THE POST OFFICE AND THE TELEPHONE COMPANIES
The first telephone brought to England by Lord Kelvin in 1876 was a very
crude instrument, useful only for experimental purposes and of interest
only as a forecast of later development. In the following year two Post
Office officials introduced some machines which had been presented to
them by the American inventor Bell, and although not very efficient,
they were of some commercial use. The Post Office made arrangements with
the agents of the inventor for the purpose of supplying its private wire
renters with these machines if they should wish to make use of them.
With the invention of the microphone in 1878, and its application to the
telephone, a thoroughly practical method of transmitting speech was at
last introduced. In the same year a company was formed to acquire and
work the Bell patents. They endeavoured to come to an agreement with the
Post Office by which the latter might obtain telephones at cost price,
and would in return facilitate the operations of the company, but the
negotiations came to nothing. There was then no suggestion of an
exchange system, and the company proposed merely to supply telephones
and wires to private individuals. In 1879, the Edison Telephone Company
of London was established, an announcement having been made in the
autumn of 1878 that it was proposed to establish exchanges. An attempt
was made to amend the Telegraph Act so as to confer specifically upon
the department monopolistic control over telephonic communication, but
the amendment failed to receive the sanction of the House of Commons.
The Postmaster-General then filed information against both companies, on
the ground that the transmission of messages by telephone was an
infringement of the telegraphic monopoly. In the summer of 1880 the two
companies amalgamated as the United Telephone Company, and in December
judgment was given by the High Court of Justice in favour of the Post
Office.[826]
[826] _Rep. Com._, 1895, xiii, 350, pp. 1-6; _Law Reports, Queen's Bench
Division_, vi, p. 244; _Parl. Deb._, 3d ser., cclxxxviii, col. 1053.
In April of 1881 the Postmaster-General granted the United Telephone
Company a licence to establish and operate a telephone system within a
five-mile radius in London, the central point to be chosen by the
company. On the other hand the company agreed to pay a royalty of 10 per
cent of its gross receipts and to accept the judgment of the High Court.
Licences were also granted to establish telephone exchanges in the
provincial towns within a radius of one or two miles, all the licences
to expire in 1911. The Postmaster-General reserved the right to
establish exchanges for the department and the option of purchasing the
works of the licencees in 1890 or at seven-year intervals from 1890, six
months' notice having first been given. The policy of the United
Telephone Company was to confine its own operations to London and to
allow patent apparatus to be used in other parts of the country by
subsidiary companies, leaving them free to negotiate with the Post
Office for provincial licences.
The telephone policy of the Post Office from 1880 to 1884 consisted in
the granting of licences to the companies in restricted areas, so that
the telegraph revenue might suffer from competition as little as
possible, and the establishment by the department of exchanges in
certain places not as a rule served by the companies. Owing to the
refusal of the Government to solicit business, their exchanges did not
prove a success. The department itself would probably have preferred to
take over the whole telephone business in 1880, but this policy met with
no favour from the Lords of the Treasury, who were of the opinion "that
the state, as regards all functions which are not by their nature
exclusively its own, should at most be ready to supplement, not
endeavour to supersede private enterprise, and that a rough but not
inaccurate test of the legitimacy of its procedure is not to act in
anticipation of possible demands." The operation by the government of
the unimportant exchanges possessed by them was sanctioned by their
Lordships, "on the understanding that its object is by the establishment
of a telephonic system to a limited extent by the Post Office to enable
your department to negotiate with the telephone companies in a
satisfactory manner for licences." The London and Globe Company was
given a licence in 1882 to establish exchanges in London, but they were
entirely dependent upon the United Company for instruments, so that
there was no real competition. The department proceeded to issue
licences for the establishment of competing systems in places where
there were already government exchanges. From 1880 to 1884 the
Postmaster-General granted twenty-three licences, and some twenty-seven
towns, with 1141 subscribers, were served by the department. The policy
of the Post Office during these years, as thus outlined, was far from
satisfactory to the public, due largely to the desire to protect the
telegraph revenue, and the failure to appreciate the possibilities which
the new system of communication was capable of offering. The companies,
restricted as they were to local areas, could not offer any means for
communication between these areas, since special permission had to be
obtained for the erection of trunk lines. The Government offered to
provide these on condition that a direct payment of £10 a mile per
double wire and one half the revenue over that sum should be paid for
their use, but this offer the companies naturally refused to consider.
