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THE TELEPHONE IN GREAT BRITAIN.
DISCUSSION of municipal and governmental ownership of public utilities is rife to-day, and that the demand for public control is not confined to our own country is evidenced by the struggle which for 30 years has been waged in Great Britain for the control of the telephone system. An interesting and exhaustive account of this movement is given by A. N. Holcombe in the November number of the Quarterly Journal of Economics (Harvard):
due notice at a fair valuation in 1890 or thereafter at the end of seven-year periods. The United chose London for the field of its operations, and gave subsidiary companies permission to employ its instruments in the provincial towns.
The telephone business spread rapidly. In one year the profits of the telegraph monopoly decreased £120,000. In 1882 the government changed its policy: no new licenses were granted unless the companies entered into a contract to sell to them, on terms to be fixed by arbitration in default of agreement, as many telephones as they desired, and to be used for such purposes as they saw fit; the result of which was practically to prohibit the taking out of more licenses, it being the government's plan to encourage competition with the United Telephone Company. A new company, the London and Globe, was granted a license, but it was quickly restrained by the court for lack of patent rights, and in 1884 it was bought by the United Company.
England had just completed its eighth year of the telegraph monopoly when the Bell telephone was introduced in that country, in 1878. The government not being willing to adopt it, it was at once taken up by private enterprise. Two companies were soon formed, the Edison and the Bell; and the latter proposed an alliance with the postoffice under the terms of which the government would secure instruments at cost, "but the offer was refused by a skeptical Postmaster-General." As the new industry developed, however, the government found its telegraph monopoly threatened, and so at The government then introduced what once brought action to crush its new rival, has been called "the policy of strangulation." the United Telephone Company, the Bell Fifty per cent. of the receipts from all puband Edison having joined forces. Through lic call stations was demanded. Charges for a rather ingenious interpretation by the the use of trunk lines, that is, telephone court, the description of the telegraph in the lines connecting exchanges in different areas, Telegraph act, under which the government conducted its monopoly, was declared to include the telephone. Private enterprise could go no further, nor could the government introduce the telephone without the consent of the owners of the patent.
cit in the telegraph system.
UNIVERSAL COMPETITION SUCCEEDED BY A "TRUST."
were made almost prohibitory. When the companies proposed to build their own trunk lines, bearing the expense themselves, in order to benefit their subscribers, they were actually required to charge their subscribers so much per extra mile for the use of trunk This was in 1880. Mr. Fawcett was lines. The alleged motive for it all was the Postmaster-General, Mr. Gladstone's Lib- government's desire to prevent further defieral cabinet having lately been formed. The telegraph system had been purchased by the state at an enormous valuation, and a flat rate had been substituted for the graduated rate of the previous owners. Never had the profits been very large, and now the possibility of an actual deficit stared them in the face. The government then proceeded to grant licenses on terms which they believed would protect the telegraph revenues. The United and its subsidiary companies were authorized to operate exchange systems in London and provincial towns within a radius of two to five miles about a central point, and to pay a royalty of 10 per cent. of the gross receipts. Each license was to run 31 years from January 1, 1881, reserving to the Post
Such restrictions naturally brought the telephone business almost to a standstill, till in 1884 the government decided to adopt a radically new plan, that of free and universal competition. All licenses were called in, and then reissued without restriction to local areas. This furnished service for subscribers outside of the local areas and enabled the companies to construct their own trunk lines. The duration of the licenses, condition of purchase by the state, and amount of royalties remained as before. A new provision, however, was made in regard to way-leaves,
ty, public or private; where the postoffice connection with them." And, too, the pathad acquired exclusive way-leaves for their ents had expired; so that competitors stood telegraphs on railways and canals, the com- a better chance. The government felt sure panies were to pay so much annually per the National would surrender its trunk lines mile for the right to use them. But the li- in order to get the statutory way-leave powcensees of the Postmaster-General did not ers so essential to the improvement of its share in his statutory powers. The com- service. panies were badly hampered by "costly and wearisome higgling with the local officials and citizens over whose property they wished 'to pass."
