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The initial capitalization, June 26, 1896, was $16,000,000, about $12,000,000 of which was issued for the fixed capital and assets of the Metropolitan Telephone and Telegraph Company and the Westchester Telephone Company. Up to 1909 some capital stock was issued and paid for in instalments covering a period of years. In 1900 a $3,000,000 stock dividend was declared. About $35,700,000 in capital stock was issued in 1909 for the fixed capital and assets of the New York and New Jersey Telephone Company and the Bell Telephone Company of Buffalo. Since 1909 all stock issued has been paid for in cash at the time of issue. During the period 1896-1921, $161,922,600 has been paid in dividends. The dividend rate for the 26-year period has been 8.17 per cent. Since the acquisition and merger of telephone properties in 1909 a dividend rate of 8 per cent has been maintained.
The New York Telephone Company holds securities in controlled and non-controlled companies of a par value of $116,646,075 (October 31, 1921), carried on its books at $119,628,623. It claims to receive an average return on these investments of 5.77 per cent. As of the same date it had certain land and buildings held for disposal valued at $185,939; other securities of $296,200, and obligations of controlled companies representing $17,530,627, in loans made to them by it.
Relationship with American Telephone and Telegraph Company.
The American Telephone and Telegraph Company is the licensor and owns or controls the stock of those telephone companies throughout the United States, collectively referred to as the Bell System. It owns substantially all the stock of the New York Telephone Company. It also controls the Western Electric Company, a corporation extensively engaged in the manufacture and sale of materials and supplies used in the telephone business. In addition it maintains and operates a Long Lines Department which provides the plant and facilities necessary to connect up the territories of the associated companies for toll service and to handle long haul and interstate toll traffic throughout the country.
The License Contract.
Those engaging in the telephone business in the early days, having generally had no technical experience, of necessity called upon the licensor company for assistance in overcoming the difficulties incident to the practical commercial use of telephone instruments and lines.
These repeated requests led to arrangements being made whereby the licensors, who were putting every effort into the perfection and improvement of their invention, furnished advice and assistance to the licensees. The licensor company built up an organization for this work, and as the assistance to the licensee companies. not only contemplated technical questions but had to do also with legal matters, accounting practices, rates, classification of service, etc., this organization gradually developed into what is now known
as the general staff of the American Telephone and Telegraph Company. The practice has grown with the business, and the American Telephone and Telegraph Company under the license. contract continues to furnish such services in addition to supplying and maintaining the instruments used by the associated companies. The American Telephone and Telegraph Company receives as compensation under the license contract 42 per cent of the annual gross revenues of each of the associated companies, including the New York Telephone Company.
The services covered by the license contract include:
(1). Telephone instruments, that is, the receiver, transmitter and induction coil, and with these instruments, for no additional charge, the use of repeaters.
(2). The use of all patents owned or controlled by the American Telephone and Telegraph Company, and the benefit of the research and development work carried on by the American Telephone and Telegraph Company.
(3). Financial assistance.
(4). Accounting, legal, traffic, commercial, engineering and operating advice and assistance; publicity and executive assistance.
(5). The right to use all methods, systems, apparatus and instruments covered by the patents owned or controlled by the American Telephone and Telegraph Company, free of any royalty, with the insurance against infringement suits and a claim to indemnity in case of adverse claims under patents.
(6). Advice and assistance in administering the employees' benefit and accident funds.
(7). Universal connection with all other telephones in the Bell System.
The Instrument Services.
That part of the subscriber's telephone set furnished by the American Telephone and Telegraph Company consists of the transmitter piece, including the lug or bolt which attaches it to the desk. stand; the entire receiver, including the cord; and the induction coil, generally found in the bell box. These parts are commonly referred to as the telephone set. When needing repair they are returned and exchanged by the manufacturer, the Western Electric Company. Whenever a general improvement is made, or a new type developed, the New York Telephone Company, under its contract, has the right to return sets of the older type and obtain in exchange instruments of the latest type. The New York Telephone Company had (October 15, 1921) 1,553,955 transmitters and 1,623,838 receivers in use in New York state, and a reserve stock of 38,639 transmitters and 41,528 receivers (Exhibit No. 80).
The New York Telephone Company may under the contract. permit its connecting companies the use of these instruments without additional payment to the American Telephone and Telegraph Company. The New York Telephone Company charges connecting companies an average of 75 cents per set on an annual basis,
and from 56,728 receivers and 55,995 transmitters so leased in 1921 received $29,647.86. This amount is not included in the basic amount on which the license payment is computed. The New York Telephone Company claims that it furnishes instruments to its connecting companies because of the improved service, especially with regard to toll, consequent on the use of standard instruments.
It is uncontradicted that the instruments furnished are as good or better than those which might be procured in the open market, and the fact that they are standard in the entire Bell System should be a distinct advantage. It is contended by the New York Telephone Company that the average annual outlay for these instruments, if owned by it would be from $1.08 to $1.19 per station.
