN. Have you any suggestion to make as to any of
the pending resolutions? There are several. Are you familiar with
the one offered by Senator Kellogg, of the Senate'
Mr. CARLTON. Yes; I know that one.
The CHAIRMAN. Do you believe that we can fºx an early time limit
for the return of the wire systems ?
Mr. CARLTON. Yes. I do not mind how early it is, as long as it is
the end of the month. g .
The CHAIRMAN. And you would prefer the 30th of June as against
the 31st of July, as set forth in the resolution º
Mr. CARLTON. I do not mind, whether you have it 11 months or 12
months.
The CHAIRMAN. You believe that there should be a provision that
compensation should be awarded under the terms of the original
resolution. Do you believe it wise in any legislation to retain a
clause of that kind?
Mr. CARLTON. If I understand you, sir, that would not in any way
affect the terms and conditions of our contract with the Post Office
Department † +
The CHAIRMAN. It is provided in the joint resolution that—the
first proviso of said joint resolution describing the just compen-
I08 RETURN OF THE WIRE SYSTEMIS.
sation to be paid for, and on account of said acts should continue
in full force and effect until such just compensation shall be fully
paid and adjusted to and with the owners of said systems, lines, and
property, in the manner and according to the terms and conditions
therein set forth. -
Mr. CARLTON. In other words, that the contract shall prevail until
the properties are turned back?
The CHAIRMAN. You think it is necessary to maintain a provision
of that kind in order to permit some of the companies to have a right
before the Court of Claims ?
Mr. CARLTON. It seems to me that is a legal question on which I
am not competent to pass. I am perfectly satisfied that we have
such a contract here that if we have any reason to ask the Govern-
ment for payment we will have no trouble in carrying it through the
Court of Claims.
The CHAIRMAN. You have got a contract; you are protected by
your contract; but a company may not have a signed contract.
Ought not some provision of that kind be put in so that that com-
pany which has not signed a contract would have a standing in the
Court of Claims 3 - * .
Mr. CARLTON. I certainly think so. I think everybody ought to
have a fair chance at it. -
Mr. BARKLEY. What do you think about the suggestion that the
bill Ought to provide that the present legal rates which have been
fixed by the Government should prevail until some regulatory power
has changed them or the company has reduced them 7
Mr. CARLTON. I think the bill ought to contain that measure;
certainly. -
Mr. BARKLEY. In cases where there was no regulatory power that
could reduce the rate, it would be purely up to the company then to
maintain the increased rates until it got ready to reduce them 7
Mr. CARLTON. Take our own companies; 85 per cent of our busi-
ness is interstate. We have a right to declare any rate that we
please. We are only held accountable for that rate if the Interstate
Commerce Commission determines it is unreasonable. But we have
only been called upon to defend the reasonableness of our intrastate
rates. The rates which the Postmaster General has fixed—which
are certainly reasonable rates—these rates, both telephone and
telegraph, ought to be made fixtures until they are changed by some .
other authority or by the companies themselves.
Mr. HAMILTON. Did you state, Mr. Carlton, early in your state-
ment, that you thought legislation was not particularly material;
that any way, in the course of 30, 60, or 90 days, the wires would go
back to the original owners ? *
Mr. CARLTON. Yes, I said I did not think that a great committee
like this need concern themselves over anticipating by 30, 60, or 90
days something that was going to happen anyhow, and that I hoped,
therefore, that I might have something constructive to offer for
extending and making more valuable the use of the telegraph by
proper and well-regulated arrangements between the telegraph and
the telephone companies. t
Mr. BARKLEY. Do you know whether that is what the Postmaster
General had in mind in his suggestions the other day in recommending
RETURN OF THE WIRE SYSTEMS. 109.
a coordination of the telegraph and telephone services throughout.
the country -
Mr. CARLTON. I know the Postmaster General has talked to me.
about extending the use of the telegraph service and making it more
valuable and more extensive, and letting it follow the lines of the
development of the great telephone companies throughout the United
States. So I dare say that is what he did mean; at any rate, it is an
excellent plan. -
Mr. BARKLEY. At present what power have you to make arrange-
ments with the telephone company for that service .
Mr. CARLTON. Of course, there is no limitation. We can make a
contract with the telephone company now. But the difficulty is this:
A telephone company has a prescribed system of rates. We want
to make it possible in a remote community for a subscriber to send
a telegram over that telephone line to the nearest open telegraph
station. It may be 50 miles way. We want the right, and the right
should be given to the telephone companies, to make some rate,
applying perhaps only at night or for only a minute's duration,
which is so favorable to the transmission of a telegraph message
over that telephone circuit as to make it possible for the telegraph
company to absorb that rate. -
Another º: we want is some sort of a reciprocal rate, or rate
which will enable us to use their surplus property in case of a bad
storm, or in case of extension—a reciprocal arrangement for the use
of each other's pole lines. There is a great deal that can be done if
it is done under the aegis of some congressional action. But if we
º it out without the blessing of a congressional act, it will not
CO I a..I’.
"The CHAIRMAN. Will you incorporate those suggestions in the
form of an amendment or a bill, and make them a part of your
statement 7- - -
Mr. CARLTON. Yes, sir; I will send them on to you:
Mr. HAMILTON. Is there anything to prevent a contract, agree-
ment, or understanding between the Western Union, for illustration,
and the Bell telephone system, for the transmission of messages by
telephone such as you suggest ?
Mr. CARLTON. No, excepting the very practical One that if the
telegraph company has to pay prevailing telephone rates, then
obviously it defeats the business.
Mr. HAMILTON. That is a matter of contract.
Mr. CARLTON. It is not a matter of contract; it is a matter of
Interstate Commerce Commission permission. My idea is that
these plans should be worked out under the guidance and with the
approval of the Interstate Commerce Commission.
Mr. HAMILTON. Precisely. If the two companies could have
arrived at an agreement which was approved by the Interstate Com-
merce Commission, then there is no other difficulty, is there?
Mr. CARLTON. No, there is then no other difficulty. But at the
present time the Interstate Commerce Commission may not be
possessed of that authority.
Did I make it clear that the difficulty at the present time is that
you can not now make a contract whereby the transmission of a
telegraphic message over a telephone can be done at a lesser charge
than that of a spoken message? It is that permission that we want,
110 RETURN OF THE WIRE SYSTEMIS.
because if we were to make a contract—assuming both telegraph
and telephone companies were anxious to extend telegraphic com-
munication, and the telephone people said, “We will give you a rate
for transmitting the telegraphic message over the telephone circuit
of one-fourth the prevailing rate,” that one-fourth rate would then
prevail for the spoken message. That, of course, the telephone com-
pany would never do.
But if there was a service for the transmission of telegrams by
telephone, and it was approved by the Interstate Commerce Commis-
sion under the law which I am urging you to pass, then there would
be no discrimination against the public, and the public could not
claim that rate for spoken messages. -
Mr. HAMILTON. I think there was some such custom in the State
of Michigan. e
Mr. CARLTON. I have never heard of that.
The CHAIRMAN. I want to say for the benefit of the witnesses that
next Monday the committee has decided to devote the entire day to
hearings on the daylight-saving subject, and it may be possible that.
those hearings may run into Tuesday forenoon. There are some
witnesses here I know who are residents of the city of Washington,
and therefore are readily available. Are there any witnesses here
who find it absolutely necessary to leave this afternoon and whose
testimony will take but a brief time? (After a pause.) Very well;
then the understanding is that the hearing on this subject will be
resumed on next Tuesday at 2 o’clock.
(Thereupon, at 4.10 o’clock p. m. the committee adjourned until
Monday, June 2, 1919, at 10 o’clock a. m.)
RETURN OF THE wire SYSTEMS
*
ransportation
library
\l E.
772 HEARINGS
º ſº - - BEFORE THE
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE
OF THE HOUSE OF REPRESENTATIVES
SIXTY-SIXTH CONGRESS,
FIRST SESSION
H. R. 421
MAY 30–31, JUNE 4–5, 1919
7| PART II
WASHINGTON
GOVERNMENT PRINTING OFFICE
1919
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|Niº RSITY OF Miſſ Hº ; ſº
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COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE.
EIOUSE OF REPRESENTATIVEs.
SIXTY-SIXTH CONGRESS.
J OHN J. ESCH, Wisconsin, Chairmam. SCHUYLER MERRITT, Connecticut.
EDWARD L. HAMILTON, Michigan. J. STANLEY WEBSTER, Washington.
SAMUEL E. WINSLOW, Massachusetts. THETUS W. SIMS, Tennessee.
JAMES S. PARKER, New York. FRANK E. DOREMUS, Michigan.
BURTON E. SWEET, Iowa. t ALBEN W. BARKLEY, Kentucky.
WALTER. R. STINESS, Rhode Island. SAM RAYBURN, Texas.
JOHN G. COOPER, Ohio. ANDREW J. MONTAGUE, Virginia.
HENRY W. WATSON, Penns--lvania. CHARLES P. COADY, Maryland.
IPR ANKI,IN F. ELLSWORTH, Minnesota. ARTETUR. G. DEWALT, Pennsylvania.
EDWARD E. DENISON, Illinois. JARED Y. SANDERS, Louisiana.
EV ER ETT SANDERS, Indiana.
* GEORGE ESCH, Clerk.
A. H. CLARK, Assistant Clerk.
II
CONTENTS.
Statement of - - - Page.
Mr. F. B. MacKinnon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Mr. F. C. Stevens........ . . . . . . . . . . . .... - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 129
Hon. Wallace H. White, jr.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2- - - - - - - - - - - 144–210
Mr. N. T. Kingsbury------------. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., - - - - - - - 145
Mr. Charles E. Elmguist.---------------------------------------------- 162
Hon. John C. Koons.-------------------------------------------------- 183
Mr. Charles Y. McVey.................. - - - - - - - - - - - -------------------- 216
RETURN OF THE WIRE SYSTEMS.
COMMITTEE ON INTERSTATE AND For EIGN COMMERCE,
- HOUSE OF REPRESENTATIVEs,
Wednesday, June 4, 1919.
The committee met at 10 o'clock a. m. pursuant to adjournment
on...yesterday, Hon. John J. Esch (chairman) presiding.
The CHAIRMAN. The committee will be in order. In what order
do the witnesses desire to speak this morning 2 I see Mr. Stevens
and Mr. MacKinnon present. - g
Mr. STEVENS. We would prefer to let Mr. MacKinnon, the vice
president of the United States, Independent Telephone Association,
outline the situation as far as the independents are concerned. Fol-
lowing him I may take the matter up, and talk about compensation
and such legal phases as may be necessary. But we would prefer
that Mr. MacKinnon should speak first on the part of the inde-
pendents. - - .
The CHAIRMAN. Mr. MacKinnon will be heard. Give your name,
position, and address to the committee and the shorthand reporter.
STATEMENT OF MR. F. B. MACKINNON, WICE PRESIDENT OF
UNITED STATES INDEPENDENT TELEPHONE ASSOCIA-
TION, WASHINGTON, D. C. -
Mr. MACKINNON. Mr. Chairman and gentlemen of the committee,
the United States Independent Telephone Association is a voluntary
organization of the independent telephone companies of the country.
There are, in round numbers, some 10,000 or 11,000 independent
companies. By the word “companies” in the vernacular of industry
we mean an organization that operates a switchboard. We do not
class as a telephone company a farmers’ line company, which is made
up of a group of farmers who build their own line and run it into a
board where they get switching service. So that in speaking of tele-
phone companies we hope that the committee will have in mind that
we refer to those organizations that are operating switchboards. I
make this statement for the reason that sometimes the statement is
made that there are 30,000 or 40,000 or 50,000 independent telephone
companies in the United States. t
Mr. HAMILTON. When you say independent companies do you
mean independent corporations : tº
Mr. MACKINNON. I mean both, Mr. Hamilton. Our companies,
using the phrase as I have described it, operate in round numbers
15,000 exchanges. Those 15,000 exchanges are owned by about
10,000 corporations that have no intercorporate relation with any
other organization. So there are about 10,000 independent com-
panies operating telephone exchanges in the United States.
111
112 RETURN OF THE WIRE SYSTEMS.
Mr. HAMILTON. Those companies are organized under the laws of
some State 7 *
Mr. MACKINNON. They are not necessarily corporations. We use
the term “company” in a general sense. It may be an individual
or a parnership, though in some cases it is a corporation. When we
.. of an individual or a corporation operating a telephone ex-
change we refer to them as telephone companies. t
The CHAIRMAN. You may proceed with your statement.
Mr. MACKINNON. Under the Interstate Commerce Commission
system of classification of exchanges, telephone exchanges are
divided into four classes, A, B, C, and D. #. D class exchange is
an exchange that has annual operating receipts of less than $10,000.
There are about 9,000 such exchanges. The C class company is one
that has between $10,000 and $50,000 annual operating receipts.
There are about 850 of these companies. I am speaking now entirely
of independent telephone companies, and have no reference to the
companies in these classifications in the Bell system. The B class
company is a company that has annual operating receipts of between
$50,000 and $250,000. We have 105 such companies. And the A
class company is one which has annual operating receipts of over
$250,000. We have 25 such organizations in the country.
Now, these telephone companies, represented in this voluntary
Organization known as the United States Independent Telephone
Association, want in our opinion three things: We talk of the situa-
tion in a general sense because some of these individual companies
do not want all three things, but the group taken as a whole need
three things.
First, the owners of these properties want their properties back,
so that they may operate them themselves. That is their first
request. - -
Secondly, they want Congress to legislate so as to continue in
effect the proviso by which the President is to fix a just compensation
for the use of the properties during the period of Government control.
And, third, they want such remedial legislation as will enable those
companies whose financial condition is such that they need to be
sustained financially until the rates which have been approved by
the Postmaster General shall have been passed upon by the proper
regulatory bodies in the different States and become rates fixed by
those bodies, or are changed by those bodies as such bodies may see fit.
On the first proposition, that we want our companies back: The D
class companies now have their properties back in a certain sense.
The Postmaster General gave ...}} class companies, a large group of
small companies, release under license some two months ago, by which
those companies which accepted that release or license agreed to take
their earnings during the period of Government control and call
accounts square with the Government. All but about 100 of those
companies accepted that form of release or license. The release
requires the companies to continue to collect the service charge as
described by Mr. Kingsbury, and to continue to collect the toll
charges established by the Postmaster General in his general toll
order, and requires them to comply with such additional Orders as
the Postmaster General may issue and which may apply to them
specifically. But so far as exchange rates are concerned those com-
RETURN OF THE WIRE SYSTEMIS. 113
panies are freed from Government control, and have been free for
about two months. Those companies are asking this, practically
speaking, that they want to be entirely freed from Government
control and be able to resume all their normal operating conditions.
They are not interested in the two propositions which the other three
classes of companies are interested in, except as far as the 100 com-
panies are concerned which have not elected to take their earnings
as compensation as offered by the Postmaster General.
The CHAIRMAN. And they will be taken care of by the second
proposition ?
Mr. MACKINNON. Yes, sir; the 100 will be taken care of by the
second proposition. In the matter of return to their owners the
companies, so far as we have been able to ascertain, are anxious that
they be returned at the end of a month and not be thrown back in
the middle of a month, on account of the matter of accounting. That
feature would not apply to the small D class companies which have
already been released, because they will make no settlement with the
Government, and it will make no particular difference to them
whether they receive their properties back on the 3d of the month
or on the 30th of the month. On the other hand, any company
which has to make an adjustment with the Postmaster General would
prefer, for accounting reasons, to be returned to the owners at the
end of a month or a quarter. I am sure that the importance of this
matter will appeal to you, Companies operating hundreds of
thousands of telephones in cities, and having bills to go to subscribers
wouldn’t want to make out another bill at a different rate, or make a
separate settlement with the Postmaster General. They would
prefer that the time for return be at the end of a quarter, and there-
fore they suggest that the Congress return to them their properties
on the 30th day of June. That is the reason why they prefer the 30th
of June to any other day. Now, on the second proposition: That of
desiring a proviso for fixing compensation for all our companies who
are interested in the compensation feature—and that eliminates those
D class companies which have been released under license and only
about 50 others that have had compensation agreements made with
them by the Postmaster General. That leaves somewhere around
900 companies that do not know their status as regards settlements
with the Government; whether they are to receive their earnings
as compensation; and, if not, whether they are owing the Government
or the Government is owing them. They are in a state of uncer-
tainty and will be until a final settlement with them. Therefore,
they feel it would be an act of simple justice to them for Congress to
continue in effect the proviso which says the President shall fix a
just compensation for the use of these properties and not throw them
back where they will have no award of compensation, and be re-
quired—perhaps hundreds of them—to go into the Court of Claims
to settle their matters. - - -
Mr. Stevens will discuss the legal side of the proposition, but the
practical side is just that point, that out of that group of Companies,
numbering as they do into the thousands, only 50 have had compensa-
tion agreements arranged with them by the Postmaster General. . So
that the rest of them are up in the air, if we may use the expression,
as to their arrangements with the Government in any financial Way.
114 RETURN OF THE WIRE SYSTEMIS.
The third proposition, I think, is one that requires considerable
explanation, and that is the necessity for some sort of legislation
being passed which will protect those companies whose financial
condition is such that if they were thrown back on their owners under
the rates in effect last August they would be in a very serious con-
dition. Mr. Kingsbury, when speaking for the Bell System, outlined
to you very thoroughly and carefully, I think, the situation as regards
Operating cost. It may be well for me again to mention that to you
So that you may refresh your minds. The situation, in brief, is this:
Costs of labor and material have increased so that where formerly we
spent $100 we now spend $150. Due to war conditions, and the general,
conditions surrounding public utilities, the rates on money have gone
up at least 2 per cent. By that I mean they have gone up from 6 per
cent to 8 per cent. Our companies as a whole were in the habit of
paying in their local money markets about 6 per cent for money.
They tell me now they have very little opportunity to get money
for less than 8 per cent. You can see that whereas we were paying
6 per cent for money borrowed for extensions and other purposes
but must now pay 8 per cent, and that where we used $100 for the
extensions necessary to meet the demands of the public and to make
other improvements, we now have to spend $150; that the fixed
charge has doubled. It has not only doubled on the interest charge,
but we are required to set up a depreciation on the $150 where for-
merly we had to set up a depreciation on only $100. So that there
is a permanent charge against us, and you will readily see.
It is not necessary for me to say to you in detail, but just in order
to bring the point to your mind I will say that it is necessary for a
company to have a certain financial standing in order to keep up its
business. The telephone business is peculiar in that a company can
not stop extending its lines. There is a constant growth in a com-
munity, and a telephone company is constantly in the market for
money to increase the size of its property. This is not a loan neces-
sary only in order to build general extensions, but when a man moves
from one part of the town to another, the company is probably re-
quired to set poles and string some wires in order to take care of
him who has been a regular subscriber. If you double that situa-
tion, or increase it by the thousands, you will see what that means to
a company in order to take care of its regular subscribers in addition
to the normal growth.
Since the period of Government control began wages have been ad-
vanced very considerably. It is impossible for me to give you a state-
ment of the whole telephone industry from the standpoint of the in-
dependents—and it would be of no value to you particularly because
each company stands on its own bottom and has to finance itself.
Some companies are earning a dividend and other companies are not,
but I can give you several instances of some of our larger companies
which will show you just what the point is we are trying to make.
One of our companies on the 1st of May was required to make a
wage increase at the rate of $450,000 annually. Now that increase
wipes out that company's dividend and its depreciation charge and
leaves it without either. That company, if forced to go back to the
rates in effect on the 1st of last ºugust, would be in a very serious
financial condition. We feel that such a company as that needs
the assistance of Congress to tide it over, or to enable State commis-
sions to tide it over to a time when these rates will be continued in
RETURN OF THE WIRE SYSTEMS. 115
effect if the State commission after an investigation finds they should
be continued in effect. -
We have another company which operates in a State where it has
extensive toll lines, and a number of exchanges in small towns, and
an exchange in a large city. This company has increased the wages
of its employees within the last three months something over $150,000
annually. It was a company which was not making any very great
earnings at the time, and now it finds itself in such condition, or
rather it is faced with the possibility that at the expiration of Gov-
ernment control those rates may cease, when it will find itself with
this heavy operating cost and without sufficient revenue to meet it.
We have another company which during the past four or five
months has made a wage increase amounting to something around
$250,000 a year. This company has had some of its funded debt
mature during the last five months, and was obliged to renew on
short-time notes and at a greater rate of interest; so that interest
charges alone, without any other increase, means about $100,000.
This company, too, finds itself in the position that it will experience
a very serious condition at the end of Government control unless
something shall have been done. I merely quote these as some of
our serious examples.
Our Smaller companies have not been affected as yet by the wage
situation. The Bell Co. first felt the effects of the demand for higher
wages. They began to feel them along last summer. Certain wage
increases were made in the fall. Our companies began to feel this
wave from the Bell influence—or not exactly from the Bell influence,
but because of a demand resulting from the increases given to the
Bell employees—they began to feel it shortly before the new year,
and it has been spreading. --
Our B companies are now having a demand for higher wages, and
we feel that the whole wage situation is now becoming serious with
Our companies only because the wage situation has been slower to
reach them. -
I can illustrate this better in this way: On the 1st of December
the companies operating under compensation agreements with the
Postmaster General were showing deficits around $180,000. That
deficit began to pile up after the first of the year, when wage increases
began to go into effect, without corresponding rate increases, and on
the 1st of May that deficit came up to $600,000. You can see the
difference. It has been coming up right along.
Mr. MERRITT. At the rate of $600,000 a year?
Mr. MACKINNON. No; an actual deficit during that time.
Mr. MERRITT. From the beginning .
Mr. MACKINNON. Yes; that is for a period of five months it was
$180,000, or we will say in round numbers $200,000, and in the next
four months it increased $400,000.
Mr. MERRITT. At the rate of $1,200,000 a year'.
Mr. MACKINNON. Yes, sir. Now this is the condition: In some
States we have had no increases except those that have gone through
the State commissions. Mr. Jackson, the chairman of the Wisconsin
commission, was here and spoke to you on the first day that you
held hearings on this bill. In the State of Wisconsin I think there
have been no rates put into effect except those that have gone
through and received the approval of the State commission. - In the
116 RETURN OF THE WIRE SYSTEMS.
State of Wisconsin there are two companies of the B class, and the
remainder of them are C's and D's, and the bulk of them D's. These
companies need no particular relief except on the compensation
feature. There is but one company in that State that has a com-
pensation contract with the Postmaster General.
Out in California, we have this situation: When the Government
took over control of telephone and telegraph properties on the 1st
of last August the State commission of California notified the tele-
Fº companies of the State that in view of the clause in the State
aw which said that the utilities commission could not have juris-
diction over publicly operated telephone companies they would not
attempt to exercise any jurisdiction over telephone companies in the
State of California during the period of Government control. The
company therefore had but one alternative, and that was to go
directly to the Postmaster General for approval of any changes in
rates, the State commission declining to entertain any such proposals.
Since that time the State commission has notified all companies that
every change made in rates since the 1st of August was illegal, and
that an accounting would have to be made therefor. Of course the
Supreme Court .# the United States has changed that situation
somewhat by its recent decision. But that is an illustration of what
the companies have been faced with in some States. - -
As you know, in a number of States, some 12 or 15 States, injunc-
tion proceedings were brought against the companies to prevent
them from putting in effect increased rates to enable them to keep
up with their increased expenses. Until this week those increased
rates were held back and the companies could not put them into
effect due to State injunctions. -
This condition prevailed particularly in those States between the
Allegheny and the Rocky Mountains and from the Ohio River
north. There have been very few rate increases granted in these
States during the last nine months, but the companies have had
their expenses constantly piling up on them, and they need the very
careful consideration of Congress, -
We have another case, in the State of Michigan, where one of our
larger companies, four years ago now, in 1915, made application to
the State commission for an adjustment of rates at a number of its
exchanges. The municipal authorities having jurisdiction in those
towns claimed that the State commission had no jurisdiction to
change the rate or to take cognizance of applications for such changes
in rates in any town where the telephone company had a franchise.
For three years that was fought through the courts of Michigan
until July, 1918, when the Supreme Court handed down a decision
that the State commission had authority to take jurisdiction in this
matter. But two weeks later the Federal Government took pos-
session of these properties and a contention began between the
State commissions and the Government authorities, and these com-
panies have had no relief in the rate situation. We have now this
peculiar situation in Michigan, with which I suppose Mr. Hamilton
is familiar, that the legislature has modified the State commission
law so that in those towns where there are franchises a company
can not get its matter before the State commission without the city
council and the company together agreeing to submit it to the State
COIYlºſ).ISSIOT1 . . . . -
RETURN OF THE WIRE SYSTEMIS. 117
The CHAIRMAN. In what State is that operative 2.
Mr. MACKINNON. Michigan.
The CHAIRMAN. In any other State?
Mr. MACKINNON. I know of no other State where we have that
peculiar condition existing. But it practically puts the companies
back under municipal control and gives them no relief.
The CHAIRMAN. You may continue with your statement.
Mr. MACKINNON. In the State of Arkansas there has been passed
a law which provides that a company making a rate increase shall
give bond that if the State commission after an investigation finds
that such increase is unjustifiable there shall be returned to the
subscribers the difference between the rate fixed by the commission
and the rate initiated by the company.
We have another condition in some States. Ohio is one of them.
In such States the State law requires the State commission to make
an appraisal of telephone property before it fixes a rate. You can
See the condition our companies in Ohio would be in if they are
relinquished without some stustaining legislation which will permit
them to keep the present rates in effect until the State commission
can adjust rates. Itates may be reduced only after an appraisal
of the properties by the State commission, and in order to fix rates
an appraisal of properties will in some cases take one or two years.
Where it involves the entire property in a State, you can see what it
II].628,1].S. *
We are not here contending against the jurisdiction of State com-
missions. Independent companies have always maintained friendly
relations with State commissions and during this period of Govern-
ment control the State commissions have continued to act in behalf
of our smaller companies. I receive every week a statement of
orders issued by the various commissions throughout the country,
and each week it shows that increases in rates have been granted
to some of those companies in the D and C classes. This has been
going on all throughout the period. Therefore it is not our smaller
Companies that are submitting this matter, but our larger companies,
which are operating in the larger centers and in more than one
locality, because commissions have declined to act, feeling, I pre-
Sume, that it would weaken their position in their contention with
the Federal Government that the Federal Government has no juris-
diction over rates.
Mr. DEWALT. Suppose the telephone systems would be now re-
turned to their corporate owners. What rate would then obtain
without a provision such as you have just mentioned .
Mr. MACKINNON. For those companies whose rates have not been
passed upon by any regulatory body during this period of Govern-
ment control, under the State commission law their rates would revert
to those in effect on the 1st of August last. But that is only a general
Statement of the situation. 't
Mr. DEWALT. What is the difference between the rates that ob-
tained on the 1st of August, 1918, and the rates now obtaining with
the various companies under the Postmaster General's order? Give
us a comparison of those rates.
Mr. MACKINNON. I could not give you the percentage of difference,
but rates have been increased to take care of increases in operating
expenses. They did not do any more than that; in fact, in a good
118 RETURN OF THE WIRE SYSTEMIS.
many instances they did not do that much. But that has been the
endeavor, to keep up with the increases in expenses.
Mr. DEWALT. As I understand it, if there were no provision such as
you have intimated there should be in any law returning the telephone
and telegraph companies to their owners, the rates effective would be
the rates of August last, and that such rates would be insufficient to
meet overhead charges and the additional expenses of operating the
properties at this time 2
Mr. MACKINNON. That is absolutely so. -
Mr. DEWALT. Mr. Chairman, that is all I care to ask.
Mr. MERRITT. Are you advised of the recent decision of the Supreme
Court, that it puts beyond question the action by Congress after the
war is over ?
Mr. MACKINNON. I am advised that that is the decision of the court.
Mr. Stevens will discuss the legal phase of that when he presents his
Statement. -
The CHAIRMAN. Have you finished your general statement'
Mr. MACKINNON. Yes, sir. That is, in brief, our case. I just want
to make one more point, if you please, Mr. Chairman, and that is this:
It is our belief that what we are asking of you in the way of remedial
legislation by sustaining rates in effect until they can be revised by
those State commissions whose State laws require them to make those
valuations, which in some cases may be a long and detailed investiga-
tion, is absolutely necessary. It will enable the commissions to allow
the rates to continue in effect until such time as they are able to act.
It will not in any way impede the authority of a State commission in
its actions, but will assist it, because a State commission which is
operating under a law which requires it, if it comply strictly with the
State law to compel a company to go back to the rates of August 1,
can permit the Federal law to remain in force as long as it sees fit.
We feel that that should be granted to us as remedial legislation until
action can be taken by the State regulatory bodies.
Mr. DEWALT. Then your idea is that a maintenance of the present
rates should continue no longer than the time when the various
State authorities can fix rates? That is, the fixing rates now to ob-
tain during the interim would not interfere with State jurisdiction
hereafter. e t
Mr. MACKINNON. That is what we are after. We want to get
around that point, which says no rate not fixed or approved by the
State commission is a legal rate.
Mr. SWEET. Are you familiar with the proposed legislation sug-
gested by Mr. Kingsbury' -
Mr. MACKINNON. Yes.
Mr. SweFT. Has that been submitted to you ?
Mr. MACKINNON. Yes.
Mr. SweBT. What have you to say about that ?
Mr. MACKINNON. Permit me to make a little longer statement per-
haps than your question requires. The directors of the United States
Independent Telephone Association, which I represent, gave very
careful consideration to this whole matter at a meeting held a few
weeks ago. It authorized its executive committee to go carefully
into the matter, and instrućted them to view the situation from the
standpoint of the whole industry, and, to confer with the officials of
the Bell System. The whole matter was very carefully gone through
RETURN OF THE WIRE SYSTEMIS. 119
with, and this particular measure was submitted for our consideration,
and we agreed that such a measure will provide the remedy we should
have.
Mr. SweFT. That it will reach the difficulty as to remedial legisla-
tion needed by all independent telephone companies 2
Mr. MACKINNON. Yes, sir; that is our belief.
Mr. DENISON. Mr. MacKinnon, is it your idea that the remedial
legislation provided by Congress should continue rates that now pre-
Vail indefinitely until action by State commissions? .
hº MACKINNON. Until State commissions shall be able to fix
them. t - -
Mr. DENISON. Suppose, a State commission did not choose to go
into a consideration of the matter and adjust rates, Then under
that situation and with the remedial provision you ask for the rates
in effect at this time would continue indefinitely. Do you think it
should be done in that way ? -
Mr. MACKINNON. Well, it seems to us that that is the fairest and
most practical way that there is, because it puts the matter in the
hands of the State commissions as the regulatory bodies. If they
do not act they in effect approve the rates in effect. -
Mr. DENISON. Well, now, in fixing rates by the different State
commissions is the initiative ordinarily taken by the commissions
themselves, or by the telephone companiés by application ?
Mr. MACKINNON. By the application of a telephone company, as a
rule. * &
Mr. DENISON. The policy then of some of the State commissions is,
not to act until called upon to do so by the companies. If that is the
case, and if a company were perfectly satisfied with the rates fixed
5. the Postmaster Genera), those rates would remain indefinitely as
the V are.
º, MACKINNON. Except that some subscriber might make some
objection to the commission that the rates were improper, and then
the commission would be bound to act.
Mr. DENISON. Don’t you think it would be better if Congress were
to fix some limit, after which time these rates should not prevail,
making that limit what would be considered a reasonable one
Mr. MACKINNON. If Congress could know what would be a reason-
able limit, I should say that would be a very practicable method.
Mr. DENISON. We ought to be able to determine that matter by
the experience of men in the business. * -
Mr. MACKINNON. Let me suggest that we have some companies
operating as many as 100 exchanges, at all of whose exchanges in-
creases have been made, and it might take a State commission con-
trolling that company 60 days or 90 days or 6 months or even a
year to complete its investigations. So that what would be a proper
time would be a very difficult matter to decide in view of the extent
to which a State commission might have to go into those things.
Mr. DENISON. But the effect would be to hasten the matter, to
hasten the action of the commission, if Congress should put a limita-
tion on the time. -
Mr. MACKINNON. Well, it might, but at the same time it might
prevent any action on account of the physical impossibility of the
commission going into the matter. * -
120 RETURN OF THE WIRE SYSTEMS.
f
Mr. DENISON. I assume that Congress would not make the limita-
tion so short as to make it a physical impossibility for a commission
to comply with the time provided.
Mr. MACKINNON. If they made the limitation reasonable, in view
of the situation that I have suggested, I would answer “Yes” to your
uestion. But if they did not take into consideration the physical
# is that a commission has in making a proper investigation
of exchange rates I should say it would be the improper thing to do.
Mr. DENISON. For our further information would you object to stat-
ing what would be a reasonable time in which State commissions would
be able to readjust rates ? I do not want you to answer that ques-
tion unless you have given it enough thought to do so.
Mr. MACKINNON. Of course, we have given some thought to these
things, because they are very serious matters to us. I should think
a commission should have at least six months.
Mr. DENISON. May I ask you this question: Can you state to the
committee whether or not the Government has operated the inde-
pendent telephone companies as a rule at a loss or a profit since it
has had control of them ż :
Mr. MACKINNON. I can not tell you that; we have definite figures,
of course, on these companies where there have been compensation
agreements made, but there are only 50 out of 900 companies that
have those agreements, and the other companies do not know whether
the award of compensation means a loss or a profit to them through
their operations. -
Mr. DENISON. Under your experience under Federal control, has
the service of the independent telephone companies improved or
deteriorated .
Mr. MACKINNON. Well, the telephone service generally during the
war period and since the period of Government control has, I should
say, deteriorated; not necessarily on account of Government control
but on account of general labor conditions, scarcity of labor, and
inability to hold operators. I can answer that question by quoting
a specific example in one of Our larger exchanges to which my atten-
tion was called a short time ago. This company employs 700 op-
erators at its exchange. They are obliged to employ, on account of
resignations and changes, 150 new operators every month, and that
has been going on for several months. There is just that shifting of
labor. Under those conditions it is practically impossible to keep up
a high class of service.
Mr. Denison. I will ask you this question: Has the Government
or the public, either one, gotten any greater efficiency in telephone
Service by reason of having taken possession of and operating the
telephone companies than they ºft have received had these com-
panies remained under the control of their owners?
Mr. MACKINNON. I do not think so. -
Mr. DENISON. Now, then, with the chairman's permission, I would
like to ask one more question and on the question of the proposed
legislation: Is it your judgment that if Congress should pass this
legislation, simply returning the companies to their owners, it would
require specific legislation to enable them to collect the compensa-
tion provided for by law when taken over and during the period that
they were under Ferleral control? • . . . . . .
RETURN OF THE WIRE SYSTEMIS. 121
Mr. MACKINNON. I am advised that it is; but, not being an attor-
ney, I can not discuss the legal question. Mr. Stevens will discuss
that and will be glad to answer your question.
I want.to make one more point: The rates which the independent
companies desire continued in effect are exchange rates and not toll
rates—that is, we in some instances would like to have the toll rates,
but we want to lay particular emphasis on exchange rates, because
we are operating, as a group, exchange properties. -
Mr. BARKLEY. For the purpose of the record, will you please
explain the difference between exchange and toll rates?
Mr. MACKINNON. A toll rate is a rate charged for the transmission
of a single message to a distant point, where the message is a message
charge. For instance, it is a message from One exchange to some
other distant exchange different from that in which the message
originates. As an illustration, I might say that a message from
Washington to Baltimore would be a toll message. An exchange
rate would be a rate charged for service within a city or district tribu-
tary to a city. %
Mr. BARKLEY. That does not include the regular subscription for
having a telephone in the house?
Mr. MACKINNON. Yes, sir; that is what we call subscriber's rental,
the amount you pay each month. An exchange rate is not neces-
sarily confined within the limits of a city, because the Washington
exchange includes territory running into Maryland. ".
Mr. BARKLEY. That aiso includes the automatic pay stations,
anyhow?
Mr. MACKINNON. Yes, sir; that is a message rate which we classify
as an exchange rate.
Mr. DOREMUs. You said the companies were satisfied with the
rates as fixed by the Postmaster General, and it has been suggested
that the companies might be a little slow in applying to State com-
missions for an adjustment of rates. Would that objection be met
by coupling up with your proposition that the companies should,
within the time specified in the joint resolution, make their applica-
tion to State commissions
Mr. MACKINNON. I think it could be easily so done. I think that
has to follow as applying to the regular regulatory bodies' procedure.
If a company has a different rate in effect than that authorized by a
State commission, they have to make application therefor or file it
according to the procedure of that particular State commission.
Mr. DöREMUs. Mr. Denison has Šuggested that those companies
which are satisfied with prevailing rates would be in no haste to take
their case to a State commission. So far as you know, would the
Companies you represent Object to a provision in this joint resolution
or bill that the companies must, within the time tixed, file their
application for an adjustment of rates with the various regulatory
bodies?
Mr. MACKINNON. I see no objection to that at all. I think that
Would be a very proper thing to do, and so far as our companies are
concerned they would think that procedure one to be easily followed.
Mr. DOREMUs. Do many of the companies you represent transact
an interstate business? ... yi , , , ;
Mr. MACKINNON. A great many of them do a certain amount of
interstate business. At one time or another their systems are used
J 22 RETURN OF THE WIRE SYSTEMs.
in interstate commerce. There are very few companies but what
hold connections with toll line companies doing an interstate busi-
ness, so that they are able to render that service.
Mr. DOREMUs. As to the companies doing an interstate business
would they object to having their rates regulated by the Interstate
Commerce Commission ? -
Mr. MACKINNON. They would not.
Mr. DoREMUs. You said a moment ago that there had been an
increase on operating expenses of approximately 50 per cent; that
what formerly cost $100 now costs $150. Doës that include the
increased cost of the money you borrow % t;
Mr. MACKINNON. No. * -
Mr. DoREMUs. Do you include the interest charges on the money
you borrow in your operating expenses?
Mr. MACKINNON. No; that is not a part of operating expenses.