The Lancashire and Cheshire Company proposed to fix their trunk-line
charges so low as to pay expenses only, but they were informed by the
Government that they must charge 10s. a mile annual rental. In addition,
they were not allowed to charge less than 1_s._ at their call offices,
the then prevailing fee for a telegram. A few trunk lines, it is true,
were constructed by the Government and rented to the companies, but they
were quite insufficient to satisfy the demand. In London, the United
Telephone Company was not allowed to extend its system beyond the
five-mile radius without special permission and the payment of an
increased royalty. In addition, the companies had no way-leave powers,
but had to depend upon the good will of householders to fly their wires
from house-top to house-top, with the result that in London there was a
ridiculously large number of exchanges. Finally the companies were
restricted to connecting subscribers with the exchange or their place of
business, and, although messages could be telephoned for further
transmission by the telegraphs, there was not that close connection
between the telephonic and telegraphic systems which might eventually
have led to the mutual advantage of each. Moreover, in 1882, the
Government announced that they would grant no more licences unless the
subsidiary companies agreed to sell to them all the instruments they
wished, the intention probably being for the Government to supply
instruments to companies which would establish exchanges in real
competition with the United Telephone Company. Since the subsidiary
companies could not supply these instruments without the consent of the
parent company, the only result was still further to restrict telephonic
development.[827]
[827] _Rep. P. G._, 1883, p. 6; 1885, p. 9; 1886, p. 10; _Rep. Com._,
1898, xii, 383, pp. 3, 57; 1895, xiii, 350, pp. 1-6; _Parl. Deb._, 3d
ser., cclxxii, col. 712; cclxxxviii, coll. 1056-57, 1060-61; cclxxxix,
coll. 82.
In 1884, the prevailing public discontent in connection with the
Government's treatment of the situation manifested itself in the press
and in the House of Commons. The Post Office was accused of practising a
policy of strangulation toward the companies, and the
Postmaster-General, Mr. Fawcett, acknowledged that there was some truth
in the charge. He advised the Treasury that the companies' areas of
operation should be unlimited, and that their operations should be
confined to the transmission of oral communications. The restricted
licences were withdrawn and new, unrestricted licences granted,
terminable in 1911 with the same qualifications with reference to
royalties and government purchase that were inserted in the old
licences. Nominally the result produced free competition, but actually
competition was impossible until the expiration of the fundamental
patents in 1892. The year before their expiration, the companies
succeeded in getting control of the situation by an amalgamation of the
United Telephone Company with its licencees under the name of the
National Telephone Company. Mr. Dickinson, Deputy Chairman of the London
County Council, stated that the nominal capital of the United Telephone
Company, £900,000 (with an actual capital expenditure in 1887 within the
Metropolitan District of £228,180) was taken over by the National
Telephone Company at a cost of £1,484,375, and the Duke of Marlborough
said in the House of Lords that of the £3,250,000 capital of the new
company over £2,000,000 was "water." Mr. Raikes, the Postmaster-General,
who was in favour of competition, wrote to the United Company,
disapproving of the whole transaction. With the expiration of the
patent rights, the New Telephone Company was resuscitated, with the Duke
of Marlborough as chairman, an agreement having been concluded with the
Telephone Subscribers' Protective Association for a twelve guineas'
service in London, but it in turn was absorbed by the National Company,
much to the disgust of the members of the Association. So far as
way-leave rights were concerned the position of the companies remained
in a very unsatisfactory condition. A committee of the House of Commons
advised that certain way-leave rights should be granted, but nothing was
accomplished, although a bill was introduced in the House of Commons in
1885 to enable the companies to erect posts without the consent of the
road authorities.[828]
[828] _Rep. Com._, 1884-85, xii, p. 63; 1892, xvii, 278, sess. 1, pp.