The American Telephone and Telegraph Company furnishes financial assistance to all the Bell System companies, and to the New York Telephone Company in particular. It's loans to the New York Telephone Company are in the form of notes bearing interest at a net rate of 5.88 per cent. During the past four years the average annual loan to the New York Telephone Company has been $27,483,382. In June 1921 the amount due to the American Telephone and Telegraph Company from the New York Telephone Company was $61,613,716. The money so advanced has been spent by the New York Telephone Company largely in plant construction.
In addition the American Telephone and Telegraph Company keeps constantly on hand and available for immediate loans to all associated companies, including the New York Telephone Company, large amounts of ready cash or quickly convertible securities.
The American Telephone and Telegraph Company furnishes to the associated companies, including the New York Telephone Company, legal, accounting, engineering, commercial advice and assistance; guarantees the maximum cost of the employees' benefit and insurance plan and carries on a campaign of national advertising.
The American Telephone and Telegraph Company furnishes standard contracts and agreements, decisions of courts and regulatory bodies, advises as to statutory changes and actively assists in legal matters arising in the territory of associated companies. It defends associated companies against patent infringement suits. In 1918, on the termination of Federal control, it negotiated the matter of compensation with the United States Government, and carried through to its conclusion the settlement made with the New York Telephone Company.
It examines and audits the New York Telephone Company's books each year. The comptroller's department, consisting of over
two hundred accountants, statisticians and clerks prepare and issue bulletins, covering all phases of accounting practice, and confer on accounting methods and practices with representatives of all associated companies. Statistics of the telephone industry are collected and made available to the executives of associated companies. Plans are drawn for the associated companies covering method and manner of carrying out yearly construction programs. Assistance is furnished in marketing securities.
The Department of Operation and Engineering of the American Telephone and Telegraph Company assists associated companies with their plant and apparatus, traffic arrangements and commercial practices. It furnishes plans and advises associated companies concerning the design, construction and maintenance of telephone plants.
The Traffic Section advises the associated companies as to traffic arrangements, methods of handling calls, use of operating forces, and in general as to the most efficient and economical rendering of service. It issues traffic, engineering and operating bulletins to the associated companies. It makes service observing tests, compiles specifications with regard to service and traffic, gives advice as to directory practices, studies and tests office appliances, and keeps complete technical files and records. In 1921 it issued 258 special bulletins, including 94 general engineering circulars, 31 sets of specifications, 12 supplemental circulars, 34 special circulars, 22 general traffic circulars and 65 commercial letters.
Employees' Insurance and Benefit Fund Plan.
In 1913 all companies in the Bell System adopted the Employees' Insurance and Benefit Fund Plan. This was intended to systematize the matter of insurance, disability and death benefits, pensions, etc., for all employees. The American Telephone and Telegraph Company guarantees that the cost shall not exceed 2 per cent of the New York Telephone Company's payroll.
The American Telephone and Telegraph Company expends a large sum annually for national advertising. It claims that the good will of the public engendered through such advertising is of benefit to the associated companies, that advertising is as necessary for a protected monopoly as it is in competitive business.
General Staff Services.
The American Telephone and Telegraph Company maintains a corps of scientists and engineers, for the purpose of designing, perfecting and testing inventions, and trying out materials used in plant construction. An impressive showing was made as to the extent and value of this work. The personnel employed is commonly referred to as the "general staff." Much of the research
work, involving the examination and tests of apparatus for durability and cost, the standardization of materials, and the designing, testing and improving of new devices is carried on in the New York city laboratories of the Western Electric Company; 224 engineers and assistants and 103 draftsmen and clerks compose the personnel. Broadly classified, investigations are being conducted in over 500 projects, subdivided into 2500 separate investigations. These investigations cover all phases of the telephone industry with particular reference to equipment development, outside plant development, electrical interference, and fundamental research.
Among the more important achievements, attributed to the general staff, are:
Development and commercial utilization of the Pupin coil.
Development of fine wire cable; the antimony cable sheath; paper insulation of fine wire cable; as well as perfected methods of cable splicing.
Improved type of phantom circuit, utilization of carrier
Fundamental changes in receivers and transmitters.
Standard flexible switchboard cord.
Prepayment coin boxes.
Nearly all of these have been highly important and some deserve special mention:
Professor Pupin made a profound discovery in the principles of wave transmission. But the first Pupin coil was not in any sense available for use telephonically speaking. The mathematical formula, after much development work and many additional patents, through the medium of the general staff, resulted in the Pupin loading coil. The American Telephone and Telegraph Company paid something like half a million dollars to Dr. Pupin for his patent, and following its subsequent development and perfection, 200,000 miles of circuit in New York state have been equipped with such coils. They function in making the wires themselves better conductors of telephone current, improve the efficiency by reducing the amount of energy dissipated in the line itself, and permit the use of finer wire in the circuit; resulting in extensive savings of copper. Wire of 19 gauge can be used with loading coils: this weighs about 20 lbs. to the mile, while the same transmission efficiency, without loading coils, requires wire weighing about 150 lbs. to the mile. These coils are manufactured by the Western Electric Company under the license contract, and are not available to any but licensee companies.
Repeaters, to which vacuum tubes are essential, are also used in amplifying transmission, but while the loading coils serve to improve the efficiency of the telephone line, the repeater introduces a supply of new energy. That is, the telephone current, passing