Mr. PARKER. Along the line that Mr. Denison has questioned you
about, action by State commissions as soon as possible, isn’t it the
general tendency of all State public service. or utility commissions,
whatever they are called, to be very alive to the demands of the
people, and very loath to grant any increases in rates? I do not
mean that they are unfair at all, but, in other words, they have to
be shown very particularly before the increase of any rates?
Mr. MACKINNON. Yes, sir.
Mr. PARKER. In other words, they are there to protect the public'
Mr. MACKINNON. Yes. - g
Mr. PARKER. In a majority of the States they hold the same rela-
tion to public service corporations that the legislature used to hold
when the legislature fixed rates, isn't that true :
Mr. MACKINNON. That is generally true.
Mr. PARKER. I mean that is the theory on which they go.
Mr. MACKINNON. Yes, sir. - -
Mr. PARKER. That being so they very much dislike to raise rates ?
Mr. MACKINNON. Yes, sir. * *
Mr. PARKER. I think you have made it very clear how the rates
are changed. You say a company has to file a request for an increase.
That is only in the one instance, for an increase, isn’t it
Mr. MACKINNON. Yes, sir.
Mr. PARKER. How is a decrease in rates brought about before a
commission ? - *
Mr. MACKINNON. That is brought about on the commission’s own
initiative or on the complaint of a subscriber.
Mr. PARKER. I raised that point because it had not been brought
out. When the public or the commission think the rate is too high
they will institute action to consider the matter 7
Mr. MACKINNON. Yes; there is no trouble at all about that.
Mr. PARKER. All rates have been raised by the act of the Postmaster
General Ž *
Mr. MACKINNON. There has been a general raise around the coun-
try, yes?
Mr. PARKER. Should we put a time limit of six months or six years
on this matter, it would make no difference because those rates would
automatically go back at the end of the period without action, would
they not ?
Mr. MACKINNON. Yes, sir.
RETURN OF THE WIRE SYSTEMS. 123
Mr. PARKER. In other words, a commission's tendency is to decrease
rates, being in the interest of the public, which is perfectly right.
The tendency would be if they did not agree to the rates in effect
that they would be decreased
Mr. MACKINNON. Yes, sir. -
Mr. PARKER. Suppose you were to put in a time limit on the prop-
osition at which these rates should become inoperative. Say these
rates are operative until an adjudication is had, wouldn’t that tend
to hasten action, because don’t you believe that the people would
immediately come before their commissions and say that the rates
were not fair and ask for an adjustment of the rates, and wouldn’t
you get quicker action before the commissions in that way than with
a time limit 7
Mr. MACKINNON. Yes, sir; I rather think you would.
Mr. PARKER. Because a commission would be in the position of
holding up an unjust rate. I do not know whether I make myself
clear or not.
Mr. MACKINNON. I think that is very logical, and that is the point
we had in view, and that is why I did not want, in reply to Mr.
Denison's questions as to whether there ought to be a time limit,
exactly to agree with the proposition. We have thought that there
would be quicker action without a time limit, and it would enable
the commissions to act better and more freely in every way.
Mr. PARKER. I do not think it would enable them to act any more
quickly if arranged in that way, but I think they would act more
quickly because the people they represent might say: “We have this
unjust rate and we want you to fix the rate at as early a date as pos-
sible.” If you were to say, if you don’t fix it in six months it will go
back to the old rate, then you will have to go all over it again to bring
it up to a rate that is fair.
Mr. MACKINNON. Perhaps that is so. -
Mr. DENISON. In reference to the question by Mr. Parker, he seems
to overlook the fact that the companies, knowing that at the expira-
tion of the time limit the rate would necessarily be reduced, they
would immediately proceed themselves to ask the commission to con-
sider the matter and adjudicate it before the expiration of the time
limit, because the companies want to keep the rates as high, naturally,
as they may be permitted to keep them under the law.
Mr. MACKINNON. I say it will work out both along the lines you
are asking and along the line Mr. Parker is asking. The only thing
I see in the way is the physical impossibility in some States of the
commission being able to pass upon the matter. *
Mr. PARKER. I have noticed the workings of public-service com-
missions, and I know they pay more attention and give quicker action
to a petition of the people than to a petition of the companies. That
is universally true, because they represent the people. They are
fair, and I am not questioning their fairness or anything of the kind,
but as a matter of fact they do act more quickly on a petition of the
people for lower rates than on a petition of the companies for higher
rates.
Mr. MACKINNON. We all know that.
Mr. PARKER. Certainly, and I am not criticizing them, for they
are representing the people, and that is their natural disposition.
121695–19—PT 2——2
124. RETURN OF THE WIRE SYSTEMS.
Mr. MACKINNON. Yes, sir. . .
Mr. BARKLEY. Are you acquainted with the action taken by the
Senate committee on yesterday ?
Mr. MACKINNON. Yes, sir.
Mr. BARKLEY. Reporting out the Kellogg bill?
Mr. MACKINNON. Yes, sir.
Mr. BARKLEY. Are you acquainted with the time limit they pro-
vided in their bill?
Mr. MACKINNON. I understand it is 60 days.
Mr. PARKER. What is your idea on that %
Mr. MACKINNON. I think that is entirely too short a time. That
does not give the companies or the State commissions sufficient time.
Besides that, as I understand, the Senate amendment applies Only to
toll rates; it does not include exchange rates. We were talking this
morning and felt that perhaps we had not presented our situation to
the Senate committee properly, and had failed to explain to them the
necessities of the situation, because they limited it to toll rates.
Mr. PARKER. What proportion of the revenues do toll rates repre-
sent 7 - -
Mr. MACKINNON. In some companies they represent a very small
percentage.
Mr. BARKLEY. Among the independent companies that you rep-
resent". -
Mr. MACKINNON. Yes, sir. The toll business, I should say, would
not cover over 15 per cent of the business of the independent com-
panies, taken as a whole. * *
Mr. BARKLEY. In the proposed draft of bill submitted the other
day, I think it provided that the prevailing rates should be main-
tained until the various regulatory bodies had an opportunity to
change them, or until the companies themselves saw fit to reduce
the rates. Do you think it a wise provision to leave to the companies
themselves in cases where there are no regulatory bodies to fix rates
to bring the rates down whenever they see fit to do it, or do you
think that some limit should be fixed thereon 7
: Mr. MACKINNON. Well, it would not perhaps be as a general prin-
ciple wise legislation, but in some States, where there are no }.
chise restrictions, no restrictions whatever, new rates have been put
in effect by order of the Postmaster General, and not by the action
of the companies. - .
Mr. BARKLEY. Yes; but under that provision those rates would
be maintained until the companies themselves saw fit to reduce
them because nobody else . reduce them.
Mr. MACKINNON. Yes, sir. - -
Mr. BARKLEY. Do you think that ought to be in the bill?
Mr. MACKINNON. I have some doubts about that, Mr. Barkley,
but there is this one phase of the matter, that if the toll order, as in
the instance of the Senate amendment, continued for 60 days,
those companies who have no regulatory bodies to go to at all would
be somewhat in doubt as to whether they should keep that order in
effect or not; and if they did not keep it in effect the public would
have one company handling business in one way and another in
another way.
Mr. BARKLEY. Can you give offhand the States in which there is
no commission with power to regulate telephone and telegraph rates'
RETURN OF THE WIRE SYSTEMS. 125
Mr. MACKINNON. No, I could not give a list of them. But in
Iowa the commission has no jurisdiction over telephone and tele-
graph rates. . In Texas they have not, either. In Kentucky they
have partial jurisdiction, I believe, but most rates are fixed by mu-
nicipal contracts, so that in effect there is no jurisdiction there over
telephone rates. In Tennessee until very recently they had no juris-
diction. I believe there has been an amendment made to the com-
mission law by which they do take jurisdiction. I believe Delaware
has no commission with jurisdiction.
Mr. BARKLEY. Is there any State in which neither the State com-
missioner nor the municipal authorities have the rate-making power?
Mr. MACKINNON. Yes; in Iowa there is no provision for the city
authorities to require companies to have franchises.
Mr. BARKLEY. In that State, under the suggestion of the proposed
bill, the telephone and telegraph using public would be left wholly
to the mercy of the companies because neither the State nor the
cities could force them to bring rates down, and therefore they
wouldn’t be compelled to do it, and it would be dependent upon
their doing it themselves? -
Mr. MACKINNON. Of course that has always been true there, and
therefore there is no change in the situation in that State.
Mr. BARKLEY. The situation is the same except the circumstances
are a little different because rates are up now.
Mr. MACKINNON. Yes; in that respect. Of course I am perhaps
not competent to judge, but it would seem to me that it would not
be necessary for the clause to be inserted.
Mr. BARKLEY. I did not catch at the beginning of your testimony
the various companies you represent. º
Mr. MACKINNON. I am representing the United States Independ-
ent Telephone Association, which is an association of all the independ-
ent telephone companies in the country. It is purely a voluntary
association. -
Mr. BARKLEY. Are the independent companies largely controlled
by the parent company ? -
Mr. MACKINNON. None of them, or practically none of them. I
answered in the beginning that we operated 15,000 exchanges, and
that those 15,000 exchanges are owned by 10,000 separate companies
or individuals. -
Mr. BARKLEY. Two or three years ago I saw in a newspaper a
statement to the effect that a large number of these independent
companies were really financed or controlled by some group of wealthy
people who were interested in establishing independent companies,
and I wondered if there was anything in it.
Mr. MACKINNON. There is not. I might say that we have often
wished that there were. -
Mr. WATSON. You state that you represent 10,000 or 15,000
exchanges. Do you receive a financial report from each of the
companies? - -
Mr. MACKINNON. No. -
Mr. WATSON. You further state many of these companies would
be compelled to apply for receiverships under their present financial
standing. - -
Mr. MACKINNON. Yes, sir.
126 RETURN OF THE WIRE SYSTEMS.
Mr. WATSON. Would they go into the hands of receivers because
of Federal control 3
Mr. MACKINNON. I wouldn’t say because of Federal control, but
because of war conditions and the conditions in existence the past
year or so.
Mr. WATSON. You represent 10,000 companies and you stated two
of them may go into the hands of receivers?
Mr. MACKINNON. No; I am simply giving those as illustrations.
Mr. WATSON. Do you know how many of those companies have
been bonded, and whether the interests on the bonds have been paid "
Mr. MACKINNON. Yes.
Mr. WATSON. Have dividends been paid under Government
control 3
Mr. MACKINNON. Not in the case of some of them.
Mr. WATSON. I want to get at the practical side of the question.
I suppose you would not be here asking to be released from Govern-
ment control if your companies were making more money than under
private ownership
Mr. MACKINNON. No.
Mr. WATSON. Do your companies have a service charge 2
Mr. MACKINNON. No, sir.
Mr. WATSON. Many electric companies in my State have adopted a
: charge, by adding 25 or 50 cents to each bill to make up the
eficit. - -
Mr. MACKINNON. No, sir; the only thing of that kind is what may
be called the vacation rate. That is, if an instrument is left in the
house, and it corresponds to the electric company's service charge,
it is a charge for readiness to serve. But very few of our companies,
or I might say that I know of none, who have a service charge except
to this extent. You pay in Washington $4 a month for the use of an
instrument. Your messages are not metered except in the business
district. You might say that that rental is a service charge, but we
do not classify it in any other way than as rental.
Mr. WATSON. It has been stated that labor is not as efficient
under Government as under private control. Can you give me any
information as to this
Mr. MACKINNON. Our people have told me since this experiment
in Government control that the efficiency of the individual worker is
much better under private control than under Federal control.
Mr. WATSON. That is all I care to ask. -
Mr. SIMs. Now, as I understand it, should Congress not act at all,
as soon as the President signs a proclamation declaring the war at
an end a telephone company goes back automatically to its owner,
does it not? I mean without any legislation here whatever.
Mr. MACKINNON. Yes.
Mr. SIMs. And then these rates, according to what you have said,
that have been put on as war rates, or during Government control,
would automatically cease; isn’t that your contention ?
Mr. MACKINNON. Yes, sir.
Mr. SIMs. I was very much opposed to fixing any arbitrary limit
of time at the time the railroads and wires came under Government
control, and wanted them to continue until such time as Congress
would otherwise order, so that we might be able to legislate for actual
conditions. Now I find that the very gentlemen who Opposed that
RETURN OF THE WIRE SYSTEMs. 127
theory are asking us to legislate in order to prevent the house from
falling on them, the house that they themselves built. Isn’t that
true : -
Mr. MACKINNON. I do not know who asked you not to do that,
and therefore could not answer that question.
Mr. SIMs. Well, I can state, and do state very frankly, that there
were only four or five members of the committee who were in favor
of leaving it to Congress, to be thereafter so fixed as the conditions
might require. I was not very wise, but yet I opposed that plan.
And, further, as between the original bill as introduced and the one
reported nothing but the enacting clause was retained. Now, if we
do not legislate at all the telephone and telegraph companies will
drop back where we took them up, regardless of conditions, that any
man could foresee, and it would absolutely be a crime not to relieve
against those conditions at this time prior to the wires automatically
going back to their owners. I am not referring to this so much on
the idea that I told you so, but as to the question as to fixing a
limit as to when this war increase, or Government increase in rates,
should cease to operate, and they will cease on the proclamation of
the President, as provided in the law itself, unless something is done.
That will be true if we do not extend the time, and you have said,
very wisely, I think, that no calendar date should be mentioned,
because a calendar date can not apply to each and every company
alike who find themselves operating under different conditions.
And the reasons for extending the time at all might not and very
likely would not be the same with all companies.
One company might not requiré more than 30 days or 60 days,
while other companies with equal justice might require 12 months. I.
think your suggestion a wise one, but I found this committee opposed
to anything of that sort when we enacted the law now on the statute
books, and therefore I did not know whether to agree with you at
this time or not.
Mr. RAYBURN. We have already passed that law, and isn’t the
question now before us one of doing justice as we find the situation
to-day, and not of going back and having the old debate over again }
Mr. SIMs. I think it absolutely is, and if we had done äs I suggested
then we wouldn't be having this trouble now.
Mr. RAYBURN. Well, that is a matter in the past. -
Mr. SIMs. I understand your contention is, Mr. MacKinnon,
that Congress should provide that the rates now in effect should con-
tinue until such time as the various regulatory bodies shall decide
otherwise.
Mr. MACKINNON. Yes, sir.
Mr. SIMs. That is what you mean by protection.
Mr. MACKINNON. Yes, sir.
Mr. SIMs. You do not mean that these wires, when they go back,
should go back under such conditions that Congress shall guarantee
that you will not suffer any further losses'
Mr. MACKINNON. No, sir; that is not it. What we want Congress
to do is to provide that the present rates in effect, which were made
to cover the very greatly increased operating expenses, should con-
tinue in effect until such time as the various state regulatory bodies
are able to consider the subject and pass upon the same as applied
to the companies affected. -
128 RETURN OF TEIE WIRE SYSTEMIS.
Mr. SIMs. I thought that was your idea in asking that Congress
should protect you, and not that Congress should protect you against
future loss. º
Mr. MACKINNON. That is right.
Mr. SIMs. But that the rates that have already been initiated shall
remain in effect until other rates shall be prescribed by the regulatory
bodies, and if the regulatory body in a State does not take action it
means that the present rates shall continue until such action is taken
whether is it 12 months, 2 years or any other time.
Mr. MACKINNON. Yes, sir.
Mr. SIMs. I find that the greatest complaint among our own peo-
ple, after spending five or six weeks with them, is over what is called
the call charge. That is the charge for a call whether they get
their man or not. The other is an installation charge, which is a
charge for moving a telephone from one room or house to another,
which had never before been charged until the telephones were under
the regulation of the Post Office Department, and therefore they think
that the Post Office Department is responsible for it. As to the matter
of eliminating these little annoying charges, couldn't you increase
the toll or the station charge by way of a flat rate, and which would
be fair to the community and the company and the person who
receives the service, and not make these particular charges }
Mr. MACKINNON. Well, Judge Sims, a number of these changes
have been made in operating methods. Two of these are the
instances you mention. There are some people who every time they
clean house want their telephone.moved from one room to another.
We have never thought, although it has been our practice to move
these telephones generally upon request without charge, that as a
matter of justice it was fair to you and another subscriber, living
next door, who did not have your telephones changed once in 10
years. Of course it costs money to keep men to make these changes,
and to have the changes made when desired, and unless there is a
special charge made to cover the service it must be spread over all of
the subscribers, and all must help pay it, but by having a special charge
those who actually call for the service pay therefor.
Mr. SIMS. That is only put on, as I understand, to cover the actual
expense of making this change asked for by the subscriber.
Mr. MACKINNON. Yes, sir; the individual subscriber.
Mr. SIMS. But I find more complaint on these two items in my
section than anything else.
Mr. MACKINNON. Yes, sir; I suppose that that is so in certain
sections. g
Mr. SIMs. They think that it is all due to Government control.
Mr. MACKINNON. There is always complaint when the habits of
the people are interfered with. It is only a matter of fairness and
right that the man who wants a telephone changed should pay for
for it rather than putting it on all of the people.
Mr. SIMs. You think, then, that that charge put on by the Post-
master General is a wise and fair change in plan”
Mr. MACKINNON. Yes, sir.
Mr. SIMs. And is not due to the fact that it was made by him under
war authority ?
Mr. MACKINNON. No, sir.
RETURN OF TEIE WIRE SYSTEMIS. 129.
Mr. WINSLOW. You said that you thought from informatiion that
came to you, or words to that effect, that the efficiency of operatives
was rather less, or in fact, was less, under Government control than
under private control. Will you go on and elaborate that idea,
and give the reasons in your mind, whether psychological or other-
wise ?
Mr. MACKINNON. Well, we had seen it elsewhere before we had
this experiment in Government control. An employee of the Gov-
ernment, be he in the city hall as an elevator operator, or a switch-
board operator, for a city or county or the Federal Government, is
less efficient than the operator under private control, who is operating
an elevator or a switchboard. Gentlemen of the committee, it is
simply a case of human nature, that where one is working for the
Government, and not under any particular person, for him to feel
a letting down of responsibility, and that brings a letting down of
efficiency. We have found that since the Government took over our
properties. -
Mr. WINSLOW. Do you think it is due to psychological conditions?
Mr. MACKINNON. Yes, sir.
Mr. WINSLOW. Without any cussedness at all, but just a habit?
Mr. MACKINNON. It is just that way.
The CHAIRMAN. Any other questions :
Mr. MACKINNON. I just want to make one concluding statement,
and that is this: I want the committee to understand it is very
difficult to represent all the different independent companies, because
as the name indicates a great many of them are very independent,
and they have their own ideas, and that we are endeavoring to
present to you the general concensus of opinion.
The CHAIRMAN. Is it true that quite a number of State commis-
sions feel that no remedial legislation is necessary 2 .
Mr. MACKINNON. Yes; they do. I understand that a number of
them feel that way.
The CHAIRMAN. And that the wire systems can be returned direct
without any remedial legislation.
Mr. MACKINNON. Yes. As I gave an instance awhile ago in the
case of Mr. Jackson, of the Wisconsin commission, who spoke here
first. As I say in the State of Wisconsin there have been no exchange
rates changed until passed upon by the commission. Therefore
they see no necessity for remedial legislation.
Mr. DEWALT. As I understand the remedial legislation that the
gentleman suggests is only along two lines, the compensation and
the rate features.
Mr. MACKINNON. Those are the only two lines. Gentlemen of
the committee, I thank you for this opportunity to appear before you.
The CHAIRMAN. The committee will now hear Mr. Stevens.
STATEMENT OF MR. F. C. STEVENS, ST. PAUL, MINN, COUN-
SEL FOR THE UNITED STATES INDEPENDENT TELEPHONE
COMPANIES.
Mr. Chairman and gentlemen, I will discuss only two phases of this
subject, that of compensation, and the public or legal situation. I
will endeavor not to duplicate the statement made by Mr. MacKinnon.
First, as to the compensation situation: Some of you will recall,
you members who served on the committee during the last Congress,
130 RETURN OF THE WIRE SYSTEMS.
that the proviso caring for compensation was inserted on the floor by
Mr. Esch with the cooperation of Mr. Sims. The theory on which it
was inserted was that the companies might have their claims for a just
compensation adjusted in the most economical and speedy way by
such administrative authority as the President might designate. If
that proviso had not been inserted, we thought that the only possible
method of receiving compensation would be through a lawsuit, in the
Court of Claims, or in the district courts—and we knew you gentlemen
did not desire that, because it would mean a denial of justice to the
smaller companies. -
Of the bills which are before your committee to-day, and your
chairman named them to you this morning, only one of them, I think,
provides for a continuance of that proviso, and that is the bill intro-
duced by the chairman. Otherwise the result would be that when
this law shall lapse by its terms, upon proclamation of peace by the
President; the machinery would lapse for adjusting this compensation,
and therefore the companies which have not received compensation
contracts, and the companies that would not consent to receive their
earnings as full compensation, would also be left to a lawsuit for the
adjustment of whátever claims they may have against the Federal
authorities, and that would be a very great injustice, as you will
readily realize. -
These companies have been in a precarious situation since last
August. They had not any credit because they did not know what
revenues they would have as a just compensation. The expenses of
operation have been very greatly increased, as has been shown to you;
and those increased expenses promise to continue as to them beyond
the expiration of the war, after the treaty of peace shall be signed.
With those two conditions; that is, with no certainty of compensa-
tion on the one side, and the certainty of increased expenses on the
other, you will readily realize yourselves the situation they would be
in. Therefore, I do hope that you will insert the provisions continu-
ing the compensation proviso after the proclamation of peace and
until an adjustment shall be had of all claims for the taking over of
these properties. -
Mr. DENISON. May I interrupt you there 3
The CHAIRMAN. Perhaps he prefers to continue.
Mr. STEVENs. Oh, no, no. I shall be glad to have you ask ques-
tions at any time. -
Mr. DENISON. In that connection I want to ask, are you sure of
that legal proposition, that in repealing the law you repeal the remedy
that was under the law Ż
Mr. STEVENs. I think that the law being repealed the remedy would
lapse. The claim itself would exist, but the remedy would lapse,
and the remedy provides for an administrative adjustment. The
only possible remedy then would be under the general law with the
Court of Claims. Now, then, one thought further: It has been sug-
gested, and intimated in some ways, that a blanket administrative
order might be made adjusting these matters. But that wouldn’t
be fair to these claimants. -
Mr. DEWALT. I did not catch that.
Mr. STEVENs. That a blanket administrative order might be made
that would give a basis for any of them to take their claim to the
Court of Claims, without any real attempt to adjust their claims.
RETURN OF THE WIRE SYSTEMS. 131
That would be grossly unfair, because it would be so expensive to
these claimants. They are small claimants in most cases. You wil
remember that the Bell Co., and the majority of the larger independ-
ent companies, have had their claims adjusted already, and their dues
are already fixed in contracts. Of course, some of the larger inde-
pendent companies have not, but most of the larger companies have.
But the smaller companies have not had their claims adjusted, as
Mr. MacKinnon stated to you. These companies are entitled to have
their claims adjusted under the administrative method so that it
may be done speedily and economically. We urge upon you to so
arrange this matter that these companies may be able to secure an
administrative adjustment of their claims—and there will not be
many and it will not take long, although there will be some bother
and, of course, it would be done at less expense, which would be fairer
to these companies. -
It may be necessary for us to present as an amendment a supple-
mental proposition as I have indicated, and if necessary we ask
permission to present it by to-morrow morning.
Mr. DEWALT. Wouldn’t section 2 of the Esch resolution cover that ?
Mr. STEVENS. In part. The President has entire authority.
h; DEWALT. The Esch resolution provides that in section 2, I
think.
Mr. STEVENS. Yes; but it is understood that that may not be
exercised—there may be a sort of blanket adjustment, as I stated.
We want it so provided that there may be no question of our staying
Outside the courts unless as a last resort, and so that there may be
an expeditious and economical adjustment of these claims.
Now, gentlemen of the committee, as to some legal phases of the
question developed by Mr. MacKinnon: Remember that the one
thing we are all trying to work out, primarily, is and must be for the
public advantage; and that is that the people of this country should
have the best possible service by telephone for the transmission of
intelligence. It is your duty, it is our duty from our point of view
to provide that service, and in order to provide that kind of service
we must have the means to provide it. In order to have the means
to provide that kind of service, what must we do? We must have
the means, financially speaking, to provide the physical properties,
and the means to maintain those properties, and to extend the
physical properties. We must have the means to provide proper
methods of operation and especially to provide the best class of
Operatives to do the work, and we must provide adequate and proper
capital to do that work. All these factors must be provided.
I noticed when the questionnaires from the Federal Control were
being answered—and I looked over many of them in the office of Mr.
MacKinnon—that there was this situation among many of the prop-
erties of the independent companies, that they were deteriorating.
They had not made adequate preparation for continuing their
business and providing adequate service to the public; that is, for
maintenance. And comparatively few of the companies had pro-
vided reserves for depreciation. The result would be that in a com-
paratively short time, a few years, perhaps, those properties would
so deteriorate that they couldn't give the people they were seeking to
Serve an adequate and proper service. In addition, they would be
in such a fix that they could not procure capital to continue adequate
182 RETURN OF TEIE WIRE SYSTEMIS.
and proper service. . The result of all this would be that either a
larger company would be obliged to take them—the Bell Co. on the
one hand, or, on the other, the Government itself or some public
authority, would have to take hold and operate and maintain those
companies.
Now, gentlemen of the committee, I think the Federal authorities,
a 3 I said, acted very wisely as far as they could calling attention to
that situation. And it is for the purpose of calling your attention
to such a situation that I am making these few remarks on this par-
ticular point, not that you should legislate permanently on that now—
this is not the time or place for it—but that you should provide
adequate rates, so there will be the certainty that that service will
be continued for the benefit of the public and that these properties
will be maintained for the benefit of the public and shall not deterio-
rate so as to bring about a monopoly on the One hand or Government
ownership on the other. So I think it of the utmost importance that
you gentlemen should realize that situation in the consideration of
this measure, because it costs you more to catch up than it does to
keep going.
Now comes the question, How shall you continue 2 All these
systems are now operating under the war power of the Constitution,
as construed by the Supreme Court of the United States, rendered on
day before yesterday. That power will cease by the lapse of time
under the terms of your act unless otherwise provided for. You
gentlemen are charged with the duty of transforming these great
systems for the transmission of intelligence, so necessary for our
people, from war power to Interstate Commerce power. The chair-
man has already introduced a bill, and I presume there will be other
bills introduced, regulating the transmission of intelligence, under
the authority of the Interstate Commerce Commission. There exists
an entirely different condition now, which in justice to the service
should be continued until such time that these war powers shall be
discontinued, and the Interstate Commerce Commission shall take
hold and provide for the management of these properties under its
supervision; but during that interim legislation is required which
shall continue the war power. t
Mr. DoREMUs. Do you intend to discuss at any length at all the
question of just how far the jurisdiction of Congress extends over
intrastate telephone business after the war is over?
Mr. STEVENs. Well, yes; I will be very glad to take that up here.
Mr. DoREMUs. I think we will all be glad to hear you on that.
Mr. STEVENs. I do not wish to discuss at all the question of how
far intrastate regulation of telephones should be taken up under the
interstate commerce clause. That is a situation you gentlemen will
meet later, and I presume I shall have some views upon it; but upon
the subject of how far intrastate transactions are affected by the war
power I will discuss briefly. As I gather from the opinion of the Su-
preme Court rendered the day before yesterday, there may be no
limit on the war powers of Congress or on the war powers of the
National Government, and it is not possible and ought not to be
possible for any individual, municipality, corporation, or State to
interfere with the various war powers of Congress in time of war.
Now, gentlemen of the committee, that is the general proposition,
and of course it does not make any difference whether it is a State,
TETTURN OF THE WIRE SYSTEMIS. 133.
a municipality or corporation, a railroad or an individual, or what ;
everything is covered by the war power of Congress. I think it was
completely settled by the decision of the Supreme Court—and no
doubt it was settled before that—how far that can be projected after
the treaty of peace. That is what you want to know % -
Mr. DOREMUs. Yes; that is it.
Mr. STEVENs. I took the liberty of having prepared from your
reference library the acts of Congress on that subject, which you
passed during the last term of Congress; I mean expressly on that
subject. Here is a list of them, and with your permission I will
insert this in the record.
Mr. SIMs. Mr. Chairman, I will be glad to have that done.
The CHAIRMAN. Yes; there is no objection.
(The matter referred to is as follows:)
(f) DURING A PERIOD TO BE DETERMINED BY THE PRESIDENT.
Act of January 28, 1915 (38 Stat., sec. 800): Coast Guard to operate as a part of the
Navy “in time of war or when the President shall so direct.”
Act of June 3, 1916 (39 Stat., 166, sec. 3): President authorized, “in time of actual
or threatened hostilities, or when in his opinion the interests of the public service
demand it,” to organize army corps or armies. -
Act of June 3, 1916 (39 Stat., 182, sec. 24): Immediate increase in Army under
National Defense Act authorized “in the event of actual or threatened war or similar
emergency in which the public safety demands it”; organizations to be raised to maxi-
mum strength “when, in the judgment of the President war becomes imminent,”
and “maintained as nearly as possible thereat So long as war, or the imminence of
war, shall continue.”—(P. 187, sec. 31): Mobilization of Regular Army Reserve in the
event of actual or threatened hostilities, to be retained by the President in active
service “for such period as he may determine the conditions demand.”
Act of August 29, 1916 (39 Stat., 587): President authorized to order members of .
Naval Reserve Force into active service in the Navy “in time of war or when, in his
opinion, a national emergency exists.”
Act of May 22, 1917 (40 Stat., 87, sec. 16): President authorized to transfer vessels,
personnel, etc., of Coast and Geodetic Survey to War Department or Navy Depart-
ment “whenever in his judgment a sufficient national emergency exists.”
Act of June 15, 1917 (40 Stat., 220): Secretary of the Treasury authorized to pre-
scribe rules governing vessels in territorial waters “whenever the President by procla-
mation or Executive order declares a national emergency to exist by reason of actual
or threatened war, insurrection, or invasion, or disturbance or threatened disturbance
of the international relations of the United States.”
Act of July 1, 1918 (Pub. No. 181, p. 11): President authorized to employ detectives
“without reference to existing limitations” until June 30, 1919, “if, in his judgment,
an emergency exists which requires such action.”
Act of July 15, 1918 (Pub. No. 198, sec. 4): Approval of Shipping Board required
for certain transactions “when the United States is at war or during any national
emergency, the existence of which is declared by proclamation of the President.”
(g) VARIOUS OTHER PHRASEs.
Act of August 13, 1912 (37 Stat., 303, sec. 2): President authorized to close radio
stations “in time of war or public peril or disaster.”
Joint resolution of July 1, 1916 (39 Stat., 339–340): Emergency declared to exist
demanding use of troops in addition to Regular Army; draft of National Guard auth-
orized, “to serve for the period of the emergency, not exceeding three years unless
Sooner discharged; “President to assign command of forces in the field, etc., “in time
of war or public danger or during the emergency declared.” *
Act of August 29, 1916 (39 Stat., 670, art. 119); President to assign command of
forces in the field, etc., “in time of war or public danger.”
Act of July 1, 1918 (Pub. No. 182, p. 9); Secretary of the Navy authorized to con-
tinue service of members of Naval Reserve Force six months after “War or other
national emergency shall cease to exist.”
*
134 $ RETURN OF THE WIRE SYSTEMs.
(b) TURING THE CONTINUANCE OF THE waſ AND For A DEFINITE PERIOD THEREAFTER.
(i) Three months.
Act of November 4, 1918 (Pub. No. 232): Termination of special enlistments in
District of Columbia National Guard. -
(ii) Ome hundred and twenty days.
Act of October 6, 1917 (40 Stat., 392): Admission of foreign-built vessels to coasting
trade.
(iii) Sic months.
Act of May 22, 1917 (40 Stat., 86, sec. 8), and amendment of July 1, 1918 (Pub. No.
182, p. 13): Temporary appointments under act providing for increase in Navy and
Marine Corps.-(P. 87, Sec. 15): Increased pay of Navy enlisted men.
Act of June 15, 1917 (40 Stat., 182–183), as amended by acts of April 22, 1918 (Pub.
. No. 138), and November 4, 1918) Pub. No. 233, p. 3), and act of July 1, 1918 (Pub. No.
182, pp. 18–19): Requisition of shipyards, etc., by President,
Act of September 24, 1917 (40 Stat., 292, sec. 8): Designation of depositaries for
public moneys in foreign countries.—(Pp. 293–295, sec. 12): Auditing of military ac-
Counts abroad.
Act of October 1, 1917 (40 Stat. 297) sec. 3): Continuance of Aircraft Boards.
Act of October 6, 1917 (40 Stat. 347); Continuance of two additional Assistant
Secretaries of the Treasury.
Act of March 8, 1918 (Pub. No. 103, sec. 500): Stay of proceedings under tax laws
against property of persons in military service.—(sec. 603): Continuance of general
provisions of Soldiers' and Sailors' Civil Relief Act.
Act of April 5, 1918 (Pub. No. 121, secs. 1, 15, 206): Continuance of War Finance
Corporation and Capital Issues Committee. -
Act of May 20, 1918 (Pub. No. 152): Coordination of executive bureaus, etc. e
Act of July 1, 1918 (Pub. No. 182, p. 33):-Temporary promotions in naval appropria-
tion act. ... "
Act of July 8, 1918 (Pub. No. 191, p. 18): Increase of pay of certain employees of
Government Printing Office,
Act of July 11, 1918 (Pub. No. 195, sec. 3): Insurance under Division of Marine and
Seamen's Insurance. (But the division may be continued three years longer for the
final adjustment of outstanding claims).
Act of July 18, 1918 (Pub. No. 202, sec. 3): Regulation of freight rates by water, etc.
(iv) Until beginning of mect fiscal year.
Act of August 10, 1917 (40 Stat. 276, sec. 12): Continuance of Food Survey Act.
(v) One year.
Act of October 3, 1917 (40 Stat. 325, sec. 901): Exemption from tax of decedent
estates of persons in military or naval service. ſº
Act of April 4, 1918 (Pub. No. 120, p. 4): Secretary of the Treasury authorized to
purchase bonds of Liberty Loans. e
Act of May 23, 1918 (Pub. No. 156): Postponement of restrictions on alley dwellings
in District of Columbia.
Act of July 9, 1918 (Pub. No. 193, p. 31): Acceptance of foreign medals by persons
in military forces of the United States. (p. 50, sec. 3): Aircraft production corpora-
tions to be dissolved “within one year from the signing of a treaty of peace with the
Imperial German Government.”
Act of August 31, 1918 (Pub. No. 209): Free entry of articles donated by persons
abroad to the American National Red Cross to be used for the benefit of the military
or naval forces or civilian population of the United States or its allies.
(vi) One year and mime months.
Act of March 21, 1918 (Pub. No. 107, sec. 14): Federal control of railroads, etc.
RETURN OF THE WIRE SYSTEMS. 135
W
(vii) Two years.
Act of October 6, 1917 (40 Stat. 368): Continuance of certain temporary office build-
ings for War and Navy Departments.
Act of September 24, 1918 (Pub. No. 217, sec. 1): Exemption of interest on Liberty
Loan Bonds from certain taxes.-(Sec. 5): Regulation by President of transactions in
United States bonds and certificates of indebtedness.
Act of October 5, 1918 (Pub. No. 220, sec. 2, 10): Control of mineral supplies.
Joint resolution of October 19, 1918 (Pub. Res. 44): Readmission of aliens serving
in military forces of the United States, etc.
(viii) Five years.
Act of September 7, 1916 (39 Stat. 732, Sec. 11): Dissolution of corporations organ-
ized by United States Shipping Board.
Act of October 6, 1917 (40 Stat. 410, Sec. 404): Conversion of term insurance under
War Risk Insurance Act.
(c) “DURING THE EXISTING EMERGENCY.”
(Other expressions: “during this existing emergency,” “during the period of the
existing emergency,” “for and during the existing emergency,” “for the period of
the existing emergency,” “during the present emergency,” “for the period of the
existing emergency only.”)
Act of May 12, 1917 (40 Stat. 73): Suspension of restriction on details in General
Staff Corps in District of Columbia.
i of June 14, 1917 (40 Stat. 181): Issue of arms, etc., for equipment of home
guards.
Act of July 2, 1917 (40 Stat. 241), as amended by act of April 11, 1918 (Pub. No.
127): Opinion of Attorney General on validity of title and consent of legislature of
state not required for possession of land needed for military purposes.
Act of July 24, 1917 (40 Stat. 243–247): Increase in Signal Corps, etc.
Act of October 6, 1917 (40 Stat. 356): Sale of airplane materials authorized.—
(p. 361), also act of July 9, 1918 (Pub. No. 193, p. 6): Payment of traveling expenscs
of foreign officers, etc.—(p. 366): Sécretary of War authorized to incur additional
obligations for ordnance supplics.-(p. 383, sec. 5): Secretary of War and Secretary of
the Navy authorized to make advance payments to contractors.
Act of October 6, 1917 (40 Stat. 394): Appointment of Army chaplains at large.
Act of October 6, 1917 (40 Stat. 398): Provisional organization of cavalry regiments
as field artillery or infantry.
Act º: October 6, 1917 (40 Stat. 410, s2c. 3): Appointment of generals and lieutenant
eInGl'à,1S.
g Act of April 16, 1918 (Pub. No. 129): Quarters to Army officers having dº pendent
relatives.
Joint resolution of May 20, 1918 (Pub. Res. 30): Registration for military service
of male º upon reaching age of 21. (See act of May 18, 1917, under subdivision
d), below). -
( X: of July 1, 1918 (Pub. No. 182, p. 9); Secretary of the Navy to prescribe prece-
dence of officers of Naval Reserve Force.
