THE TELEPHONE SYSTEM.1 Professor Parsons, in his general argument in favor of government ownership of natural monopolies, refers to the telephone system, holding that all the arguments which apply in favor of Government ownership of telegraphs apply to the telephone as well. This witness believes that the trunk lines of telephones should be operated by national governments, while the local systems could, perhaps, be most conveniently operated by the municipalities. The vice-president and general manager of the American Telegraph and Telephone Company submitted an affidavit to the commission, tracing the history of the development of the telegraph and discussing somewhat the question as to the reasonableness of existing rates. The general manager of the New York Telephone Company, Mr. Bethell, presents an elaborate discussion of telephone rates and the character and amount of service in this country and in foreign countries. It appears from the testimony that the American Telephone and Telegraph Company has now practically absorbed the Bell Telephone Company, having exchanged two shares of its own stock for each share of the stock of the Bell Company. The American Telephone and Telegraph Company is popularly known as the Long Distance Company, and prior to the amalgamation with the Bell Company its business was apparently confined chiefly to trunk-line service. The capital of the American Telephone and Telegraph Company on July 1, 1901, consisted of $94,237,500 of stock and $15,000,000 of collateral trust 4 per cent bonds. The receipts of the company in 1900 were $9,534,499, of which $3,846,821 was from the dividends of subordinate companies, $2,427,037 from the rental of instruments (royalties chiefly), and $3,027,171 from telephone traffic, the latter item apparently representing practically the receipts from the long-distance business. The company paid in 1900 a dividend of $4,078,601 and carried $1,407,456 to reserves and surplus. It is also stated that the entire expenditure of the American Telephone and Telegraph Company and of the various licensees operating under it for the construction of plants has been $168,474,517. Professor Parsons asserts that the telephone rates in the United States are very generally excessive, especially where the system is controlled by the American Telegraph and Telephone Company and its subordinate companies. He states that the rates in New York City range from $90 to $240 per year for the use of the telephone, while in Berlin the unlimited rate is only $36 (lately advanced to $45). Washington, D. C., has rates ranging from $36 to $135 (1898), while the average rate in Stockholm, a city of about the same size, is $20. The average rate in Paris is stated by this witness to be $78 (500 francs), while Mr. Bethell says that the Paris rate is about to be reduced to 300 francs. Professor Parsons also says that an independent telephone company in Boston and adjacent territory is operating at about half the rate charged by the Bell Company; that a small cooperative company in Grand Rapids, Wis., with 300 subscribers, charges only $1 per month for residence service and $2.25 per month for business service, while paying large dividends to the subscribers, who are also the shareholders, and that other independent companies are making low rates. This witness holds that from $8 to $15 per year is a fair charge for telephone service in a small town. It is recognized that in larger cities a higher rate is necessary, although he believes that in many cases it would be wiser for the telephone companies to reduce their charges with a view to the economy of increased service, since up to a certain limit the amount of service can be increased without requiring additional apparatus and operators. He declares further that one reason for the excessive charges of the telephone companies is that they are greatly overcapitalized. The Bell company which operates in Boston and other Massachusetts cities has a capital of more than $300 for the line of each subscriber, whereas the independent company 1Parsons, pp. 173-179, 883, 884; Bethell, pp. 777-816; Hall, pp. 817-823. above referred to has an equally good system at a capital cost of less than $100 per subscriber's line. With regard to long-distance service this witness states that the rates in Europe are much less than in the United States. While it costs $1.25 for a five-minutes' conversation between Philadelphia and Washington, for a corresponding distance in England the charge would be 48 cents, and in France 30 cents; and corresponding differences exist for longer distances. The representatives of the telephone interests present evidence in defense of the reasonableness of American telephone charges. It is stated that the long-distance rates are usually on the basis of three-fifths of 1 cent per mile for a conversation of 3 minutes. In the local exchanges the system of message rates is gradually supplanting that of unlimited rental rates, and these witnesses hold that it is much fairer to subscribers that they should pay a certain minimum amount per year, with an added charge for each message above a certain number, rather than that all subscribers should pay the same rates. Message rates are considered especially desirable in large cities. It is asserted also that the constant changes in telephone methods necessitate numerous reconstructions and other expenditures. In large cities, especially, the growth of the business makes frequent modifications in the plants essential to the successful operation, while at the same time the increase in the number of subscribers increases the running expenses in much more than equal proportion. In New York City, for example, it becomes necessary to have numerous branch exchanges connected with one another by trunk lines, and the process of connecting one subscriber with another becomes highly complicated, requiring an elaborate plant and a large amount of labor. Witnesses representing the telephone companies also hold that comparisons with European countries are likely to be misleading. They assert that the lower wages and lower costs of material in European countries must be taken into account; and they hold furthermore that in none of the European systems is the service equal in quality with that in the United States. Mr. Bethell declares that by the adoption of the message-rate system in New York the average cost of telephones to subscribers has been reduced, and now amounts to only about $85 a year, although the unlimited rate for business telephones is still $240. This average rate of $85, according to this witness, is the proper rate to be compared with the European charges which are nearly all on the unlimited system. It is replied to this, however, that the average is obtained by counting each separate telephone on the many small private branch exchanges, which have usually only a single line, while European figures ordinarily relate to the separate line service. Mr. Bethell enters into a detailed