3-5; 1895, xiii, 350, pp. 1-6, 92, 188-93; 1898, xii, 383, p. 12; _Parl.
Deb._, 3d ser., cclxxxviii, coll. 1052 f.; cccxxxvi, col. 1809;
cccxxxvii, col. 1435; cccxlvi, col. 908.
Mr. Forbes, the chairman of the National Telephone Company, said to the
Committee of 1892: "I am prepared to concede that the telephone company
which conducts about 93 or 94 per cent of the whole telephonic business
of the country conducts a great deal of it monstrously badly, but it is
not their fault, it is the fault of Parliament"; and again in referring
to the lack of way-leave power: "Take London for instance; London is
very badly served, but why is it very badly served? Because everything
depends upon the caprice of the individual." As a result of the
complaints that the telephone system was giving an inadequate service
because of the high rates on an inflated capital, because the utility of
the telephones was impaired in that they could not be used in connection
with the telegraph and postal services, and because of the lack of
powers to erect poles in the streets or to lay underground wires or to
connect their exchanges by trunk lines, the Government announced a
change of policy in 1892.[829] This change was set forth in a Treasury
Minute of the 23d of May, 1892, and in two memoranda of agreement of the
same year to which the National and the New Companies were respectively
parties, the arrangements being sanctioned by Parliament in the
Telegraph acts of 1892 and 1896. So far as it affected the National
Company the arrangement was embodied in detail in an agreement dated the
25th of March, 1896, no similar agreement being made with the New
Company because that company went into liquidation in 1892, and in 1896
surrendered its licence. By the agreement of 1896 the National Telephone
Company surrendered its previous licence except for certain definite
districts called "Exchange Areas," a large number of which were
specified in the agreement. These areas were as a rule coterminous with
the urban districts, but comprised in addition certain areas made up of
two or more urban districts together with the intervening country. Power
was reserved to the Postmaster-General to specify other exchange areas,
the understanding being, both with regard to areas already specified and
those to be specified, that industrial areas of wide extent should be
recognized in cases where there were no considerable towns forming
centres of business, that neighbouring towns intimately connected in
their business relations should be placed in the same area, and that
small towns and villages should also be so grouped when each by itself
would not pay. Outside these areas the Postmaster-General alone was
entitled to carry on telephone business, no more licences being granted
for the whole Kingdom, and for any particular town only with the
approval of the corporation or municipal authority. Call offices for the
use of the public were to be opened at the company's exchanges and
connected with the post offices in order that exchange subscribers might
telephone over the trunk lines to exchange subscribers in other towns.
Where intercommunication took place between the systems of the company
and the Post Office, a terminal charge on the part of the receiving
system was allowed. Telephonic messages could be sent to the post
offices for transmission as telegrams and delivery as such or for
delivery as letters. Express messengers could also be sent for by
telephone, and telegrams received at the post offices might be
transmitted by telephone.
[829] Only five years before, Mr. Raikes, the Postmaster-General, said
in the House of Commons: "I am inclined to think that it is extremely
doubtful whether there would be much public advantage in establishing
telephonic communication generally between those [the principal] towns"
(_Parl. Deb._, 3d ser., cccxix, col. 664).
The Postmaster-General was authorized to grant to the company all such
powers of executing works within its exchange areas (other than works
under, over, or along any railway or canal) as were conferred upon him
by the Telegraph acts of 1863, 1878, and Section 2 of the act of 1892.