Act of July 9, 1918 (Pub. No. 193, p. 8): Contracts for rent of quarters for draft
boards not required to be in writing.—(p. 8): Secretary of War authorized to organize
twenty additional bands.-(p. 9); Allowance, etc., of army field clerks,
Act of July 9, 1918 (Pub. No. 193, Chap. III): Officers accountable for public
moneys authorized to intrust, money to other officers.-(Chapter IV): Payment of
Army obligations from available balances.
Act of November 4, 1918 (Pub. No. 233, p. 11): Requisition of lands for hospital
facilities.
(d) VARIOUs oth ER PHRASEs.
Act of May 18, 1917 (40 Stat. 76–83), as amended by acts of June 15, 1917 (40 Stat.
217, sec. 4), July 9, 1918 (Pub. No. 193, Chap. XXI) and August 31, 1918 (Pub.
No. 210): Service under selective draft, etc., to be “for the p riod of the war, unless
sooner terminated by discharge or otherwise,” compulsory Service provisions to termi-
nate four months after the President's peace proclamation “Or as soon thereafter as it
may be practicable to transport the forces then serving without the United States
to their home station.”
136 RETURN OF TELE WIRE SYSTEMS.
Joint resolution of July 17, 1917 (40 Stat. 243): Mineral land assessment work not
required of a person in military or naval service “during the period of his service
or until six months after such owner is mustered out of the service or until six months
after his death in the service.”
Act of August 7, 1917 (40 Stat. 250): Desert land improvements not required “during
the period said entryman or his successor in interest is engaged in the military service
* hººd States during the present war with Germany, and until six months
thereafter.”
Act of October 6, 1917 (40 Stat. 391): Any person serving in the “armed forces of the
|United States” authorized to make public land affidavits before his commanding
officer “during the continuance of the present war with Germany, and until his dis-
charge from service.”
Act of March 8, 1918 (Pub. No. 103): Stay of proceedings against persons in military
service, etc., during period of service and from 30 days to one year thereafter.
Joint resolution of September 12, 1918 (Pub. Rºs. 40) and act of November 21, 1918
(Pub. No. 243, p. 3); Establishment by the President of dry zones around coal mines,
munition factories, shipbuilfing plants, etc., “whenever in his opinion the creation
of such zones is necessary to, or advisable in, the proper prosecution of the war.”
Act of October 29, 1918 (Pub. No. 230): Penalty for commission of certain offenses
“during the period of governmental operation of the telephone and telegraph systems
of the United States by the Postmaster General.”
Act of November 7, 1918 (Pub. No. 239): Control of Southern Branch of National
Home for Disabled Volunteer Soldiers to the Medical Department until “the close
of the war or as soon thereafter” as its retransfer “may be practicable.”
Act of November 21, 1918 (Pub. No. 243, pp. 2–3): Restrictions on sale, etc., of
intoxicating liquors until “the conclusion of the war and thereafter until the termina-
#. of demobilization, the date of which shall be determined and proclaimed by the
resident.” * -
IGMERGENCY LEGISLATION SINCE THE ARMISTICE.
|References are to the slip laws of the Sixty-Sixth Congress, third session.]
Act of February 24, 1919 (Pub. No. 254). Date of termination of the war to be fixed
by proclamation of the President (sec 1). Salaries up to $3,500 received for military
or naval Service during the war exempt from income tax (sec. 213). Letters of soldiers,
etc., assigned to duty abroad during the war to be carried postage free (sec. 1401).
Soldiers, etc., discharged within one year after the termination of the war (or thereafter
upon the termination of their present enlistment period) to be given a bonus of $60
each (sec. 1406).
Act of March 1, 1919 (Pub. No. 314, p. 21). Employment of special services in
º ºwing and Printing in cases of emergency arising after March 1, 1919,
authorized.
Act of March 3, 1919 (Pub. No. 327, sec. 4). Special methods of operating Govern-
ment arsenals during “a special exigency” authorized.
Act of March 3, 1919 (Pub. No. 328). Liberty Loan bonds exempt from certain taxes
for five years after the termination of the War (sec. 2). Loans to allied Governments
authorized for 18 months after the termination of the war (sec. 7). War Finance
º authorized to make advances for one year after the termination of the war
Sec. 9).
Act of March 3, 1919 (Pub. No. 340). Members of the Nurse Corps, etc., entitled to
full pay and allowances during captivity during the war.
Mr. STEVENS. There is a very good and recent illustration of your
exercise of this authority. The theory of the situation as it existed
during the very last part of the last session of Congress, when you
passed the food-control act, was that you provided that the Presi-
dent should have authority to fix the price of wheat for that crop
and the succeeding crop, but you made no specific provision for
this year's crop. One of the very last acts which you passed during
the last session of Congress, I think, on March 3, 1919, provided
that the Preisdent should fix the price of wheat at $2.26 per bushel,
and that that authority should last until June, 1920, and a certain
emergency time later, although the armistice had been signed on
the 11th of November, 1918, and we hope that peace will be pro-
RETTURN OF THE WIRE SYSTEMIS. 137
claimed sometime in—well, anyway before October, 1920. And you
provided a thousand million dollars to carry that into effect. In
other words, gentlemen of the committee, you projected the war
powers of Congress over that situation—and you would have no
right under heaven to legislate on such a subject, and no one would
attempt it, except for war purposes under the war powers—although
you projected it over a number of months beyond what will likely
be the date of the proclamation of peace and provided a thousand
millions of dollars to make it effective. -
Mr. DoREMUs. We did that for the purpose of giving the farmer
an opportunity to market his crop.
Mr. STEvKNs. I beg pardon, Mr. Doremus, but that wouldn’t be
the proper theory. The theory was that this war had so mixed and
troubled the situation that the whole world was in turmoil, and that
there was very grave danger the world would starve, and that we
could not enforce the proper peace which we had won, and that
the peoples of the world would be anarchistic, and governments
might totter and fall if the people were not fed and cared for, and
that all of these awful conditions were caused by the war and by
the same war powers should be cured so far as possible. It was
enacted on the broad proposition of the war powers of Congress in
Order to make that peace sure and pacify these peoples and reap
the benefit of the sacrifices we had made to win the war. It was
under the war powers of Congress that you passed that legislation.
That was the basis for it. You passed quite a number of acts as
to the Army and Navy, requisitioning the shipyards, housing, con-
Serving metals, etc. There was some legislation concerning the
Shipping Board, that such powers should continue six months after
peace. That two additional Secretaries of the Treasury were to be
continued. You provided for stay proceedings under the remedial
laws for six months, which came from the Judiciary Committee.
You also provided for continuance of the Finance Board and the
capital committee. In fact, there were all sorts of provisions and
you have already passed upon them, some of them continuing for
a year or more. However, from this great mass of authority it seems
to be clear that such legislation as sought here is entirely proper
under the war power, and that you may continue these powers for
a reasonable time, as long as the reason for the existence of that
power makes necessary, and as long as such conditions reasonably
exist after the period of war and during the period of readjustment,
until peace conditions should be worked out under your direction.
Mr. DENISON. Have you ever happened to ascertain whether or
not the Supreme Court has passed upon a question of that kind—
what is a reasonable time *
Mr. STEVENs. Well, I asked for the decisions, and I think there are
some, but I do not mean to say I have read them, because this data
has come in since I have been sitting here this morning.
Mr. DENISON. I see. -
Mr. STEVENs. I think there are some decisions in this mass, and
whatever they are I will put in as supplemental of what I am saying.
Mr. DENISON. Did you happen to ask for any enactments of Con-
gress before the last Congress, on that same class of legislation ?
Mr. STEVENs. No. I did not. If you wish, I will be glad to put it in.
138 RETURN OF THE WIRE SYSTEMs.
Mr. DENISON. Well, I would like to have it. I would like to have
some precedent besides our own Congress. I do not know but what
we may have done some things that are questionable,
Mr. STEVENs. I rather think there are some decisións growing out
of the Civil War.
(The matter referred to is as follows:)
That under its war power, Congress possessed the right to confer upon the President
the authority it gave him, we think needs nothing here but statement.—Chief Justice
White in Dakota Central Telephone Co. v. State of South Dakota, and other telephone
cases decided by the United States Supreme Court June 2, 1919. -
Congress has similar authority under its war power to continue such rates and tolls
beyond the period of the war to provide for conditions arising during and because
of the war.
The case of the United States v. Gettysburg Electric Railway Co. (160 U. S., 668),
decided, that the act of Congress approved March 3, 1893, creating the military park
at Gettysburg, and the act approved June 4, 1894, granting the power of condemna-
tion for the purposes of such park, were valid under the war power of Congress. These
acts were passed 28 years after the close of the Civil War.
Justice Peckham, for a unanimous court, stated, at page 681: “Upon the question
whether the proposed use of this land is a public one, we think there can be no well-
founded doubt; also in our judgment, the Government has the constitutional power
to condemn land for the proposed use.” ” * * -
“Congress has power to declare war and to create and equip armies and navies.
It has the great power of taxation to be exercised for the common defense and general
welfare. Having such powers, it has such other and implied Önes as are necessary and
appropriate for the purpose of carrying the powers expressly given into effect. Any
act of Congress which directly tends to enhance the respect and love of a citizen for
the institutions of his country and to quicken and strengthen his motives to defend
them, and which is germane to and intimately connected with and appropriate to the
exercise of some one or all of the powers granted by Congress, must be valid. This
roposed use comes within such description. The provision comes within the rule
aid down by C. J. Marshall in McCulloch v. Maryland (4 Wheat., 316) in these words
‘Let the end be legitimate and within the scope of the Constitution and all means
which are appropriate, which are plainly adequate to that end, which are not pro-
º, or inconsistent with the letter and spirit of the Constitution, are constitu-
tional.’
The Second Legal Tender Case of Knox v. Lee (12 Wall., 540) held that the war
power of Congress warranted its legal-tender statutes which were valid not only as to
transactions before but after its enactment, and after the conclusion of the war.
The case of Stewart v. Kahn (11 Wall., 493), held that the “Stay laws” were con-
stitutional and operated in 1866, one year after the conclusion of the war. At page
506 the court stated “The Constitution gives to Congress the power to declare war, to
raise and support armies and navies. Congress is authorized to make all laws neces-
sary and proper to carry into effect granted powers. The measures to be taken in
carrying on war and to suppress insurrection, are not defined. The decision rests
fully in the discretion of those to whom the powers involved are confided by the
Constitution. In the latter case the power is not limited to victory in the field and
the dispersion of the insurgent forces. It carries with it the power to guard against
the immediate renewal of the conflict and to remedy the evils which have arisen
during its rise and progress. This act falls within the latter category. The power to
pass it is really implied from its power to make war and suppress insurrection. It is
a beneficient exercise of this authority.”
There seems to be no cases to the contrary so there should be no question as to the
authority of Congress to extend the war rates and tolls for a reasonable period beyond
the close of the war, in order to properly adjust and care for conditions which have
arisen during and because of the war.
The CHAIRMAN. When considering the Federal control act, and the
question as to how long it should remain operative after the procla-
mation of peace, we have had decisions cited to us in that connec-
tion, and I think they may be found in the hearings under the Federal
control act. We conceived that the period of two years might be a
reasonable time, depending upon the magnitude of the enterprise,
and the trouble returning to normal status.
RETURN OF THE WIRE SYSTEMS. I 39
Mr. STEVENS. I am quite sure there are some decisions, and will
be glad to compile them right away. .
Mr. SIMS. As I catch the gentleman's contention it is this: The
exercise of the war power is not dependent upon the state of actual
hostilities, but conditions that may precede or follow. -
Mr. STEVENs. Yes, sir; either before or after; either preparing for
or following war, as long as conditions necessary for national defense
exist. -
One thought more on that line, and that is the condition of com-
etition. We represent a competitive situation with the Bell
ystem. We have some quite large systems in some of our organiza-
tions, and they compete actively and strongly with the Bell organiza-
tion. I think Mr. Carlton told you of the necessity or at least of the
advisability of having competitive conditions existing in the world
of intelligence transmission. We believe in it. I do not know what
the views of the Bell managers are, but I assume they also realize
the advisability of having genuine legitimate competition in the
world of transmission and transportation. This does not mean by
dual systems in the same community but by the excellence of one
district competing with the standard of another... I assume that you
gentlemen will discuss that exhaustively in the hearing on railroad
legislation. Now, then, during the existence of this situation—and
it has been the policy of this country for many, many yeras, and the
policy of this committee, as I know, to encourage legitimate com-
petition. That does not mean dual systems of phones in one city
at all. It means competition in districts. In Our State there has
been a division under the advice of the Department of Justice whereby
the Bell System has the northern part of the State and the inde-
pendent companies the southern part of the State. In Ohio the
same thing has been worked out, although there is a dual situation
to some extent. But you gentlemen are in favor of strong com-
peting companies, competing from the standpoint of excellence of
service, which the Bell Co. wants to live up to, and which our people
must live up to or we can not succeed. So it seems to be a general
public advantage that this competitive system should be preserved
as a legitimate proposition. It is a good thing for the proper working
out of these great problems.
This is the situation that confronts you: Many of these competing
systems are good, as we have told you, but they have not the proper
financial strength. They have not the proper credit. . They have
not the means of carrying on their business if you destroy their
earning power and credit by turning them back with expense greater
than income. That is the danger, that you will put a few of them,
or even quite a number of them, into insolvency by means of the
war, increasing their expenses, increasing the expense of operation,
of wages, of maintenance, of cost of materials, of cost of extensions,
and no means provided for an early increase of their revenues.
Do you realize this—and Mr. MacKinnon I know meant to speak
of it but he did not and so I will—that during the war administration,
through the War Industries Board, and every other department of
the Government, effort was made to prevent the use of material
which could in any way be used to carry on the war. In the tele-
phone business they tried to prevent the extension of the telephone
121695–19—PT 2——3
140 RETURN OF THE WIRE SYSTEMS.
service, by, as Mr. Sims has suggested, the installation charge, and
in every other way. Now, gentlemen of the committee, I am in-
formed that in peace times the normal increase in telephone installa-
tion would be about 7 per cent a year, while it was held in abeyance
and there was no increase during the war. Now that the war is
over and a period of readjustment is coming, a period of reconstruct
tion of all industry is at hand, the people of this country want and
demand service; and instead of there being a normal increase of
7 per cent as before the war we have a demand at this time of from
14 per cent to 20 per cent for increased telephonic service. And
this, too, at a time when material costs 50 per cent more and labor
from 50 per cent to 100 per cent more to provide such service. We
have to meet that situation. If we do not meet that situation we
can not compete, and we can not meet that situation if our revenues
are diminished during that period of readjustment between the let-
ting down of the war power on the one hand and the taking up of
control by the Interstate Commerce Commission on the other. In
order to meet this critical situation, and in order to keep up the tele-
phone service for our people, and in order to maintain a proper situa-
tion, we must have some relief like that. And so, gentlemen of the
committee, as independent telephone systems, we appeal to you to
do something like that so that we may meet the situation. -
Mr. DENISON. May I ask a question ? -
Mr. STEVENs. Certainly. -
Mr. DENISON. Is it your idea that Congress will enact legislation
eventually putting the telephone systems under the Interstate Com-
merce Commission ?
Mr. STEVENs. They have been under the commission for nine years.
Mr. DENISON. I mean as to regulation of rates.
Mr. STEVENs. Yes; and if you will allow me right on that point,
and I am very glad, Mr. Denison, that you brought that point out,
because it will illustrate just what we ask of you gentlemen now:
When the Mann–Elkins Act was before the committee there was no
provision inserted for the regulation of the telephone and telegraph
companies. After this committee made its report and the bill was
on the floor, an amendment was proposed on the floor by Judge
Bartlett, of Georgia, extending the control of the Interstate Commerce
Commission over the subject of telephone and telegraph companies,
and I think cables. It was done hurriedly, very i. in fact, and
the result was that it was a botch, necessarily; but adequate language
was placed in several important parts of the bill, section 1 and sec-
tion 15, and possibly other sections as well, so that the commission
itself and the courts have subsequently held that the telephones and
telegraphs were a part of the regulatory system under the control of
the Interstate Commerce Commission; that the Interstate Commerce
Commission had control of the reasonableness of rates, and of unduly
discriminatory rates under section 3, and had control under section 15,
section 16, of the working out of these rates, and under another section
as to accounting. There have been a number of decisions as to tele-
#". and telegraphs, and I know that your chairman has them on
his desk. - - #
The CHAIRMAN. But there was no provision for the filing of sched-
ules? -
RETURN OF THE WIRE SYSTEMIS. 141
Mr. STEVENS. No. -
The CHAIRMAN. Nor for notice, or anything of that kind?
Mr. STEVENS. No.
The CHAIRMAN. You may proceed with your statement.
Mr. STEVENS. The result is that the whole situation has been a
troublesome one, and the commission has recommended from time
to time that there should be amendments made to this act, and as I
take it, the chairman has met that situation in his bill. Now, until
that shall be adequately done, until you shall have worked out a
system which shall control under the Interstate Commerce Commis-
sion as to what shall be proper and necessary under a system of regu-
lation for telephonic and telegraphic service, we º that such a
period of readjustment be covered by this provision before you now.
Mr. DENISON. Can that be done under the war power'.
Mr. STEVENS. Yes, sir; it would have to be done under the war
power. We do not ask you to take up the question of the Interstate
Commerce side of it at all. There is not time for that. The present
conditions should be continued under the war power until the com—
merce features can be worked out. It should be worked out just
about as your chairman has provided in his bill on that subject, and
on page 26 of his bill.
The CHAIRMAN. I will state to the members of the committee that
that bill, No. 4378, introduced by me on June 2, was only delivered,
a few copies of it, yesterday evening, and is not in the file on the
desks as yet. -
Mr. DENISON. What is the number of the bill?
Mr. STEVENS. No. 4378. -
The CHAIRMAN. You may proceed with your statement, Mr.
Stevens. -
Mr. STEVENs. The point is that these rates shall continue. And on
page 26 of the bill introduced by your chairman I find this language:
But, in case of a proposed increased rate or charge for or in respect to the transpor-
tation of property, the commission may by order require the interested carrier or
carriers to keep accurate account in detail of all amounts received by reason cf. Such
increase, soecifying by whom and in whose behalf such amounts are paid, and upon
completion of the hearing and decision may by further order require the interested
carrie. (.… car.iers t , refund, with interest. t
In other words, order is made by the commission to suspend an
increase of rates, and if during that period of suspension the matter
shall not be fully determined, yet the increased rates shall continue,
and the company get the benefit thereof, accounting to the people
who pay the excess rate if the decision of the commission shall be
against them. That is exactly what we ask in this case, that such a
theory be put into effect here. That these existing rates shall con-
tinue, and that any regulatory body, the Interstate Commerce Com-
mission, for instance, which has the interstate power now, or every
State commission, every municipality which has a contract or the
power to regulate, shall exercise its power to regulate at once or any
time and make a reasonable rate. But in the meantime you realize
the necessity for the company getting the benefit of its rates until
the matter shall be finally adjusted. * e
Now, Mr. Elmquist made objection, before the Senate committee,
and a very proper objection, and he may make it here this afternoon.
He said the companies might hold the matter up by lawsuits, and so
142 RETURN OF THE WIRE SYSTEMIS.
the people be compelled to pay unreasonable rates. That is very true,
and the information was to be furnished you as to how many there
had been, but I do not think there have been many. But in such
cases a bond could be executed, as required by this bill, as to increased
rates in section 15, that the companies shall hold that as a fund and
pay it back to its patrons in case the rate is not sustained, pay it
back to those who suffer by reason of the rate being larger than it
ought to be. Under such a plan the result would be that the users
of the telephone would not suffer a cent of loss if this plan be carried
into effect, and it can be carried into effect, and I think it is being
carried into effect in many of the States now. I asked some of the
State commissioners, and they stated that in case of appeal or review
of their order a bond was required to payback to the people whatever
amounts they overpayed as the final decision determined. So that
there is no occasion for anybody to complain, because he will not be
charged a cent more under this operation than under the Orders of
his own commission. The condition is that we, in the meantime,
have the advantage of these increased rates to overcome the increased
costs, these costs under war conditions. In other words, we need
the revenue under that situation, and the public gets the benefit of
its improved and continued service, and they pay for it unless the
rate be unreasonable, and then all this may be wrong and refunded
to them. If the rate be unreasonable the means are provided by
which the customers will not lose one single cent. That is the theory
on which we are proceeding. That is the theory of the bill introduced
by the chairman. That is the theory, as Mr. MacKinnon has told you,
of the State law of Arkansas. It is the theory in quite a number of
States where they have provided a system of bonds, or something
like that. It is a theory that often has been and can be worked out
advantageously. -
Now, š. Chairman, we are in a troublesome situation. I fear
we did not present our situation to the Senate committee as thor-
oughly and as broadly as we have presented it to you, and with the
result that the Senate committee has not covered anything but toll
rates. They have not covered exchange rates, and that situation is
unfortunate, because exchange rates are the very factors which
cause our companies to suffer most during this period of readjust-
ment. To cover that period and to meet conditions similar to what
we have described we asked legislation like this. -
The CHAIRMAN. Have you a draft of your suggestions?
Mr. STEVENs. Weſl, they are contained in the bill submitted by
Mr. Kingsbury and indorsed by our executive committee. -
The CHAIRMAN. That meets the views of your companies?
Mr. STEVENs. Yes, sir; it meets the views of our executive com-
mittee, and are the suggestions I am trying to present now.
Mr. DEWALT. As to this bonding system that you speak of for
refunding excess charges, if they are decided to be excessive by a
State commission. How does it operate so as to give a subscriber
the difference between what is afterwards determined to be an
excessive rate and the proper rate. I mean to give the subscriber
the amount that he should not have paid ' '
Mr. STEVENs. It will operate in this way: In the State of Penn-
Sylvania the commission would say that a certain rate is improper
and make a reduction, we will say, of 20 per cent. The company
RETURN OF TEIE WIRE SYSTEMS. 143
would then appeal to the court, or whatever method it should adopt
as provided by the law in Pennsylvania, and would execute a bond
that it would reimburse all persons affected by such order such
amounts as may be found due in the event that the court sustains
the Order, and shall keep an accurate account of those amounts.
The company proceeds to operate right along and we assume that the
company loses on its appeal, taken from the action of the State com-
mission or other regulatory body, and would be required to make
an accounting. The company would submit an account and your
name would be given as having paid certain amounts between cer-
tain times and the company would pay you directly and obtain
proper receipt or pay you through the commission and obtain
receipt. That is the only way it could be discharged under that
bond. You would be personally reimbursed in that way, either
directly by the company or through the regulatory body.
Mr. DEWALT. Without any intervention or cost on my part
Mr. STEVENS. Yes, sir. That has been frequently done without
complaint. One more word, Mr. Chairman. Mr. Dougherty, counsel
of the Ohio State Telephone Co., makes two suggestions that I think
would interest you. This is the method adopted in very many
States and is the customary method for meeting this kind of a situa-
tion. On the other hand, a further suggestion he makes, which we
all realize, that if the lower rates be retained and the court holds they
are too low and Confiscatory, yet for various reasons it would be
impossible that the higher rates could be collected, so the company
would lose the benefit of its just rates for an indefinite time. Such
a condition is unjust and should be avoided if possible.
The CHAIRMAN. Have you finished .
Mr. STEVENs. Yes, sir. &
The CHAIRMAN. I will ask you to correct your statement as soon as
possible when submitted to you, and return it to the clerk of the
committee. -
Mr. STEVENs. I will be glad to do so.
Mr. KINGSBURY. Mr. Chairman, there are several points in my
testimony given the other day that I could not answer at the time.
The committee asked me to supply them with the information.
There are one or two things, when you have the time, I should like
to say in regard to those several points, and it will not take but a
minute of the committee's time, whenever convenient to the com-
mittee, but I do think it important, from our standpoint, that I have
a minute for that purpose. e
The CHAIRMAN. Of course it is quite evident that these hearings
can not be concluded to-day. Mr. Elmguist, who was to have been
here to-day, was unable to be here, and I think that Mr. Pratt wishes
to be heard. -
Mr. KINGSBURY. Very well, then, I understand I will have an
opportunity to be heard.
(And at 12.10 o'clock p. m. the committee recessed until 3 o'clock
p. m.)
AFTER RECESS.
The CHAIRMAN. I believe you desired to make a statement, Mr.
White 2
144 RETURN OF THE WIRE SYSTEMS.
STATEMENT OF HON, WALLACE H. WHITE, JR., MEMBER OF
- ... • CONGRESS FROM MAINE. {
Mr. WHITE. I understand that the committee has under considera-
tion a resolution looking to the termination of Government operation
of the telephones and telegraph lines, and I am told that in connection
with this proposed legislation there has been a suggestion made and
urged that if returned to private ownership control of rates and prac-
tices of such companies be lodged in the Interstate Commerce 8.
Iſl1SSIOI). -
I have a letter from the chairman of the Public Utilities Commission
of the State of Maine, in which he sets forth his views, and I believe
the views of that commission, in opposition to the lodging of any such
control of telephone companies in the Interstate Commerce Com-
mission. I do not ask to read this or that it be read now, but request
that it go into the regord in its appropriate place, and that it be con-
sidered by you gentlemen, if that phase of the matter is taken up
by you. The source from which the letter comes entitles it to your
most respectful consideration. . . . . - r
(The letter submitted by Mr. White is here printed in full as
follows:) : . .
. PUBLIC UTILITIES COMMISSION, STATE OF MAINE,
. Augusta, May 29, 1919.
Hon. WALLACE H. WHITE, Jr., M. C., - - -
- . Washington, D. C. - - -
MY DEAR MR. WHITE: This commission is in receipt of a letter from Mr. Charles E.
Elmduist, general solicitor of our National Association of Railway and Public Utilities
Commissions, who is located at 724 Eighteenth Street NW., Washington, such letter
calling attention to the fact that the Postmaster General and others are urging that
all telephone companies be placed under the jurisdiction of the Interstate Com-
merce Commission. Our national association is unalterably opposed to any such
legislation or result and in that opposition they certainly represent the Mäine com-
mission. I believe that the Maine commission in its opposition freely and fully rep-
resents a very large majority sentiment of the people and of the telephone com-
panies of the State of Maine. - -
We have in Maine 109 companies. All but five of them are independent companies.
The New England and four of its subsidiary companies are, as :: ol may know, the larger
companies of the State, and they are practically all under the control of the New
England company. But this leaves more than 100 independent companies, many
of them very small, to be considered so far as the State of Maine is concerned. Nearly
every one of these companies serve a somewhat limited territory and practically all
of the service which they render is of a local and community character, consisting of
interchange of social and business talks between people living within the community
served. It is only occasionally that a patron of one of these Smaller companies has
occasion to call even a subscriber of another company within the State. A very small
proportion of the patrons of any of these companies have occasion to use the toll
service which hauls the message beyond the limits of the State. Of course there are
some of the companies located in places of summer resort where, during the season,
visitors from outside of the State have occasion to employ the toll service to places
outside the State. . -
But in almost all essentials these small companies are local, not only So far as the
State is concerned but are local in the community sense to which I have called atten-
tion and which I have no doubt is within your knowledge.
I believe it would be unwise, unfair, impractical, and unworkable to attempt to
regulate the rates, service, and practices of these very Small telephone companies
through the Interstate Commerce Commission. In the first place each of these small
companies, if under the jurisdiction of the Interstate Commission, would find itself
in a º where, in complying with the practices of the Federal commission, it
would be obliged to render reports essentially different from those required by the
State of Maine, would have to conform to accounting regulations, and no doubt com-
plicated regulations, with reference to the filing and the revision of schedules.
RETURN OF THE WIRE SYSTEMS. 145
I understand there are throughout the country approximately 25,000 telephone
companies, and if that vast number of this particular group of public utilities was
added to the present duties of the Interstate Commerce Commission I think you may
readily see that if one such company, say for instance in northern Maine, desired to
immediately have relief from some impending or already existent situation which
required immediate relief, it would be some several months before the Interstate Com-
merce Commission might even consider the application from one such company.
On the other hand, if the patrons of such a company had a grievance which was real
and impelling and which should be immediately heard, I apprehend I do not need
to suggest to you that such a complaint before the Interstate Commerce Commission
could not be heard with any degree of promptness.
Many of these Small companies are in a way cooperative, their business is man-
aged by farmers or ordinary business men, the patrons do not require or desire to
pay for a high-class service rendered with first-class facilities. They desire simply a
measure of service which meets their somewhat restricted needs. Such a company
takes care of its line in a cooperative way and pays no more than enough to operate
and properly maintain the property, and no one connected with the company would
understand or be able to comply with the orders which the Interstate Commerce
Commission would probably find it necessary to promulgate in order to meet, in one
or a few general orders, the situation covering the entire country.
In our regulation of such utilities we are able to study the intimate local situation
and needs of each company. We have adopted the practice of so changing our rules
with reference to accounting as to relieve and meet the requirements of these smaller
companies. If a complaint either upon the part of the company or its patrons comes
to the office we are able within a day or two to send someone to the locality, meet the
parties and oftentimes adjust the differences which exist within a week, no impair-
ment of service resulting in the meantime and no considerable friction between the
company and its patrons.
In other words, having the opportunity to get into immediate and close touch
with the contending parties, we can iron out the wrinkles very quickly and very
satisfactorily. The result is that we have had comparatively few formal complaints
with reference to telephone service in the State and have handled most of the mat-
ters in the above informal and immediate way. y
There are numerous other reasons why there should not be Federal control either
through the Postmaster General or in any other Federal agency. I refrain, however,
from otherwise burdening you with reasons, because, in the first instance, I think the
above are sufficient, and in the next instance I believe that out of your knowledge of
the State of Maine conditions, covering personal observations and experience, you
will be able to supply the other reasons if they are necessary.
If the commission was acting from a selfish motive alone it would very naturally
like to be relieved of the burden of caring for these 109 public utilities, because even
with these removed we should have left about 450 public utilities to supervise. But
we can not permit ourselves to be selfish, and therefore in the interests of both the
companies and their patrons we urge you to give serious consideration to the matter
and believe that you will conclude that, so far as Maine is concerned, Federal control
would be decidedly against our State interests.
Very sincerely, yours,
BENJ. F. CLEAVES, Chairman.
The CHAIRMAN. Did you have some statement to make in answer to
questions asked of you which you have not had an opportunity to
answer %
STATEMENT OF ME, N, T, KINGSBURY-Resumed.
Mr. KINGSBURY. Yes, sir. -
The CHAIRMAN. We wil hear you now for a few moments.
Mr. KINGSBURY. The statement was made before the Senate com-
mittee, and I apprehend that Mr. Elmquist will make the same state-
ment before this committee, calling attention to the fact that if those
rates were continued beyond the period of Government control, it
would be possible for all the telephone companies to attack by legal
action in the courts any decision by the commission, and in that
manner prolong the rates and interfere with the orderly adjustment of
146 RETURN OF THE WIRE systEMs.
those rates after the period of Government control; and I said on the
stand the other day I should look up and see how many times tele-
phone companies had attacked in the last 10 years decisions of com-
missions. I find that a little over 1,500 cases in the last 10 years have
come before commissions.
The total number of appeals from commission orders fixing rates
during the last 10 years was 36; of that number the telephone com-
panies have appealed sixteen times. States and municipalities have ap-
pealed against decisions on rates by the commissions twenty times. §,
that the appeals by telephone companies are one-tenth º 1 per cent.
I just thought it was important to bring that out showing the dis-
position of the telephone companies with regard to appealing from
the decisions of the State commissions with respect to rates.
Mr. DOREMUs. Where did you get those figures?
Mr. KINGSBURY. I got them from our reports. We have reports
from the commissions of the various States.
Mr. DOREMUs. All over the United States ? s
* ºwn. Of the whole United States, both Independent
81,1] Cl j62.ll.
Mr. WINSLOw. Of the appeals made by the company, how many
decisions were rendered favorable to the companies?
Mr. KINGSBURY. You mean where the appeals have been made,
what was the final adjudication ?
Mr. WINSLOw. Yes.
Mr. KINGSBURY. I have not got that. I have a list of the cases
appended, and I will just simply file it with the stenographer.
(The papers here submitted by Mr. Kingsbury are printed in full,
as follows:)
APPEALs FROM CoMMISSION DECISIONS As To RATEs out of APPROxIMATELY 1,500
CASEs DURING 10 YEARS ENDING JUNE 1, 1919.
1. Number of appeals from commission orders fixing rates. . . . . . . . . . . . . . . . . . . . 36
2. Number of such appeals by Bell system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. Number of such appeals by other telephone companies. . . . . . . . . . . . . . . . . . . . . 4
4. Number of such appeals by municipalities, States, etc . . . . . . . . . . . . . . . . . . . . . 20
Practically all these cases involve questions of law and fact, eight may be said to
involve questions of law only.
APPEALS IBY BELI, COMPANIES.
Kansas. Arkansas Valley Telephone Co. v. Public Utilities Commission. Emporia
Telephone Co. v. Public Utilities Commission (154 Pac., 262). S. W. Bell Telephone
Co. m. Public Utilities Commission (Wellington).
Minnesota. Northwest Telephone Exchange Co. v. Keenan.
Nevada. Bell Telephone Co., of Nevada v. Railroad Commission.
º Lima Telephone & Telegraph Co. v. Public Utilities Commission (120 N. E.,
330).
Oklahoma (law). Pioneer Telephone & Telegraph Co. v. State (127 Pac., 1073).
Same v. Same (167 Pac., 995). Same v. Westenhaver (118 Pac., 354; 99 Pac., 1019).
Vermont. New England Telephone & Telegraph Co. v. Public Service Commission.
sººn Telephone & Telegraph Co. v. Same. Champlain Valley Telephone Co. v.
2,Ill G. r
J APPEALS BY OTHER COMPANIES.
Indiana. Connersville Telephone Co. v. Public Service Commission.
Kansas. Oskaloosa Telephone Co. v. Public Utilities Commission.
Missouri. State ex rel, Columbia:Telephone Co. v. Public Service Co. (195 S. W.,
741). , , § * . * * *
Oklahoma. Hine v. Wadlington (111 Pac., 543; 124 Pac., 299; 109 Pac., 301).
RETURN OF THE WIRE SYSTEMS. 147
APPEALS BY MUNICIPALITIES, ETC.
Alabama. City of Birmingham v. Southern Bell Telephone & Telegraph Co.
City petitioned for certiorari to review.
Arizona. Tempe v. Corporation Commission and Mountain States Telephone &
Telegraph Co. Appeal by city.
California. City of Burlingame v. Railroad Commissicn and Pacific Telephone &
Telegraph Co. Appeal by city.
N ºpenver v. Mountain States Telephone & Telegraph Co., Daily Bulletin
No. 503, p. 1.
| Georgia (law). City of Dawson v. Dawson Telephone Co. (72 S. E., 508). Appeal
3y city.
Illincis (law). Public Utilities Commission v. DeKalb County Telephone Co. (119
N. E., 423). Appeal by subscriber.
Indiana (law). Winfield v. Public Utilities Commission (118 N. E., 531). Appeal
by subscriber. Flat Rock Telephone Co. v. Public Service Commission. Appeal by
subscriber. -
Maryland. Gregg v. Laird (87 Atl., 1111). Appeal by subscriber.
Michigan (law). Traverse City v. Michigan Railroad Commission (168 N. W., 481).
Appeal by city. Smith v. Railroad Commission. Appeal by subscriber. Detroit v.
Railroad Commission et al. Appeal by city.
Missouri (law). City of Fulton v. Public Service Commission (204 S. W., 386).
Appeal by city.
Nebraska. City of Stromsburg v. State Railway Commission et al. Appeal by city.
Marquis v. Polk County Telephone Co. (158 N. W., 927). Appeal by subscriber.
it. York (law). Village of Walton v. Walton People's Telephone Co. Appeal by
V111age. -
North Carolina. State ex rel. Corporation Commission v. Asheville Telephone &
Telegraph Co. Appeal by city.
Ohio (law). Cleveland Telephone Co. v. City of €leveland (121 N. E., 701). Appeal
by city.
Oregon (law). City of Woodburn v. Public Service Commission (161 Pac., 391).
Appeal by city. -
Washington (law). State ex rel. Webster v. Superior Court (120 Pac., 861). State
against Superior Court for writ of prohibition.
Then one member of the committee asked me to file a brief with
respect to the power of Congress to continue the existing telephone
rates for a reasonable period after the return of the properties, and
I have asked our attorneys to prepare me a short statement, a brief
opinion in regard to that, which ſ beg leave to file with the other
8,062 ('S.
#. document submitted by Mr. Kingsbury is here printed in full
as follows:)
Congress has the power to continue the existing telephone rates for a reasonable
period after the return of the properties.
1. The military power is broad enough to cover this.
(a) The resolution of July 16, 1918, authorizing the President, in aid of the national
security or defense, to take over the wires, is a determination by Congress that the
telephones are a military necessity, and forecloses any discussion of this question.
(b) The power to take over for a limited term being conceded, there necessarily
accompanies it the obligation to return the property in the condition in which it was
received, at the expiration of this term. To the extent, that this condition may have
been impaired, there arises the obligation to pay damages.
(c) Under such circumstances, there must inhere in the obligation to return, as an
incident to it, the power to do whatever is reasonably necessary in order to terminate
Federal control and restore the property to its owners in the manner that will involve
the least damage to the property, and the least injury to the public through the im-
pairment of the service rendered by the property.
(d) The Government could retain possession long enough to make the readjust-
ments properly incident to its return. It is going no further to say that the Govern-
ment, instead of retaining the property and making the readjustments, may imme-
diately return it, subject to conditions which will permit the owners to make the
readjustments.
148 RETURN OF THE WIRE SYSTEMS.
2. The authority to provide for the national defense empowers the Government to
build and own telephone limes.
This is obvious because—
§ As has been seen, these are military necessities.
(b) They could not be constructed after the commencement of hostilities because
of lack of time, lack of material, and lack of men.
(c) If they could be provided instantly upon the commencement of hostilities, this
would be unavailing, because not only must there be telephone facilities, but business
must be organized with reference to their use, so that if the facilities could be created
instantly they still could not be efficiently utilized by a business community not
adjusted to their use.