discussion of the system in each European country, stating the rates and the nature of the service. He asserts that in no European country has the telephone service been extended as widely as in the United States, and he attributes this fact largely to the government ownership of the European systems. There are 20 American cities with a population of 200,000 or more, and in these, on an average, there are 21 telephones for each 1,000 people. In Europe there are 44 cities of corresponding size averaging only 13 telephones per 1,000 people. The development of the telephone in many of the European countries is confined almost altogether to the capital and a few of the largest cities. To this argument it is replied, however, that the most favorable examples have been chosen for comparison, and figures as to other American cities are given which compare less favorably with those abroad. Great Britain is the only European country in which private operation of the telephone exists, and Mr. Bethell asserts that the Government has so interfered with the operation of the private company in many ways that its success can not be properly compared with that of other systems. The London ..te charged by the private company for a business service is $100 flat, and the residence rate is $60. It appears that the British Government is on the point of opening a public exchange in London, and has authorized municipalities to establish their own plants. Glasgow is about to install a municipal telephone system. MUNICIPAL PUBLIC UTILITIES. 3 Prof. Parsons,1 in connection with his general argument in favor of Government ownership of railroads and other public utilities, especially advocated the municipal ownership of gas, electric-lighting, and street-railway systems and similar public utilities. Prof. Bemis also presented arguments in favor of municipal ownership before the commission, while Mr. A. D. Adams, a civil engineer of Boston, undertook to show that the municipal electric plants in Massachusetts have worked more satisfactorily than private plants. Mr. Foote, editor of Public Policy, is inclined to oppose municipal ownership, but to favor the auditing of the accounts of private corporations for the purpose of securing complete publicity and uniformity of accounts. The argument in favor of public ownership, as stated by the witnesses above named, is based on the assumption that such municipal public utilities as street railways, gas and electric light, and water supply are natural monopolies, and that they furnish such necessary service as to make them essentially public in character. Efforts to maintain competition in furnishing these services, it is held, have failed in almost every city, and they are now supplied by great consolidated corporations. There is even a tendency, these witnesses assert, for single corporations to get control of different classes of utilities in the same city, while in other cases a single corporation controls plants of the same class in many different cities. It is argued that under these circumstances there must either be thoroughly effective regulation of the private corporations operating these utilities, or public ownership. In support of these assertions these witnesses maintain that the capitalization and charges of private corporations furnishing these services are usually excessive; that there is little or no connection between the capitalization and the actual cost of constructing plants, capitalization being based upon the power to earn dividends at excessive charges. It is pointed out that the statistics show that the capitalization of street railways in Massachusetts, where careful restrictions exist to prevent the watering of stock, is from one-half to two-thirds less than in the other States of the Union. On this subject, however, Mr. Foote says that there are very great differences in the costs of construction in different places, so that comparisons are apt to be somewhat misleading. Professor Bemis declares also that a capitalization of $3 or $4 per 1,000 feet of annual product of gas is considered ample to cover the real value of plants, but that the average capitalization of gas companies in large cities in the United States is about $9 per 1,000 feet. As regards prices, it is asserted that the statistics of the United States Department of Labor show that the average operating cost of manufacturing gas is only 46 cents per 1,000 feet, while if taxes, depreciation, and interest be added, on the basis of legitimate capitalization, the cost will be brought up to 86 cents, whereas the average price charged by the large gas companies is $1.14. Witnesses also maintain that the cost of electric lighting by municipal plants is much lower in most instances than the charges made by privately owned plants. Statistical comparisons covering the municipal plants in Chicago, Detroit, and Allegheny and other cities are submitted to prove this statement. An elaborate comparison between municipal and private plants in Massachusetts is made by Mr. Adams. He declares that, if the municipal plants be credited for electric light furnished for public purposes at the average rates paid for public lighting to private companies in Massachusetts towns of corresponding population, it will be found that the municipal plants make earnings, after providing for depreciation and all operating expenses, equal to 12.7 per cent of the actual investment. In all the cities of the State (with a few minor exceptions) having private plants, the earnings amount to only 10.2 per cent of the capitalization, and this witness believes that, because of the regulations of the Massachusetts laws, 1 Pages 123-193, passim. 2 Pages 86-103. 3 Pages 275-285. 4 Pages 103-123. the capitalization of these plants represents actual investment. Private plants in cities of smaller population, more nearly corresponding to those having municipal plants, show a still smaller proportion of earnings to capitalization. Mr. Adams believes that these statistics indicate greater efficiency in the operation of municipal plants than of private plants. He also shows that the actual cost of arc and incandescent lights per lamp hour in public plants is very much lower in most instances than the charges of private plants in cities of the same size. These figures are based on a careful calculation of interest and depreciation. It is also stated there has been a very rapid development in municipal ownership and that it has proved highly satisfactory, charges being reduced greatly and the operation being in many cases thoroughly economical. Mr. Foote criticises all such comparisons as those above set forth, on the ground that the accounts of corporations and municipalities are kept in such varying fashions as to make the results very uncertain. He asserts that municipal plants frequently fail to take proper account of depreciation and other expenses, and that no allowance is made for the taxes which must be paid by private plants. It is pointed out by witnesses