The rival company had the Duke of Marlborough as one of its leaders. On August 11, 1892, when the chairmen of the New Telephone Company stepped forward to sign Open complaint and dissatisfaction were the new agreement, who should appear also now heard on every hand. To meet the but the chairmen of the National Telephone growing deficit in the-telegraph business the Company. The reason for this lay in the government tried reducing the toll, but the fact that the National and the New comgain was only slight. The United admitted panies had secretly decided to co-operate that their service was even poor, but claimed rather than compete, "and before the end that lack of way-leave power was the cause of the year it (the National) had gained of it. To the charge that their service was complete control of its quondam rival." The too expensive, they said the royalty explained National had, however, sold its trunk lines that. All genuine competition was throttled. as agreed. It still could run wires to No independent company could get instru- subscribers outside the local areas, but could ments without accepting the terms of the establish no exchanges beyond those limits. United. The government exchanges were The government agreed to construct underfew and not well patronized. A new ave- ground conduits in the various city streets, nue of escape, however, seemed near. In and to reduce the fee for the use of the 1890 and '91 the patents would expire, and trunk lines, and the company was to connect genuine and lively competition would then be its exchanges with the various postoffices. expected. In anticipation of this, to better "Thus was established a novel partnership deal with the situation, the telephone mag- between the department and the company.' nates effected an amalgamation. A trust The impossibility of forcing private enterwas formed, called the National Telephone prise to compete in the telephone industry Company. was at last reluctantly recognized by the government; it was also seen that the attempt to compete by means of cheapened and improved telegraph service had resulted only in failure. The deficits grew larger every year, though the service was excellent. Again the public began to clamor for a new solution of the problem. The rates were too high, they said, and complaint was general. Matters came to a head in a conference at London. The delegates voted unanimously that the service was inadequate, inefficient, and costly; and the government was asked either to introduce effective competition or buy out the "trust." It decided, however, to introduce municipal competition.
Municipal authorities were empowered to construct exchanges and compete with the National, the royalties and other conditions being practically the same as before. Glasgow was the first to act, and was soon a keen competitor of the company, even outstripping it. "Yet a deputation ultimately was sent to the Postmaster-General to beg his
GOVERNMENT CO-OPERATING WITH PRIVATE
The government now proposed to abandon the plan of free and universal competition and adopt in its stead a plan of governmental co-operation with private enterprise. The telephone companies were to surrender their right to construct trunk lines and confine their future operations to local areas. In return for these concessions on the part of the companies, the way-leave privileges of the government were to be conferred upon the companies, subject, however, to the approval of local authorities. Royalties and other provisions of the existing licenses were to remain unchanged.
The merit of this plan from the government's standpoint was that a company was already organized to accept its terms and compete with the National. "If the government owned the trunk lines and converted them into metallic circuits, the obsolete single-wire system of the National Telephone Company would be nearly useless in
good offices in bringing about an understanding with the company." Tunbridge Wells was another municipality which constructed an exchange of its own, but "after operating its plant for a year, sold out to the company, which guaranteed a reduction in rates as well as the reimbursement of the corporation for all its capital sunk in the undertaking."
In London the Postmaster-General decided, however, to co-operate instead of competing with the National Telephone Company. An agreement was made for providing for intercommunication between the two systems, joint rates, and purchase of the company's plant in 1911. The government will buy all the plant that conforms to the standard of efficiency prescribed by the Postmaster-General at a price equal to its value in situ . . . but with no payment for good-will.
RAILROAD REPORTS AND
THAT reform in railroad reports is not
academic interest" evidenced by the fact that there are to-day in the United States 400,000 railroad shareholders, with the number of bondholders. probably two or three times as great. Indeed, the amount of capital is estimated at $10,000,000,000. And that stockholders and prospective investors are entitled to an honest and "unjuggled " statement of the companies' assets and liabilities is evident to all. How great was the need for this, together with a detailed analysis of the law, is interestingly shown by Mr. Carl Snyder in a recent issue of Moody's Magazine.
In order to gather information on American railroads as investments it was recently the writer's task to go through the reports of from 70 to 80 of the railroads of the country, whose operations cover more than nine-tenths of the total mileage of the continent. In this work he discovered that there was an utter lack of uniformity in keeping the accounts of the different companies, and it was impossible to estimate with even a fair degree of approximation what the actual condition of the companies was. The reports issued by the Great Northern Railway Company were the most glaringly deficient of all, the shareholders themselves being unable to learn what renewals or improvements were charged to current earnings and what to capital account.
Any shareholder of the company who tries to
Throughout the country generally, however, it became necessary in 1905 to make some new arrangement with the National in order to keep up an efficient service.
The result was that in February the Postmaster-General made an agreement with the company, extending over its entire system the terms of regulation and purchase which were laid down for the London area by the agreement of November 18, 1901. The former will receive in 1911 the equivalent of its capital investment; the latter, a going concern at cost price.
At last the telephone problem was solved. Once more the Postmaster-General has full control of that branch of his telegraph monopoly.