(d) The fact that Congress relied upon the use of the privately owned plants does
not militate against its power to supply its own plants if it had deemed the privatély
owned plants insufficient. •
(e) Where Congress has elected not to build and own, but to take temporary posses-
Sion, its power to take possession a reasonable time before war actually commences,
and to retain it until the wires can be returned with the least damage to their owners
and to the public, can hardly be doubted.
f) As a matter of preparedness, Congress could have taken the wires at any time
after 1914. It alone has the right to determine when the occasion for their taking
arises, and when it has passed.
3. When do military powers arise and when terminale?
Using the term broadly, not technically, it would be most unfortunate to hold that
the military power may not be exercised long enough before and after actual hostilities
to make its exercise effective and reasonable. To illustrate, Emergency Fleet Cor-
poration, organized under the Shipping Board act (approved Sept. 7, 1916, 39 Stats.
at Large, 827), will not cease to exist on the day that war ceases. It would be an im-
possibly rigid construction to assert that it could not at least be continued for the time
necessary to wind up its affairs properly. In the same way the War Finance Corpora-
tion act (approved Apr. 5, 1918, 40 Stats. at Large, 506), will not become a nullity
when the war ends. It can not be contended that the War Finance Corporation may
not legally continue so long as is necessary to properly wind up its affairs.
4. Under the commerce clause Congress has power to establish all telephome rates,
eacchange amd toll or long distance.
(a) Every part of a telephone plant is constructed with a view to its availability for
use in interstate communications. This factor is a determining factor as to the char-
acter of construction. §
(b) Every exchange rate, where the exchange has an interstate connection, and this
means probably every exchange rate in the United States, includes payment for a
part of the service on interstate messages.
As telephone rates are constructed, the toll or long distance rates cover the service
from exchange to exchange. The portion of the interstate service between the
exchange, where the connection is made with the toll line, and the subscriber's
telephone instrument, over which he talks, is embraced in and covered by the local
telephone rate. Therefore, substantially every telephone rate in the United States
includes a charge for interstate service.
Unless these rates are subject to the control of Congress, any telephone company, in
establishing its rates, or any commission in establishing rates, by making the same
charge pay for some local service with the interstate service, could deprive Congress
of all jurisdiction over interstate charges.
(c) This method of making telephone rates antedates all attempts to regulate them.
It is not an attempt to evade regulation of any character. When the toll Service was
originally instituted, the character of the construction of the local lines was such that
those who desired to use the toll or long distance service were required to go to the
central offices, or to other places where special lines and facilities were afforded. The
rate was established to cover the service which was essentially a service from exchange
to exchange, not from subscriber's station to subscriber's station. The practice thus
established has been continued.
The question was asked which I could not answer as to the miles of
wire added to the Bell system from August 1, 1918, to March 31, 1919.
The total was 198,439 exchange wire and 145,336 toll wire, making a
total of 343,775 miles added in that time.
RETURN OF THE WIRE SYSTEMS. 149
The CHAIRMAN. We do not get much of an idea, unless we know
what a percentage that is of your total exchange and toll mileage.
Mr. KINGSBURY. A very small percentage of the total. We have
some 22,000,000 or 23,000,000 miles of wire, so this is a very small
percentage.
The question was asked me as to the operative's wages at South
Bend, Ind. They are as follows: Student operators are paid $7 a
week while being taught; that is, when a girl goes into the school to
learn how to operate, she performs no service for the company
except as a student; she does not put up any connection or anything
of that sort, but she is paid $7 a week during the time she is being
taught. The basic wage is increased periodically to $10 a week at
the end of the third year. The operator's earnings are from 50 cents
to $2.50 a week in excess of the basic wage, because they get extra if
they work nights; they get extra if they work Sundays, and they get
extra if they have what we call a “split trick,” that is, where an
Operator comes in the morning and works a few hours and then goes
home and comes back again in the afternoon, they get extra for that.
A substantial portion of the operating force are clerks, supervisors,
etc., and they are paid $14 a week. The chief operators and assistant
chief operators, of course, get higher wages than that, and those are
largely individual.
The matter of increase for operator's wages for South Bend and
other Indiana cities has been under consideration for some time.
The recommendations now are before the operating board for sub-
stantial increases, if approved, to be put into effect immediately.
I was also asked to file a statement showing the earnings of the
Bell operating companies 1913, 1914, 1915, 1916, and 1917, separated
as to 1918 for the first seven months under private control and the
last five months under Government control, and also for the first
three months of 1919; and the statement in detail of the figures I
file for incorporation in the record. -
(The statement submitted by Mr. Kingsbury is here printed in full
as follows:)
Bell operating companies.
* 1918
- First 3 months
** 1913 1914 1915 1916 1917 3. Last 5 months 19.gºal
First 7 months. (Federal con- *
trol).
Plant in service (average). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $772,796, 198 || $823,244,832 $858,637,286 $914, 145,671 || $1,023,093,467 $1,072,441,811 || $1,101,839,739 || $1,119,334,902
Earnings and expenses:
Exchange revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $151,502,818 $160,562,352 $169,583,613 || $189,389, 533 $207,952,827 $128,214,199 $93,189,860 $58,347,559
--Toll revenue--------------------------------------- $56,575,851 $58,010,632 $62,929,980 $72,971,664 $84,559,861 $52,949,783 $41,367,596 $25,878, 194
Total telephone revenues. . . . . . . . . . . . . . . . . . . . . . . . $208,078,669 || $218,572,984 $232,513,593 $262,361, 197 $292,512,688 $181,163,982 $134,566,456 $84,225,753
Operation expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $81,246, 191 $87,933,286 $91,700,153 || $102,716, 161 $122,315,489 $82,472,077 $61,793,376 $39,521,550
- Current maintenance------------------------------- $32,071,983 || $31,231,973 $30,700,377 $34,329,959 $40,745,433 $26,226,956 $19,312,581 $11,561,220
Depreciation--------------------------------------- $36,367,010 || $40,050,057 $43,403,941 $48,384,652 $51,605,884 $27,097,953 $24,722,547 $15,250, 528
a NeS- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - $10,486,565 $11,200,961 || $12,056,543 $13,893,116 $19,363,818 $11,874,659 $9,212,397 $5,475,701
Total telephone expellSeS- - - - - - - - - - - - - - - - - - - - - - - - - $160, 171,749 $170,416,277 $177,861,014 || $199,323,888 $234,030,624 $147,671,645 $115,040,901 $71,808,999
.Net telephone earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 $47,906,920 || $48,156,707 || 1 $54,652,579 || $63,037,309 || 1 $58,482,064 || 1 $33,492,337 || 2 $19,525,555 3 $12,416,754
Annual basis: -
Per cent revenue to plant. . . . . . . . . . . . . . . . . . . . . . . . . . 28.0 27.5 27.7 29.8 30.3 29.7 29.8 30.4
Per Cent Operation to revenues. . . . . . . . . . . . . . . . . . . . . 39.0 40.2 39.4 39.2 4.1.8 45.5 45.9 46.9
Per cent current maintenance to plant. . . . . . . . . . . . . 4.4 4.0 3. 7 4.0 4.3 4.4 4. 3 4.
Per cent depreciation to plant. . . . . . . . . . . . . . . . . . . . . . 4.9 5. 1 5.2 5.4 5.4 4.5 5.5 5.
Per cent net to plant............ ------------------- 6. 5 6. 1 6. 5 7.2 6. 1 5.5 4.3 4.
Plant per station at end of period. . . . . . . . . . . . . . . . . . . . . . $150 $150 $146 $143 $150 $153 S157 $15
Plant added per station added . . . . . . . . . . . . . . . . . . . . . . . . . $120 $150 $84 $113 $243 $255 $450 $9
1 Does not include certain sundry revenue, such as rentals from lease of telephone plant, etc.
2 In addition the Postmaster General received sundry revenue of $1,305,929 for last 5 months, 1913.
3 In addition the Postmaster General received sundry revenue of $764,432 for first 3 months, 1919.
i
g

RETURN OF TEIE WIRE SYSTEMIS. 151
There were some questions asked this morning and some discus-
sion as to extending the time during which these rates shall be oper-
ative over some certain periods. I should dislike very much to see
that, because it simply puts off the date of this crisis to some future
date. If you should extend this period three months or six months,
the commission of course could not touch rates during that time; we
would be getting the rates which had been approved and ordered
during Government control. Our expenses would continue to go
up on account of continuing demands of labor, and we would just
be putting off a crisis which is right upon us now. I do not want
these rates continued for any period—and I feel that I speak for the
whole telephone industry on this point—if these rates are not proper,
correct, reasonable rates, and it seems to me there need be no hesita-
tion on the part of Congress in leaving this matter to the various
State commissions to decide. We do not want to continue any rate
which is too high. We have no temptation in that direction. We
could not pay out, and Ought not to pay out, any more in dividends
than we pay now, and that is only enough to attract the necessary
capital to the business; anything above those dividends we would
have to continue to do as we always have in the past, simply put it
into the plant. That is where all our surplus goes, and there is no
use and no temptation for us to build up any large surplus. There
ought to be a reasonable margin to take care of variations in busi-
ness conditions, but beyond that point we have no temptation to go.
The commissions can very shortly get at this thing. If you put it
off six months, or six weeks, or any other length of time, the com-
missions will go exactly, probably, as they have during the period of
Government control. They say: “We have not got anything to do
with this thing; we can not get at it; we can not do anything effec-
tively,” and they would let it alone until the crisis came around
again. We should much rather have the time within which commis-
sions will act shorter. We do not want to continue these rates if
they are not the right rates. We want them adjudicated definitely
by the governing bodies as to what the right rates are. We want to
be able to go to our bankers when we need money and say we are
on a definite, solid foundation, and not that there is something that
we can not compute coming to us in the future. We can not go and
get money from our bankers if we have an uncertain condition.
Mr. DENISON. Right there, would it not be more uncertain to
leave it to the State commissions than to have a definite time—say,
six months?
Mr. KINGSBURY. I think not.
Mr. DENISON. Why would it not -
Mr. KINGSBURY. Because we would proceed in an orderly fashion
with the commission.
Mr. DENISON. But the commission might in a particular instance
adjudicate in 2 months, 4 months, or 30 days; that is absolutely
indefinite and uncertain. -
Mr. KINGSBURY. As far as the commissions are concerned, as I said
the other day, we have no complaint as to our treament at the hands
of the commission. They try to be just ; they are intelligent men. I
think they have an appreciation of their obligations both to the public
and to the companies, and we do not fear the ordinary action of the
commission. What we do fear is we have been going along here
152 - RETURN OF THE WIRE SYSTEMS.
nearly a year without any chance to appear before the commissions
with respect to rate structures, and during a time when economic
conditions and conditions with respect to labor and the price of
materials should have changed tremendously. That is worked up here
to a crisis, and now to have the commissions, who can not go at these
things all at once—it takes too long—just chop right off so those
rates drop right back to the prewar period, that is the thing we fear.
We do not want to take any power away from the commissions; the
power belongs there,it is lodged there by law, and all we want and all
we ask Congress to do is to continue these rates until such a time as
the various commissions can get at it and determine that these rates
are fair rates.
I do not want it six months if the rates are not fair; and if they are
not fair the commissions will find it out and they will change them.
We understand there has been a bill proposed before the Senate
committee which simply fixes the rates which the Postmaster General
ordered with respect to the toll business; it does not in any way affect
exchange rates. I think it would be most unfortunate to have such a
bill passed. It would be more unfortunate for the independent com-
panies than it would for the Bell companies, because whereas between
25 and 30 per cent of our business is toll business, most of the inde-
pendent companies have a much smaller percentage of their business
toll business. It would help us more than them, but it would not
help us at all—that means, of course, it would not help them; I think
it would hurt them and I think in the long run it would hurt us.
I want to repeat what I have just said in regard to commissions. I
am not coming here asking you gentlemen to legislate some power
away from the commissions, even if you could do it; I do not think it
would be a wise policy for us to suggest it. We do not want it. All
we want is time for the commissions to proceed in this matter in the
regular orderly fashion, and a year's time or two years' time or even
a longer period of time would simply work up to the same crisis
with which we are now faced. -
That is all I have to say, gentlemen, and I am very much obliged
to VOu.
Mr. DOREMUs. Mr. Kingsbury, what is the position of the telephone
companies if the Government had not taken them over ?
Mr. KINGSBURY. If the Government had not taken them over ?
Mr. DOREMUs. Yes. -
Mr. KINGSBURY. Well, of course, Mr. Doremus, that is very
problematical. Our thought is this: We were proceeding in the
regular way with respect to our rates. We had succeeded in getting
rate increases amounting to about $6,000,000 per annum at that rate,
when the Government took control. Since that time we have had
nothing to say about our rate structures, and the only thing that the
commissions have had to say about our rate structures was to oppose
the imposition of rates by the Postmaster General. Now, there is no
rate structure, so far as the commissions are concerned, except the
rate structure which existed since the 1st day of August, 1918. If
the companies had continued to be managed by their owners, we
would have been diligently at work during all that time on these rate
matters. What we would have done in Michigan, I do not know.
As you may know; other sections of the country are paying the bills
for Detroit's telephone service. We are going behind there 'over a
RETURN OF TEIE WIRE SYSTEMIS. 153
laundred thousand dollars a month. It is not the fault of the com-
mission; it is the fault of the city government.
Mr. DOREMUs. Take that situation in Detroit which you have just
referred to. The employees fixed a date for a strike. As I under-
stand it, the system has been running behind $50,000 a month for
that time. Having made no appropriation to pay for the operation
of the telephones, the Postmaster General could make his operating
expenses only by increasing the rates ?
Mr. KINGSBURY. Yes, sir. " . . . . . . .
Mr. DOREMUs. Suppose that strike had been threatened while the
companies were under private control, how would you have met that
situation ?
Mr. KINGSBURY. I think we would have met it just as the Post-
master General met it. I do not know whether you remember or not,
but Mr. Koons, the First Assistant Postmaster General, and myself
went to Detroit last November when the strike was settled. We had
numerous conferences with the labor people, with a committee of the
council, with the chamber of commerce, and with the city officials.
It was agreed between all of us that the wages should be raised, and
that simultaneously with the raise in wages there should be an
increase in the rates. That was a definite, distinct commitment on
the part of the Postmaster General and on the part of the city officials.
Wages were raised. Just at that time there was a change, as you
remember, in the city government. Mr. Cousins came in as mayor, a
new city attorney came in, and the city of Detroit broke its commit-
ment, went to the courts and got an injunction with those rates
applying. The Postmaster General has continued to pay the increase
in wages and the injunction of the court has restrained him from
collecting the rates which were agreed upon by the then officials of
the city, by the laboring people, by the chamber of commerce; and I
think the city acted in bad ...i. -
Mr. DOREMUs. You do not know to what extent the failure to
collect the increased rates has added to the deficit which already
exists? -
Mr. KINGSBURY. I do not know the exact amount. I understand—
I am not sure about this, Mr. Doremus—that the company has billed
the rates and charged the rates which the Postmaster General ordered,
but that the people have only paid the old rate. If that is true,
and I hope it is, now that the Supreme Court has decided that those
rates were the legal rates that the Postmaster General put in, it will,
of course, be possible to collect the rates which have been billed. I
understand they have charged the rate which the Postmaster General
ordered. If so, the people have been charged that amount, and I
daresay will pay it. - -
As a matter of fact, I have talked with a great many business men
in Detroit—I want to be careful in this statement—I do not remember
of a single one who has objected to the raising of rates in Detroit.
There has not been a rate raised in Detroit since 1900, and you know
what the city of Detroit has done in every way since that date.
Mr. DOREMUs. As I recall it now, the mayor advised the people
not to pay the increased rate; that if they attempted to enforce it
to take the telephones out of their homes.
Mr. KINGSBURY, We, have not done anything of that sort or de-
manded that they pay; that is not the fault of the State commission
154 RETURN OF THE WIRE SYSTEMS,
order. We have been five or six years trying to get an increase in
rates from Detroit. The State commission gave us that increase,
but the city immediately attacked it in the courts, and an injunction
was granted by Judge Weiss out there which has prevented us taking
advantage of the ruling of the commission.
Mr. DoREMUs. I do not know whether you understood my ques-
tion or not. My understanding is that the new mayor of the city
advised the people not to pay the increased rates?
Mr. KINGSBURY. Yes. - -
Mr. DOREMUs. And that before he would pay the increased rates
he would have his telephone taken out. - -
Mr. KINGSBURY. I see. I ought to say that Mr. Cousins was not
the mayor when we made this commitment with the city, which was
in November, but he became the mayor shortly after. So that I
can not charge him with bad faith. w -
Mr. DENISON. Mr. Kingsbury, I think as a business proposition it
would be desirable, would it not, in the interest of the public and
in the interest of the companies to have the different State commis-
sions, or whatever authority, act as speedily as possible after the
wires are turned back; is not that true? -
Mr. KINGSBURY. Yes, sir. -
Mr. DENISON. Can not Congress do something to expedite that by
way of legislation. -
Mr. KINGSBURY. Mr. Denison, I do not think of any way. If you
put that off three months, four months, or six months, my guess
would be that the commissions would say, “Well, this is taken out
of our hands for this period; we can not do anything during this
period,” and that would be just exactly the situation during the
period of Government control in most instances. They have refused
to consider the rates at all in most cases. In some instances they
have not refused, and they have acted on the rates. They have
allowed us to file the rates and then have acquiesced, but in most in-
stances—take it all through the South—they say, “What have we to
do with these things?” and they just let the matter alone; and that
is what I should expect they would do it if was decided by Congress
that these rates were continued for six months or any other definite
time or period. -
Mr. DENISON. Let me ask you, if you do not mind: I assume that.
our power to continue these rates that have been fixed by the Post-
master General depends upon this indefinite war power, and can only
extend to a reasonable period after the termination of the war. Is it
your idea that what would be a reasonable period after the termina-
tion of the war can be made to depend upon the action of the differ-
ent State commissions all over the United States ?
Mr. KINGSBURY. I think that if the State commissions were dili-
gent, and if the companies were diligent in this matter, that the fact
of that diligence would determine to a great extent the question as
to what was a reasonable time.
Mr. DENISON. Then you would have to say as a logical conclusion
that this indefinite war power could extend over a certain time in
one State and in another State it would be a different time, and in
another perhaps a yet longer time. So that what would be a reason-
able time might be different in all the different States in the Union;
is that your idea about it 3 . -
RETURN OF THE WIRE SYSTEMS. 15.5
Mr. KINGSBURY. Yes. But, take the city of Chicago, for instance.
There is a great big proposition we have got to go into right away;
in fact, the council has ordered an investigation. It is a very dif-
ferent study to determine what the rates should be in Chicago, for
instance, than it would be to determine what that rate should be in
Springfield or any of the smaller cities. . Of course, you know many
of them are much smaller than Springfield, but take a small place in
Illinois, and what would be a reasonable time in establishing that.
rate in Chicago would be an absolutely unreasonable time in getting
at the rate in a small place.
I should expect that this whole rate proposition could be disposed
of by all the commissions everywhere within six, eight, or nine months.
But if you put that in as a period during which these rates should be
enforced, then I should fear that nothing would be done until that
period had elapsed, and we would be up against the same crisis as we
8,I’é I) OW. -
It is not so much that we are afraid of the commissions; that is
not it. - - - * .
Mr. DENISON. I did not mean that. . .
Mr. KINGSBURY. Here is what we want to get—and the thing will
drop easily to a prewar basis: The bill we have introduced invites the
commission and the company to take this matter up immediately
and dispose of it.
Mr. DENISON. The thing that is bothering my mind is this: I
assume we would have the right to continue these rates for a reason-
able time after the termination of the war, under the war power %
Mr. KINGSBURY. Yes, sir. - - -
Mr. DENISON. Now, then, the question would be whether or not
that reasonable time could be made to depend upon the action of the
State commissions in all the different States in the Union, and thereby
become a different time in different States—that is the question that
is bothering me. - - -
Mr. KINGSBURY. I thing that would be the natural working out of
the law which we have proposed, Mr. Denison, and quite necessarily
So and logically so. There are some States, for instance, where the
rates that have been put in by the Postmaster General, are the rates
which have been adopted by the commission. I am speaking now of
State commissions. As I remember, the rates, they are the commis-
sion rates. They agreed to the rates; to some extent they did in
Oregon. That job is settled. There is not anything to do there,
unless the commission now, of its own initiative, wishes again to take
up the rates that they have just decided on in the last few months
and review the situation. They may wish to do that; I do not
know. -
There are some other States where the rates have been approved
by the State commissions, and there are others, of course, where the
commissions have opposed the rates. - .
Mr. DENISON. You can see if your position is true, then it logically
follows that the state of war or the war conditions growing out of
the state of war, might be said to prevail in one State six months or
even longer, and in other States a shorter or even a longer time than
that. • - -
Mr. KINGSBURY. So far as these rates are concerned.
121695–19—PT 2——4
156 RETURN OF THE WIRE SYSTEMS.
Mr. SIMS. Is it not true, considering the time, you have got to take
in the whole system and not any one isolated system or community,
and the reasonable time would be such time as would enable the
whole system to be taken in after the war.
* \º RINGSBURY. I think you have got to consider each case by
itself. -
Mr. RAYBURN. I think Mr. Denison is trying to bring out what
you intend we should try to do. His theory is that unless we set
some time there will be no legality about it, and I think that is Mr.
Denison's point. -
Mr. KINGSBURY. I get Mr. Denison's point, I think, sir.
Mr. RAYBURN. Then it is true, if the question of reasonability
depends upon each particular as separated entirely from the whole
system, is there any liklihood of having any uniform period after the
War? - -
Mr. KINGSBURY. I do not think so; that is up to the commissions
and the company. -
Mr. RAYBURN. You can not have all of them taken out at the same
time, or all these readjusted rates go into effect in all companies and
all the States, so it has got to be more or less a flexible quantity, so
* it. ºy be adjusted in one State earlier than another, and both
be legal 7 -
Mºš KINGSBURY. I do not think the difference lies so much between
the States as it does between the cities in the States. Take, for
instance, the City of St. Louis, Mo. If I remember correctly, the law
there provides that the commission must make its valuation before
it determines the rate. You take the city of St. Louis and compare
it with the city of Macon, a comparatively small town in Missouri.
It will not take very long to make a valuation of the telephone proper-
ties in Macon, but it is a big long job to make a valuation of the
telephone properties in St. Louis, and therefore what I say would be
#. reasonable time in Macon would be an unreasonable time in St.
Oli1S. -
Mr. DENISON. And right in that connection, I want to say that my
fear is that if Congress under this war power should undertake to fix
the telephone rates until such a time as the authorities of St. Louis,
for instance, can make a physical valuation of the telephone system
there, I am afraid it would not stand in the courts.
Mr. KINGSBURY. I do not want to make any suggestions unless
my conferees on the other side agree with me. What would you
think of putting in there “such reasonable time as the commission
can,” Judge Stevens'
Mr. STEVENS. I think that is inferred necessarily.
Mr. KINGSBURY. I think it is inferred myself, and I have no
objections to its going in.
Mr. STEVENS. These two differences would govern: First, Congress
proposes to legislate permanently
Mr. DENISON (interposing). We would legislate permanently for
interstate lines but not for those within the State. -
Mr. STEVENS. The quickest way to get these communities and
these States to act is to have the legislation just exactly this: If they
challenge any rates being wrong, they will go at it at once. The
patrons will kick right off if they do not like these rates, and the
commissions and the communities will thrash these things out under
RETURN OF THE WIRE SYSTEMIS. 157
the law. My impression is you can not make a uniform rule, for the
reason suggested by Mr. Barkley, and it is not necessary, I think, for
the purpose of the legality of the law. #
I have the cases, and can put them in, if you request it, Mr.
Denison; and if you desire to examine the cases, the reports are very
clear that the war powers extend beyond the war and into the period
of peace, that they are indefinite, that they are sufficient so long as
may be necessary to carry out the conditions created by the war.
I found one war power which Congress had exerted 28 years after
the period of war in condemning property for the battle-field park of
Gettysburg. So that there is not any time limit fixed or required
by the Constitution. It is not necessary to fix a time, and the quickest
way to settle the proposition is to have exactly the provision in this
bill, so that the commissions and the people and the municipalities
will thrash it out at the earliest moment. -
Mr. RAYBURN. The proposition of saying a reasonable time, not
exceeding a certain number of months, does not say that to go back
on any arbitrary date; they can be going back all the time.
Mr. STEVENS. As they will do; they are beginning right now.
Mr. RAYBURN. The proposition of saying, “For a reasonable time,
not exceeding a certain number of months,” does not state an arbi-
trary date at all. -
Mr. STEVENS, You will settle that in the natural course of events.
Remember, you are adjusting an actual situation by climbing from
a war power on a certain elevation to a peace situation under the
interstate-commerce law. You can not tell how these things will
work out. The best way to make that adjustment is the normal,
natural way, as provided in this law, that each community shall
decide for itself. The people working through their natural channels
will work out what is the best thing to do, and that is exactly what
this provides.
Mr. BARKLEY. I think that is all right with reference to those tele-
phones that are regulated either by State commission or by the
municipality as to rates, but I apprehend there are some communities
where nobody regulates the rates. What would you think about the
suggested bill, offered, I think, by Mr. Kingsbury the other day, that
these rates were to remain in force until the proper regulatory power
has reduced or raised them, as they may see fit, or until the com-
panies themselves shall reduce them, presumably in communities
where nobody has a right to regulate them :
Mr. STEVENs. That would be all right; but, Mr. Chairman and
gentlemen, there is always a regulatory authority somewhere. The
common law provided, regulatory authority before the interstate-
commerce act and before the State law. Those rates if unreasonable
can be assailed by any citizen in any court as being unreasonable at
any time. *
Mr. BARKLEY. He can only assail the rate that is charged to him.
What I am speaking about is general rates that under this proposed
bill would not give to anybody any authority to regulate and would
depend upon somebody going to court to readjust his own rate.
Every individual may have to go into court in order to get the rates
reduced.
Mr. STEVENs. It could be done by regulation, and I really think the
State authority or community and the citizens should join if it were
158. RETURN OF THE WIRE SYSTEMS.
an unreasonable matter. The point is that even in a State like Iowa,
where there is no specific authority, the courts have authority there
to regulate those things in cases where they are unreasonable. I do
not know the decisions, but I apprehend that the Member from Iowa
knows that there are cases in his State where the courts have deter-
mined what are reasonable and what are unjustly disºriminatory
rates. - - -
Mr. BARKLEY. Admitting that, it strikes me as being rather unwise
to leave to the company, which is unregulated by any commission or
municipality authority, to decide when its rates should be reduced.
Mr. STEVENs. Of course, that is the condition that Iowa and other
States choose to remain in, and if any State chooses to remain in that
condition what can we suggest ? Remember, this Congress is limited
even under the war power. We can not go into the State of Iowa
and say, “Here, you have to conduct your intrastate business, under
the war power,” because it is not within the war power.
Mr. BARKLEY. I understand we can not do that, but we by this
law say that those rates fixed by the Postmaster General shall be
legal rates until the companies see fit to reduce them. They may
never see fit to reduce them.
Mr. STEVENs. There is a method provided by the various laws in
every State by which it can be done—some by commission, some by
communities, some by districts, some by the courts; and where there
is a commission, or community there is always a court. So it makes
no difference. Each State determines its own forum and its own
method. -
Mr. DEWALT. Mr. Stevens, your standard of reasonableness after a
time would be determined in each case by the circumstances sur-
rounding each case; is that so º
Mr. STEVENs. Necessarily; yes, sir.
Mr. DEwALT. Take the Railroad Administration, which took over
all the railroads of the country. Would you say then of those rail-
roads, if they are to be surrendered by the Government to the cor-
porate interests which own them, should be determined by the cir-
cumstances governing each particular railroad 3 - -
Mr. STEVENS. Oh, no, Judge; that is a totally different propo-
sition. - - -
Mr. DEWALT. Where is the difference, in your mind?
Mr. STEVENS. The difference is this: Congress has provided,
giving the President authority to take the railroads for the purposes
of public defense. - - - -
Mr. DEWALT. Yes. - - -
Mr. STEVENS. It is provided that he may surrender those railroads
inside of 21 months.
Mr. DEWALT. Correct.
Mr. STEVENS. Now, then, it is a matter of public use and of public
importance as to when he will surrender them. He will not consider
the question of reasonableness as to localities, but when, for the
general purpose of national defense, in the first place; when for the
general purpose of working a national system of transportation on
the other. When he surrenders those railroads, those are the things
be will have in mind. -
Mr. DEWALT. But, my friend, do not forget this—wait a moment.
RETURN OF THE WIRE SYSTEMs. 159
Mr. STEVENS (interposing). That does not exist altogetner. You
are determining right now the law under which you surrender the
telephones.
Mr. DFWAIT. Do not forget this, Mr. Stevens: The powers exercised
here are under the war powers of the Constitution. The fixing of
these rates by the Postmaster General went under the guise of the
war power. The war power can not extend except during the period
of the war, and a reasonable time thereafter, and the “reasonable
time thereafter” may be fixed by the statute itself saying it shall not
exceed a period of so many months or years. You propose to over-
ride that; you propose to say that the war power shall extend as long
as the State of Pennsylvania says it shall extend in fixing these rates,
Or you propose in the same breadth to say that the war power shall
extend as long as the State of Iowa wants it to extend; or, worse than
that, you propose to say by your suggestion that the war power
shall extend as long as the city of Allentown, a municiaplity that has
control of the rates in that city, shall deem it wise to make it so.
Mr. STEVENs. No, Judge.
Mr. DEWALT. Mr. Stevens, if that is your contention, I should have
to differ with you very radically. -
Mr. STEVENs. Mr. Chairman and Judge, that is not the contention;
that is not the basis. The basis is this: The war power allows
Congress to extend these rates to meet an abnormal situation, to go
from one height to a lower level ©
Mr. DEWAIT (interposing). Yes, but this is still the war power, is
it not 7 - -
Mr. STEVENs. Yes, it is the war power. How shall that be done?
Congress decides it shall be done by each community working that
out for itself ; that that which is a national matter shall be worked out
through the regulatory body described by Congress, the Interstate
Commerce Commission; that which is a State matter shall be worked
out according to its constitution. Remember, this is always a
direction of Congress. In the town of Allentown, by the State of
Pennsylvania, but it is by the direction of Congress, that these matters
shall be worked out and adjusted in a natural way through these
agencies provided by Congress in this act, and these agencies are the
bublic authorities of the communities who know their own situation
est, who know how to do it the best way, and how to work it out
in the best and quickest way, and that is what we want.
Mr. DEWALT. In other words, you propose then to delegate to the
municipality power to determine as to when the war necessities
cease ? -
Mr. STEVENs. I beg your pardon, that is not exactly the Sug-
gestion. The municipality knows the local situation and it knows
how to work it out to the best advantage, this descent from war
powers to peace powers. It does know how and we give them that
authority to do it. “Reasonableness” is only a sort of a shadowy
standard. The Judge is well informed on that. For 20 years, it
has, of course been wrestling with what shall constitute “reasonable-
ness” and each depends upon its own circumstances and the
conditions. . .
Mr. DEWALT. That is true, Mr. Stevens, but the guise of the war
power. Do not forget that is the situation that is the basis of this
whole thing, and my contention is that you are endeavoring by your
160 RETURN OF TEIE WIRE SYSTEMIS.
suggestion to delegate the power which is inherently in the Congress
to determine when the war ceases and when the necessity ceases
and reasonableness thereof, to some municipality or to some State,
and I do not believe you can do it.
Mr. STEVENs. Mr. Chairman, that is not exactly what the legal
situation is. The legal situation is that this war power ceases when
a fact arises. What is that fact? The fact may be an act of Con-
gress, as it probably will be, when you gentlemen pass your new act.
It may be that action of the State commission establishes that fact.
It may be that the action of a municipality establishes that fact;
it may be that the decisions of a court establishes that fact. But
when the fact is established, then the war power ceases, and that
is all; it is not a delegation at all, it is the establishment of a fact
which controls that situation.
Mr. BARKLEY. I would like to ask Mr. Kingsbury this question:
Following your suggestion the other day, which Fººd upon in
asking Judge Stevens—you suggested with reference to these Com-
panies that are not regulated by anybody, the language of your bill
the other day provides that these rates shall be the legal rates until
the various regulatory bodies adjust them, or until the companies
themselves have reduced them. Presumably, the companies in
that last clause will not, because there is no regulatory body con-
trolling rates. Do you think as a matter of public policy it would
be wise for Congress to give that unlimited power to companies
which are unregulated to keep these rates up until they see fit to
reduce them :
Mr. KINGSBURY. They have always had that power in the State
of Iowa. The companies could raise the rates there, if they were
operating the properties, but they have not done any violence to the
State of Iowa. As a matter of fact, I think the average telephone
rate in Iowa is quite as low as it is anywhere in the Middle West,
although the companies have always had the power to put in the
rates and have them tested out in the court.
Mr. BARKLEY. These rates could probably be reduced after a few
months. It will be entirely up to the companies to do it or not
to do it, as they see fit
Mr. KINGSBURY. No, there is a process in the State of Iowa by
which they could appeal to the court if the rates were exorbitant
and have those rates reduced.
Mr. BARKLEY. The whole State or whole system :
Mr. KINGSBURY: No, it has to be a different municipality.
Mr. BARKLEY. Each municipality would have to proceed by itself.
Could they proceed for the whole population of that municipality?
Mr. KINGSBURY. Oh, yes; on relation, as Mr. Stevens suggests.
COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE,
HOUSE OF REPRESENTATIVEs,
Thursday, June 5, 1919.
The committee met at 10 o’clock a. m., pursuant to the adjourn-
ment on yesterday afternoon, Hon. John J. Esch (chairman) presiding.
The CHAIRMAN. The committee will come to order. I wish to
offer in the hearings on the wire bill a letter just received from
Representative H. Steenerson, inclosing some correspondence re-
ceived by him from Mr. Edward M. Cooke, general manager of the
RETURN OF TEIE WIRE SYSTEMS. 161
Keystone Telephone System, Philadelphia, Pa. If there is no
objection this correspondence will be included in the hearings.
(The correspondence referred to is as follows):
Hous E OF REPRESENTATIVES,
f Washington, June 3, 1919.
Hon. JoHN J. EscH,
Chairman Committee on Interstate and Foreign Commerce,
House of Representatives, Washington, D. C.
DEAR. M.R. EscH: I inclose a communication from Mr. Edward M. Cooke, general
manager of the Keystone Telephone System, Philadelphia, Pa., together with the
inclosures therein referred to, proposing an amendment to the third section of Senator
Kellogg's bill relating to telephone and telegraph.
I have advised Mr. Cooke that your committee has jurisdiction of my bill, and that
therefore I have referred the papers to you for consideration.
Very truly, yours, e -
H. STEENERson.
THE KEYSTONE TELEPHONE SYSTEM, t
135 South Second Street, Philadelphia, May 31, 1919.
Mr. HALvoR STEENERSON,
Płouse of Representatives, Washington, D. C.
MY DEAR MR. STEENERSON: I have had some correspondence with Senator Kellogg
in regard to our views on the subject of legislation providing for the return of the wire
systems to private control. I have made a suggestion with regard to an amendment
to the third section of Senator Kellogg's bill No. 120, and knowing your keen interest
in telephone matters I am inclosing you a copy of a letter I am sending to-day to
Senator Kellogg. *
Yours, very truly,
EDWARD M. CookE,
Second Vice President and General Manager.
MAY 31, 1919.
Hon. FRANK B. KELLOGG, -
United States Senate, Washington, D. C.
MY DEAR SENATOR KELLOGG: Since writing you a few days ago, I have submitted
to Senator Cummins the following clause which we would like to see included as an
amendment to the third section of your bill No. 120, providing for the return of the
wire systems to private control:
Without discrimination between others whose compensation has already
been adjusted and those whose compensation shall not have been so adjusted
at the date of the approval of this act. -
Our fear is that we should suffer in the matter of compensation by reason of the fact
that the Bell Co. has a contract with the Government which apparently amply pro-
tects them. Whether it is a contract with which Congress may be in sympathy or
not does not affect the fact that it exists. We have endeavored to obtain a similar
contract from the Post Office Department, but have never been able to accomplish it.
We certainly feel that we should not be discriminated against in this matter.
As an independent competing telephone company we have suffered especially from
the Government control. I would assign the following reasons for this situation:
First. The Postmaster General on various occasions stated is was his purpose to do
away with competition by merging competing telephone companies. The informa-
tion was conveyed to us at one time that the Postmaster General would insist on at least
a tentative agreement between this company and the Bell Co. for a merger before he
would enter into a compensation contract with us. The fact that the constitution of
Pennsylvania would interfere with the consummation of this scheme did not prevent
wide publicity being given to the fact that our companies were to merge, and conse-
quently the public did not feel like subscribing for our service.
Second. The selection of Theodore H. Vail, the head of the Bell Co., our com-
petitor, as chief adviser of the Federal controller of wire companies served to emphasize
and advertise the alleged fact that the Keystone and Bell companies were only pro-
fessedly under different and competing managements, while they were in reality under
a single control, and that was the control of the Bell Co. The fact that the Postmaster
General’s administration of the telephone affairs was carried out largely through the
162 RETURN OF THE WIRE SYSTEMS.
Bell Co.'s machinery served to accentuate this point. Let me emphasize that even
if the Postmaster General had not declared in favor of a monopoly in the telephone
industry, the public confidence in us as a competing company would have been lost,
because under Federal control we were avowedly under the same management as the
Bell Co., and it was not to be supposed by an intelligent public that our competition
and the benefits to be expected therefrom would be anything but a sham.
Third. The injunction of the Postmaster General against soliciting new business,
except in case of war necessities, was a serious injury to us. As is well known, the
number of disconnections in the telephone industry is always large, even in ordinary
times, and this is most marked, of course, in war times. Not to be able to overcome
these disconnections by seeking new installations is a serious handicap. Not only
the actual loss in revenue is to be considered, but also the loss of prestige among the
people generally and the loss of inspiration among our employees.