If required by the company, he must provide underground wires between
different exchanges in the same exchange area, and must allow the
company to conclude agreements with railway and canal companies over
whose property he had exclusive right of way. In exchange for these
privileges the company agreed to sell its trunk lines to the
Postmaster-General, their value being fixed at a later date at £459,114,
which amount was paid to the company on the 4th of April, 1895, the
length of trunk line taken over being 2651 miles having 29,000 miles of
wire. In order to remove a serious handicap to the success of competing
companies, the trunk lines were henceforth to be controlled and extended
by the Post Office, the company to receive five per cent of any gross
charges for trunk-line tolls which it might collect as an agent of the
Post Office. The rates charged by the Post Office for trunk-line
conversations in 1896 were, for distances of 125 miles and under, the
same as those previously charged by the company, and were lower than the
old rates for distances in excess of 125 miles.[830]
[830] _Rep. Com._, 1892, xvii, 278, sess. 1, pp. 17-18; 1895, xiii, 350,
pp. 8, 34; _Rep. P. G._, 1896, pp. 16, 17; _Rep. Com._, 1898, xii, 383,
pp. 35-37, 40; 1905, vii, 271, pp. 233-235; 55 and 56 Vict., c. 59, 59
and 60 Vict., c. 40; _Parl. Deb._, 4th ser., iii, coll. 168, 186, 196.
In the mean time there was evidence of considerable opposition to the
practical monopoly of the company within the exchange areas. A motion
introduced in the House of Commons by Doctor Cameron, member of
Parliament for Glasgow, in favour of government purchase of the
telephones, received considerable support, but was rejected by the
Government on the ground that the resulting increase in the number of
civil servants, not paid at market wages and constantly trying to bring
pressure to bear on members, was too serious an evil to receive the
sanction of the Government.[831] The claim was also made by some of the
towns and by Glasgow in particular that the municipalities should be
allowed to install their own telephone systems in opposition to those of
the company. A select committee was appointed to consider this demand on
the question of "whether the provision made for telephone service in
local areas is adequate, and whether it is advisable to grant licences
to local authorities or otherwise," but, owing to the dissolution of
Parliament, the committee did not present a report. Considerable
evidence was heard, however, and the committee recommended that another
committee should be appointed during the next session to consider and
report upon the evidence already taken and, if necessary, take more
evidence. The witnesses examined were as a rule of the opinion that the
telephones should be taken over by the state; but there was a difference
of opinion as to whether municipal licences should be granted.
Dissatisfaction with existing conditions seemed to be widespread. The
Glasgow Corporation expressed disgust with the service of the company on
account of the difficulty of getting into communication with
subscribers, frequent interruptions and noises, and the chance of being
overheard by a third party, the first complaint being due in their
opinion to inadequate exchange accommodations, the second and third to
the one-wire system. The corporation was accused on the other hand of
attempting to dislocate the company's system by refusing them permission
to lay underground wires, while the overhead wires were unfavourably
affected by the electric tramway currents. The Deputy Town Clerk of
Liverpool was in favour of government telephones, but opposed municipal
licences on the ground that they would increase the expense of
telephoning between a municipal exchange and one belonging to the
company. The London County Council advised that severe restrictions
should be laid upon the company by imposing maximum rates, etc., or that
the state should take over the company's system or that the municipality
should do so. Questions were sent to subscribers in London by the County
Council, by the company, and by the Commissioner of Sewers, asking for
their opinion on the service rendered by the company there. As may be
imagined, the replies sent to the County Council and the Commissioner
were on the whole unfavourable to the company, while those sent to the
company were generally favourable to them. It was shown that the number
of subscribers in English and Scotch cities was fewer than in most
continental cities, and that, comparing the population of the United
Kingdom with that of the United States, the number of subscribers in
the former should be about 145,000 instead of about 50,000; but nothing
was said of the superior postal and telegraphic facilities of the United
Kingdom as compared with the majority of foreign countries, facilities
which would naturally reduce the demand for a comparatively new and in
many cases unpopular method of communication. The rate of the company in
the Metropolitan area for a business connection was £20 for a yearly
agreement, with substantial reductions for second and additional
connections, and £12 for private houses. On a five years' agreement the
rates were £17 and £10 respectively. The rate in Paris at the same time
was £16. For the provincial cities in England, such as Manchester,
Liverpool, etc., the rate was £10 for a first connection and £8 10_s._
for second and additional connections, and for the large towns, such as
Norwich, Chester, Exeter, etc., £8 within half a mile of the exchange,
£9 within three quarters of a mile, £10 within one mile, and an
additional £2 10_s._ for each additional half-mile, with reductions for
extra connections. For small outlying and isolated towns the half-mile
rate was £6 10_s._, one mile £8, and £2 10_s._ for every additional
half-mile.[832]
[831] _Ibid._, 4th ser., iii, coll. 166 f.
