Albany); F. M. Cameron, Corporation Counsel, Hornell, N. Y.; Charles C. Clark, Corporation Counsel, Long Beach, N. Y.; Donald S. Moore, Corporation Counsel, Lockport, N. Y.; F. W. Clark, Corporation Counsel, Mt. Vernon, N. Y.; Charles A. Van Auken, Corporation Counsel, New Rochelle, N. Y.; Robert J. Moore, Corporation Counsel, and H. A. Constantine, Assistant Corporation. Counsel, Niagara Falls, N. Y.; R. A. Eagan, Corporation Counsel, Newburgh, N. Y.; Joseph A. Greene, Corporation Counsel, Ossining, N. Y.; George Worrall, Corporation Counsel, Poughkeepsie, N. Y.; Charles L. Pierce, Corporation Counsel, Rochester, N. Y.; E. H. Lewis and Frank J. Cregg, Corporation Counsels, and Henry E. Wilson, Assistant Corporation Counsel, Syracuse, N. Y.; George B. Smith, Corporation Counsel, Schenectady, N. Y.; Thomas H. Guy, Corporation Counsel, and John P. Judge, Assistant Corporation Counsel, Troy, N. Y.; William R. Goldbas, Corporation Counsel, Utica, N. Y.; Albert J. Danaher, Corporation Counsel, Watervliet, N. Y.; William R. Condit, Corporation Counsel, White Plains, N. Y.; Thomas M. Smith, Corporation Counsel, Yonkers, N. Y.

Henry E. MacArthur, for the Village of Brockport, N. Y.; Edward S. Coons, Village Attorney (by W. P. Capes, Albany), for the Village of Ballston Spa, N. Y.; Asher B. Emery, for Erie County and for the Village of East Aurora, N. Y.; H. L. Wilbur, for the Villages of Frankfort and Herkimer, N. Y.; H. S. McKnight, for Nassau County, N. Y.; James P. Lindsay, for the Cities of Tonawanda and North Tonawanda, N. Y.; D. C. Burke, City Attorney, Oneida, N. Y.; William J. Delaney, for the City of Saratoga Springs, N. Y.; Roy S. Smith, Executive Manager, Chamber of Commerce, Albany, N. Y.; and Charles H. Collins, Village President of Colonie, N. Y.

BLAKESLEE, Commissioner:

Case No. 377 is an investigation on the motion of this Commission as to all matters affecting the rates, charges and rentals, and the regulations and practices of the New York Telephone Company, in the State of New York.

Case No. 7720 is an application by the New York Telephone Company to increase rates for exchange service in New York city.

When this Commission took office it found some 135 cases pending, representing complaints made to the former Public Service Commission, Second District, against the New York Telephone Company. Hearings had been held by the former Commission in three such cases. Hearings in the Buffalo and Syracuse cases had occupied over two years. Final argument in the Syracuse and Buffalo cases was had before this Commission. Each was tried on the local area theory, and was decided thereon by this Commission; but the facts found were of little value in so far as they affected the disposition of the other pending cases.

The "local area" theory required separate valuations of the New York Telephone Company's property in every locality, and

an examination of the Company's practices, customs, rates and methods as many different times as there were cases to be heard, as well as allocation and segregation of the proper proportion of the company's reserve and other funds, and of its general revenues and expenses to each such area and the division of the physical property between toll and exchange use. The "local area" theory made for multiplicity of expense, and was obviously productive of protracted litigation. It was apparent that some different method for the equitable and prompt disposition of these cases must be had.

The Commission, therefore, on November 10, 1921, instituted an investigation, and called upon the New York Telephone Company and the representatives of all municipalities, or other complainants having matters pending before the Commission against the New York Telephone Company, to appear and be heard, to the end that complainants, this Commission, and the general public might be informed as to all matters affecting the rates, charges and rentals, and the regulations and practices of the New York Telephone Company in the State of New York.