Fourth. The Postmaster General’s order No. 1931, issued August 28, which made
us enforce a large installation charge, was avowedly intended by the Postmaster Gen-
eral to retard the flow of new business to us and it practically brought it to a standstill,
While the original service charge was later reduced, such a charge still continues and
it, of course, continues to slow up new installations.
Fifth. The Federal control has undoubtedly had a depressing effect on the morale
of our organization with a consequent deterioration of our service. Our organization
was built under the inspiration of keen competition with a worthy rival. It was
directly under the supervision of a local and watchful ownership and management.
The effect on this organization of governmental management from Washington with the
spur of competition and personal touch with the controller removed could not be
otherwise than evil.
Sixth. On December 13, 1918, the Postmaster General issued order No. 2495, which
brought about a raise in toll rates, becoming effective on the following January 21,
1919. This had a blighting effect on our revenues. It was especially so since an
injunction on January 30 operated to prevent the Bell Co. from putting them into
effect, while for some time we were required to charge the higher rates. Competi-
tion, on our part, under such circumstances was a farce, and the incident undoubtedly
resulted in permanent injury to us. g
Seventh. The Postmaster General, soon after assuming control of our lines, is
alleged to have said that he was going to be able to reduce rates and perhaps raise
wages because of the economies he proposed to establish. . Unfortunately events did
not come up to this prediction, but the promise of a raise in wages to employees was
very demoralizing to our organization.
A serious labor condition here, unfortunately, prevented our appearing before the
Interstate Commerce Committee when the hearing was held in this matter.
I have gone into this matter at some length because I feel that you are interested
and anxious to see the situation exactly as it is.
Thanking you for your attention, I am,
Yours, very truly,
EDWARD M. COOKE,
Second Vice President amd General Mamager.
STATEMENT OF MR. CHARLES E. ELMQUIST, PRESIDENT
AND GENERAL SOLICITOR OF THE NATIONAL ASSOCIATION
OF RAILWAY AND UTILITY COMMISSIONERS, WASHING-
TON, D. C. - |
The CHAIRMAN. You may proceed with your statement.
Mr. SIMs. Let me interpose a question so that I may know at the
outset; Mr. Elmquist, are you also the State commissioner of Min-
nesota ?
Mr. ELMQUIST. I was State commissioner for Minnesota for about
10 years. I resigned in November, 1917, to come to Washington to
become the solicitor for the valuation committee. That is a com-
mittee that is maintained by the State commissions for the purpose
of presenting arguments before the Interstate Commerce Commission
on questions affecting physical valuation of railroads.
Mr. SIMs. You have had 10 years' experience as a commissioner
of a State, on a State commission ?
RETURN OF TEIE WIRE SYSTEMIS. 163
Mr. ELMQUIST. Yes, sir.
The CHAIRMAN. You may proceed with your statement, Mr.
Elmguist.
Mr. ELMQUIST. Mr. Chairman and gentlemen of the committee.
The remarks which I wish to make this morning relate wholly to the
return bills which are now before your committee. I do not care at
this time to discuss the general question of remedial or permanent
legislation for wire companies. That is a large and comprehensive
problem, and will involve prolonged discussion. It is an intricate
question, because we have such a large number of telephone com-
panies within the United States, a great percentage of which do
nothing but a local or intrastate business. Therefore, when this
Congress undertakes to pass general legislation for the regulation
of telephone and telegraph companies much consideration must be
given to the dual form of regulation, State as well as interstate.
Hence this morning I will discuss simply the question of the return
of the wires.
The National Association which I represent includes in its mem-
bership the regulating commissions in 47 States of the Union. The
organization has been in existence for about 35 years. We meet
regularly to exchange views upon regulatory questions, to read
reports, and to attempt to harmonize the practices and laws in the
several States. In 45 States of the Union these regulatory commis-
sions have the control of rates, service, accounting, and other ques-
tions involving telephone companies. Therefore, prior to the time
when the Government took over the telephone companies, all the
regulations to which those companies were obliged to submit were
formulated by State commissions or municipal authorities. The
Interstate Commerce Commission did not exercise any authority
Over interstate rates or service of these companies.
These regulatory commissions operate—and now I take these
figures from the annual report of the Bell Telephone system for
1918—upon 11,000 separate telephone companies, of which 36 are
Bell, and 9,338 independents. Sixteen hundred of these independent
companies are companies whose lines do not connect with the Bell
system. In addition to those companies which I have mentioned,
there are 36,055 rural lines, which are generally known as farmer
lines. These figures are taken from page 4 of the Bell Co.'s annual
report. Hence you will observe that the telephone problem is
strictly a local problem, on account of the large number of telephone
companies incorporated in the country which do a strictly local
business. - -
Telephone companies are divided into toll, exchange, and rural
line companies. The rural line companies, or farmer companies;
perform nothing but local service within farming communities. In
a few instances you find these companies doing an interstate busi-
ness. The most of the exchanges—and you all realize that an ex-
change is the plant that simply does the communicating business
within a village or city—are engaged exclusively in intrastate busi-
ness. The only connection that an exchange has with interstate
business is, as a rule, when some subscriber wishes to send a long-
distance telephone message which may extend beyond the confines
of the State in which that plant is located. - .
Mr. HAMILTON. Give that classification again, please ?
164 RETURN OF THE WIRE SYSTEMS.
Mr. ELMQUIST. Toll companies, exchange, and rural lines.
Mr. SWEET. By a rural line you mean a line which does not have
a switchboard or connection with some other company?
Mr. ELMQUIST. No. In a good many cases they do have switch-
boards and connect with other companies, but they are created just
to * a community system between farmers. .
n the State of Minnesota, where I come from, we have over a
thousand of these rural line companies.
The CHAIRMAN. You may proceed with your general statement.
Mr. ELMQUIST. The traffic which is handled by these companies
is very largely intrastate. Now, more than 85 per cent of all the
telephone traffic of all the telephone companies in the country is
strictly local; less than 15 per cent is interstate traffic. Hence you
See that the problem is both interstate and intrastate, with the
preponderating business strictly local. In many States this per-
centage of strictly local business is greatly in excess of 85 per cent;
in Oklahoma it is about 98 per cent; jn the State of Washington it
is over 95 per cent; in Minnesota it is about 90 per cent. I think
in the State of Wisconsin it is in excess of 90 per cent.
hº DOREMUs. Have you any figures for the State of Michigan
there - - -
Mr. ELMQUIST. I haven’t got figures to show the amount of intra-
state business within the State of Michigan, but it necessarily fol-
lows that since a large volume of the business done by telephone
companies is exchange business, connecting one subscriber with
another subscriber within a village or city, that the great proportion
of business done in Michigan is intrastate. -
The CHAIRMAN. You may continue your general statement.
Mr. ELMQUIST. At the time when the Government took over the
telephone companies, there was no complaint made by them as to
their revenue situation or the treatment accorded them by the State
commissions. It has been stated before this committee, as well as
before the Senate committee, that the companies are obliged to
submit to regulatory bodies in 45 States. That has not interfered
with the progress or the development or the service of those com-
panies in the years in which they have been engaged in doing public
service. This is shown by the figures found on the last page of this
annual report.
Mr. HAMILTON. Of the Bell Co. 3 .
Mr. ELMQUIST. Yes; of the Bell Co. It shows that the number
of miles of wire on December 31, 1895, of the Bell companies was
675,415. On December 31, 1918, the wire mileage was 23,281,150.
The number of Bell stations in 1895 was 309,502; in 1918 the number
was 10,992,325. The daily exchange connections between sub-
scribers of the Bell companies—that is, the number of calls—in
1895 was 2,351,240; in 1918 the number was 31,263,611.
No single institution in America has enjoyed greater progress
than the telephone during the past 20 years, and they have at all
times been subject to the rules, regulations, and orders of local
commissions and the laws of the States within which those com-
panies have been operated.
Mr. HAMILTON. For information purely in this connection, let
me ask: How does our telephone business in this country compare
RETURN OF THE WIRE SYSTEMS. 165
with the telephone business in foeign countries º Take, for instance,
France, do they have practically the same system that we have 3
Mr. ELMQUIST. I do not think that they do have the same system,
judging by what I have read on the subject. I understand that the
telephone service in this country is much superior to the service in
France or in any other foreign country.
Mr. HAMILTON. By the way, does the Government control the
phones in France, or do you know %
Mr. ELMQUIST. I can not answer that question.
Mr. HAMILTON. Mr. Kingsbury, sitting behind you, nods that it
does. How is it in Great Britain, or do you know % *
Mr. ELMQUIST. I think that the Government is in control of the
talephone business there. - -
. HAMILTON. The Government controls it there. What is the
character of the service there as compared with ours?
Mr. ELMQUIST. From the literature I have read I think our service
is very much better.
Mr. HAMILTON. What telephone do they use in Great Britain Ż
Do they have the Bell system in Great Britain'.
Mr. KINGSBURY. They do to some extent, but they use a great
many different varieties of manufacture. -
Mr. HAMILTON. Notwithstanding the fact that they are practically
using the same telephones their service is inferior to the service here?
Mr. ELMQUIST. Yes, sir.
Mr. HAMILTON. And the same is true of the service in France?
Mr. ELMQUIST. I understand so.
Mr. HAMILTON. I do not want to interrupt you too much, but
wanted that information in that connection.
Mr. ELMQUIST. All right. -
The CHAIRMAN. You may proceed with your statement.
Mr. ELMQUIST. At the time these properties were taken over and
for many years prior thereto the Bell System had been paying its
regular dividends, and the A. T. & T. Co. had been paying 8 per cent
dividends on its stock. Its contract made with the Government
carries this same provision as to compensation. It has been said that
there have been large increases in cost of labor, material, and supplies
since the Government took over the companies; and the telephone
companies have testified before this committee and the Senate
committee that on account of that fact it is necessary for them to
have legislation extending the Burleson rates a certain period upon
the return of these properties. Mr. Kingsbury testified that the
increase in material was 85 per cent in 1916 over 1914; 100 per cent
in 1918 over 1914; 50 per cent in 1919 over 1914. As a matter of fact
that is not a fair test of the increase in the cost of material used by
these telephone companies; 1914 was the low-ebb year. Our
country was fast approaching a panic. Throughout the country there
was stagnation in business and copper wire companies and others
were willing to sell at almost any figure they could get so long as they
got rid of their goods. A comparison which would be accurate, and
aid this committee in determining the increased cost should be made
for covering a normal period, and 1914 was not a normal year.
Mr. HAMILTON. What do you regard as a normal period
Mr. ELMQUIST. You have to take a period of years.
166 PETURN OF TEIE WIRE SYSTEMIS.
Mr. HAMILTON. Are you prepared to suggest such a period of
ears :
y Mr. ELMQUIST. I would take a period of years prior to this war.
The war produced an abnormal period. - &
Mr. HAMILTON. Yes; I understand that, but would you suggest a
period of years that would cover the situation as you view it'.
Mr. ELMQUIST. And therefore figures as to cost of material and
things of that kind during war times can not be regarded as very
significant in the determination of a normal unit price for anything.
It is significant, however, that in 1919 the increase was only 50 per
cent above that of 1914, thus showing that we are on a declining
market. These figures are taken from Mr. Kingsbury's statement
before the Senate committee. There has also been something said
about an increase in wages by these companies. For example in
1915, $7,000,000; 1916, $8,000,000; 1917, $18,000,000; 1918, $20,-
000,000, and the first three months of 1919, $11,000,000. But if you
will compare this increase in wages with the earnings of the A. T.
& T. Co. you will find that the increased volume of business and the
revenue taken in by this company compare very favorably with the
increased labor cost.
Take for these same years—and I am now reading from page 59 of
the Annual Report of the Bell System—in 1915, and the first year
mentioned by Mr. Kingsbury, we find that the net revenue of the
A. T. & T. Co. was $34,618,638, and that the dividends paid, in round
numbers, were $29,100,000; in 1916 the net earnings were $38,000,000
and dividends paid $31,122,000. In 1917 the net revenue was $38,-
471,000 and the dividends paid $32,481,000; 1918 the net revenues
were $43,901,000, and the dividends paid were $35,229,000. -
The reserve which a company lays aside is a significant item.
From 1914 to 1917, inclusive, the A. T. & T. Co. laid aside $2,500,000
each year, but in 1918 it laid aside $5,000,000 as a reserve.
These figures are significant of the fact that at the time the Gov-
ernment took over these properties there was no distress. There
was no necessity for national aid. There was no difficulty getting
Credit needed to extend their property. No business could have
been more prosperous nor could have been operated under more
favorable conditions. If anything of an embarrassing nature has
transpired since the Government took over the properties, the Gov-
ernment is responsible, and you can not charge that to the regulatory
commissions of the States under whose regulation and control these
properties have so remarkably progressed. •
The practice before the regulatory commissions differs according
to the laws in the several States, but I believe, generally speaking,
it is about as follows: If telephone companies, choose to increase
rates or make any changes in rates, they will file their schedule with
a State commission and ask for its approval. State commissions
may either permit those rates to go into effect upon investigation
and without hearings, or in some tribunals they must have a hearing.
An increase in toll rates, generally involves a State-wide proposition,
and hearings would be required. If the application involves only
changes in exchange rates, rates charged for subscriber service
within a city or village, the question is frequently of minor impor-
tance and can be disposed of in short order
RETURN OF THE WIRE SYSTEMS. 167
Mr. HAMILTON (interposing). Pardon me for interrupting you
thère, but I would like to ask: Under the laws of the various States,
is there a time fixed within which action must be taken after the
filing of proposed changes in rates? -
Mr. ELMQUIST. That varies according to the State. In my
State the law provides that if a company files a complaint the com-
mission must order a hearing in the §e interest. - -
Mr. HAMILTON. Suppose a company wants to make a new schedule
of rates, and files that schedule with the commission, how much
time is given for its consideration, and are the subscribers given an
opportunity to be heard? -
Mr. ELMQUIST. In my State we would order a hearing by public
notice, published for one or two weeks in the community affected.
The hearing generally would be held at a convenient place where
the subscribers and other interested parties could be heard. Cases
can be very promptly disposed of. - -
Mr. HAMILTON. Just one more question: Subscribers always have
a certain rate, so much for a telephone in an office and so much for
the use of a telephone in a residence. Do the companies have an
understanding in the management of their business as to the per-
centage of that telephone charge that is taken to pay current ex-
penses and the proportion that goes to pay dividends? Is there a
general understanding that so much is profit and so much goes to
pay expenses; is there any such general understanding as that in
the management of the business? -
Mr. EIMQUIST. If I understand your question correctly, I would
say no. It is the duty of the regulatory commissions to see that
telephone companies secure a rate that will bring fair return upon
the value of their property. In figuring out that return they must
take into consideration all the operating expenses, lay aside a certain
amount for depreciation fund, taxes, etc. -
Mr. HAMILTON. When they install a telephone they figure that the
use of that telephone will pay the company a reasonable sum by way
Of J. or whatever you may call it. There must be a general
understanding as to how much the company is going to get out of it,
I suppose. Of course, that in the aggregate fixes the income and the
dividends. -
Mr. ELMQUIST. Telephone companies, from their experience, know
about how much it costs to iji telephones and how much it costs
to build a plant, and they know about what business they may be
expected to receive from that plant. This is an estimate which
must be made by them before rates are filed for service in any par-
ticular community or for toll rates for the whole State.
Mr. HAMILTON. The rental charge, however, expresses that ?
Mr. ELMQUIST. Yes, sir; for exchanges.
Mr. HAMILTON. In each instance 2
Mr. ELMQUIST. Yes, sir.
Mr. HAMILTON. That is all I want to ask on that.
The CHAIRMAN. You may proceed with your statement.
Mr. ELMQUIST. There can be no reasonable complaint made by
telephone companies as to the practice which prevails within the
several States. Commissions, of course, must conform to the law
within their several States, but the effort has been to adopt rules of
practice which will expedite hearings upon these cases and to give
168 RETURN OF THE WIRE SYSTEMS.
subscribers, who pay money for service, a chance to be heard upon
applications which involve increases in rates, and also to require
companies to present facts before the commissions.
I think, as a general rule, and I now express this opinion from the
experience I have had in 10 years of regulating practice, that the
greatest source of complaint, if there is any, to be made on account of
delays in orders or in any adverse decisions of commissions, can be
attributed to the companies themselves; because they frequently
come before commissions with their cases very poorly prepared and
with no reliable data upon which the commission may depend, and
yet they expect as a matter of course, or as a matter of grace and
favor, to secure their increases rather than as a matter of right and
justice depending upon the testimony introduced.
At the time the telphone companies were taken over there was a
provision in the joint resolution providing that in the operation of the
properties they should be subject to the police regulations of the
States. The joint resolution itself was silent as to the rate-making
power. The State commissions felt that the Congress had intended
that these properties should be operated subject to the police regula-
tions of the States, which include the rate-making power. Some
litigation grew out of that question. No litigation was started during
the progress of the war. The litigation did start after the armistice
had been signed, when the Postmaster General attempted to put into
effect his standard toll rates. -
The Postmaster General inaugurated a toll schedule in December,
making it effective January 21, 1919. This was a standard schedule
effective throughout the country, and made very large increases in
the rates and many changes in the practices which prevailed in the
different States. I think the fairest statement about it is this: In
figuring the toll schedule and comparing it with the toll rates that
had been charged by the companies in Montana and New Mexico we
find that this toll schedule inaugurated by the Postmaster General
was as high or higher than the rates charged in those two States.
In Montana and New Mexico we had the smallest telephone develop-
ment, the fewest number of subscribers per square mile, and the
Smallest amount of business. t º
The natural result was that this toll schedule made an increase of
all the way from 10 per cent to 140 per cent in many sections of the
country, and excited a great deal of adverse criticism.
The State commissions, feeling that the Postmaster General had
exceeded his authority, instituted in many States injunction pro-
ceedings to prevent these rates from going into effect, and at the
present time cases are pending in about 20 States. Wherever
injunctions were obtained or restraining orders secured, the Post-
master General obeyed them and did not increase rates.
The legal question involved was decided by the Supreme Court on
Monday, in favor of the rate-making power of the Postmaster
General. So that question is not now before us.
The real problem, as I gather it from the testimony of the telephone
and telegraph companies, is whether the wires shall return to private
ownership subject to some action by the Congress legalizing the rates
that have been made. That raises a very interesting question.
These properties were taken over under the war power. They have
been operated as a war instrumentality. The court has said that the
RETURN OF THE WIRE SYSTEMS. 169
Postmaster General had the right to make rates while these proper-
ties were being operated as a war instrumentality. Query: If these
properties which were taken over under the war power are returned
on the 30th day of June, do the rates made by the Postmaster General
lapse or do they extend beyond that period?
Frankly, there is diversity of opinion upon this question. It is
argued with much force that an instrumentality taken over by the
Government and operated for war purposes loses all the advantages
secured thereby when returned to private ownership. Suppose you
return these properties on June 30; what is the legal as well as prac-
tical status? I am very familiar, of course, with the law in Minnesota.
In that State only those rates which have been filed with and approved
by the commission are legal. The only rates which a telephone com-
pany can charge are those which have been published and filed with
and approved by the State commission. The rates which the Post-
master General made under Bulletin 22 were not published in that
State according to law; neither have they been approved by the local
authorities, and when these properties go back to private operation
they will be faced with two sets of rates, one made by the Postmaster
General, which has not been published according to the laws of
Minnesota, and the other, those legal rates which were charged at
the time the companies were taken over by the Government. It can
be very reasonably argued that upon the return of these properties
the rates which were in effect at the time the properties were taken
over will apply, because under the law of Minnesota a company may
not charge a rate which has not been filed, published, and approved.
Mr. DEWALT. May I interrupt you there just a moment 7
Mr. ELMQUIST. Yes, sir.
Mr. DEWALT. How does that agree with the decision of the United
States Supreme Court which says, where there is a conflict between
State authorities and Federal authorities, that the doctrine of
paramount authority should be observed, and the Federal power
being the paramount authority and the Supreme law of the land,
the local authority or charge must give way?
Mr. ELMQUIST. The Supreme Court decided this case under the
war power, and in all probability the war power ceases when these
properties go back to private operation. In other words, anything
done by the Postmaster General while he operated these properties
under the war power would naturally fall when they are returned.
Mr. MONTAGUE. In other words, the paramount power in that
case is only coextensive with the war power %
Mr. ELMQUIST. Exactly.
Mr. SIMs. Suppose the Postmaster General makes a general order
returning these wires to their owners on the 1st day of September.
In the meantime the rates made by him continue in effect. Would
he have any power to do that now without any further action by
Congress
Mr. ELMQUIST. Under the decision of the Supreme Court the rates
will be legal, at least until the return of the properties. .
Mr. SIMS. In that way rates might be continued regardless of
State commissions, if he retained legal possession but returned them
for Operation on the 30th of September, or on any other specific
date, during which interim they are in the hands of the Government,
but they would be operated in fact by their owners.
170 RETURN OF THE WIRE SYSTEMs.
Mr. ELMQUIST. Well, perhaps I do not thoroughly understand
your question. te . . . . . . . . ' ' . . .
Mr. SIMs. By the owners. -
Mr. ELMQUIST. When these properties go back on June 30, if
they do, the Government has nothing more to do with them. There-
after if Congress intends to assert any power over these telephone
companies it must be under the commerce clause of the Constitution,
and not under the war power. -
Mr. SIMs. That is for Congress to say, I take it.
Mr. DEwALT. Except possibly with one proviso, Mr. Elmquist:
Granted that the authority of the Federal Government in taking over
these properties under the war power ceases instanto with the
cessation of war, doesn’t it after all resolve itself into this question—
that except with the prima facie statement, to wit, that the Federal
power ceases to exist immediately upon the termination of war,
there must be also taken into consideration this proviso, that a
reasonable time thereafter can be fixed until such relinquishment can
take effect. How about that %
Mr. ELMQUIST. Well, as I stated in the beginning, it is a debatable
question. The State commissions, and the attorney generals with
whom we have conferred, are of the opinion that when these prop-
erties go back they become subject to the rules and regulations of
the States. We believe that anything which has or may be done by
the Postmaster General during that time can not be continued after
the properties go back.
†. DEWALT. I think prima facie that is correct, and we agree
entirely on that proposition, but after all, doesn’t it resolve itself to
the same proposition we had in the railroad regulation matter, to
wit, that although a time should be fixed and that time really will
cease on the cessation of the war, because they are taken over under
the war power, that nevertheless, as we did in the matter of the rail-
road legislation, we may provide a reasonable time thereafter for
tº: not only for the benefit of the Government itself,
but the owners of the properties, in Order to make the necessary
adjustment 7
Mr. ELIMOUIST. I doubt it. If you can fix One month as a reason-
able time, you can fix One year; and if you can fix One year as a
reasonable time, you can fix two years; and if you can fix two years
as a reasonable time, you can fix five years.
Mr. MonTAGUE. Congress can not determine the question of
reasonable time. That is a judicial question. w
Mr. DEwALT. Yes; the reasonableness of time must be left to the
courts for decision in my judgment. The Only question that there
is confronting me in this matter is, not the question as to the absolute
relinquishment of these properties at the cessation of war, but the
question as to whether or not there lies within the power of the Con-
gress the right to fix a time which they deem to be reasonable for the
return of these properties after the cessation of war, which reason-
ableness of course ultimately must be determined by the Supreme
Court. I do not know whether I state that question clearly or not.
Mr. ELMQUIST. Suppose Congress should say two years is a reason-
able time 3 - e
Mr. DEwALT. All right.
f
RETURN OF TEIE WIRE SYSTEMIS. 171
... Mr. ELMQUIST. And that all the rates which have been made by
the Postmaster General shall remain in effect during that period?
Mr. DEWALT. Yes. -
Mr. ELMQUIST. Back in Minnesota we have an exchange in the
village of Rush City, where I come from. That exchange was built
by local capital. It simply transacts business between the sub-
scribers in that little village. It does not do any interstate business,
but its central plant connects with toll lines of another company.
It is a rather far-fetched assumption to argue that Congress can
provide that for a period of two years, while that property is being
privately operated and privately maintained, the State of Minnesota
shall have nothing to do with the local rates of the company.
Mr. SANDERs of Indiana. Mr. Chairman, may I ask a question ?
The CHAIRMAN. Yes, sir.
Mr. SANDERs of Indiana. Suppose instead of fixing a definite time
of two years as suggested that the bill should provide that the rates
should stand unless and until changed by the regulatory body of a
State, not exceeding a period of, say, two years. What would you
say about the constitutionality of such a clause º That wouldn’t
interfere with the police power at all because they would immedi-
ately have authority to fix the charge and yet it would fix a limita-
tion upon the action of Congress.
Mr. ELMQUIST. Of two years?
Mr. SANDERs of Indiana. What would you say as to that %
Mr. ELMQUIST. Well, in the first place I doubt the wisdom of it.
Mr. SANDERS of Indiana. I am not talking about the wisdom, but
the power so to do.
r. ELMQUIST. I think it raises precisely the same question that
we have been discussing.
Mr. SANDERs of Indiana. Suppose we would say 60 days instead of
two years ? .
Mr. ELMQUIST. I think it involves precisely the same legal question,
but it might be that there would not be any litigation to try out the
Question of power.
The CHAIRMAN. Mr. Elmquist, in the several acts of Congress
passed during the last Congress relating to the exercise of war power,
we have put in limitations, in one case six months after the proclama-
tion of peace, and I think in one case One year after the proclamation
of peace, and in the railroad bill 21 months after the proclamation of
peace, so that all of it would seem to indicate that Congress felt that
it had the right to project war conditions over a certain period be-
yond the proclamation of peace, in order to permit of a reasonable
and fair adjustment of matters. -
Mr. MoWTAGUE. Mr. Chairman, will you pardon an interruption ?
The CHAIRMAN. Certainly.
Mr. MONTAGUE. I think you did not say all of it. I think the pro-
vision says, “a reasonable time not to exceed.” The idea, as I under-
stood it at the time, was that the declaration of the Congress to that
effect had only persuasive authority, that it was a judicial question
after all, but it would be very persuasive with the court in view of
all the circumstances. -
The CHAIRMAN. Yes; that was the language of our Federal con-
trol act.
121695–19—PT 2—5
172 RETURN OF TEIE WIRE SYSTEMIS.
Mr. ELMQUIST. I did not intend to discuss the question of power.
It is for Congress to decide whether it chooses to extend these rates
for a definite period after the return to private control.
Mr. DEWALT. I know, but it naturally comes up when you raise
the question of the authority of the various States, and you represent
these various State associations, as I understand.
Mr. ELMQUIST. Yes, sir.
Mr. DEWALT. It naturally comes up as a question to be considered
at this time.
Mr. ELMQUIST. Wéll, I have stated that the States which I repre-
sent believe that when these properties are returned the old legal
status must be resumed. --
Mr. DEWALT. Immediately?
Mr. ELMQUIST. Yes, sir; unless the commissions which are charged
with the responsibility of regulating those rates are disposed to ex-
tend them for a definite period pending investigations, and that is
exactly what many of the commissions, I take it, are prepared to do.
Mr. DEWALT. Well, that is a very frank statement.
Mr. ELMQUIST. Of course this has become rather a segregated dis-
cussion, but I am going to try to answer the question from a practical
standpoint. You asked if there would be any impropriety, I believe,
Mr. Sanders, if Congress should extend these rates two years, subject
to such orders or regulations as the State commissions might make.
This is about the way that would work out in practice: If within the
two-year period a State commission undertook to reduce a toll rate
or an exchange rate which was made by the Postmaster General, a
telephone company could, by a restraining Order or by an appeal,
succeed in tying up that Order for a period of two years anyway.
So you would find as a practical proposition that for a period of two
years after the return of these properties the rates made by the
Postmaster General under the stress of war and to take care of the
Government revenues during the war would remain the rates during
a time of peace.
Mr. SANDERS of Indiana. I do not want you to misunderstand me.
I was not suggesting that as being a wise measure, but was dealing
only with the question of validity of such a law under the war power.
Do you not think that under the war powers of the Congress that the
Congress has authority to prescribe that the rates now in effect shall
remain in effect until changed by the regulatory bodies, not to exceed
a certain time, the period of time of course being subject to review by
any court to determine whether or not it was, in fact, a reasonable
time within the war powers of Congress % -
Mr. ELMQUIST. I have answered that several times. It is a ques-
tion of very grave doubt.
Mr. DOREMUs. In event Congress should content itself by merely
arriving at the idea that the telephone lines should be returned to
their owners on the 30th of June, without fixing a date within which
existing rates should continue, but merely providing that within a
period of 30 days telephone companies must file their schedules of
rates with the various State commissions for their approval, have
you given any consideration at all to the question of whether that
would be a valid exercise of power %
RETURN OF THE WIRE SYSTEMIS. 173
Mr. ELMQUIST. Well, I think that is open to the same objection
that has been raised as to the power to extend rates for a longer
period. Practically speaking, if the Congress should say that rates
made by the Postmaster General for telephone companies should
remain in effect for a period of 30 days or 60 days, unless sooner
changed by State commissions, and to expire at that period, it would
not raise very serious legal complications, because the State com-
missions, while feeling that the Congress did not have power to take
such action, might not be disposed to litigate the question. Tele-
phone companies could appear before commissions, and file their
schedules, and a determination of the question would be left wholly
with the State commissions, and at the end of 30 ot, 60 days the rate
made by the Government under its war power would end unless the
commissions might choose to extend the same.
Mr. DOREMUs. Have all the State commissions power to regulate
telephone rates ?
*. ELMQUIST. Forty-five States of the Union have.
Mr. WEBSTER. Mr. Elmguist, to the question just propounded by
Mr. Doremus, who was asking a theoretical question, your answer as
made was a practical one; not that it conceded the existence of the
power he assumed, but that it might not become involved in a legal
controversy because in the short time covered nobody would complain.
Now getting back just for a moment, you stated awhile ago that
the power of the Federal Government to regulate these rates rested in
its war powers, and that that power would end with the war, would
terminate both in fact and in law, and that when the properties should
in fact be returned to private ownership that upon that instant those
rates prescribed by the Postmaster General would terminate. . That
would be so, would it not, not because of any lack of power in the
Congress to prevent that situation, but because of failure of the Con-
gress to exercise the power it possesses? Do you not as a lawyer think
that it is one of the legitimate functions of the Congress and within
its constitutional prerogatives, to define, within reason, of course, fol-
lowing a cessation of hostilities, both in law and in fact, that rates may
continue; and do you not also think that the Supreme Court, bearing
in mind the powers of the independent branches of the Government,
would give very great weight to a congressional definition of that
power, and would only disturb it in case it was palpably or manifestly
unreasonable? -- *.
Mr. ELMQUIST. I think the court should pass upon the question of
power. But it might, however, find some way of disposing of the
question without deciding the question of power.
Mr. WEBSTER. If you in answer to Mr. Doremus's question meant
to state that the Congress might fix a period of 30 i. then that
is an admission of the existence of the power.
Mr. ELMQUIST. I am not conceding the existence of that power;
neither am I definitely denying it. am arguing all along that it
raises a very grave question, and the State commissions and the
attorneys general with whom I have talked do not believe Congress
has that power.
Mr. WEBSTER. I am endeavoring to get your opinion. It has great
value, to my mind. I should like to know what is your opinion as a
lawyer as to whether or not the Federal Congress has any power to
continue in effect rates which depend upon its war powers after the
174 RETURN OF THE WIRE SYSTEMIS.
cessation of war, both in law and in fact, or if its powers in that con-
nection terminate with the termination of war.
Mr. ELMQUIST. I believe its powers in that matter terminate when
the properties go back. *
Mr. WEBSTER. And that it is not within the power of the Congress
to extend those rates 30 days or any other number of days?
Mr. ELMQUIST. That is my judgment.
Mr. DOREMUs. Pardon me a moment: In the case I put to the
witness, the Congress would make no attempt to fix rates for any
definite time at all. It would make no attempt to declare what was
a reasonable time within which rates should be continued. It would
merely return the wires to their owners, and would then say that
within 30 days, we will say, the various companies shall file with the
various commissions their schedules of rates. There would be no
attempt in that event on the part of Congress to say how long existing
rates should continue, but we would merely provide that within 30
days companies should file their schedules of rates with the various
State commissions for their action.
Mr. BARKLEY. May I suggest that if the Congress has the right to
compel these companies to do anything when they go back to private
ownership it has the same power to regulate rates.
Mr. DoREMUs. Well, I do not know that the Congress has any
jurisdiction at all over this question after the 30th day of June,
assuming that this committee shall decide that at that time they
shall go back to their owners.
Mr. BARKLEY. If the Congress has any jurisdiction after that time
elapses, it would have that jurisdiction under its war powers. But
if war ceases to exist in fact and in law, as to whether the Congress
has a right to project itself over these companies after that time is
another matter.
Mr. DoREMUs. That is the question.
Mr. BARKLEY. If the Congress can do that, hasn't it the right to
fix rates?
Mr. DOREMUs. Well, I have no fixed opinion on that at all.
Mr. ELMQUIST. It has been suggested by the companies that the
rates made by the Postmaster General should be legalized until
changed by competent tribunals. I think that is the language they
used before the Senate committee, and also before this committee.
Now, brushing aside the question of power for a moment, let us
look at it from a practical standpoint—
Mr. MonTAGUE (interposing). May I ask a question ?
The CHAIRMAN. Go ahead.
Mr. MonTAGUE. That is, that the war power used may be legalized
under the commerce clause of the Constitution?
Mr. ELMQUIST. If you do anything after the properties go back
to the private owners I should think it would have to be under the
commerce clause of the Constitution.
Mr. MonTAGUE. Whatever power is exercised, in your opinion,
must be under the commerce clause of the Constitution ?
Mr. ELMQUIST. Yes, sir.
Mr. MoWTAGUE. That is all I care to ask.
Mr. ELMQUIST. What would be the result if you legalized these
rates until they might be changed by competent tribunals? A
State commission might choose to reduce a rate made by the Post-
RETURN OF THE WIRE SYSTEMS. 175
master General involving tolls; or a State commission might Order
a reduction in the exchange rates which the Postmaster General
has inaugurated in many States in the Union. Immediately the
companies could by restraining orders, or by other legal process,
attack the matter in the lower courts, and then Carry the case on
to the supreme court of the State and the United States Supreme
Court, and in that way tie up the effort of the public authorities to
reduce these rates until the question were finally passed on by the
United States Supreme Court. In that way they could get the
benefit of the rates made by the Postmaster General during a long
period of time after the properties are back in the hands of private
owners. If the Congress shall attempt to project the rates made
by the Postmaster General beyond the return period, it must fix a
definite period when those rates will expire, unless otherwise ordered
by the State commissions. Otherwise there will be long continued
litigation, and Congress will be severely criticized for legalizing the
particular actions of the Postmaster General which have given rise
to such widespread protest.
The CHAIRMAN. Your idea would be to make it definite.
Mr. ELMQUIST. If you are going to do it at all, it must be for a
definite period of time.
The CHAIRMAN. It was argued here yesterday that if we left it for
an indefinite time it would stimulate action on the part of the several
communities in getting action from their respective regulating bodies 7
Mr. ELMQUIST. Their responsibility is fixed by the laws of their
States. They understand what the people need, and they know very
well what the companies should have, and you may rely upon the
State commissions and other regulatory bodies being just both to the
public and to the companies.
Mr. DENISON. I would like to get your idea about what that time
Ought to be, in your judgment, in case Congress decided to fix a defi-
nite time. Now, I have this idea in mind: If you put it 30 or 60
days, would not the tendency of the State commissions be to simply
remain inactive, knowing that the rates will go back to the old rates
at that time, without any action on their part, and they, being gen-
erally pretty busy, the tendency would be to remain inactive and
not worry over it. Whereas, on the other hand, if you put it as much
as 12 months or more, they might be disposed to act quickly. I
would like to get your idea on that, if you have any that you care
to express.
Mr. ELMQUIST. I do not think that that would stimulate or retard
action by State commissions. You may depend upon it that State
Commissions fully appreciate the advanced cost of labor and of ma-
terial, and if the facts are presented to them in a cogent manner they
can be depended upon to promptly give such relief as the companies
are entitled to receive.
All during the war the commissions had been doing nothing else
than increasing gas rates and electric-light and telephone rates, rail-
road rates, and everything of that kind, because they have known
that you can not maintain the old charge while the operating costs
Vastly increase. The public can not secure efficient service when
companies are operating with a deficit. -
176 RETURN OF TEIE WIRE SYSTEMIS.
Mr. DENISON. Do you think anything should be done by Congress
or could be done by Congress to hasten action by the various State
regulatory bodies? g
Mr. ELMQUIST. There is no way that you can hasten action by the
various regulatory bodies. Within their jurisdiction they are su-
Te] ſle.
p Mr. DENISON. What I mean by “hastening their action” was make
them alive to the situation.
Mr. ELMQUIST. If there is an emergency the States will act
promptly. If the telephone companies go before the commission
and show that they really have got to have additional money in
order to pay their operating expenses and fixed charges, there is no
question but what the commissions will give them that money.
That is their obligation under the law. Of course, the commissions
owe a duty to the public also.
Mr. WEBSTER. Mr. Denison, may I ask this question ? Your sug-
gestion was that if this matter was left for some period of time and a
definite time fixed beyond which it might not continue, whether
that would not put a premium on inaction by various State regu-
latory bodies?
Mr. DENISON. Yes.
Mr. WEBSTER. That they would merely sit by and wait for the
time to expire and the rates to drop back?
Mr. DENISON. That would occur if we put the time 30 or 60 days.
Mr. WEBSTER. Would it necessarily be so under no limit of time :
Is it not the proper presumption for this committee and Congress to
make that regulatory bodies of a State are going to discharge their
duty and that they are going to be sensitive to the rights of the
public concerned as they are to rights of utilities concerned, and that
they could not consistently set back and permit this lapse to occur;
that it would devolve upon them the active duty in order to avoid
injustice to the utility companies themselves.