[832] _Rep. Com._, 1895, xiii, 350, pp. iii, 25-27, 60-62, 87, 90-91,
163, 176, 221, 223, 275, 281-82, 321-22; _Parl. Deb._, 4th ser., xxxi,
coll. 207 f.; xlviii, coll. 463-66.
In 1898, another committee was appointed with Mr. Hanbury as chairman,
"to enquire and report whether the telephone service was calculated to
become of such general benefit as to justify its being undertaken by
municipal and other authorities, regard being had to local finance." The
committee were of the opinion that the existing telephone system was not
of general benefit either in the kingdom at large or in those portions
where exchanges existed, that it could hardly be of benefit so long as
monopolistic conditions existed, and that it was capable of becoming
much more useful if worked solely or mainly with a view to the public
interest. They condemned the flat rate subscription charge of the
company as of benefit only to the wealthier commercial classes in
English cities. They commented unfavourably upon the fact that in the
London area there were only 237 call offices open to non-subscribers,
and that as a rule messages could not be sent from them to subscribers
except when the sender and recipient were in the same postal district
or town, when the message might be delivered. They were of the opinion
that the telephones were far more useful in other countries where the
conditions were not so favourable. Conditions, they thought, were
unlikely to improve under the present management. The company must pay
dividends on an inflated capital; its licence would expire in 1911, and
the Government was hardly likely to pay the company at that date for
goodwill. In addition, there were no restrictions on charges, the
company had a motive for limiting its subscribers, as expenses increased
proportionately with an increase in their number, and the question of
way-leaves was a source of great difficulty. Finally, they declared in
favour of competition by the municipalities and the Post Office as
tending to reduce rates, extend the system, and, if the Government
should eventually purchase the telephones, give alternative systems to
choose from. The Government adopted the committee's report, and, in a
Treasury Minute of the 8th of May, 1899, laid down the principles upon
which licences should be granted by the Postmaster-General to the
municipalities, and announced that in London the Postmaster-General
would himself establish an exchange system.[833]
[833] _Rep. Com._, 1898, xii, 383, pp. iii-xiii.
In accordance with the finding of the committee and the resulting
Treasury Minute, an act was passed in 1899, conferring upon the boroughs
and borough districts to which the Postmaster-General might grant
licences the right to borrow money upon the security of the rates for
the erection and management of telephone systems. A loan of £2,000,000
was authorized for the use of the department itself in establishing
telephone competition with the company in London. The act also defined
the relations between the company and the municipalities (or other new
licencees) in the event of competition. If the telephone company would
agree to abandon the power of discriminating between subscribers and
would consent to limit their charges within the maxima and minima
prescribed by the Postmaster-General, the latter was to extend any
way-leave rights already possessed for the period of the licence granted
to the competing municipality or new licencee.
If the new licence were extended beyond 1911, the company's licence
would be likewise extended, but if their licence were extended for as
much as eight years beyond 1911, the company were bound, at the request
of the licencee and under certain conditions, to grant interchange of
communication within the area. The new licences would be granted only to
local authorities or companies approved by them, and the National
Company was prohibited from opening exchanges in any area in which they
had not, before the passing of the act, established an effective
exchange. The effect of the act was to limit competition to the
municipalities, to confine the National Company to those towns and areas
they were already serving, and to throw upon the Postmaster-General the
duty of serving other parts of the country.[834]
[834] 62 and 63 Vict., c. 38.
