330. Rent deductions for lease of telephone plant (p. 308) 331. Rent deductions for telephone offices (p. 308). 332. Rent deductions for conduits, poles and other supports 333. Rent deductions for instruments and equipment (p. 309). Total deductions. Net earnings (before interest and dividends). (Exhibit No. 341) A similar comparison of operating expenses with Schedule 303 of the same report, shows: Class of operating expense Total for company $905,396 49 Excluding long lines Maintenance: 3,080,640 17 175,708 21 605,715 16 $581,067 07 Although more than 5000 patents have been purchased by the American Telephone and Telegraph Company, their cost does not appear on the books. It has been entirely charged off against surplus. The amounts received from all associated Bell Companies for license payments during the years 1918-1921, were as follows: The American Telephone and Telegraph Company maintains that money has cost it 7.96 per cent on the average during the past four years. It loaned associated companies $189,585,094.06 on the average in 1921, on which it received approximately 6 per cent interest. It held in reserve cash and cash equivalents amounting to $41,907.146.57, on which it received approximately 3 per cent interest. It claims its average investment in telephone instruments (book costs) as $25,534,367.56. If we add to the expenses incident to the license contract the costs of money held in reserve for loans and the costs of money actually loaned, only a small return on the average investment in telephone instruments is indicated. Even if we reject from the computations the costs of maintaining the reserve for loans, the return on telephone investment is not such as to show a large profit to the American Telephone and Telegraph Company. We have scrutinized carefully the expense items relating to this contract, including national advertising, cash balances available. for loans, actual loans to licensee companies, station sets and repeaters used by associated companies, expense of research, accounting, legal, commercial, engineering, operating, executive and pension system services. The amounts paid for national advertising 1918-1921 were: $338,600 1918 1920-$366,397 The average cash balances held available for loans to licensee companies (dividing the sum of the monthly balances by 12), were: 1918-$32,308,785 1919 46,082,364 1920-$48,921,175 The average loan to each licensee company (dividing the sum of the loans outstanding on the first days of January, April, July and October by 4), was: Companies 7,831,250 00 18,358,045 83 22,338,716 44 25,660,344 52 8,850,000 00 7,812,500 00 3,165,238 45 662,500 00 1,965,843 32 23,013,200 00 25,885,111 61 150,000 00 1,451,794 48 Bell Tel. Co. of Pennsylvania. Wisconsin Telephone Company. Total. (Exhibit No. 371) 1,587,018 20 375,000 00 $104,803,236 25 $127,144,364 88 $176,395,669 25 For the year 1921 average loans to associated companies were: $189,585,094. The average number of sets (station) and repeaters in use during 1921 by each licensee company was: Much of the expense of research work is included in Account No. 675. However, this account does not contain all of such expenditures. Some are included in Accounts Nos. 661, 662, 664, 666 and 667. The latter accounts represent also the expenses incident to the accounting, legal, commercial, engineering, operating, executive and pension system services. While the record shows the expenses applicable to Account No. 675 for the period 19181921 (Exhibit No. 371) the other accounts, Nos. 661-672, are not subdivided so as to show the amount (excluding Long Lines expenses), applicable to the associated companies. We have the allocation for the year 1921 only. Of the total expenses covering these accounts 92.7603 per cent was allocated in 1921 to associated companies. Applying this percentage to the total of these accounts for the years 1918-1921, the average amount applicable to associated companies would be: The basis of payment, under the license contract, so far as the New York Telephone Company is concerned, has been changed at various times. These changes are claimed to have been made in order to adjust the contract to the development of the business. They may be summarized as follows: The payment originally amounted to $14 per annum for each set of instruments used in exchange and toll service, and ranged from $3.50 to $14 per annum for each set of instruments for private line use, depending upon the character of the use. In June 1885 the payment based upon the charges for instruments for exchange use was reduced to amounts varying from $6 to $13.50 per set per annum. Within this range the amounts varied with reference to the rates charged for exchange service. In July 1885 the payment was indirectly decreased through the undertaking of the licensor to furnish, without additional charge, a surplus of 3 per cent of the instruments charged to the licensees for exchange use. In January 1894 the payments based upon rates for receivers for exchange use were reduced to amounts ranging from 75 cents to $2.50 per annum, depending upon the rates charged for exchange service, and for toll line use to sums ranging from $7 to $2.50 per annum, and for private use to 75 cents per annum. In March 1894 the payments based upon rates for instruments for private lines were reduced to amounts ranging from $1.50 to $5 per set per annum, with a further reduction related to fire alarm, police and branch line service. In February 1895 there was a further reduction in (1) the payments based upon rates for transmitters used for exchange purposes, which were reduced to amounts ranging from 75 cents to $5 per annum, depending upon the rates for the exchange service; (2) the payments related to toll line service which were reduced from $7 to $5 each per annum; (3) the maximum payments related to instruments for private line use reduced from $5 to $2.50 per set per annum; and (4) the payments related to instruments for fire alarm, police and branch line service, which were reduced from $5 to $2.50 per set per annum. In July 1895 there was a further indirect reduction through the agreement of the licensor to furnish, without additional charge, the special long distance transmitters. In May 1898 (1) the payments' related to instruments in toll stations were placed on practically the same basis as those where the use was for exchange purposes; (2) the payment for each instrument in stock beyond the 3 per cent excess was fixed at 75 cents per annum. In March 1899 the payment was further reduced, through the reduction of the maximum related to instruments used for private line service, from $2.50 to $1.50 per set per annum. In January 1902, in order to eliminate the expensive and laborious accounting which the preceding methods involved, there was substituted for the specific payments a lump sum equal to 42 per cent of substantially the total gross earnings of the licensee. This was less in the aggregate than the licensees had theretofore been paying. So called Franchise Stock Part of the consideration for the license contract was the issuance to the parent company of a portion, generally about 35 per cent of the capital stock of the licensee, with an agreement that there should be issued to it without further charge a like proportion of all stock thereafter issued by the licensee. The parent company surrendered this right and since 1887 has paid par in cash for all stock issued to it by the licensee companies. Percentage on Licensees' Extra Territorial Toll Revenues In 1898 the licensees were released from their obligation under the license contract to pay to the licensor a percentage upon their gross toll revenue from extra territorial toll lines. This percentage had varied from 10 per cent to 25 per cent. Connection with Telephones Not Furnished by Licensor In October 1907 the licensees were authorized to connect the telephones furnished them under the license contract with the telephones in their territories not so furnished, used on lines of their connecting companies, farmers' lines, and lines operated by railroads. Originating Commission This was originally 15 per cent of the tolls not to exceed 5 cents on any one message. Through the operation agreements this minimum was increased first to 10 cents and then to 20 cents in cases where the licensee did the operating. |