Only a year now has the state been "in a situation to bear the whole responsibilty for the development of the telephone in the British Isles. It is still too early to render the ultimate verdict."
THE NEW RATE LAW.
from the expenditure of the $25,000,000 stock
sale, in September of 1905, will gain little for his labor. And the same thing is true of the half-baked income and traffic statistics.
Mr. Snyder holds that:
The information that is absolutely essential in the make-up of a fairly intelligible opinion as to what a given railroad's bonds or shares are really worth is, after all, simple in the extreme. The railroad business differs but little from that which a man will ask if he is buying a share in of any other business, and the same questions a grocery business, a newspaper, or a flour mill, are the questions which he may rightly ask of the managing officers of a railroad. In the last analysis the things he really wants to know may be reduced to three or four simple heads:
1. What does the company earn?
2. What dividends does it pay and what is the margin of safety for those dividends?
3. How well is the property being kept up, not merely with reference to its previous condition, but likewise as to the demands of its business?
4. How well is the property being managed?
An excellent summary of the new rate law then follows, in which the different items are considered and shown to be wholesome and salutary. The clause requiring a statement of the amount of stock issued and the manner in which payment of the same is made is
obviously aimed at over-capitalization and stock watering. It would doubtless imply a full statement of the operations by which a $100 share of the Chicago, Rock Island & Pacific Railway stock was converted into $100 of bonds, $70 of preferred stock and $100 of common stock, of a new company, or,
The cost and value of the carrier's property, franchises, and equipments are also required. Too often have these estimates been decidedly elastic, and more or less open to the discretion of the reporting company." To secure uniformity and accuracy in this regard the commission will doubtless have to lay down definite standards of valuation. But this the writer does not consider a difficult task. The commissioners have full power to prescribe the exact form in which the reports shall be made, and heavy penalties are attached for infraction.
The character of and amount expended for improvements each year must be stated. And here Mr. Snyder very aptly comments that the reports should indicate clearly what portion of the improvements have been made from earnings and what from the issue of new securities, together with a statement of the form of issue. To be of the most value, these reports should be made in tabular form, so that for each of; say, four years it would be easy to compare and check up the expenditures, and thus determine whether the maintenance charges and the amounts so expended were sufficient or excessive."
The provisions of the new law have well been characterized as "sweeping," and with a commission absolutely empowered to prescribe any and all forms of accounting and demand any item of information, very plainly the question of complete publicity of railroad financial operations is up to the commission." But beyond the information which is mandatory and specially provided for, Mr. Snyder emphasizes certain features which should characterize the reports if they are to answer the purpose intended:
1. They must be simple, free from unnecessary detail.
2. They should be uniform, for "it is the absence of uniformity which, more than anything else, makes analysis and comparison difficult. The outsider, the shareholder, cannot compute intricate matters of ton-mile cost and the like; but, if he has the figures before him, he can readily compare the cost of conducting transportation, the cost of maintenance of way and equipment, etc., on different roads of almost identically the same character of traffic. . . . Given uniformity, and two-thirds of the problem is solved."
The report of bond and stock capitalization should cover leased or rented lines, and the coal lands and other properties of such roads as the Reading and Lackawanna should also be stated, together with the income and
the amount of debt they bear. Likewise, the amount and annual charge of all the various guaranties and obligations should be shown in tabular form, so that "by comparing these with the average surplus income for several years he may compute just how heavy a slump in business the road could stand before his securities or his income would become imperiled."
A "STANDARD OF MAINTENANCE" DE
Yet, more important than any of these, says Mr. Snyder, is the question of some standard of maintenance, "for it is evident that the amount of surplus earnings shown each year by a road is purely a question of how much it spends on the upkeep of its property." That a real difficulty, a real problem, exists here cannot be denied. There has been no uniformity here, and the commissioners may have some difficulty in establishing a precedent, yet, "it does not seem as though it would be utterly impossible to segregate the various items of maintenance charges, and prescribe what shall be included in maintenance and what in improvements, so that, to some extent at least, different roads in the same territory, with almost identically the same character of traffic, may be compared one with another."