The form of the licences for municipalities, among other conditions,
contained provisions designed to secure for the public an efficient and
cheap service. It was provided that the plant should be constructed in
accordance with specifications prepared by the Postmaster-General, no
preferential treatment should be allowed to any subscriber, the charges
made should be within certain specified limits, neither the licence nor
any part of the plant of the licencee should be assigned to or
amalgamated with the business of any other licencee, and that the
licence might be terminated if an exchange system were not established
within two years. The provisions of the agreement of 1896 which secured
coöperation between the Post Office and the National Company and
combined the telephone with the telegraph and postal services were also
introduced into the municipal licences. The municipalities were bound to
give intercommunication between their exchanges and any established by
the Postmaster-General, and terminal charges for trunk-wire
communications between the exchange subscribers of any other system and
those of the local authority were forbidden. About sixty local
authorities made enquiries with a view to taking out licences, but only
thirteen licences were accepted. That of Tunbridge Wells was surrendered
in 1903, owing to an agreement arrived at between the National Telephone
Company and the corporation, the municipal telephones not having proved
a success.[835] In the case of seven others the licences were
surrendered or cancelled. The following corporations held licences in
1905:--
Hull licence terminating 31st December, 1911
Glasgow 1913
Swansea 1920
Brighton 30th April, 1926
Portsmouth 1926
[835] _Parl. Deb._, 4th ser., cxxiv, coll. 781-82; cxv, col. 841; cxvi,
coll. 915-17.
In all the above cases except Hull, the National Telephone Company had
agreed to forego the granting of special favours to subscribers, had
established intercommunication, and their licence was accordingly
extended in those places to the dates of termination of the corporation
licences. In Glasgow the National Telephone Company made several
applications for permission to lay underground wires, but the
corporation refused the concession on any terms. In spite of this
advantage and the inability of the company to meet the low unlimited
user rate of the corporation telephones on account of agreements with
subscribers in other towns, the corporation found it advisable to sell
its plant to the Post Office in 1906 for £305,000 at a capital loss of
between £12,000 and £15,000. Brighton followed suit a little later for
the sum of £49,000, at a loss of £2450. Swansea experienced considerable
difficulty in borrowing money to extend its system on account of the
refusal of the Local Government Board to grant the necessary borrowing
powers. The Post Office offered £22,000 for a plant which had cost
£27,173. This offer was refused by the corporation, and an agreement was
concluded with the National Telephone Company in 1907 for the sale of
the plant at a price sufficient to repay the whole capital. Offers were
also made to Hull and Portsmouth by the department, but were refused, as
they were not sufficiently high to cover expenditure.[836]
[836] _Parl. Deb._, 4th ser., lxxxii, coll. 168-186; cliv, coll.
1067-68; clxiv, col. 87; London _Times_, 1906, July 6, p. 10; 1907, Jan.
3, p. 8; Feb. 9, p. 3; Mar. 22, p. 4.
As a rule the local authorities offered an initial flat rate lower than
that paid by the company's subscribers in competing centres, but most
of the other rates of the corporation authorities were somewhat higher.
The service offered by the public telephones was not so satisfactory as
had been hoped, and the more numerous connections open to the company's
subscribers formed an initial advantage which it was difficult to
overcome. On the other hand, the corporations often had the advantage of
underground connections which were denied to the company, but the
relatively small number of the subscribers of the corporation
telephones, the high cost of underground connections, the clumsy service
offered in many cases, and the ability of the company to offer lower
rates in competitive areas proved too much for most of the corporations
which were granted licences.[837]
[837] _Rep. Com._, 1905, vii, 271, pp. 10, 76, 79, 233-235.
In the meantime the National Telephone Company had been experiencing
considerable difficulty in getting permission to lay underground wires
in London. In 1892, the Telegraph act of that year authorized the
Postmaster-General to grant to his licencees the same way-leave powers
which he enjoyed, subject to the conditions that the licencees should
not exercise such powers in London without the consent of the County
Council, nor in any urban district outside London without the consent of
the urban authority, nor elsewhere without the consent of the County
Council. In pursuance of this authority the Postmaster-General, in the
agreement of the 25th of March, 1896, undertook, at the request of the
company, to authorize them to exercise his way-leave powers in any
exchange area. The company did not apply for the exercise of such
authority in London, but an attempt was made by them to obtain the
consent of the London County Council to allow their wires to be placed
underground, and the work proceeded with the permission of the local
road authorities in London. Negotiations with the council were
fruitless, largely on account of the price asked for way-leave and the
demand for lower rates. The Postmaster-General was advised that it was
his duty to see that the act of 1892 was enforced, and the resulting
correspondence with the company having failed of any satisfactory
result, an information in the name of the Attorney-General was filed
against the company, asking for a declaration that they were not
entitled to proceed with their underground works in London without the
authority of the Postmaster-General and the consent of the County
Council. An order to that effect was made on the 24th of July, 1900.