Mr. DENISON. That would be true, and they might have other
duties to perform, and they would prefer to let time take its own
course if they would get quick enough action that way.
Mr. WEBSTER. It has been my experience that public-service bod-
ies are pretty high-class bodies, and that they are actuated in the
discharge of their duties by the highest motives, and that they are
just as careful in dealing with the rights of the public-utility corpora-
tion as they are to preserve the rights of the public itself?
Mr. DENISON. Yes.
Mr. WEBSTER. If that is so, the fixing of this time would not
stimulate the regulatory body toward inaction. The very fact that
a definite time is left and that a definite result will follow in the failure
of action on their part would induce a proper regulatory body to take
immediate action.
Mr. DENISON. In that connection
The CHAIRMAN (interposing). Do not let this be controversial,
because we are trying to elicit information from the witness. We
can take these things up in executive session. I mean make that a
matter of suggestion to the members of the committee, and not for the
Pº of curbing any member of the committee.
Mr. ELMQUIST. There is nothing in the history of the commissions
during the last 15 or 20 years which will invite the suggestion that
they will unduly delay or embarrass companies by any of their action.
RETURN OF TELE WIRE SYSTEMIS. 177
Mr. DENISON. My statement was made purely because of the state-
ment made by other witnesses. I have not had any experience before
commissions, but it has been stated here that ordinarily where a
State commission is called upon to fix a rate they must make an
investigation, and then in some States that investigation must be
based upon inquiry as to the valuation, and it has been hinted that
that frequently takes months and months to do that. In view of
that fact, if that is true, would not the tendency be for the commis-
sions to let the matter go for 30 days when it would adjust itself
rather than begin an inquiry which might take Several months?
That is the reason why I made the inquiry.
Mr. ELMQUIST. I do not think that would be the tendency. I
think they will discharge their duty as the law requires.
Mr. DENISON. If we do not pass any law the wires will go back to
the owners automatically according to the resolution taking them
over, without reference to whether it is the end of the month or the
middle of the month. But none of us can tell when that will happen.
The public are anxious that the wires be returned and Congress seems
to be more anxious than anybody else. The war power would exist
until the proclamation of peace was declared. Do you not think it.
is a little unwise not to try to do something in advance of what is
absolutely certain to come about 7
Mr. ELMQUIST. You have mentioned the thought I was just going
to present. With reference to the extension of these rates 30 or 60
or 90 days, which has been suggested by a number of witnesses. In
my judgment that suggestion is merely a rule of convenience.
Upon the return º the wires, the company could go before the
State commissions and present such facts or suggestions as they
have to offer. The State commissions could determine those ques-
tions in their own way. It might stabilize rates, business, and Securi-
ties, although the Bell Co. does not need to have its securities stabil-
ized. Many of the large independent companies are in good financial
condition. It might remove the uncertainty that would exist for a
short time, and perhaps do away with any possible litigation which
might grow out of the status of those rates upon the return to private
ownership. If Congress in its judgment thinks there should be a
period of 30 or 60 days just to tide over that period of uncertainty,
in my judgment it will not involve any litigation, if the Government
rates expire at that time, unless approved by local authority. If you
decide to extend those rates for a period of 30 or 60 days, the language
of the bill should definitely state that at the end of that period the
rates made by the Postmaster General should expire, unless they
have been otherwise modified by the State regulating commissions,
because you do not want to have any legal questions growing out of
the status of those rates after that period.
The CHAIRMAN. How many States are there in like condition as
the State of Minnesota, where no rate is legal unless it has been
properly filed and notice given and approved 7
Mr. ELMQUIST. I think most of the States, Congressman Esch.
That is a sort of a general regulatory provision.
Mr. HAMILTON. Will you insert in the record, Mr. Elmquist, the
language which you suggested might be inserted in the bill as
reported 3 -
178 RETURN OF THE WIRE SYSTEMS.
Mr. ELMQUIST. I will prepare such language and submit it to the
committee.
Mr. HAMILTON. Very well. What I meant to ask was whether you
could, as a part of your remarks, when you come to revise your re-
marks, incorporate the suggestion you desired to make in that con-
nection. -
Mr. ELMQUIST. I will do that.
(The statement referred to was subsequently furnished by Mr. Elm-
quist and is here printed in full, as follows:)
Mr. ELMQUIST. Another suggestion is also before the committee.
I notice that the Senate committee has amended the Kellogg bill so
as to provide for the extension of the toll rates for a period of 60
days unless otherwise or sooner changed by the regulating com-
missions.
That does not continue the exchange rates. The toll rates are but
a small per cent of the total business of the companies within the
country. It occurs to me, gentlemen, that if Congress is going to
exercise its power to continue rates for a period of 30 or 60 days
unless sooner changed by commission, it ought to apply to exchange
as well as toll rates. In other words, Congress should not select the
A. T. & T. Co., which does most of the toll business, and give it any
advantage which it does not extend to the other companies in
exactly the same way. Congress Ought not to engage in any dis-
crimination. -
Mr. SIMs. The war power is the only power under which the Post-
master General has acted or can act as to intrastate companies doing
an intrastate business.
Mr. ELMQUIST. Yes, sir.
Mr. SIMs. How can Congress, then, make a valid law to extend
beyond the period of actual termination of the war?
Mr. ELMQUIST. I have stated that, in my judgment, Congress can
not do it. But I am saying that if Congress chooses to exercise that
power, if it claims to have it, then it ought to be for a period of not
to exceed 30 or 60 days and ought to apply to exchange rates as
well as toll rates.
Mr. MonTAGUE. In other words, that would be a situation where
they would not pay any attention to it?
Mr. ELMQUIST. Yes.
Mr. MONTAGUE. If the proclamation came in advance of that day,
then this period would end.
Mr. ELMQUIST. Yes. Upon that question I thought it prudent to
Send out a telegram to quite a number of State commissions inviting
an expression of their opinion. I have received quite a number of
replies. Some of them do not object to a continuation of these rates
for a period of 30 or 60 days so long as it is definitely determined in
the bill that they shall end at that time unless otherwise changed by
the State commissions 2 A number of others say that such legislation
is wholly unnecessary, because they are in position to deal promptly
with any question that is presented. My own judgment, based not
only on my own experience but upon conversations and communi-
cations which I have had with most all of the regulating commissions
of the country, is that the telephone companies have nothing to fear
from the action that may be taken by any of the regulatory com-
IillSSIOI)S. - -
RETURN OF THE WIRE SYSTEMIS. 179
With reference to the return period, your chairman's bill calls for
the return on the 31st day of July, 1919. Our national association,
which met in November, passed a resolution unanimously calling on
the President to return the wires as soon as the military emergency
had passed. In our judgment that ended with the signing of the
armistice, and the wires should be returned. The executive com-
mittee of our association in February addressed a letter to the Presi-
dent in which it asked him to return these wires not later than June
30. So I am expressing the wish of the commissions all over the
country, and I feel I am also expressing the very strong and pro-
nounced sentiment of the people of the country, in asking for the
return of these wires not later than June 30.
The CHAIRMAN. I will state that I have no objection whatever to
shortening the period by a month.
Mr. ELMQUIST. That concludes my fragmentary statement.
Mr. SANDERS of Indiana. In your opinion, about what length of
time would be required for the State regulatory bodies throughout the
lººd States to act upon the rate question after the passage of the
| ?
Mr. ELMQUIST. You ask a very difficult question. For instance,
take my State: There are 1,836 telephone companies. Suppose that
the Postmaster General should increase the rates of all of the exchanges
in the State of Minnesota. That would involve a great many corpora-
tions. The rates within the different cities and villages differ accord-
ing to the investment in the plant, the number of subscribers, and the
character and the standard of the service. Manifestly, if the com-
mission should undertake a serious investigation into the reasonable-
ness of the rates that were being charged within all of the villages and
cities of the State of Minnesota, it would take considerable time. If
you are going to hold a hearing you must give all parties an oppor-
tunity to be heard and to present their testimony, to make their
arguments, and, if thought necessary, to file their briefs. A hearing
must be a complete hearing if it is to be just and to enable the regu-
lating commission to make an order which will stand the test of the
COUrtS. * -
In considering the question before you no thought should be given
to the length of time which State commissions will be likely to
employ in hearing and determining all these rate questions. You are
dealing with an emergency proposition. And you must assume that
State officers will discharge their public duties according to the law
and the facts. -
Mr. SANDERS of Indiana. About what length of time do you think
that would require for the thousands of companies?
Mr. ELMQUIST. Oh, I think, as a matter of convenience, if the
telephone companies had 60 days in which to present those applica-
tions and iron out their little difficulties, it would be ample.
As a matter of fact, the telephone properties as a whole are not
hurt; and when they go back to private operations they will effect
economies which will enable them to operate more cheaply than
during Government control.
Mr. SANDERS of Indiana. Assuming we have the power to fix the
period of time, do you think the period of time ought to be about
such period as would reasonably be required for action by the State
regulatory bodies or the municipal regulatory bodies? --
180 RETURN OF TEIE WIRE SYSTEMIS.
Mr. ELMQUIST. For an emergency action ?
Mr. SANDERs of Indiana. Yes.
Mr. ELMQUIST. Not a complete hearing of a rate case. An emer-
gency petition can be disposed of in 30 or 60 days.
Mr. SANDERs of Indiana. In other words, by taking over the
wires we have created a situation so that the telephone companies
under the recent decision had no power to apply to the several
State commissions; they have no power; have pending now before
the several regulatory bodies petitions for advancing rates. Having
created that situation, do you think that, assuming that we have
the power to do so, the period fixed ought to be such period as would
reasonably permit the determination of this emergency question by
the several regulatory bodies?
Mr. ELMQUIST. In my own judgment, the telephone companies do
not need that extension of time, but if you do conclude to fix that sort
of an emergency period, it Ought not to extend beyond 60 days.
Mr. DEWALT. We have been speaking here, and you have directed
your remarks mainly to the effect that such remedial legislation and
fixing of the time limit would have upon these various companies or
individuals who own these telegraph and telephone lines.
Now, there is another interest, in my judgment, which ought to be
considered, and that is the interest of the public. I think you stated
that in one of the States these telephones rates had been increased
100 per cent; is not that correct 7 -
Mr. ELMQUIST. I say the increase has varied from 10 to 140 per cent.
Mr. DEWALT. If this time is to be extended, say, six months or a
year, and these rates as fixed by the Postmaster General are to con-
tinue, then we are confronted with this position: That the public is
ºbliged to continue the payment of these increased rates; is not that
SO %
Mr. ELMQUIST. Yes, sir.
Mr. DEWALT. I think you have also stated that prior to the taking
over of the lines by the Postmaster General, increasing these rates,
that all these companies, with the exception possibly of a few of the
minor lines, were upon a paying basis º w
Mr. ELMQUIST. Yes, sir.
Mr. DEWALT. And that they had money laid aside to the extent of
$5,000,000 in one year; is not that correct 7
Mr. ELMQUIST. The A. T. & T.; yes, sir.
Mr. DEWALT. To your mind is not that a very persuasive argument
why this time should be very limited as to the continuation of these
rates established by the Postmaster General?
Mr. ELMQUIST. Certainly.
Mr. DEWALT. So that the public interests, after all, is being con-
sidered; is it not ? sº
Mr. ELMQUIST. Yes, sir.
Mr. DEWALT. There is another statement that you made that I
Want to inquire about a bit: You said that all of these lines were
prospering under the regulatory powers of these various States and
municipalities, and the figures that you read convinced me that that
is a fact. From your experience and observation, do you believe the
regulation of the power of the regulatory commissions by Congress,
in so far as this interstate business is concerned, would be beneficial or
harmful to the public with reference to rates?
RETURN OF THE WIRE SYSTEMS. 181
Mr. ELMQUIST. Speaking solely from the public standpoint %
Mr. DEWALT. That is the thing I want. *
Mr. ELMQUIST. I do not think it will be injurious to give to the
Interstate Commerce Commission power to control the interstate
rates of telephone companies. As far as the unification of service is
concerned, that practically exists to-day, because most of the tele-
phone companies connect with other telephone companies, and the
subscriber in one section of the United States can talk to a subscriber
in another part of the United States, and you have practically a
unified system between the telephone companies of the country.
Mr. DEwALT. One more question, and then I have finished. Of
course, we are all more or less governed by the human equation. In
the process of your argument, as the attorney for these various State
jº commissions, was there in your mind at all any jealousy
existing between these State authorities and this Federal control by
the Postmaster General; that is, did there arise in your mind the
question of State rights and supremacy of the power of the State in
local matters as against the paramount authority of the Federal
Government'.
Mr. ELMQUIST. Not at all. At the time that the wire resolution
was before Congress there was no protest from a single State com-
mission over the exercise of the power of the Federal Government 8,S
a war measure over these wires. The resolution, however, provided
that the exercise of that power should be subject to the police regu-
lations of the States. T. State commissions are charged with a
responsibility created by their own laws, and they thought that Con-
gress had expressly reserved to them the rate-making power. Hence,
after the armistice was signed and the Postmaster General inaugu-
rated a standard schedule of toll rates which very greatly increased
the rates throughout the country, the State commissions then felt it
was time for them to assert the power which had been left with them
under the joint resolution passed by Congress, a power reserved by
the tenth amendment. There is no jealousy involved at all.
Mr. DEWALT. Is not that basis incorrect, too, for this reason, that
the Federal Government has no police power except as is granted to
it by the States, and that all other police powers that are not specially
granted by the States are reserved by the States themselves?
Mr. ELMQUIST. Yes, sir. The Director General has increased the
rates, State as well as interstate, and done a great many things which
invaded the acknowledged powers of the commissions. But during
the whole period of the war there was not a single State commission
that questioned the exercise of that power. They were devoting
their energies and their time to winning the war just as well as any
Federal officer.
Mr. Bankºry. Do you consider the fixing of rates as a police
power -
Mr. ELMQUIST. The courts have frequently decided that question
in the affirmative. In the Union Dry Goods case, decided in January
of this year, the United States Supreme Court decided that the police
power included the rate-making power. -
The CHAIRMAN. That applies only to intrastate 3
Mr. ELMQUIST. Yes, sir.
182 RETURN OF TEIE WIRE SYSTEMIS.
\
The CHAIRMAN. The committee will now take a recess until 2
o'clock, and I wish to place in the record telegrams received from
the State commissions of Nebraska, Illinois, and also the State of
Oklahoma.
(The telegrams directed by the chairman to be inserted in the
record are here printed in full, as follows:) -
OKLAHOMA CITY, OKLA., May 27, 1919.
Bon. JoBN J. EscH,
Member of Congress, Washington, D. C.:
This commission and people of Oklahoma emphatically favor immediate return of
wire properties to owners with control by State commission Federal control to date.
has been accompanied by higher rates and poor service; all local telephone business
and 98 per cent of long-distance calls are intrastate and in the province of State
control; State commission understands local conditions and can best deal with Com-
plaints with fairness to both companies and customers. {
CoRPORATION COMMISSION OF OKLAHOMA,
ART L. WALKER, Chairman.
LINCOLN, NEBR., May 27, 1919.
Eſon. JoBN J. EscEI,
House of Representatives, Washington, D. C.:
Relative to Postmaster General’s statement that State-made telephone rates are
inadequate, all existing rates in Nebraska are prescribed by this commission; there
is no complaint on the part of any company as to adequacy of rates for all purposes;
have a few now pending upon application for increase and which will be acted upon
in usual manner within 60 days; advances in rates have been allowed in last 12 months
by this commission covering 70 per cent of all stations owned in Nebraska by com-
mon-carrier companies; public sentiment in this State positively and overwhelmingly
against Federal regulation of intrastate rates and in favor of immediate return of wires
to their owners.
NEBRASKA STATE RAILWAY COMMISSION.
- SPRINGFIELD, ILL., June 2.
Hon. J. J. Esch,
Committee on Interstate and Foreign Commerce, Washington:
Referring to letter Postmaster General to Hon. John A. Moon, formerly chairman
House Committee on Post Offices and Post Roads, suggesting remedial legislation
before return of telephone and telegraph wires, Public Utilities Commission of Illinois
respectfully urges immediate return without remedial legislation; conditions in Illi-
nois do not justify contention telephone and telegraph companies have suffered in
their revenues by action of State commissions; fear expressed by Postmaster General
that bankruptcy will follow return without remedial legislation safeguarding rates
is groundless.
T. E. DEMPSEY, Chairman.
OFFICE OF CORPORATION CoMMISSION OF OKLAHOMA,
º Oklahoma City, Okla., May 27, 1919.
Hon. JoHN J. EscH, M. C.,
Washington, D. C.
DEAR SIR: To-day we telegraphed you as follows:
“The commission and people of Oklahoma emphatically favor immediate return of
wire properties to owners, with control by State commission. Federal control to date
has been accompanied by higher rates and poorer service. All local telephone busi-
neSS and 98 per cent of long-distance calls are intrastate and in the province of State
control. State commissions understand local conditions and can best deal with com-
plaints with fairness to both companies and customers.”
RETURN OF TELE WIRE SYSTEMS. 183
In regard thereto will say that the attitude of the public of Oklahoma and this com-
mission is decidedly in favor of the return to owners of all wire properties as quickly
as possible and without the so-called “protective legislation” or the vesting of rate-
making powers in the Interstate Commerce Commission.
The experiment of national versus State control has been tried. It has been a
failure in Oklahoma. Its results have been higher rates and inferior Service.
The commissions are especially qualified to control telephone business, because it
is preeminently an intrastate affair. In Oklahoma all of the local business and 98
per cent of the long-distance business is intrastate. The remainder is negligible.
The various analyses of conditions made by order of Burleson are not representative
of State conditions. They never will be. Individual complaints from every section
of a State receive prompt attention from a State commission, which understands local
conditions. Such complaints would probably receive little consideration from a
central board, and with the best intentions it would be impossible for Such a board
or their subordinates to understand local conditions in every section of each of the 48
States.
The companies will not suffer by return to the control of State commissions. Numer-
ous rate adjustments were made by the State commissions prior to and during the
period of Burleson control.
Continuance of central control through proposed “protective legislation” would
be unfair to the public. Prompt return to State control is fair and equitable for both
corporations and public.
Yours, very truly,
ART L. WALKER, Chairman.
(Thereupon, at 11.45 o'clock p. m. the committee took a recess
until 3 o'clock this afternoon.)
AFTER RECESS.
The CHAIRMAN. We will hear Mr. Koons.
STATEMENT OF HON, JOHN C, KOONS, FIRST ASSISTANT
POSTMASTER GENERAL.
Mr. KOONs. Mr. Chairman and gentlemen of the committee, I will
take but a few minutes of your time, as I think the matters in which
the committee are mostly interested have been covered by the
witnesses who have preceded me.
In beginning, I want to say that personally I am not connected or
interested in any way in any of the companies, or with any of the
State commissions. I do not look at the question from the stand-
point of the Bell or the independent companies, or the Western
Union or the Postal nor the State utilities commissions, but simply
as a question of service to the public and justice to the owners of
the properties.
There are two matters before the committee, as I see the gist of
the testimony. One is the question of the return of the properties;
the other the question of legislation, if any shall be enacted before
their return.
Now, as to the return of the properties, I do not think there is any
difference of opinion. We are perfectly satisfied to have the prop-
erties returned and returned at the earliest possible moment. I
think they should be. Of course, the question naturally arises in
your minds, why did we not return them several months ago if that
was true? We have felt that because of changed conditions since
184 RETURN OF TEIE WIRE SYSTEMIS.
the Government took over the operation of these properties that it
would be unwise and unfair to return them without some legislation
and without giving Congress an opportunity to enact such legislation,
and I further think that the date of the return should be determined
at the earliest practicable moment. *
For instance, if these properties are to go back on the 30th of
June, or sooner, I think the companies should know it at the earliest
possible date, so they can set up their operating Organizations and
take steps to operate the service without any interruption when it is
turned back.
So that so far as the return of the properties is concerned I do not
think it necessary to even discuss it. f think everybody is agreed
that they should be returned, and returned promptly. In order to
assist in any way that we can in the matter of legislation, I will be
pleased to give you the benefit of our experience in operating these
properties; also what we think should be done in their return. And
i is simply from the standpoint of service to the public that we do
this.
In the first place, there has been a great deal said as to the neces-
sity of taking over these properties by the Government. I do not
know what was in the mind of this committee or the committee that
passed on this question or in the minds of the Congress at the time
the resolution of taking over the properties was passed. I do not
know what was in the mind of the Éjº or what facts were
before him, at the time that the properties were taken over.
But the country was engaged in war, and because of some facts
that have recently come to us as to the result of an investigation
by a post office inspector, a copy of whose report I want will put in
the record, the actions in my opinion of the Postal Telegraph Co.
alone in the handling of Government business out of the Capital City
and other places in the United States at the crucial period through
which this country was passing, justified the taking over of these
properties, because had other wire systems assumed the same attitude
in the handling of Government business and handled it in the same
way, it would in my judgment have absolutely strangled this Govern-
ment in the conduct of the war.
Government business, as you know, because of privileges granted
the companies, is handled at a special rate, which is about 41 per cent
of the commercial rate. That rate is fixed by the Postmaster General,
under a law that has been on the statute books for years. During
peace times it is not a large Volume of business compared with the
entire business. But in time of war it became a tremendous amount
of business, and it was of the greatest importance. These rates were
fixed on account of concessions that were granted the telegraph com-
panies in the early days and the rates that were in effect on Govern-
ment business until the recent increase were the same that have been
in effect, so far as I know, for years and years. It has always been
the policy to divide Government buisness equally between the two
ºpºnies because we have felt that each one should carry its burden
Of it.
RETURN OF TEIE WIRE SYSTEMIS. 185
(The inspector's report submitted by Mr. Koons is here printed in
full as follows:)
BosT OFFICE DEPARTMENT,
OFFICE OF INSPECTOR,
Washington, D. C., May 10, 1919.
Subject: Washington, D.C.: The Postal Telegraph-Cable Co. (Case No. 38061–C.)
The chief inspector: -
The above numbered case relates to the Postal Telegraph-Cable Co. at Washington,
D. C., to ascertain if both the past and present conduct of the office relative to service,
treatment of employees, money matters, etc., is all that it should be. I have to report
personal investigation cencerning these subjects at Washington, D. C., concluded
this day, and, for primary consideration, present a general comparison of the business
transacted at the Washington offices of the Postal Telegraph-Cable Co., and the
Western Union Telegraph Co., as follows:
For years ended Mar. 31, 1917, 1918, 1919, respectively.

Postal Telegraph. Western Union.
Tolls.
1917 1918 1919 91.17 1918 1919
Commercial------------------- $86,046 $133,221 $178,367 $372,896 $870,919 $986,356
Government.----------------- 41,863 132,479 122,745 219,366 | 1,074,467 1,505,941
Press-------------------------- 3. 2,477 y 20, 111 13,739 11,83
Total.------------------ 132,433 268, 177 304,355 612,373 1,959, 125 2,504,134
Cables:
Land tolls----------------. 48,787 72,466 93,780 ------------|------------|------------
Commercial Ocean......... 388,867 313,093 428,483 259,373 510,335 746,445
Government Ocean. . . . . . . . 100,307 244, 260 482,096 90,572 333,324 1, 191,284
Total.------------------- 537,961 629,819 | 1,004,359 349,945 843,659 1,937,729
Outside Government... . . . 32,331 139,017 | 1271,746 322,697 | 1,268,285 || 2 2,335,313
TeSS--- - - - - - - - - - - - - - - - - - - - 11,071,769 | 16,329, 738 8,828,067 | 16,827,930 | 19,010,370 18,097,830
1 Estimated 10 months reported. 2 Estimated 11 months reported.
1. Commercial.
ton, D. C.
2. Government.
Washington, D. C.
3. Press. Received and paid for at press rates, Washington, D. C.
4. Land tolls. Outgoing ś (at 3 cents per word) and Government cables
at 1 cent and 2 cents per word.
5. Commercial ocean. Postal Telegraph: Ocean tolls at commercial rates to con-
necting lines. Western Union: Land and ocean tolls at commercial rates to connecting
lines.
6. Government ocean.
necting lines.
necting lines.
7. Outside Government. Government business between offices of these systems
outside of Washington, D.C., which is forwarded to Washington to be billed and col-
lected from the different departments.
8. Yº of press sent collect to home newspapers by correspondents at Washing-
ton, D. C.
Various percentage combinations can be obtained from the figures here shown.
The general understanding and working agreement is to the effect that Government
business shall be equally divided between the Western Union and the Postal Tele-
graph, but, in practical results, this is not the case, as the Western Union actually
handled from 5 to 12 times as much Government telegraph business, in and out of
Washington, D. C., and from 8 to 10 times as much Government business through
offices outside of Washington, D. C., as did the Postal Telegraph during the three
years shown.
Incoming and outgoing telegrams collected full rates at Washing-
Incoming and outgoing telegrams collected Government rates at
Postal Telegraph: Ocean tolls at Government rates to con-
Western Union: Land and ocean tolls at Government rates to con-
186
RETURN OF THE WIRE SYSTEMIS.
For the year ended March 31, 1919, the Western Union handled more than double
the amount of “words of press sent collect” compared with the business of the Postal
Telegraph for the same period.
And, for the year ended March 31, 1919, the Western Union handled almost double
the amount of Government business by cable, in and out of Washington, D.C., than
the total commercial and Government business of the Postal Telegraph at Washington-
D. C. -
The actual comparison of commercial and Government telegraph business at Wash-
ington, D. C., and outside of Washington, D. C., is more clearly shown by months
selected from the period considered:

Postal Telegraph. Western Union.
Months. C G C G
ODOIſleI'- OWeIIl- - - ODDIOOleI'- OWOIIl- -
Cial. Iment. Outside. cial. ment. Outside.
April, 1916-------------------- $9,943 $2,780 $1,943 $30,002 || $14,151 $20,587
October, 1916. . . . . . . . . . . . . . . . . 7,423 3,027 2,938 27,069 20,619 28,338
}º::::::::::::::::::: 1;| ##| |&#| ###| ###| ||..}}
October, 1917................. ió,354 11.7% iššii 78.256 $7,33 iii.6%
January, 1918. . . . . . . . . . . . . . . . . 13,021 17,533 13,837 90, 120 112,277 129, 170
Pebruary, 1918. . . . . . . . . . . . . . . . 12,706 30,992 11,978 82,637 222,385 104,934
}º:::::::::::::::::: ##| ##| ##| ##| ##| #
October, 1918...............I. 17.75 ii.7% 31,514 114,156 išč, ći 315,650
November, 1918. . . . . . . . . . . . . . . 14,684 9,666 26,530 89,631 171,658 255, 186
December, 1918. . . . . . . . . . . . . . . 13,558 10,305 19,317 79,253 147,254 169,862
January, 1919. - - - - - - - - - - - - - - - - 12,090 9,286 15,946 61,481 94,887 107,837

From July, 1917, to and including March, 1919, the Government business in and
out of Washington, D. C., greatly exceeded each month the amount of commercial
business in and out of Washington, D. C., by Western Union. -
From April 1, 1916, to March 31, 1919, there were only five months when the Gov-
ernment business in and out of Washington, D. C., exceeded the commercial business
by the Postal Telegraph. -
For the three years ended March 31, 1917, 1918, 1919, respectively, the per cent of
commercial, Government, and press, at Washington, D. C., is shown as follows:

Postal Telegraph. Western Union.
1917 1918 1919 1917 1918 1919
- Per ct. Per ct. Per Ct. Per Ct. | Per Ct. Per Ct.
Commercial-...---------------------------------------- 64. 9 49. 7 58.6 60. 9 44. 5 39.4
Government------------------------------------------ 31, 6 49.4 40.3 35.8 54.8 60. 1
TeSS-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3.5 .9 1.1 3.3 ... 7 . 5
-100 100 100 100 100 100
Commercial rates.—Minimum, 10 words, 25 cents; additional, 2 cents. Maximum,
10 words, $1; additional, 7 cents.
Government rates.—Minimum, 20 words, 15 cents; additional, 1 cent. Maximum,
20 words, 40 cents; additional, 2 cents.
Press rates.—Minimum, one-fourth of 1 cent per word; maximum, 2% cents per
word.
Government cable rates.—50 per cent of commercial rates to connecting lines.
The Government cable rate is 50 per cent of the commercial rate, and the Govern-
ment telegraph rate is stated to be about one-third of the commercial rates.
The
comparison of business on a percentage basis is, therefore, from the financial stand-
point, Subject to the ratio between the commercial and the Government rates.
For the year ended March 31, 1919, the Government business of the Western Union
was 60.1 per cent, an increase of 24 per cent over 1917, whereas the Government busi-
ness of the Postal Telegraph was 40.3 per cent, and increase of 9 per cent over 1917.
RETURN OF THE WIRE SYSTEMIS. 187
For the year ended March 31, 1917, the percentage of business, commercial, Gov-
ernment, and press, at Washington, D. C., carried by the Postal Telegraph and by
the Western Union was practically the same.
I’OStal Westernſ
Telegraph. Union-
April, 1916---------------------------------------------------------------------- 176 374
November, 1916----------------------------------------------------------------- 1.59 379
July, 1917----------------------------------------------------------------------- 209 687
January, 1918------------------------------------------------------------------- 219 1,079
July, 1918. . . . . . .... - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 240 1,307
March, 1919--------------------------------------------------------------------- 203 872
The outside Government business of the Postal Telegraph for the year ended March
31, 1917, was $32,331; for the year ended March 31, 1919, $271,746; an increase of
$239,415.
The outside Government business of the Western Union for the year ended March
31, 1917, was $322,697; for the year ended March 31, 1919, $2,335,313; an increase of
$2,012,616. -
For the year ended March 31, 1917, the total land and cable tolls of the Postal Tele-
graph on cable business at Washington, D. C., were $537,961; of the Western Union,
$349,945. -
For the year ended March 31, 1919, the total land and cable tolls of the Postal
Telegraph on cable business at Washington, D. C., were $1,004,359; of the Western
ºn. $1,937,729, of which amount $1,191,284 was for Government land and cable
tolls.
To meet the exceeding large increase in business from commercial and Government
telegraph tolls, cable tolls and the accounting work of Government business outside of
Washington, D. C., both the Postal Telegraph and the Western Union were required
to obtain and employ additional help in all branches of the service.
Submitted herewith are sheets showing in detail the number of persons employed,
with monthly compensation, exclusive of messengers, in different months during
the period under consideration. In brief, the total number of persons employed in
all departments and branches of the two companies, exclusive of messenger service
at Washington, D. C., is shown as follows:
From November, 1916, to July, 1918, the Postal Telegraph had increased the working
force at Washington, D. C., by 50 per cent.
During the same period, the Western Union had increased the working force at
Washington, D. C., by 244 per cent.
The small increase of force on the part of the Postal Telegraph was probably due to
two causes, to wit: First, lower salary ratings than were being paid by the Western
Union; second, lack of desire to handle the lower paid Government business.
From March and April, 1917, the conditions in the office of the Postal Telegraph were
inefficient, to say the least, as shown by letter of April 28, 1917, from Mr. G. M. Foote,
manager, to Mr. C. E. Bagley, Superintendent, Philadelphia, Pa., in part, as follows:
“The conditions instead of growing better are growing worse because the demands
in other telegraph departments are increasing just as rapidly as ours. No desirable
men have applied to us for positions. We have employed every applicant irrespec-
tive of his desirability. They work a short time and then quit. Last night two oper-
ators who have been with us for perhaps 10 days, quit. I asked them what the trouble
was. They stated that they would not work here for $85 when they could go to New
York and other big cities and get $95 to $100. When first-class men, who liave been
in our service for years, like Operators Spicer, Mattox, Bailey, and Jones, leave our
Service to enter Government telegraph service, it indicates the cause, namely, the
. is too low. Yesterday the Government offered one of our operators $100 per
month.
“The attached telegrams from Mr. Whalen show you the conditions here. It is an
impossibility to man the circuits as called upon, notwithstanding the fact that we are
carrying out the very plan suggested in Mr. Whalen's second telegram. On receipt
of these, I talked with Mr. Whalen on the wire, and explained the conditions to him,
and he very promptly told me that there was no shortage of men in New York, that he
was turning them away daily, and that if we could not get the men, there was something
wrong in Washington. The fact of the matter is we are working our night men through
in the day as long as they can stand it and our day men as late at night as they can
stand.”
121695–19—PT 2—6
I88 RETURN OF TEIE WIRE SYSTEMIS.
This letter was followed by confidential note to Mr. Bagley May 9, 1917, as follows:
“The men we are picking up and being sent to us from New York at $85 are the
rummies and rowdies who have been here time after time, getting drunk and leaving.
Some of them have been locked up for being disorderly on the street. Branch Man-
ager Darr of Post Corridor has just been in to see me. Tells me that Western Union
sent a man to see him to-day, who offered him $80 to start with them, as soon as he was
willing to quit and would increase him as rapidly as he showed aptitude. We are
paying him $74.20. Darr is one of our product having learned the business with us
here, and is undoubtedly one of the best branch managers we have. He is also good
in any place we put him, though not a first-class operator. * * * Why not send in
service change increasing him to $80. He told me that the Western Union man told
him he was trying to get hold of men who live in Washington, and especially good
reliable men, not drunkards. While I have not heard it, Darr says that our men are
considerably peeved over the $85 ratings given the men sent from New York (who are
undesirables, and so known to all employees here) and who were rated at $75 when
they quit.”
From letter of Mr. G. M. Foote, manager, January 19, 1918, to Mr. C. E. Bagley,
superintendent: -
“If we can not do something to get more men and keep them, I suggest that we con-
sider the question of placing an embargo on all press matter here, both day and night.
There has been a large increase in this class of business and it is a serious handicap to
us under the present conditions.”
From letter of Mr. G. M. Foote, manager, January 24, 1918, to Mr. C. E. Bagley,
superintendent. -
“Night Wire Chief Bass informs me this afternoon that the Western Union has
offered him a position as chief at a salary of $115 to start, with a guaranteed increase
of $5 in three months, and another of $5 in four months, or $125 in seven months. Bass
is a clean-cut man and one who would not try to hold us up and I am sure has not
approached the other people, but I believe the temptation is strong on account of
the difference of rating, and that if we can not increase the rating, he will decide to
accept. The Western Union now have the following chiefs from our staff—Townsend,
Pox and Mitchell. Mitchell gets $135.” -
This letter is indorsed with the hand-written note of Mr. Bagley:
“Bass is a good man and would like to see him stay, but if he feels he will be better
off in the Western Union service let him go and move up a man. Bass was recently
increased to $112. C. E. B. 1/25.” -
The comparative statements submitted herewith show conclusively that the salary
ratings of the Western Union were much higher in all branches of the service than the
salary ratings of the Postal Telegraph, and the failure of the Postal Telegraph to secure
and retain efficient employees was due more or less to the failure of that company to
pay the increased compensation necessary to Secure and hold employees of sufficient
ability to render competent and efficient service.
In November, 1917, Hon. Thomas B. Gregory, Attorney General, had occasion to
address the Postal Telegraph-Cable Co. relative to delays to cablegrams and telegrams
at Washington, D. C., which was answered by William W. Cook, attorney for the
Postal Telegraph, by letter of November 20, 1917, reading, in part: g
“I am glad you wrote me direct as you did yesterday in regard to delays in cable-
grams and telegrams at our Washington office. Either Manager Foote is at fault or .
your informant is at fault. * * * In one respect I can assure you that your
informant is in error. He says that he is reliably informed that the New York head-
quarters have warned our Washington office to avoid Government business. That
is not true. What our general manager did was this: The service of the Postal Co.
being superior to that of the Western Union, there were strong evidences that some of
the Government departments at Washington were giving all the Government business
possible to the Postal Co. and as little as possible to the Western Union, and the
general manager instructed Mr. Foote to call upon such Government officials and
frankly state that we did not think it quite fair that our company should be called
upon to carry more than its fair proportion of Government business as compared with
the Western Union, inasmuch as these Government telegrams are sent at about one-
third of the regular rate and our operating expense is from 70 to 75 per cent of the full
rate.’’
There is no evidence of intentional delay of Government cablegrams and telegrams
at Washington, D. C., but there is information to the effect that the Government
business was not considered desirable by the Postal Telegraph-Cable Co., to wit:
RETURN OF THE WIRE SYSTEMs. 189
f
Letter of August 7, 1916, New York, N. Y., from Mr. Edward Reynolds, vice presi-
dent and general manager, to Mr. G. M. Foote, manager, Washington, D. C.
“We attach a copy of letter of August 5, 1916, from our general counsel, Mr. Wm. W.
Cook, to Attorney Bynum F. Hinton, Washington, D. C., which is self-explanatory.
From now on please take just as little Government business as you possibly can.”
Letter of August 9, 1916, New York, N. Y., from Mr. Edward Reynolds to Mr.
G. M. Foote, manager:
“On inquiry, Superintendent of Tariffs Smith informs us that the receipts from
Government land line business at Washington in May increased 21 per cent over May,
1915; 47 per cent increase in June; and 46 per cent increase in July. We wish you
would report the cause of this increase. We would be much better satisfied if there
had been a decrease in these proportions.”
Letter of August 10, 1916, Washington, D. C., from G. M. Foote, manager, to Mr.
Edward Reynolds, vice president and general manager:
‘‘Answering your favor of the 9th instant reference to increase of Government
receipts for May, June, and July over same months last year, I have to advise that
owing to the Mexican situation, mobilization orders and the movement of troops,
the War Department file has been abnormally heavy, reports showing increases
ranging from $350 to $500 per week over last year. I have understood thoroughly
for some time our attitude relative to this business, and have made no solicitations
whatever. Except in specific cases, solicitation for Government business would not
avail for the reason strict instructions are in effect in all departments to divide the
business as far as is practicable equally between the two companies.”