that municipal ownership of public utilities has advanced much further in Great Britain than in the United States. They assert that the results in that country have been usually very satisfactory; that there is almost entire freedom from corruption and extravagance in the operation of municipal plants; that the conditions of labor have been improved, and that the charges have been reduced. The fact that monopolies can borrow at lower rates of interest than private corporations enables them to introduce improvements even more rapidly than private corporations. The low fares on the street railways of Glasgow are especially referred to as illustrating the advantages of municipal ownership. Mr. Foote declares that the one object to be gained in the management of public utilities is the greatest benefit to the people. He would favor public operation precisely to the extent that it can be shown that it is more economical to consumers than operation by private corporations. He does not, however, believe that it is possible to obtain the same loyal and energetic effort on the part of public officers and employees as is displayed by the officers and employees of private corporations. He holds in general that the motive of private profit makes a corporation more efficient in its management than a public body, and that, if a proper system of regulation based on thorough publicity of accounts of private corporations should be introduced, the interests of the public could be properly safeguarded, allowing the corporation a reasonable profit on its actual investment. Before public operation is undertaken on a large scale, in the opinion of this witness, a system of uniform and public accounting, both on the part of private corporations and of municipalities, should be introduced, on the basis of which accurate comparisons as to costs of construction and operation will be possible. If then it shall become manifest that private corporations can not be effectively regulated and that public operation will, therefore, be more economical, this witness would favor municipal ownership. Mr. Foote, for other reasons as well, lays great stress on the desirability of uniform accounting and of supervision and examination of accounts by public authorities, both in the case of private corporations engaged in quasi-public service and in the case of all of the grades of public administration itself. Such a system, he declares, would prevent many frauds and abuses and would permit of accurate comparison between the results accomplished by different institutions. This witness holds, and the others testifying on the subject agree, that the essentially public nature of such enterprises as street railways, electric, gas, and water plants gives to the people the right to demand the most thorough publicity from private corporations controlling them. The experience of Wyoming, which has established a State examiner with power to inspect the accounts of all public bodies and institutions of Massachusetts in regulating gas, electric, and street-railway corporations by means of commissions which require uniform reports and which have a considerable degree of authority over the issue of securities and over the charges,' as well as that of England, are referred to as showing the advantages of this system. Professor Bemis, in particular, thinks that the steps toward municipal operation should be taken gradually and with caution. The desirability of bettering the political conditions in cities, and the necessity of great improvements in the civil service, are emphasized. Two or three witnesses are inclined to hold, however, that the greater responsibility placed upon municipal governments will in itself tend to improve them. They assert that at present no little corruption in city government results from the interference of private corporations seeking franchises or privileges, while, on the other hand, politicians often exercise a demoralizing influence in the appointment of employees of private corporations performing these services, and otherwise interfere with their successful and economical operation. Were these public utilities operated by the municipality, continues the argument, the citizens would feel the greater importance to their own welfare of good government, and would insist on improvements in political methods, and particularly in the civil service. Street-railway development.-Hon. Charles Francis Adams, of Boston, who was recently chairman of a commission in Massachusetts of street-railway systems, expresses the belief that the introduction of electricity has so greatly changed the nature of street-railway traffic as to demand entirely different legislation and methods of granting franchises, and different methods of operating railroads from those which have existed in the past. Electric roads will more and more operate between different cities and through rural districts; they will use larger and faster cars and must therefore be usually built on private rights of way and not on the highways as at present; they will tend more and more also to carry freight traffic. Franchises must therefore be granted by State authorities in many instances. The witness thinks that probably indefinite franchises, subject to revocation at any time by proper authorities, will produce less friction than those which expire at definite times. He also states that European street railways are far behind those of the United States, and that whatever progress they make is in the way of copying American methods. He attributes this in part to the undue restriction upon the private companies imposed by municipal authorities.2 RAILWAY LABOR. The subject of railway labor is discussed almost exclusively, so far as the present volume is concerned, by Mr. Fuller, the legislative representative of the brotherhoods of railway employees. For statements of railway officers as to labor conditions reference should be made to Volume IV of the Reports of the Industrial Commission (Transportation). Conditions of entering employment-Blacklisting.—Mr. Fuller states that some of the rules of the railways as to the terms of entering employment are very unjust. In some cases, despite legislation prohibiting it, the railways discriminate against labor organizations. They frequently require severe physical examinations, and reject applicants for minor defects often caused by injuries received in faithful service. The witness especially complains that the practice of blacklisting still exists, although perhaps slightly reduced in extent by legislation. After the great strikes of 1894 many employees were blacklisted. At present, according to this witness, it is the practice of the railroads, before engaging a man, to write to his former employers as to his record, giving him in the meantime, perhaps, a probationary employment. Railway officers, he asserts, often pursue their former employees vindictively purely 1 See especially testimony of J. F. Jackson, pp. 842, 843. * Pages 8-71. |