This seemed a favourable opportunity for the Postmaster-General to
secure from the company certain concessions with reference to their
London exchange system as well as privileges for the subscribers of the
postal exchanges which had been established in London and an agreement
with reference to the purchase in 1911 by the Post Office of the
company's London exchanges. These concessions and privileges were
finally embodied in an agreement made on the 18th of November, 1901, by
which the Postmaster-General agreed to furnish such underground wires on
the demand of the company as he might think reasonable and likely to be
useful to the Post Office later, as well as underground wires connecting
the exchanges of the Post Office with those of the company. When the
subscribers of the London Postal Exchanges exceeded 10,000 in number,
the company agreed to pay half of the rent of the latter wires. No
terminal charges were payable for a message passing over these wires, or
for a message over the trunk lines between the subscribers of the Post
Office in London and those outside London, or between subscribers of the
company in London and those outside London. In addition, the
Postmaster-General promised to afford to the company's subscribers in
London all such facilities with reference to postal, telegraphic, and
telephonic communications as he granted to Post Office London
subscribers and upon the same terms and conditions. He also agreed to
consider all applications from the company for way-leaves on railways
and canals where he enjoyed such rights, and the company promised to
establish telephone communications without favour or preference. A
decision was also reached fixing equal rates for the postal and
company's subscribers in London, based primarily on the number of
messages sent with an unmeasured rate lower than that previously in
force, no revision to be made without six months' notice being given.
Finally it was agreed that in 1911 or before--if the company's licence
should have been previously revoked--the Postmaster-General should buy
and the company should sell at its fair market value all such plant as
should then be in use by the company in London and be suitable for the
Post Office at that date. None of the plant was to be considered
suitable unless installed with the written consent of the
Postmaster-General, the question of suitability to be decided by
arbitration if necessary.[838] The local authorities protested in vain
against the agreement, their contention being that the committee of
investigation had advised competition, whereas the government had on the
other hand succeeded only in making very unsatisfactory terms with the
company.[839]
[838] _Acc. & P._, 1902, lv, 25, pp. 4-10; _Rep. Com._, 1905, vii, 271,
pp. 1-3, 53-54, 233-235; _Parl. Deb._, 4th ser., lxxxii, coll. 183; ci,
coll. 1002-03; cxxxii, coll. 422.
[839] _Ibid._, 4th ser., ci, coll. 976-993.
In 1905, the Postmaster-General and the National Telephone Company
concluded an agreement for the purchase of the company's provincial
plant based upon much the same principles which had governed the London
agreement. The question of purchase in the provinces was complicated by
the fact that in some towns there were competing municipal telephones, a
resulting duplication of plant, and an extension of the licence period
beyond 1911. By the terms of the agreement, the Postmaster-General on
the 31st of December, 1911, shall buy and the National Telephone Company
shall sell (_a_) "all the plant, land, and buildings of the company
brought into use with the sanction of the Postmaster-General and in use
on the 31st of December, 1911, for the purpose of the telephonic
business of the Company, (_b_) any licensed business of the company in
towns where there are municipal exchanges and where the licence extends
beyond 1911, (_c_) the private wire business of the company (for which
no licence is required) in use after the 31st of December, 1911, with
buildings, plant, etc., (_d._) all stores and buildings suitable for use
in accordance with specifications contained in the agreement, (_e_) all
spare plant and works under construction if suitable for the telephonic
business of the Post Office." The plant, land, and buildings were deemed
to be brought into use with the sanction of the Postmaster-General if
they were in use or being brought into use at the date of the agreement;
in the case of plant to be installed, if constructed in accordance with
specifications contained in the agreement and of land and buildings, if
acquired or constructed with the consent of the Postmaster-General. With
reference to plant not constructed in accordance with the
specifications, and plant and buildings of any kind in competitive