Letter of September 16, 1916, New York, N. Y., from Mr. Edward Reynolds, vice
president and general manager, to Mr. G. M. Foote: º
“Some time ago we sent a letter to you suggesting that one of the departments of
the Government be advised that we could not pay damage claims on Government
messages, particularly as we were handling that business at a loss, and suggested that
you tell them to give us little business as possible. Have they followed the
suggestion?”
Letter of September 18, 1916, Washington, D. C., from Mr. G. M. Foote to Mr.
Edward Reynolds:
“Your letter of the 16th instant: For the first three days after my visit to the War
Department Suggesting they give us as little business as possible, we did not receive
anything except a few cables for Manila from there. For the next two weeks we
received about one-third of the usual file. I notice, however, for the week ending .
September 10 the receipts from the War Department increased about 40 per cent over
last year. This, however, I believe is due to a troop movement on the border that
week, which would cause an abnormal file.”
Personal letter of February 3, 1917, from Mr. G. M. Foote to Mr. C. E. Bagley,
superintendent, Philadelphia, Pa...:
“I will undoubtedly be called upon in this pending crisis to assist the War and Navy
telegraph offices by sending them our operators to work our circuits. Do you not
think I had best comply with any such request should it be made? Last night we
were asked for an operator to send a thousand word cable over our lines and the matter
being referred to me by 'phone, I ordered it done. Personally I feel that under
conditions such as are liable to exist in the next few days, it will place us in a very
bad light if we were not to comply with this request. I have not had any intimation
that such a request will be made, but am sure I will be asked.”
Memoranda of telegrams received from C. E. Bagley, February 7, 1917:
“G. M. F.: You will not detail operators to the War and, Navy telegraph offices
except on authority. We will pursue the same practice now as in the time the
troops were ordered to the Mexican border. “C. E. B.”
“G. M. F. : Instructions contained in my message this morning are to be observed.
E. R. Surprised previous instructions on the subject have been disregarded. Do
not withdraw operators to-day but do not furnish them to-morrow. Explain that
we can not spare them without Serious delay to the public. “C. E. B.”
Letter of April 9, 1917, Washington, D. C., from Mr. G. M. Foote to Mr. C. E.
Bagley, Superintendent:
“Business in Washington has reached such a point with our competitors that they
have been compelled to find other quarters for their bookkeeping department and
files in order to make room for more telegraph sets. . They have moved the clerical
department to a building on G Street. They have 15 loops to the War Depart-
ment and 15 to the Navy Department. Also have messengers from other cities,
as well as telegraphers. I understand they are completely swamped. We are taxed
to our utmost on incoming business both in the operating and messenger departments.
190 RETURN OF THE WIRE SYSTEMS.
The Government incoming business is very heavy, but we are not getting any out-
going business at all, except such as go over commercial Pacific cables. We are
now short about 10 regular men due to resignations to the Western Union and those
that have accepted positions in the War and Navy Departments. We are employ-
ing anybody that shows up.”
Letter of May 4, 1917, New York, N. Y., from Mr. Edward Reynolds to Mr. C. E.
Bagley, superintendent, Philadelphia:
“Your report of the Washington operating room conditions is very clear and satis-
factory and gives me the information I desired. It shows there has been no need
to be unduly concerned and that things are working our right. You are correct in
taking the position that it is not necessary to increase the salary ratings. The average
rating for the room now, without including the high-priced operators at the Capitol,
is about $75 per month, and that is a little higher on the average than at New York.
If we do not hold our staff, it is not due to the Salary rating but the way in which the
men are handled, but I have no reason to think they are not handled right.
“P. S.—I would suggest that the Washington office be careful about sending out
service messages that they are short of men and can not man the wires. It is possible
that he is asked to meet more circuits than the business really requires.”
From letter of July 31, 1917, Philadelphia, Pa., from Superintendent C. E. Bagley
to Mr. G. M. Foote: 4. -
“As to the two new Government pony connections, you will, of course, after
installation, follow out usual practice with regard to soliciting the business.”
The Postal Telegraph-Cable Co., at Washington, D. C., avoided Government tele-
graph business So far as possible; made no special efforts to provide for or to expedite
Government business, and, in 1917 and 1918, large numbers of Government tele-
grams, filed with the Postal Telegraph, addressed to points where the Postal Tele-
graph had offices for the delivery of telegrams, were transferred by the Postal Tele-
graph to the main office of the Western Union and to branch offices of the Western
Union at 613 Pennsylvania Avenue NW., and 1104 Connecticut Avenue NW.,
respectively, at Washington, D. C.
(Signed) F. R. BARCLAY,
Post Office Inspector.
In this investigation made by the inspector, and which we ordered
because of the reports which had reached us at the time, in our anxiety
to ascertain the facts shows that in the year 1917 in Washington
city—these are the years ending March 31, always—the Postal
carried $41,000 worth of Government business, the Western Union
carried $219,000; the year 1918 the Postal carried $132,000, and the
Western Union $1,074,000.
The CHAIRMAN. Calendar or fiscal years? r
Mr. KOONs. These are the years ending March 31, because we
wanted to bring it to date as near as we coid, Mr. Chairman.
For 1919 the Postal carried $122,000, while the Western Union
carried $1,505,000. -
Of Government cables the Postal in 1917 carried $100,000, while
the Western Union in the same year carried $90,000; in 1918 the Postal
carried $244,260, while the Western Union carried $333,324; for the
year 1919 the Postal carried $482,000 and the Western Union
$1,191,000. - -
Outside of Washington, in the year 1917 the Postal carried $32,000
of Government business, while the Western Union carried $322,000;
in 1918 the Postal carried $139,000 and the Western Union $1,268,000;
in the year 1919—which is 11 months reported and 1 month esti-
mated—the Postal was $271,746 and the Western Union $2,335,000.
Mr. SIMS. How much was the Western Union last year?
Mr. Koons. $2,335,000.
The CHAIRMAN. In other words, the Postal handled about 10 per
cent of it .
Mr. KOONs. Yes, sir; about 8 or 10 per cent.
• RETURN OF THE WIRE SYSTEMS. 191
The CHAIRMAN. Except as to cables.
Mr. Koons. Except as to cables; yes.
Another interesting thing I want to call your attention to is that
press matter is carried at a very low rate. In 1917 the Postal carried
11,071,000 of press matter—that is, words—and the Western Union
16,000,000; in 1918 the Postal carried 16,000,000 and the Western
Union 19,000,000; in 1919 the Postal carried 8,828,000, and the
Western Union 18,000,000. [Reading:
Various percentage combinations can be obtained from the figures here shown.
The general understanding and working agreement is to the effect that the Government
business shall be equally divided between the Western Union and the Postal Tele-
graph, but, in practical results, this is not the case, as the Western Union actually
handled 5 to 12 times as much Government telegraph business, in and out of Washing-
ton, D.C., and from 8 to 10 times as much Government business through offices outside
of Washington, D.C., as the Postal Telegraph during the three years shown.
For the year ended March 31, 1919, the Western Union handled more than double
the amount of “words of press sent collect,” compared with the business of the Postal
Telegraph for the same period. -
And for the year ended March 31, 1919, the Western Union handled almost double
the amount of Government business by cable, in and out of Washington, D.C., and the
total commercial and Government business of the Postal Telegraph at Washington,
And this statement shows the period by month:
From July, 1917 , to and including March, 1919, the Government business in and
out of Washington, D. C., greatly exceeded each month the amount of commercial
business in and out of Washington, D. C., by Western Union.
In other words, their unprofitable business that they were handling
greatly exceeded the amount of commercial business.
From April 1, 1916, to March 31, 1919, there were only five months when the Gov-
ernment business in and out of Washington, D. C., exceeded the amount of business
by the Postal Telegraph.
Those are the percentages, which I will not give, and then the rates.
Now, then, this statement shows in detail the number of persons
employed, with monthly compensation, exclusive of messages, in the
different months during the period under consideration; in brief, the
total numbers of persons employed in all departments and branches
of the two companies, exclusive of messenger service, at Washington
is as follows: [Reading:]
In April, 1916, the Postal had 176 employees, the Western Union 374; in November,
1916, the Postal 159 and Western Unign 359; in July, 1917, the Postal had 209 and the
Western Union 687; in January, 1915, the Postal had 219 and the Western Union
1,079; in July, the Postal had 240 employees and the Western Union 1,307; in March,
1919, the Postal 203 and the Western Union 872 employees.
Of course, the Government business had begun to drop after the
armistice was signed.
From November, 1916, to July, 1918, the Postal Telegraph had in-
creased the working force at Washington, D. C., by 50 per cent.
And during the same period the Western Union had increased the
working force of Washington, D. C. by 244 per cent.
In other words, nearly all of this unprofitable business was shunted
off to another company, which company not only made very expensive
extensions during the time of the war, when it had to be done under
the highest cost, but did everything within its power to take care of
the Government business. But had that company pursued the policy
of the other company it would have been impossible to have gotten
the telegrams in and out of Washington to conduct this war.
192 RETURN OF THE WIRE SYSTEMIS."
The small increase of force on the part of the Postal was probably
due to two causes, to wit: First, lower salary ratings than were being
paid by the Western Union; second, lack of desire to handle the
lower-paid Government business.
From March and April, 1917, the conditions in the office of the
Postal Telegraph were inefficient, to say the least, as shown by letter
of April 28, 1917, from Mr. G. M. Foote, manager here, to the
superintendent of the Philadelphia division.
This was at the time just prior to the war, and it is taken from their
records [reading]:
The conditions instead of growing better are growing worse because the demands in
other telegraph departments are increasing just as rapidly as ours. No desirable men
have applied to us for positions. We have employed every applicant irrespective of
his desirability. They work a short time and then quit. Last night two operators
who have been with us for perhaps 10 days, quit. I asked them what the trouble was.
They stated they would not work here for $85 when they could go to New York and
other big cities and get $95 to $100. -- -
The letter was followed by a confidential note to Mr. Bagley,
May 9, 1917—and I want to say that these records were not turned
over to us voluntarily; we had to make the investigation in order to
get the facts and insist on the records being turned over to us. This
was after we had entered the war in the Capitol City of the Govern-
ment [reading]:
The men we are picking up and are being sent to us from New York at $85 are
“rummies” and “rowdies” who have been here time after time, getting drunk and
leaving. Some of them have been locked up for being disorderly on the street.
Branch Manager Darr of Post Corridor has just been in to see me. He tells me the
Western Union sent a man to see him to-day, who offered him $80 to start with them
as soon as he was willing to quit and would increase him as rapidly as he showed
aptitude. We are paying him $74.20.
Darr is one of our products, having learned the business with us here, and is un-
doubtedly one of the best branch managers we have. He is also good in any place we
put him, although not a first-class operator. * * * Why not send in service change
increasing him to $80? He told me that the Western Union man told him he was
trying to get hold of men who live in Washington, and especially good reliable men,
not drunkards. While I have not heard it, Darr says that our men are considerably
peeved with the $85 ratings given the men from New York—
and so on. - t
That shows that at the time of one of the most critical periods in
the history of our country these people were employing men at such
low wages and illustrate the type of men that they were getting and
of how our Government business was being handled. -
In January 19, 1918, the manager wrote to the superintendent
[reading]:
. If we can not do something to get more men and keep them, I suggest that we con-
sider the question of placing an embargo on all press matter here, both day and night.
There has been a large increase in this class of business and it is a serious handicap
to us under the present conditions. g -
They were willing, gentlemen, to put an embargo on the press,
not handle its matter in and out of the National Capital, and even
willing to shut off the Government's business. But there is no
record or indication that they were ever willing or made any attempt
to shut off the commercial business. Why? Because it was the
business that paid the highest rate.
RETURN OF THE WIRE SYSTEMIS. 193
On January 24, 1919, another man that offered to leave [reading]:
The comparative statements submitted herewith show conclusively that the Salary
ratings of the Western Union are much higher in all branches of the service than the
postal ratings of the Postal Telegraph.
There are a lot of exhibits with this report, but I did not bring them,
because I did not think it necessary to encumber the record with them.
In November, 1917, Hon. Thomas B. Gregory, Attorney General,
had occasion to address the Postal Telegraph-Cable Co. relative to
delays to cablegrams and telegrams at Washington, D. C., which
letter I assume was written after an investigation by that department,
which was answered by William W. Cook, attorney for the Postal
Telegraph, in a letter of November 20, 1917, reading in part:
. I am glad you wrote me direct, as you did yesterday, in regard to delays in cable-
grams and telegrams at our Washington office. Either Manager Foot is at fault or
your informant is at fault. * * * In one respect I can assure you that your in-
formant is in error. He says that he is reliably informed that the New York head-
Quarters have warned our western office to avoid Government business.
I assume that information was obtained by an investigation made
by the Attorney General. [Reading resumed:] -
That is not true. What our general manager did was this: The service of the Postal
Co. being superior to that of the Western Union, where was found evidence that
Some of the Government departments at Washington were giving all the Government
business possible to the Postal Co. and as little as possible to the Western Union, and
the general manager instructed Mr. Foote to call upon Government officials and frankly
state that we did not think it was quite fair that our company should be called upon.
to carry more than its fair proportion of Government business as compared with the
Western Union, inasmuch as these Government telegrams were sent at about one-
third of the regular rate and our operating expense is from 70 to 75 per cent of the
full rate.
That letter was sent on November 20, 1919, and, mark you, said
that they were carrying more than their share, which would be more
than one-half of the business. What are the facts? In October,
1919, the Postal Telegraph Co. carried in Washington $11,724 worth
of the Government business; outside of Washington, $13,911; the
Western Union carried $87,838, and outside, $117,000, or practically
ten times as much, although the general counsel was claiming that,
the Postal was carrying more than its share of business.
This shows clearly the attitude of the company toward the handling
of Government business and whether the statement in the letter of
Mr. Cook was true.
On August 7, 1916, Mr. Edward Reynolds, vice president and
general manager wrote to Mr. G. M. Foote, Washington [reading]:
We attach a copy of letter of August 5, 1916, from our general counsel, Mr. William
W. Cook, to Attorney Bynum F. Hinton, Washington, D. C., which is self-explanatory.
From now on please take just as little Government business as you possibly can.
Gentlemen, can there be any question that they were shunting
Government business 7 &
Letter of August 9, 1916—I think this was during the Mexican
trouble—a letter from Mr. Edward Reynolds, New York, to Mr.
Foote [reading]:
On inquiry, Superintendent of Tariffs Smith informs us that the receipts from
Government land-line business at Washington in May increased 21 per cent over May,
1915, 47 per cent increase in June, and 46 per cent increase in July. We wish you
would report the cause of this increase. We would be much better satisfied if there
had been a decrease in these proportions. -
194 RETURN OF THE WIRE SYSTEMIS.
August 10, 1916, from Mr. Foote to Mr. Reynolds [reading]:
Answering your favor of the 9th instant, reference to increase of Government receipts
for May, June, and July—
I will skip over that, which is just explaining the increase due to
the movement of troops.
September, 1916, from Reynolds to Mr. Foote [reading]:
Some time ago we sent a letter to you suggesting that one of the departments of
the Government be advised that we could not pay damage claims on Government
messages, particularly as we were handling that business at a loss, and suggested that
you tell them to give us as little business as possible. Have they followed the
suggestion? -
In reply the general manager said [reading]:
For the first three days after my visit to the War Department suggesting they give
us as little business as possible, we did not receive anything except a few cables for
Manila from there. For the next two weeks we received about one-third of the
usual file. I notice, however, for the week ending September 10 the receipts from
the War Department increased about 40 per cent over last year. This, however, I
believe is due to a troop movement on the border that week, which would cause an
abnormal file.
1917, February 3—this was just when the situation in Germany
became acute—the general manager wrote to the superintendent and
said [reading]:
I will undoubtedly be called upon in this pending crisis to assist the War and
TNavy telegraph offices by sending them our operators to work our circuits. Do you
not think I had best comply with any such request should it be made? Last night
we were asked for an operator to a thousand-word cable over our lines, and the mat-
ter being referred to me by phone, I ordered it done. Personally I feel that under
conditions such as are liable to exist in the next few days it will place us in a very bad
light if we were not to comply with this request. I have not had any intimation
that such a request will be made, but I am sure I will be asked.
This was the answer to him [reading]:
You will not detail operators to the War and Navy telegraph offices except on
authority. We will pursue the same practice now as in the time the troops were
ordered to the Mexican border.
Just think of it. Our country about to enter the great war, the
Postal Telegraph Co. directing its manager here in the National Capi-
tal not to detail operators to the War and Navy telegraph offices.
Why? The reason is obvious. They wanted to do as little Govern-
ment business as possible. -
Now, then, to Mr. Foote (reading):
Instructions contained in my message this morning are to be observed. Edward
Reynolds surprised previous instructions on the subject have been disregarded.
Do not withdraw operators to-day, but do not furnish them to-morrow. Explain
that we can not spare them without serious delay to the public.
In other words, that they were willing to withdraw the operators
from the Navy and the War Department.
You will find the Postal entered very few Army camps, made very
few extensions during the tine of war and of high costs to take care
of business, and especially Government business, while its com-
petitor spent millions.
The one reason I have gone into 'so much detail is it has been
announced that when the properties go back the rates will be reduced.
Personally, I do not care how much they are reduced; I have no
IRETURN OF THE WIRE SYSTEMIS. 195
interest in it, but I do think there should be some paragraph attached
to the resolution providing for the return of these properties to
require a company doing interstate business to accept all classes of
business and all kinds of business tendered to them, the profitable
as well as the unprofitable, and not to attempt to skim the cream
from the milk as the Postal boasts it does, and leave all of the un-
profitable business to another company to handle.
I think each company should be required to carry its share;
they are doing public business, are a public utility, and I think each
should do its proportion of the undesirable business. There is no
question but what one company can start in the telegraph business
and by tapping only the larger places and avoiding unprofitable
business do a business 20 or 25 per cent cheaper than the other.
But is it fair It would be the same as if one man started a post-
office system in opposition to the present one, and handled only first-
class mail and only reached the big offices, the first and second class
offices, and left out the third and fourth class offices. If he only
handled first-class mails he could handle it at 50 per cent less than
his competitor and make millions, but there would be no service to
the smaller communities or no second, third, or fourth classes of mail
handled. Gentlemen, do not be misled into believing that telephone
or telegraph rates are too high because of the fosti Co. statement
they would reduce the rates, but make them handle all classes of
business. \
I urge that the committee will give earnest attention to this
matter and add just a small paragraph, providing that competing
companies and the companies doing interstate business must each
accept unprofitable as well as profitable business.
Mr. BARKLEY. You mean Government business? *
Mr. KOONs. I mean Government business, press and all kinds.
Mr. BARKLEY. Does your suggestion carry with it the idea that
some of these companies that have no offices in the small towns
should be compelled to put them there 7
Mr. KOONS. I do not mean that. But where each company has
offices they should be required to carry its share of the undesirable
as well as the desirable business.
Mr. BARKLEY. How does it operate at present, Mr. Koons, if I
go into a telegraph office and want to send a message or talk over
the long-distance telephone—how is it done at present, so as to de-
prive me of the opportunity to do that?
Mr. KOONs. I do not think it would apply to the telephone system.
But what I had in mind was the telegraph, because I think each
Company that is doing a toll business desires to get just as much as
they can. They have the operators and can handle it all.
Mr. BARKLEY. In a city, for instance, where the Western Union
and Postal Telegraph companies each have offices and do business,
they are competing. What character of business do you refer that
is unprofitable to them 7
Mr. Koons. Two kinds of unprofitable business are the Govern-
ment and press business. The Postal Co. says the former is handled
at about one-third the cost of handling, and if that is true it is an
unprofitable business, looking at it from the dollars and cents stand-
point. My judgment is that each company—if the Postal Co. com-
196 RETURN OF THE WIRE SYSTEMS.
petes for 80 per cent of the telegraph business that the Postal Co.
should be required to carry one-half of the Government business
from those points. -
Mr. BARRLEY. Does the Postal refuse to do that ?
Mr. KOONs. There are many ways it can be done without abso-
lutely refusing. Their records show that they avoided carrying it
just as much as possible, and their records show that as the war went
on they carried less and less. They did not enter these Army camps.
My understanding is the Western Union spent over $5,000,000 to
build into the cantonments to handle business which they knew
would not yield them a dollar of profit, and they stoppéd at nothing
to give the service at that time. I want to say that is true of the
telephone companies, too.
Mr. SIMs. Did the Postal not set wires to all the cantonments and
camps? t
Mr. KOONs. Very few of them. I will let Mr. Reynolds answer
that, as I believe he is here.
Mr. REYNOLDs. We maintained offices at 13 Army camps.
Mr. Koons. There were over a hundred Army camps altogether.
So you gentlemen can see for yourselves. -
Mr. REYNOLDs. I would say in that connection that the Postal
does not operate along the lines of railroads, has no means of reach-
ing these outlying places where most of the Army camps were located,
such as Denver and down through the Texas field. We were not in
a position to do anything in connection with the Government tele-
graphs along the railroads in the movement of troop trains, and, in
that connection, while speaking, I would like to say that the Postal
Co. it was testified here only handled 16 per cent of the regular Gov-
ernment telegraphs along the railroads in the movement of troop
trains, and, in that connection, while speaking, I would like to say
that the Postal Co. it was testified here only handled 16 per cent of
the regular commercial business, and according to the figures put out
it handled 12 per cent of the Government business last year.
The ratio of the Government business to the total business handled
by the Postal compares very well with the comparison of regular
business, showing the Postal Co. has not avoided the Government
business. It has accepted and handled every Government message
tendered to it by every Government officer, and you gentlemen
know, who had any messages to file and offered them to the Postal,
they were received.
I could answer these other statements of Mr. Koons which he has
injected here, but I do not know as this committee is interested in the
controversy.
Mr. KOONs. All that I can say is that the records speak for them-
selves; they are the records of the Postal Co., not ours. They tell
the story; only one conclusion can be reached after reading them.
If you men brought the men here who worked for the Western Union
Co. you would find there were hundreds of messages turned over to
the Postal Telegraph Co. here in Washington for transmission which
were not transmitted but were turned over to the Western Union
under the pretext that the Postal had more than it could handle and
were sent out over the Western Union wires. But bear in mind there
is no evidence of any messages at commercial rates being turned over.
RETURN OF TEIE WIRE SYSTEMIS. 197
I would not have injected this matter here—I have no interest
between the Western Union and the Postal except for the legislation
that I wanted to suggest as to carrying profitable and undesirable
business.
So far as the contracts for these companies are concerned, as soon
as the proclamation of the President was issued, we telegraphed
Mr. Vail, the head of the American Telegraph & Telephone Co., and
Mr. Mackay and Mr. Carlton, and we got in touch with Mr. McKinnon,
and asked them for an early conference. That was before we took
charge; it was between the period the proclamation was issued and
the time we took charge. Those men represented the four interests
affected. We told them that under the proclamation of the President
we had been intrusted with the care and the handling of these
properties and the service; that we felt we were simply trustees
during this period of Government control; that it was our duty to
preserve the properties and at the same time to render the most
efficient service possible to the public.
We earnestly asked these people to cooperate with use and assist
us in every possible way to do that. We told them that we wanted
our period of Government control and operation to be constructive
and, not destructive in any way; that we would always be open to
suggestion and glad to listen to advice.
They assured us of their cooperation and assistance, and I am glad
to say that, with the exception of the officers of the One com-
pany, the Postal Telegraph Co., we have had the support and coopera-
tion and asistance of these people in operating these properties from
the President down to the humblest employee. I think there would
be very rare exceptions to that general statement; and I think it is
only due the officers of these companies and the employees that I
make that statement. g
Of course, it was necessary for us to issue a number of orders in the
conduct of these properties. In each instance we consulted the
officers of the companies. We did not appoint a single committee to
consider the matter, with one exception, without consulting the
companies and asking them to name their representatives on the
committee or to suggest representatives for us.
We took over these properties at the time that they had absorbed
about all the additional expenses they could without increased reve-
nues. In other words, in the conduct of any business there is always
a certain amount of what you might call “slack,” and that can be
taken up and absorbed. The companies had practically absorbed all
of that at the time we took charge. They informed us of that at our
first conference. They had not yet reached the period to any great
extent of wage increases; they had not begun to make their rate
increases, but they informed us they were prepared to submit requests
for rate increases at that time to the commissions for consideration.
It has been necessary for us in the conduct of the properties, to
increase the rates. In operating the properties we have tried to
maintain the financial stability of the company, we have tried to main-
tain their operating machinery, and whether our period of control
has been a success or a failure, we are in a position to turn these
properties back without any disorganization, turn them back intact
to the companies, turn them back with their working organizations
198 RETURN OF THE WIRE SYSTEMIS.
practically set up, and had not injunctions been brought against us
in a number of States, we would have turned them back without a
single dollar of deficit in the operating of them.
There will be in the telegraph systems, if they are turned back the
30th of June, possibly a deficit of $1,000,000. If they were operated
by us until the 31st of July it would be wiped out, and we could turn
back the telegraph systems on August 1st to the telegraph companies
without any deficit at all.
If we operated the telephone companies six months longer, I think
we could turn them back without any deficit. I do not mention this
to urge that we be given an opportunity to operate six months longer;
I do not think that should be done. The question of whether we have
increased the cost of the service to the public or unnecessarily to the
public, I can only state this
Mr. HAMILTON (interposing). Do I understand you to say that the
business is increasing? You stated that you were able to turn them
back without loss. Do you mean by that that the business is in-
creasing?
Mr. KOONs. Well, it would be due to both, Mr. Hamilton. Had
we been able to put in the rate increases at the time they were ordered,
there would be no deftcit now. It was the injunctions against us in
the different States that caused our deficit. The increase in business
has been abnormal in both the telegraph and telephone, so that with
the increased rates and increased business I think, by the 1st of August
we would be clear on the telegraph matter and at the end of December
we would be clear on the telephone.
Mr. HAMILTON. In a general way to what do you attribute this
increase of business?
Mr. KOONs. Apparently to the surprise of everybody—it was
naturally expected that when the war ended there would be a de-
E. in business, but there has not been. I know of no better
arometer of business in the country than the post office receipts.
After the armistice was signed there was slump in business, as I recol-
lect, in November, and I think our receipts dropped down to that of
the corresponding month of the previous year. In December there
was a slight increase. The normal increase in postal receipts is from
6 to 8 per cent. They are now increasing, and have been for the last
three months, at the rate of 13 per cent over a year ago, which shows
an abnormal increase of business in the country.
Naturally that affects the telephone and telegraph service. At
the present time the telegraph service shows an increase over a year
ago, which was during the war; in the telephone business my infor-
mation is there is an unprecedented increase; in fact, the companies
have got to enlarge their building program. So that we would natu-
rally benefit by that increase in business. We would also benefit by
the increase in rates which would now go into effect.
. So we would have operated the properties without incurring a
deficit and be in a position to turn the properties over without any
confusion at that time.
Our increase in rates, under the period of Government control for
the year, as was testified to before the committee, amounts in the
telephone service to about 7 or 8 per cent, which I think you will.
find compares favorably, or is less than was made in the case of any
class of other public utilities during that time.
RETURN OF THE WIRE SYSTEMIS. 199
There is not a single one of these properties, so far as I know, in
the hands of a receiver at the present time, and the receivership of
the one that was in the hands of a receiver when we took charge has
been dissolved. So that if we turned them back with the rates now
in effect we would turn them back without disturbing their financial
stability in any way.
The question is whether the service has deteriorated under Govern-
ment control. That is only a matter of opinion. We took charge
of these properties at a time when, in my judgment, they were on
the downward trend. So that with all due respect to the people that
pººl them—because that was true of every service and I think
of every business in the country at the time—I think that it went even
lower during Government control, because these companies had re-
leased thousands of people for service in the Army. Hundreds of
their very best men were in the Army. It was impossible to get ma–
terials to extend and develop the service, and naturally there was a
eriod of confusion on account of the great turnover, and naturally
it affected the service. In my judgment it did not reach as low a
point because of Government control as it would had the industries
remained under private control, because I believe the employees of
the companies, the operating officials, were patriotic enough to ren-
der their very best service that was possible for them to do, because
they all felt they were working for the Government.
As to the question of contracts, we made contracts with companies
representing practically 90 per cent of the properties—not 90 per
cent of the number of systems, but 90 per cent of the property values.
In the resolution there was no provision or any intimation as to
what compensation we should allow other than “just compensation.”
We studied carefully the provision that was made in the railroad bill.
I do not think there is any company that we made a contract with,
except those where large, additions to their properties had been made
and were just being covered into the service, or where they had made
increases in rates of which they had not had any benefit, but the
compensation was even lower than the average of the three years as
suggested by the railroad legislation. .
Our contract made with the telephone companies represents 5.32
per cent return on the properties. Had they been based on the aver-
age net earnings for the three years previous, or the railroad contracts,
it would have amounted to 6.6 per cent.
So that the companies we have made contracts with we have made
at three-fourths of 1 per cent of the property value lower than the
average net earnings for the three years previous.
In making these contracts our meetings were open. Any com-
pany, whether the company under consideration or not, was per-
mitted to stay in. As fast as we made a contract with one company
it was made available to all the others. There was no secrecy about
any of the contracts, or what we had done with any company. We
had no trouble in making contracts with these companies, except in
the case of the Postal, with which company we did not make a con-
tract but made an award.
As you remember, the resolution provided in case a contract was
not made, then the President should make an award. One of the
first things we did was to get the returns submitted to the Interstate
200 RETURN OF THE WIRE SYSTEMIS.
Commerce Commission for the larger companies. The next thing
was to call on each of the companies to fill out a questionnaire giving
us the gross and net earnings and considerable other information.
In the case of the Postal Telegraph Co., it operates under the law
of Massachusetts, the Mackay companies system, making no return
to the Interstate Commerce Commission for it as a whole, but the
individual companies did submit returns for the earnings and oper-
ating expenses. When we checked up the total of these companies,
we found that as submitted by the Interstate Commerce Commission
in one year the net earnings were $411,000, as I recall it, the next
year $118,000. On the questionaires submitted to us it showed
their net earnings each year had been over $4,000,000, or approxi-
mately $4,500,000.
The CHAIRMAN. Are those statements required by the Interstate
Commerce Commission under oath Ž
Mr. KOONs. Yes, sir; both statements were submitted under
oath—the statement to the Interstate Commerce Commission and
the statement to us. /
In the statement to the wire-control board, the 40 companies
reported revenues of $13,664,000 in 1916 and $14,907,000 in 1917,
and operating expenses reported to the Interstate Commerce Com-
mission was $11,776,000 in 1916 and $12,752,000 in 1917. To the
wire-control board the 40 companies reported operating expenses of
only $9,553,000 in 1916 and ten million and some odd dollars in 1917,
which was about $2,000,000 less or $2,300,000 less operating expenses
than they had reported to the Interstate Commerce Commission.
Mr. DoREMUs. The same companies }
Mr. KOONs. Yes; you see the 40 companies, Mr. Doremus, are the
State corporations that are a part of and form the Mackay companies
in the different States. Of course, the Mackay companies claim to
have some independent revenues outside of these State companies,
but operating expenses of the Mackay companies—the total—would
necessarily have to be as much as the total operating expenses of all
the companies.
We asked them why the discrepancy existed in these figures.
Mr. Reynolds, who had been their general accountant, stated that
there should not be any discrepancy, to the best of my recollection,
and we asked them iſ there was any way to reconcile the figures, and
we had possibly three or four meetings. They were not able to
submit any satisfactory explanation to us, but insisted that we allow
them the $4,300,000. We told them that here was a case where their
companies had reported net earnings of $118,000 to us and $411,000
to the Interstate Commerce Commission. We could not justify
ourselves in the eyes of the public or in the eyes of Congress, because
we expected to submit each one of these contracts to Congress, and
that there would be an investigation made of our operation of these
companies, and that we could not justify giving a company ap-
proximately $4,500,000 compensation when their net earnings stated
to the commission showed the other. We told them this: “We do
not know whether you are earning this money or not. We have no
way of finding out to our satisfaction. We do not want to do you an
injustice. If you are earning this money, you are entitled to it; if
you are only earning $118,000, that is all you are entitled to. We
want to give you a fair return on your properties. We will value
RETURN OF THE WIRE SYSTEMIS. 201
your lines at the same rate as the Western Union, plus 25 per cent,
because you have 66 per cent copper wire and they only have 44
per cent, and then we will make you an award on the same basis
as the Western Union, which, as I recall, would amount to $1,600,000.
We do not expect you to accept that, and we do not want you to
accept it. If we could take it into the Court of Claims, we would
do it ourselves, but we can not do that; we must make an award.
You reject it and bring a friendly suit in the Court of Claims, so
that we can determine at the earliest possible moment what your
compensation is or should be.” The suit has never been brought. I
might add that the sworn value of the property to the Interstate
Commerce Commission was $6,700,000. They claimed to us that
they had no idea of the value of their property. Gentlemen, it is
inconceivable that a company operating a property on which the
return was $15,000,000 gross revenue had no idea of the value of the
property or its cost, also that a general manager who had so many
unit costs figured to the fraction of a penny had no idea of the value
of the property he was operating.
A suit has never been brought, and from that time on every attempt
was made to discredit our administration of the service and to destroy
the confidence in those who had charge of it, and it became such that
we had to remove the operating officials of that company and some
of the officers, and I regret that this committee has not the time now
to make the most searching investigation of our acts.
With that exception, the Post Office Department has not ordered a
change in the personnel of any company. We have left those matters
to the operating officials. We have not attempted to dictate in any
way who they should hire or employ. We have not asked that a
single person be employed by any of these companies; we have not
attempted in any way to inject politics into the handling of these pro-
perties or the operation of its service. We have simply had in view
one proposition, and that was to give the very best service that we
could during the time that we had control and to preserve the stability
of the properties.
Of course, there are a great many things I could go on and enumer-
ate in connection with our handling the properties, but I do not
assume the committee is interested in that matter at this time.
I would be willing to lay anything before the committee that we
have done, should the committee inquire into it at any time; and I
think that there should be prompt action taken on the resolution
to return the properties. w
The question is, how are these properties to go back? Is it to be
without legislation or not ? In our judgment it would be a very
unfortunate mistake for the service for the properties to go back
without protective legislation to these companies. These properties
were taken over under the war power of Congress; their operating
expenses and wages alone have increased, at least $34,000,000, and
to turn them back now at the prewar rates would, in my judgment,
be most unfortunate to many of them in a financial way and would
greatly disturb their business and might make it impossible for them
to do business. You should not think of putting the prewar rates
in effect unless you put prewar wages in effect. You will disrupt
the service and that is the one thing we have got to keep in mind.
202 RETURN OF THE WIRE SYSTEMS.
I am not a lawyer; I do not know what the constitutional rights
would be in this matter, but the properties were turned over under
resolution by Congress, passed as part of its war powers.
I think the Congress certainly has the right to turn them back
with some protective legislation as to their revenues. Just as a
suggestion—and I want to be fair to everybody—I have thought
after hearing the statements made here that a very wise thing to do
would be to turn them back with the provision that the rates, unless
voluntarily reduced by the companies, should remain in effect for
a year. That is, unless changed through the action of the regula-
tory bodies having control over the jurisdiction of rates. That
would give the public, the companies or the utilities commissions
the right to initiate action at any time to take such action as they
might think or be advised was proper or necessary. I do not believe
there would be any injury to the wire business or to the public if
that course is followed. I think the finances of the companies would
be safeguarded and their business would be stabilized. To turn these
properties back without any legislation, or to provide that within
30 days or 60 days commissions should hear their cases—and that
does not mean one case, but the case of every company, I believe
would be to ask that the impossible be done and would work an
injustice. I dare say the companies have made no preparations up
this time to file data with commissions. They would have to file
data with commissions after first compiling same, and then the com-
missions would have to conduct hearings, or whatever is necessary,
and act thereon. It would be an impossible task for a State com-
mission in any one State to act on all of the cases in that State
within a short period, say 30 days or 60 days, so that it does seem
to me that the period should be a year, unless the rates are changed
by the action of the regulatory body of that State in the meantime.
The CHAIRMAN. When would you suggest that that year begin?
Mr. KOONs. I would say a year from the date that the properties
are turned back by your legislation. If it is made a year from the
date of a proclamation of peace it would merely add to the uncer-
tainty, and that has been one of our great troubles in conducting
this service ourselves—the period of uncertainty. We started out
on the assumption that we would have these properties for three
years. We assumed that the war would last during this calendar
year and that very likely we would have the properties for three years
before turning them back. We had to map out a program based on
that, and just as we were beginning to put that program in effect the
armistice was signed, which completely reversed every policy. From
that time on it has been a question of uncertainty, and basing my
suggestion on the experience we have had I will say I think there
should be a definite date determined, and I would suggest as that
definite date a year from the time the properties are turned back under
your resolution. t
The CHAIRMAN. And you believe that the 30th of June would be a
proper time to turn them back?
Mr. KOONs. Why, based on what the companies say, I will answer
yes, because they say it would be much more convenient to them to
turn the properties back at the end of a month on account of the
matter of accounting. As far as we are concerned we have no objec-
tion to a date prior to that, because I think we will take steps very
RETURN OF THE WIRE SYSTEMs. 203
soon to ask the companies to set up their own operating machinery
and take charge of its operations, because we want to give them back
with all the notice possible.
This question has been raised before the committee, and I would
like to dwell on it for a second—the question whether or not this is a
national service. Of course all national service is based on certain
general conditions, but after all it is composed of units. Our postal
service is a national service, and yet it has about 56,000 units. We
have 56,000 post offices. If the telephone and telegraph business is a
local business why then the postal service is local almost to the same
extent. -
There are several suggestions I would like to touch upon briefly,
though I do not want to take up much time of the committee, but
whether given consideration at this time or not I would like to lodge
them in the minds of the committee for the reason that they have to
do with a question which in my judgment the Congress will have to
deal with sooner or later. There must eventually be legislation, and
considerable legislation, on the telephone and telegraph service,
because I think ultimately—and I say it without intending any criti-
cism of the State commissions—it will be determined that the service
is not local but national. One company may own exchanges in a dozen
States or two dozen States so that it is affected in each State so it is
really rendering a national service. And the companies are con-
fronted by a condition that will ultimately have to be dealt with
nationally, otherwise the companies will eventually get into the same
condition that made Government control of the railroads necessary.