If a road, like the Atchison, when turned over by the receivers to the new company, is in a very much run-down condition, it is obvious that it cannot be put in condition, unless by the exdoes not seem as though it would be difficult to penditure of new capital or from earnings. It state the different facts, so that, for example, one could understand why the Atchison, in 1906, should, after enormous expenditures in this direction, still be charging itself heavily for maintenance, while the Missouri Pacific or Great Northern can get along with very light charges. It is obvious that the proportions of capital to earnings,—for example, the net capital to gross charges to total net income, the margin of safety earnings or net earnings,-the proportion of fixed on payment of interest and rentals charges, and similar items, all help to clarify the situation as to a given road, and as they are simple of computation they might reasonably be stated in every report, and given, furthermore, comparatively, say for a period of four years. Other items will readily occur: traffic density, train load, etc., most of which are included in the average report but not in all reports.
The new rate law has now been in effect one month. The result will be watched with interest. The commissioners' task is far from easy. If they succeed, if they can produce simple, accurate, and intelligible reports, they will have accomplished a signal service.
HAVE THE GERMANS FAILED IN EAST AFRICA?
THE great German possession on the Indian Ocean,-twice the size of the German Empire,—offers a vast field for colonization. Various causes have conspired to retard its economic advancement thus far. These causes, and other points of interest concerning that territory, are set forth in an article by E. von Liebert in a recent issue of the
Deutsche Revue. In the course of the article he writes:
We must have patience in tackling so great a problem as the cultivation of tropical Africa. There have, besides, been special obstructions to rapid growth in East Africa: the political separation of Zanzibar, an island economically bound
to the mainland; the heavy duties imposed upon the coast-towns; the burdensome administrative organization; the restricted investment of German private capital; the refusal of means for the building of railroads; and, finally, the saddling of the colony with a heavy military budget and with the annual repayment of 600,000 marks on a loan by the German East African Company. After such a mass of political blunders what has been achieved ought, it seems, to be regarded with satisfaction.
This traffic was based chiefly upon man-stealing; for the negroes, dragged together, carried the goods,-ivory, caoutchouc, skins, etc.,-upon their heads, and were then sold along with their burdens. With free carriers, to be paid and fed coming and returning, profit could be expected only from the most valuable commodities: ivory and caoutchouc. Thus instead of an increase
there was, unfortunately, a sudden decrease of exports from the German coast, particularly as the Congo Free State strained every nerve to force the transport of goods to the west, and as, since 1902, the British Uganda Railway carried
the commerce of the German hinterland to Mombasa. Zanzibar's different customs duties proved
coast-towns. With its convenient roadstead, its old firms, and the direct connection with Aden, natural site for lading and distribution. FurBombay, South Africa, and Madagascar, it is the thermore, it is the market for gold and for labor of the whole east coast.
In the "creative joy that characterized the first decade of colonial activity" the laying out of plantations was at once started. Attempts were first made with tobacco and coffee, with the hope of rapid gain. But the cultivation of the former proved a disastrous failure, while that of the latter is also being abandoned, since the prices it commands in the markets of the world are low, owing apparently to over-production.
Fortunately, other products were meanwhile raised which are adapted to culture on a large scale and bear promise of an important future, namely, sisal-hemp, sisal-hemp, caoutchouc, and cotton. The sisal agave was introduced from Mexico and thrives well in East African soil. The leaf furnishes the hemp, which has come to be in great demand in the world-markets. Its culture has proved profitable, and is consequently on the increase. In 1903 its export value amounted to 423,000 marks; in 1904, to 572,000 marks.
Caoutchouc has from the remotest time formed the chief export of the country.
The negro fastens the lianas, with his knife, lets the liquid drip on to his fingers, then forms But the lianas dry up, Proceeding to details, the writer says that a ball of the sticky mass. and with the constantly increasing demand for when the colony became a German possession india-rubber, the forest wealth of this product is it was assumed that the new German coast being destroyed. The idea of systematically raiswould form the chief outlet for the exports ing the plant has therefore long been followed of Central Africa, for the commercial high-modity amounted to 2,000,000 marks in 1903 and and with good success. The export of this comways from the three great seas ran into the to 2,225,000 in 1904, with the certain prospect of German ports. The west coast was but little further increase. used for exporting, but the extirpation of the slave trade,—accomplished by the British and the Germans, sapped the foundations of the traffic from the interior to the coast.
There is a still greater future promise for the cultivation of cotton. Experts have ascertained that the soil and climatic conditions of East Africa are favorable for its culture. What is needed is trained laborers and railroads. Thus far the inhabitants have not gone beyond the stage of great attempts. The highest exports reached 200,000 marks, in 1905, but, in view of the great importance of this article in German economic life, these beginnings signify a great deal, particularly as steam, plows are now being introduced, and this presages industry on a large scale.
If, then, the products which guarantee the colony a successful development are assured, there remains to be solved the all-important