areas, the Postmaster-General reserved the right to object to buy such
plant or buildings, the question of suitability in competitive areas to
be settled by arbitration. The value to be paid for the company's
undertaking, not in the competitive areas and not being private wire
business, shall be the value on the date of purchase exclusive of any
allowance for past or future profits or any consideration for compulsory
sale or any other consideration. The value in competitive areas is to be
determined by agreement, regard being had to net profits and to the
circumstances and conditions under which the company would carry on such
business after the date of sale. The value of the private wire business
(apart from the plant, land, and buildings used therein) is to be three
years purchase of the net profits on the average of the three years
ending 31st of December, 1911. Any other property or assets of the
company may be purchased by the Postmaster-General, the price to be
determined by arbitration, if necessary, and, after the date of sale,
the telegraphic business of the company will be carried on (whether by
the company or the Postmaster-General) at the expense and for the
benefit of the Postmaster-General. In the meantime the company agreed to
maintain its plant in good and efficient working order, not to show
favour or preference among its subscribers, to accept minimum and
maximum rates, to allow intercommunication without terminal charges
between their and the Post Office subscribers in the same area, and not
to collect terminal charges for messages sent over the trunk lines
between subscribers of the company and those of the Post Office. The
Postmaster-General agreed to extend to subscribers of the company all
such telegraphic and postal facilities as his own subscribers enjoyed,
and to undertake underground works for the company elsewhere than in
London under the same conditions as in London. An agreement was also
reached that similar rates should be charged where the
Postmaster-General and the company maintained competing systems. As a
result, measured rates were, as a rule, substituted for the old flat
rates, much to the indignation of various Chambers of Commerce in the
Kingdom. In the case of complaint as to inefficient service, if the
charge is held to be proved before a person appointed by the Board of
Trade, and if it is not the result of a refusal to grant way-leaves, the
Postmaster-General may require the company to remedy conditions in the
particular area concerned or may call upon them to sell the inefficient
system to him. In the first case if there is no improvement or if the
second alternative has been adopted, the Postmaster-General may require
immediate sale under the same terms that would have held if it had not
taken place until the 31st of December, 1911.[840]
[840] _Acc. & P._, 1905, xliv, 16, pp. 3-23; _Rep. Com._, 1905, vii,
271, pp. iii-xi.
The income received by the Post Office for the fiscal year 1906-07 from
the London and provincial exchanges and trunk-line business was
£908,246, working expenses, £456,459, balance for depreciation,
interest, etc., £451,787, leaving a balance of £19,061 over and above an
estimated amount of £432,726 for depreciation and interest at three per
cent on the capital expenditure. The London exchange, with a gross
income of £330,512, showed a surplus of £25,586 over and above
depreciation fund and interest on capital expenditure, the provincial
exchanges a deficit of £15,758, and the trunk lines a surplus of £9333.
The number of subscribers to the Post Office provincial exchanges
(excluding Glasgow and Brighton) was 10,010. Including the Glasgow
subscribers (11,103) and the Brighton subscribers (1542), the total was
22,655. Arrangements were then being made for local intercommunication
between subscribers of these exchanges and those of the company in the
same places. Hull and Portsmouth were the only towns maintaining
municipal telephonic systems in 1907, Hull having 2128 telephones in use
and Portsmouth 2553. The number of telephones in the London Post Office
telephone service was 41,236, including 425 public call offices. The
agreement of 1905, providing for similar rates in the provinces between
exchanges of the Post Office and those of the company, was followed
after considerable discussion by the announcement of the adoption of a
new scale in May, 1906. The rates are now based on the principle of a
measured service under which each subscriber pays according to the
quality and quantity of the service desired. He may contract for any
number of calls from four hundred upward, and he may share a line with
another subscriber at a reduced rate, or he may rent a line for his own
exclusive use.[841]
[841] _Rep. P. G._, 1905, app., pp. 90-92; 1907, pp. 21-23, 93.