Reading from the letter of the Postmaster General of May 22, 1919,
to Representative Moon—
The members of the board—
That means our Wire Control Board, you understand—
* * are unanimously of the opinion that in order to provide the most efficient
wire service the various systems should be coordinated as to operation.
In other words, I think it is generally considered an economic
waste to have a duplication of telephone systems in the same town,
or of telegraph systems. By that I do not mean the Bell System
should own all other systems, or that the Postal Telegraph Co. should
own the Western Union Telegraph Co., or vice versa. But the man
who subscribes for a telephone at one point should be able to talk to
a subscriber for a telephone at any other place.
Through this means only can the attempts at wasteful competition and the economic
loss occasioned by duplications of plant and force be avoided. It is believed that this
desirable end can be reached by amending the law so as to provide that, subject to the
approval of the Interstate Commerce Commission, any telegraph or telephone company
doing an interstate business may purchase the property of any telegraph or telephone
company, or any part thereof, or consolidate with any other telegraph or telephone
company, or pool its traffic and facilities with any other telegraph or telephone com-
pany, under provisions which will protect the interests of the public and of near-by
companies.
The question came up this morning, If the Interstate Commerce
Commission took jurisdiction over these companies where would they
begin and end ? It is Our judgment that they should begin with the
companies that do an interstate business through or do so by con-
nection or toll arrangement with some other system. That would
121695–19—PT 2—7 ſ
204 RETURN OF THE WIRE SYSTEMS.
eliminate what is called farmers' lines or smaller lines from any
representation. -
The Wire Control Board is also convinced that it is impossible to secure any uni-
formity of rates, or to maintain adequate revenue for the service where a multiplicity
of unassociated, independent authorities or commissions with full authority to act are
attempting to function. Whereas it is recognized that the State has control over
traffic purely intrastate, yet it is believed that it is no longer open to the question that
this power can not be exercised so at to interfere with interstate traffic.
In our judgment there should be one national board, and that that
should be the Interstate Commerce Commission or whatever body the
Congress may see fit to determine upon. It should have jurisdiction
Over rates and also of wages. As it is now wages are passed upon in
different ways. Increases are bestowed without any regard to where
the revenues are to come from. There are three interests that must
be considered in this question, and they are the public, the worker,
and the investor. The investor is entitled to proper return on his
investment. The public is entitled to service, because he is the man
who pays for it, and he must produce the revenue to operate it. The
worker is entitled to a fair and just wage.
In the first place revenues should be adequate to produce a proper
return on the property, pay fair wages, and give good service. Any
increase in wages should go hand in hand with an increase in rates.
One should depend on the other, and the only way in my judgment by
which this matter will be satisfactorily handled—and by that I mean
to protect the public, the companies, and the workers—will be that
the same board which handles the one shall handle the other. I think
that should be a national board. Of course that is a question that I
do not assume will be taken up in this resolution, but I state it at this
time because I think it is a matter of great importànce.
Now, in conclusion, I want to say this: We want to express our
appreciation to the public; we want to express our appreciation of
what the people connected with this service have done, and for the
cooperation they have given us in the handling of these properties
and in making the service whatever success or failure it has been.
If it has been in any degree a success, a good deal of it has been con-
tributed by them. If there has been any failure we will have to
accept that responsibility. * *
I said we have made changes in only one company as to operating
officials. That we did, but I do not think any company can come
before you people and say we have injured its business in the slightest.
It has been stated that we placed in charge of the Postal Telegraph
Co. a man who was connected with the Bell service and who had had
no telegraph experience. We placed in charge of that company
Mr. A. F. Adams, of Kansas City, who successfully sº the
Home Telephone Co. there, which company has formed a merger
with the Bell Co., thus producing a third company. Mr. Adams as
far as I know was not a telegraph man, but he is a man of great
business ability and unquestioned integrity. We did not want to
put a Western Union man in charge of the Postal Telegraph Co., and
did not want to put a man associated with the Bell companies in
charge of it. For obvious reasons we could not put a Postal man in
charge of it. It has been testified before this committee that during
last month the Postal Co.'s receipts increased 35 per cent. Of
course 20 per cent of that would be due to the rate increase, leaving
RETURN OF THE WIRE SYSTEMIS. 205
an increase in business of 15 per cent, which I think is as large an
increase as that company has ever had. It is even more than it had
during the war. It is an abnormal increase, larger than other com-
panies have enjoyed. So looking at it from the standpoint of the
owners of the property, if we did put a man in charge who knew
nothing of the telegraph business, the results accomplished would
indicate that it would have been far better for the owners of the
properties if such a man had been in charge of the business long
before. . There has been no complaint that the service has dete-
riorated, and we have certainly built up their business, so that to-day
they are enjoying an abnormal increase in business.
I have only touched a few points that I had in mind, and do not
know whether the members ol the committee want to ask any ques-
tions in connection with other matters or not, but will be glad to
answer any questions on anything.
The CHAIRMAN. You are familiar with the bill as suggested by
Mr. Kingsbury and by others?
Mr. KOONs. I have not seen that; no, sir.
The CHAIRMAN. You believe that the original joint resolution
prescribing that a just compensation should be paid, and so forth,
should be retained in force and effect, do you ?
Mr. KOONS. No ; our just compensation should end at the time we
surrender control of the properties, because we ought not to be
responsible for operating expenses after we surrender control.
The CHAIRMAN. Well, I mean compensation during the period of
Federal control. You have some companies that have contracts,
but a great majority did not have contracts, and I want to know
what would be the status of those companies that did not have
contracts after the wires should be turned back?
Mr. KOONs. We have issued an order, Mr. Chairman, fixing that
matter. We have made contracts with the owners of 90 per cent of
the property. While there are a large number of companies, those
that have not contracts are the smaller properties, and represent
only about 10 per cent of the total properties. We have issued an
order that their compensation would be fixed out of their earnings
during the period of Government control, if satisfactory to them. It
is optional with them whether they will accept or not. I think
perhaps 90 per cent of the companies will accept that proposition,
and I think that will wipe out 90 per cent of the cases, and the other
cases we will take up and deal with individually. We would have to
do that whether this resolution for a return of the properties to their
owners provided for compensation or not. The Government has
taken them over and is responsible for compensation for those
properties.
The CHAIRMAN. There might be the question raised there as to
whether they would have any status before the Court of Claims
unless we kept alive the proviso of the original resolution.
Mr. KOONs. Well, I am not a lawyer and would not know just
what the effect of that would be. It has always been our assumption,
and the opinion of our solicitor, that we would have to make contracts
or agreements with those companies, and I think our period of com-
pensation should end with the period of Government control, because
we would have no check over, the operation of those properties, and
with compensation guaranteed and we having no authority over their
operations they could
206 RETURN OF THE WIRE SYSTEMS.
The CHAIRMAN (interposing). But this proviso would only relate
to compensation while the lines were under Federal control. It
would not have anything to do with compensation after Federal
control ended.
Mr. KOONs. I beg your pardon, I misunderstood you. I thought
you meant to continue to pay compensation to the companies that
we had not made contracts with after the period of Federal control
ended. * * -
The CHAIRMAN. No ; that was not the idea. *
Mr. KOONs. Oh, well, that is different. There will be compensation
agreements or arrangements made with all companies under Federal
control during the period they were under control. I think most of
them will accept the order as issued by us.
The CHAIRMAN. You have relinquished control of the Class D
lines : -
Mr. KOONs. Yes, sir.
The CHAIRMAN. Why haven’t you relinquished the Class C lines?
Mr. KOONs. We have made the dividing line of the companies
those reporting to the Interstate Commerce Commission—A, B and C.
Besides, the Class C lines are beginning to be larger lines and are in
competition with companies we are operating, and we did not feel
that it was wise to release the Class C companies on account of their
size. That was all. -
The CHAIRMAN. That was the only reason 7
Mr. KOONs. That was the only reason; yes, sir. Of course, if we
relinquished the Class C companies there would be no reason why
we shouldn’t relinquish the Class B companies; and then if we
relinquished the Class B companies there would be no reason why
we should not relinquish the Class A companies, when we would get
back to a relinquishment of control over all of them.
Mr. SweFT. Prior to the Government assuming control over the
telephone and telegraph lines the Postmaster General fixed rates as
to messages as between departments of the Government, did he not 7
Mr. KOONs. He fixed telegraph rates, yes.
Mr. SweFT. And that was done always'
Mr. KOONs. Yes, sir; on the 1st of each July. That is, telegraph
rates on Government business.
Mr. SweBT. Prior to the Government taking over the telegraph
lines I presume you were acting under Title 65 of the Revised Statutes
of the United States, second edition, 1878, were you not %
Mr. KOONs. I think that is the statute; yes, sir.
Mr. SwºT. And in view of what you have said with regard to the
Postal Telegraph Co. having a tendency not to want to take Govern-
ment business because of the low rate, I wish to call your attention
to this provision of the statute:
Telegrams between the several departments of the Government, and their officers
and agents, in their transmission over the lines of any telegraph company to which
has been given right of way, timber, or station lands from the public domain shall
have priority over all other business, at such rates as the Postmaster General shall
annually fix.
T now wish to call your attention more especially to this provision
of the statute:
And no part of any appropriation for the Several departments of the Government
shall be paid to any company which neglects or refuses to transmit such telegrams
in accordance with the provisions of this section. w
RETURN OF THE WIRE SYSTEMS. 207
Now, then, did the Postal Telegraph Co. refuse or neglect to send
any messages that were handed to it by the various departments
of the Government 7
Mr. KOONs. Our information is, and it has come only in this
report, which is dated May 10, which was the first intimation I had
of these conditions, that during the war, while they may not have
refused to accept them at the Postal Telegraph's offices, yet in some
instances they took them to the Western Union offices and said
they could not get them out, said they were Swamped, and got the
Western Union to handle them in that way. I did not know that
until last month. Any violation of that law would be investigated
by the Department of Justice, not by the Post Office Department,
and I do not know what investigation that department made, nor
what was determined upon after their investigation. So that the
Only information I have and the information that my statements
are based upon is this matter to which I refer, on which we have
not taken any action as yet. -
Mr. SweFT. I did not understand from your statement that you
have any positive evidence of refusal or neglect to send telegrams
between the various departments.
Mr. KOONs. I could not say they refused them when offered, but
there are a good many ways to shut off business. For instance, by
withdrawing operators in the War and Navy Departments. By not
putting operators on pony wires in those departments. That would
automatically withdraw Government business. There are many
ways by which it could be done without an absolute refusal.
The CHAIRMAN. Are there any other questions Ž
Mr. DENISON. Do you think that the amount of work involved to
the various State regulatory bodies in the matter of readjustment of
rates is such that it could not be performed within 60 days, say,
from the time the properties are turned back so that if that provision
were made in the law it would practically amount to no action on
the part of State regulatory bodies?
Mr. Koons. Yes, sir. I can mention a case which we had in
Oregon, which we submitted as I recall in October, 1918. After the
company found it could not absorb the wage increase without a rate
increase sufficient to produce revenue to pay the employees the
increased wages, application was made for a rate increase, in October,
I believe, filed in October with the State commission of Oregon. On
account of working conditions there we urged that it be expedited,
but did not get a decision in it until in April, just before the 1st of
May. So there was a period of seven months with that one case,
and I do not know whether any other case was pending at the time
or not, but if there was I had no knowledge of it. So that with six
months time required to handle one case, in which a request was made
for expeditious handling, and if you take a State like Ohio, with a
great many companies, or a State like Illinois, and if each company
in the State has to compile data and file it and the commission has
to hold hearings, considering the great number of companies affected
I would say that 60 days would present an impossible task to the
commission. 2.
I do not think any person will be injured by the rates in effect,
because I am satisfied that operating expenses, will not be reduced
in the next few years. In fact, I think there is a question whether
208 RETURN OF THE WIRE SYSTEMS.
the high standard of wages has been reached yet. That is, I mean
the highest level. Of course materials may reduce some, but I
doubt if they go down very much in cost. So I am satisfied that
the rates that we have put in effect will not be reduced very much
by State commissions.
Furthermore, there were some statements made about our rate
increases on long-distance rates amounting to from 10 per cent to
100 per cent. That might be true in some particular comparison,
such as where there was a one-minute minimum and we changed it
to three-minute minimum, but there were thousands and thousands
of cases where the toll rates were reduced by the Postmaster General.
. So that there has not been any great increase in rates. The total
increase in rates that we have ordered in effect would Only amount,
I understand, to about $30,000,000, and the wage increases alone
amount to $34,000,000, so it is necessary for the companies to absorb
by economies on the wage increases alone the sum of $4,000,000.
Mr. DENISON. I think it was testified here that the Postmaster
General has simply continued from year to year the rate for Govern-
ment business that was originally established when that law was
passed. Have you anything to say about that ?
Mr. KOONs. That, I think, is true, with the exception of the rate
increase that we put into effect on the 1st of April, when we increased
the rate for Government business 20 per cent, the same as other
business. Except that I think under Postmaster General Wanamaker
he attempted to reduce the rate to 10 cents, though I may be wrong
in that, but that is my impression, and there was a long suit over
that. … -
Mr. DENISON. At any rate the telegraph companies have been
carrying Government business at a loss.
Mr. KOONs. That is true, Mr. Denison; but, on the other hand,
there would be serious question in my mind whether a Postmaster
General would be justified in increasing the Government rate to an
amount where they would carry it at cost or a profit, because those
companies obtained certain privileges in return for which the Gov-
ernment was to get a rate, while the rate itself was not prescribed.
They got certain rights of way and privileges you will find if you will
follow the legislation from the beginning of the telegraph sercice, so
it is a question in my mind, with these statutes on the books, whether
a Postmaster General would be justified in raising the Government
rate to commercial rates, or even to cost of transmission over the
wires. That very question we discussed most seriously for days in
the department before we made this rate increase, and there was a
serious question in my mind whether we had a right to do it. I
thought we could make the same increase we made in the case of
commercial rates, but to put them up to 80 per cent of the commercial
rate, or to the commercial rate, or to 75 per cent of the commercial
rate, would in my opinion cause us to be very severely criticized.
Mr. DENISON. In your last answer you have practically antici-
pated a question I intended to ask, and that was as to what you
thought of the justification for the Government to continue to
require under present conditions the telegraph companies to carry
its business at a loss, which loss, of course, must be made up in other
ways. - * *
Mr. Koons. In the case of the railroads it is prescribed by the
Congress that where land grants were given by Congress to carry the
RETURN OF THE WIRE SYSTEMIS. 209
mails they were to carry them at 80 per cent of regular rates. In the
first place, I have always been a great believer in the Government
paying for the service rendered it. I do not think that the Govern-
ment, in renting its buildings, or in making contracts of any kind,
should expect any individual to furnish it service at less than he
would be able to furnish it to a corporation or private citizen. I
believe the Government should pay a fair rate for any service which
is rendered it, a fair rate for a building or service.
Mr. DENISON. It should pay what it costs.
Mr. KOONs. Yes, sir; a fair return on the investment. That is,
in case the company or individual has received no benefits. I think
if the Government rate is to be increased, that question should be
gone into by the Congress thoroughly, and I do not think it should
ever be increased to the commercial rate, because of the privileges
that have been given the companies, but I think it ought to be placed
at a fixed percentage, as in case of the railroads.
Mr. COOPER. Why did the Government discourage extensions of
telephone lines and the laying of wires in residential districts in the
last year or so .
Mr. KOONs. I am glad you asked that, because I intended to cover
it but forgot it. When we took over the wire properties, it was
anticipated that the war would last another year, or at least through
this calendar year. I think that was the idea of everybody. The
War Industries Board already had the matter up with the telephone
companies and called it to our attention, that it would be necessary
to conserve material and to the greatest possible extent; that as the
American Army was increasing in France demands for material over
there were increasing accordingly, and Gen. Pershing would have
first call on all materials produced in this country, and we would get
what was left, if any. Certain kinds of material—for instance, a
twisted pair of wires, such as go into a building—my recollection is
that there was little, if any, in the country to be had. The same
condition was true of other materials. So it was necessary, and one
of the first things we did, and perhaps one of the most unpopular
things, to fix an installation charge. That was done for two reasons,
Owing to the effects of the war, change of location in businesses and
business houses, and the great extension of various businesses made
the demands for new installations very heavy. That charge had
theretofore been made as a part of the regular rate. But even then
it was not fair ‘to the man who did not change his office once in 10
years, that he should be paying a portion of the cost resulting from
frequent changes, such as a man who might change his office every
month or two months or three months. So we fixed an installation
charge in order to take the burden off of the subscribers who did not
make changes and ought not to be made to bear the cost, and also in
order to reduce the demand for extensions and installations. We
had to do it.
Furthermore, no matter how wide a program of extensions we
might have gone into at the time, we could not have gotten materials
for such a program. And had the war lasted a year longer we would
have had to put a great many more restrictions on extension; in fact,
it is possible we might have had to withdraw it at some places or only
extend it to the centers of business. As soon as the armistice was
signed, we reduced the installation charge and immediately reversed
210 RETURN OF THE WIRE SYSTEMS.
Our program and started out on a program of extensions as far as
we could get material. Since that time we have encouraged and
to-day are on a program of extensions and are extending the service
as rapidly as possible. - *
Mr. COOPER. The reason I asked that question, Gen. Koons, was
this: A great many people in our district have criticised the local
management of the telephone company there for not granting these
extensions. I have appealed to the local management and they have
said that it was done under an order from Washington, which our
people could not understand, and I am glad you have answered it.
Mr. KOONs. The order was from Washington and made necessary
by the war and the action which the War Industries Board had to
take. Of course, we held down on extensions more strongly where
there was competition. If there was one phone in, or one system
covering a place, of course they already had service. The material
in the possession of the telephone companies at that time we wanted
to conserve and use to the greatest possible advantage. Had the
war lasted another year the public would have seen why it was nec-
essary for us to carry on that program of conservation to the extent
that we did. And I want to say that we made numerous trips to the
War Industries Board and pleaded with them to be just as liberal
as possible in the matter of giving us material and equipment to
take care of the service in this country. -
Mr. COOPER. At this time you are trying to extend that service as
far as you can 7
Mr. Koons. Oh, yes. I think we issued an order two or three
days after the armistice was signed reversing the policy. *
The CHAIRMAN. Any other questions' iA pause.] I believe that
is all, Mr. Koons. &
Mr. KOONs. I thank you, Mr. Chairman and gentlemen of the
committee.
The CHAIRMAN. Mr. Stevens, I believe you have some citations
which you desired to make to the committee'
STATEMENT OF MR. F. C. STEVENS, Resumed.
Mr. STEVENs. Mr. Chairman and gentlemen of the committee, I
promised to present some cases, and while I do not wish to take up
much of your time at this hour, if you will be patient for a few
moments I will cite them in order to show just what authority the
Congress has under the war power of the Government under the
decisions of the Supreme Court of the United States.
I will call the attention of the committee to the case of Pensacola
Telegraph Co. v. Western Union Telegraph Co. (96 U. S., p. 1),
decided at the October term, 1877, of the Supreme Court of the
United States.
With the exception of the commerce clause, which is itself self-limiting—
that is, it is confined to commerce among the States, Indian tribes,
and foreign nations—
* * * all the enumerated powers of Congress and those which properly arise
by implication op rate directly throughout the United States without regard to State
lines. Tha Governmont of the United Statºs, within the scop 2 of its powers, operates
upon and over all the torritory under its jurisdiction. It legislates for the whole
Nation and is not embarrassed by State lines. t
RETURN OF THE WIRE SYSTEMIS. 211
The question of the expediency of methods under the war power is
under Congress, In re Milligan, Fourth Wallace, 141.
The next caseisin One hundred and sixtieth United States 668, United
States v. Gettysburg Electric Railway Co. I will give you the facts
and will not attempt to read all this: Congress on the 3d day of
March, 1893, provided in the sundry civil bill for a park for the
battle field at Gettysburg and for the erection of monuments and
tablets to mark the battle lines of the armies. That is all that is
necessary for you to know in that connection. Congress did not
grant the power to condemn. On the 5th of June following, 1894,
29 years after the war closed, a resolution of Congress was passed
granting the power of condemnation for this battle-field park at
ettysburg. That power was exercised and this property was taken
under that power; that is, property from the Gettysburg Electric
Railway Co. The Gettysburg Electric Railway Co. raised the con-
stitutional question that there was no authority under the Con-
stitution to take this property, because it could not be taken
except for public use, and that this taking was not a legitimate
public use under the Constitution. So that the question was squarely
on that point; that is, Was the taking of this property a public use
under the war power of the Constitution at that time, 29 years after
the war closed ? The Supreme Court of the United States unani-
mously said, in effect, it was a public use, under the war power of
the Constitution. -
And in that connection if you will allow me I will just read you a
few words from the opinion of Judge Peckham.
Mr. DENISON. What page are you reading from:
Mr. STEVENs. Page 680.
Upon the question whether the proposed use of this land is a public one, we think
there can be no well-founded doubt, and also, in our judgment, the Government
has the constitutional power to condemn the land for the proposed use. It is, of
course, not necessary that the power of condemnation for such purpose be especially
given by the Constitution. The right to condemn at all is not so given. It results
from the powers that are given, and it is empowered because of its necessity, or because
it is appropriate in exercising those powers. Congress has power to declare war and
to create and equip armies and navies. It has the great power of taxation to be
exercised for the common defense and general welfare. Having such powers, it has
such other and implied ones as are necessary and appropriate for the purpose of carry-
ing the powers especially given into effect. Any act of Congress which plainly and
directly tends to enhance the respect and love of the citizen for the institutions of
his country and to quicken and strengthen his motives to defend them, and which
is germane to and intimately connected with and appropriate to the exercise of Some
one or all of the powers granted by Congress, must be valid. This proposed use comes
within such description. The provision comes within the rule laid down by
Chief Justice Marshall, in McCulloch v. Maryland (4th Wheat., 316, 421), in these
words: “Let the end be legitimate. Let it be within the scope of the Constitution,
and all means which are appropriate, which are plainly adequate to that end,
which are not prohibited but consist with the letter and spirit of the Constitution,
are constitutional.’’ -
And in this connection, gentlemen of the committee, remember
that the Supreme Court of the United States decided on Monday
last that this taking of telephone systems and lines is constitutional.
But I am citing a case arising 29 years after the Civil War closed,
showing that it is equally constitutional to carry the Great War pur-
poses into effect. s
I next refer to the case of Stewart v. Kahn (11 Wall., 506). The
case begins at page 493, but I am going to read from page 506.
212 IRETURN OF THE WIRE SYSTEMIS.
This case arose upon the stay laws of Congress. To meet conditions
during and following the Civil War Congress had passed stay laws,
just as you did during the last term of Congress. This case arose
in 1866, one year and one month after the termination of the Civil
War, upon a debt that had been created during or before that war,
and the defendant pleaded the statute of limitations and the plaintiff
relied upon the stay laws one year and one month after the war
closed. Get the facts clearly in your minds. I am reading from
the unanimous opinion of the court delivered by Mr. Justice Swayne:
The President is the Commander in Chief of the Army and Navy, and of the militia.
of the several States, when called into the service of the United States, and it is made
his duty to take care that the laws are faithfully executed. Congress is authorized
to make all laws necessary and proper to carry into effect the granted powers. The
measures to be taken in carrying on war and to suppress insurrection are not defined.
The decision of all such questions rest wholly in the discretion of those to whom the
substantial powers involved are confided by the Constitution. In the latter case the
power is not limited to victories in the field and the dispersion of the insurgent forces.
t carries with it inherently the power to guard against the immediate renewal of the
conflict, and to remedy the evils which have arisen from its rise and progress. * * *
This act falls within the latter category. The power to pass it is necessarily implied
from the powers to make war and suppress insurrection. It is a beneficent exercise
of this authority.
And, gentlemen of the committee, that is exactly your situation
here. -
One more case along that line, the second legal-tender case. It
may be found in 12th Wallace, 457, Knox v. Lee, and I will read
from page 540. The court held, substantially, that transactions
before the passage of this law and transactions after the passage of
this law and after the war had ceased were both within the terms
of the law, and that the law was constitutional. And in this con-
nection I might state, as you will recall, the first legal-tender case
was decided to be unconstitutional because without the powers of
Congress. This case expressly reverses the first legal-tender case
and held that this legal-tender legislation was war legislation, Ón
account of the war, and that it not only operated on what had
occurred before, but it operated on transactions later—and this arose
about four or five years after the Civil War closed, I think about
1870. So these transactions, every one I am citing to you, were
under the war power, although occurring after the termination of
the Civil War. & e t
I was going to read to you from the opinion of the court, but
inasmuch as your time is limited I will not attempt to do this. You
have the citations. I have referred to two or three other oases
which bear upon these constitutinal functions to declare war, and as
being unessential. That is the reason why I say the time limit is
not essential. There are no cases to the contrary. I think this
case decided by the Supreme Court on Monday sustains this doctrine.
There is not a single dissenting opinion that I can find except in the
legal-tender case, and there are some State decisions that follow this
doctrine, particularly one in Indiana. -
So it is clear that the war power of the Congress has been extended
29 years after the war. Every one of these three cases was an exten-
sion of the war power as the facts occurred after the Civil War.
But I notice there is a disposition to limit the time. As far as we
are concerned we have no objection if you will only put a practical
RETURN OF THE WIRE SYSTEMIS. 213
time limit on the matter. What is a practical limit 2 There is no
use putting any limit unless you put a practical limit. A limit of
60 days or 90 days is not a practical limit. From an operating or
business standpoint that is not a practical limit. Expenses have to
go along and must be met; if they are not met a company will become
bankrupt and the people will not get adequate service.
Mr. Elmquist stated this morning that the State commissions would
remedy that situation. Mr. MacKinnon told you why that could not
be done—because the laws of several States prevent it. The law of
Ohio, as Mr. Koons told you, requires a valuation. Think what it
means to value property in the city of Cleveland, or in Columbus,
or in Toledo, within 60 or 90 days. It is absolutely impossible.
Such a provision would be a denial of justice, would greatly injure
the property, and in a short time would impair service. The situa-
tion in Michigan, which requires a telephone company to unite with
a municipality in order to obtain the right to appeal to the State
Commission might easily, deny to a company the right to be heard
before the commission there. There can be no doubt in such situa-
tions the commissions can not give relief and only Congress can
speedily act. Mr. MacKinnon gave you information about some
States that Mr. Elmquist did not discuss at all. He did not discuss
them because he could not do so, for the reason that speedy relief
powers are beyond the authority of the commissions in those several
States, and the only remedy which can be given is to provide an ade-
quate time by this legislation so that those companies which have
been violently taken over by the Government for war purposes and
now are to be thrown back, may be given an opportunity to get down
to a normal basis without injury to the service, the companies, or the
workers.
Some one has suggested a period of six months. You gentlemen
will be obliged to legislate on telephones and telegraphs; you have got
to do it whether you want to or not. The Interstate Commerce Com-
mission has recommended it in repeated recommendations in the past.
It has suggested amendments. Your chairman has introduced a bill
on that subject. You have got to enact legislation, you do not know
when but you must do it. A year ago these companies were operating
as best they could, some within State lines and some across State lines.
Now the Government has taken them over and they must be turned
back on some terms. It is most important and essential that you
should make provision to take care of the situation. If after 60
or 90 days they are to be turned back under State legislation, and
then within six months come under Federal legislation again you
will create a condition of uncertainty, of instability. Such a condi-
tion threatens bankruptcy for many of the companies; inferior service
to the public, and a general upsetting of business. The telephone
and telegraph businesses affect everybody. Everybody now needs the
telephones and the telegraphs, so that everybody is threatened by the
sort of jungle of laws which I have suggested, and you gentlemen of
the Congress ought not to permit that kind of situation to come about
by reason of too short a period of relief. It is because of not only its
hampering and the very injurious effect upon the compalaies, but
upon the public at large that I now call your attention as forcibly as
I can to the situation. Several of the States have not the power to
take care of that situation, I do not care what anybody says these
214 RETURN OF THE WIRE SYSTEMIS.
are the facts, and circumstances have been cited to you in proof
thereof. - - -
It was stated this morning by one of the members of the committee
that you had not the power because the United States had not
police powers. Why, gentlemen, the books are full of cases sustain-
ing the contention that the United States has police powers under
the commerce clause and necessarily under the war powers. The
reports of the Supreme Court of the United States during the last
20 years are full of cases settling that contention and I have placed
in this record many instances of police regulations you have enacted
under your war powers. The statutes during that period are filled
with legislation upon the police power of the United States that
have come from this very committee, and you gentlemen, some of
you at least, have voted on them. You remember the Adamson
Act. You remember the case, I believe of Wilson v. New sustaining
that act by the Supreme Court of the United States. Every single
one of the United States Safety Appliance Acts your chairman has
championed for years is based on the police power of the United
States under the commerce clause; everything that affects health,
safety, and welfare of the workers engaged in the transportation of
persons and property, as well as the persons being transported, is an
exercise of the police power of the United States, and this committee
has jurisdiction of police power in interstate commerce.
Mr. DENISON. I thought the Adamson law was an exercise of
power by the Congress under the interstate-commerce clause of the
Constitution only. !
Mr. STEVENs. You are right about that, except that the Supreme
Court of the United States expressly laid down
The CHAIRMAN (interposing). Your contention is that there is a
Federal police power as well as State police power %
Mr. STEVENs. Yes. And perhaps you will remember that rather
curious incident that occurred in 1904. Col. Roosevelt, or President
Roosevelt then—who had been admitted to the bar but did not
claim to be very much of a lawyer—very jauntily said what was
attempted to be said before you this morning, that the United States
had no police powers. Judge Parker, who is an eminent lawyer,
at once called his attention to a decision in, I believe, 204 United
States, in which it was expressly held by the Supreme Court of the
United States that Congress has police powers under the commerce
clause and has exercised it.
Mr. DENISON. I do not think there is any question about that.
Mr. STEVENs. No. Now, gentlemen of the committee, pardon
my taking up so much of your time, but this is a most important
business proposition; we can not help ourselves. We were taken
over when we could not help ourselves. The Post Office Department
has done the best it could for us. . I sustain Mr. Koons; he has tried
to do the best he could. And, remember, this is a far more serious
matter than as affecting the compaines themselves, serious as that is.
When you injure the means of electrical transmission of intelligence
you lay your hand violently upon the very pulse of the country.
In these days there is so much dependent upon efficient service by
the telephone and telegraph companies that you affect the business
at large, and we want an opportunity to resume the service we were
giving; the country, when taken over by the Government for war
purposes. -
RETURN OF THE WIRE SYSTEMS. 215.
On the compensation feature the independent companies do not
want that power taken away by which they may go into the Court
of Claims in event they disagree with the awards by the Postmaster
General and have 75 per cent of the award paid to them. They
want that money. They need it. We can get into the Court of
Claims if necessary, of course, without it, but we want the matter
so that we may get 75 per cent of our money on the award in case
of disagreement and then have the matter settled. That is why we
ask that that legislation be continued, and the circumstances are
such that it is very essential that we should have it. These gentle-
men have been very fair to us in the past and no doubt they will
continue to be in the future, but there may be some cases where we
will need that provision, and we want it continued.
Gentlemen of the committee, in the circumstances now existing
and confronting us, give us time to turn around. It doesn’t hurt
anybody. The States can do anything they please under this
measure that is right and proper, and it takes no power away from
them at all. You do not try to do it; we do not want to do it. We
want them to operate and function as they have done before. We do
not want to take any power from them. But gentlemen of the
committee, while the States are getting into action as required and
limited by their laws, we want the right to live and function and
give good service, and the only way we can live and give good service
is under some such provision as presented by the bill before you. -
Gentlemen of the committee, I know you want to close these
hearings, and I apologize for taking up so much of your time just at
the conclusion of your hearings, but the seriousness of the situation
facing us is such that I hope you will feel that I am justified in
saying what I have. I thank you.
Mr. STINEss. Mr. Chairman, I would like to ask the gentleman a
question before he takes his seat.
The CHAIRMAN. Mr. Stevens, Mr. Stiness would like to ask you
Some questions. t
Mr. STINESS. Do you agree with Mr. Koons as to the time being
one year that the rates should continue !
Mr. STEVENs. Yes; I think one year is a reasonable time, and for
this reason——
Mr. SIMs. Not to exceed one year.
Mr. STEVENs. Yes; and I say not to exceed one year because you
have got to legislate. In fact, I think there are two definite reasons
for granting that time; reasons which are conclusive: First, you have
got to legislate, and after you legislate naturally that period will
expire by limitation, such period as you may decide in your legis-
lation, and you can not tell whether you will legislate further within
a year or not. If you do not want this awful mess of changes of laws
and jurisdictions every few months, in again, out again, or “off
again, on again, gone again, Finnigan,” you must make it such time as
is necessary to cover a period when you will be able to do something:
Mr. STINEss. Do you not think that less time could be provided ?
Mr. STEVENs. Well, in that event what would be saved'.
Mr. STINEss. Well, it makes this difference, that the general
public want the wires to be returned as quickly as possible.
Mr. STEVENs. Very well, do so then, and return the wires, but
maintain the rates for a reasonable time; that does not make any
difference.
216 RETURN OF THE WIRE SYSTEMS.
Mr. STINEss. Why not make the time limit six months 7
Mr. STEVENs. Well, that would make just as bad a jumble. In
the first place, you want to get your permanent legislation through,
but you can not do it in six months, in my opinion, so there will be
an interim somewhere when there will be this process of in again and
out again with the resulting instability. You will have uncertainty,
and uncertainty brings injury to the companies and the service. In
addition the companies greatly need these additional revenues to
meet their additional expenses. The expenses go steadily along.
The revenues should do likewise. If you know of any way to make
a suspension of high expenses, then you can fairly make a suspension
of revenues—one must go with the other or there is bound to be
disaster. These facts have not been presented to the public, and
perhaps we have been somewhat negligent about doing it, but the
public is sensible, and when they understand the reasons for existing
conditions and when those reasons require certain action for their
benefit—so that they may have better service, and in the end cheaper
service, and all the time uninterrupted service—I feel that they will
be, as they have always been, reasonable and favorable to proper
action. It is because the public will get a certain service under this
arrangement that it should be provided. It does not take away
lawful control. If it did we would not offer any objection, but where
it does not make a particle of difference, and where they have their
local remedies just the same, I can not see any reason for not making
this provision for a sufficient time to avoid trouble instead of an
insufficient time which is certain to make it.
I think Mr. Stiness is right, that there is an opinion among the
people that they want this settled at once, but here is a condition—
not a theory. The people want to do the right thing; you people
want to do the right thing. Isn’t it better to do something you
know is right and that you believe in the end will produce the right
and best results and will meet the cordial approval of the people,
when they come to know the facts, as those facts really are 3 This
provision is necessary, first, in order to prevent a jumble; and,
secondly, in order to keep these companies in good condition; and,
thirdly, local rates under this arrangement will be entirely preserved
and you will not be taking one single iota away of power or money
from anybody. When that situation is explained to the people I
think they will cordially approve such action, should your committee
decide to take it.
STATEMENT BY MR. CHARLES Y. McVEY, PRESIDENT, THE
OHIO STATE TELEPHONE CO., COLUMBUS, OHIO,
The CHAIRMAN. You may proceed.
Mr. McVEY. The question was asked Mr. Kingsbury during his
testimony, whether the independent companies had been consulted
on this bill. Now, I do not intend to go into the details because Mr.
Mackennon, the vice president of the association, is better informed
as to the details, but before leaving I wanted to say to the committee
that we were consulted on the bill as presented by Mr. Kingsbury,
and that the provision as to rates would be satisfactory to my com—
pany.
Mr. HAMILTON. What company do you represent?
RETURN OF THE WIRE SYSTEMS. 217
Mr. McVEY. The Ohio State Telephone Co. We operate in 78
towns in Ohio and have 34,000 miles of toll lines.
Mr. SweBT. All wholly within the State 7
Mr. McVEY. We have a line that runs a little way into Michigan,
to Saginaw, long-distance line. Some short lines run into Indiana,
Ş. Virginia, and Pennsylvania, but all our exchange offices are in
Ohio.
The CHAIRMAN. You have been regulated by the State commissions
heretofore ?
Mr. McVEY. Yes, sir; and have no complaint against the com-
missions. There is just the interim between the time the property
may be turned back and the time it will take for the commissions to
regulate the rates that we are troubled about.
The CHAIRMAN. Has your commission been reasonably expeditious
in matters of that kind?
Mr. McVEY. Yes, sir; as reasonably expeditious I think as they
could be. f
The CHAIRMAN: Are there any other questions?
Mr. SANDERS of Louisiana. I want to ask, are you in any way con-
nected with the Bell Telephone Co. 7
Mr. MOVEY. No.
Mr. SANDERS of Louisiana. You are perfectly independent as to
stocks and bonds
Mr. McVEY. Yes, sir. I can not say that some officials might not
own a bond, but all our stock, unless it is in somebody else's name,
and then it would be a very small amount, is owned by others than
the American Telephone & Telegraph Co.; that company does not
own one dollar of our securities so far as I know. Our property is
Owned practically by citizens of the State of Ohio.
Mr. MERRITT. The Bell Co. competes with you in Ohio .
Mr. McVEY: Yes, sir; everywhere except in five exchanges we have
Bell competition.
Mr. HAMILTON, Do you use the Bell wires for long-distance talk?
Mr. McVEY. No, sir. We have our own long-distance system—
34,000 miles of it. And we connect with independent systems in
Michigan, Indiana, New York, and West Virginia. Through the
Indiana companies we connect with Illinois and through the Illinois
company we get into St. Louis.
Gentlemen, I thank you.
X
Date Due

UNIVERSITY OF MICHIGAN
Oeſ 12 1954
UNIV. OF MICH.
LIBRARY