Hearings were at once entered upon. On March 3, 1922, the Commission issued two orders making temporary decreases in the rates to be charged by the company in the city of New York, and in practically all other exchange districts in the State. The New York Telephone Company thereupon filed suit, in the United States Court, against this Commission and the Attorney-General of the State of New York, to restrain the enforcement of said orders and to declare the rates therein prescribed confiscatory; and for injunctive relief appropriate to such declaration. A temporary restraining order was obtained and an application for injunction pendente lite granted by the statutory court on the 12th day of June, 1922. Thereafter a Master was appointed out of the United States District Court but hearings before him were postponed pending the Commission's final order in this case. In the meantime an appeal has been perfected to the United States Supreme Court from the order granting the injunction, and said appeal has been advanced for argument by the Court to February, 1923.

The two cases discussed here are most important. Case No. 377, hereinafter referred to as the State-wide case, was instituted by this Commission as hereinbefore set forth. The New York City case, No. 7720, began with a petition filed by the New York Telephone Company with the former Public Service Commission, praying for an increase in rates for exchange service in New York city. The company asked for the adoption of a rate schedule which it estimated would yield additional revenue in the city of New York of about $16,000,000 per annum (Brief New York City, p. 1). There have been 63 hearings held, 7875 pages of testimony taken, and 320 separate exhibits submitted, besides many exhibits in the State-wide case which were made a part of the New York City case by stipulation.

The former Public Service Commission, on March 17, 1921, granted the New York Telephone Company a "temporary increase" by applying to the exchange rates in effect in New York city (after an 8 per cent reduction allowed in 1919 had been eliminated), a surcharge of 20 per cent to the rates theretofore established. After this Commission took office, and on July 1, 1921, it reduced this 20 per cent surcharge to a 10 per cent surcharge. Thereafter, and on November 10, 1921, as has been said, the Commission instituted, on its own motion, the State-wide case. Questions of general application, such as the relationship existing between the New York Telephone Company, the American Telephone and Telegraph Company, the Western Electric Company, the Long Lines Department of the American Telephone and Telegraph Company, the policies and practices of the New York Telephone Company, etc., are of the same interest and effect in the New York City case as in the State-wide case. For these reasons, as well as from considerations of economy and expedition, many exhibits and much testimony received in the State-wide case were, by stipulation, made part of the record in the New York City case.

In the State-wide case 66 hearings were held, at which 248 witnesses testified and 10,535 pages of written testimony were recorded; 408 separate exhibits, ranging from single pages of computations to one containing 22 volumes, have been filed. The Corporation Counsel of New York City appeared in both cases, and the Attorney-General of the State has represented the munici palities. Local legal representatives of municipalities have at times taken an active part. The witnesses produced were of high character, including persons most active in the telephone industry in this country, as well as widely known experts in various callings allied to the telephone art. Diligent effort has been made by the parties to present all facts bearing upon the issues involved. Both cases were concluded October 26, 1922, and later, briefs were submitted by all parties.

Growth of Telephone Business.

Proper perspective can best be had by a consideration of the telephone industry in the light of its historical growth. To begin with, Bell had two instruments and knew the basic principle of telephonic communication. Words were spoken from one room to another over short lengths of wire. After many experiments a line was built from Boston to Cambridge, consisting merely of a line of iron wire run upon house tops, using the ground as an earth return, and without signaling devices. The instrument was used both to talk and listen through, being placed to the mouth and then to the ear alternately. No satisfactory wire was available, and audible conversation was only occasionally possible because of electrical difficulties, cross-talk from telegraph circuits, lightning storms, etc.

The telephone was generally regarded as a scientific toy without business importance or commercial possibility, but those interested

in its development, believing in its future, induced persons in various localities to take out licenses, in order to place the telephone in business houses. There were licenses for Fall River, Providence, Newport, New York city and the region 33 miles around it, Albany, including certain territory on the east side of the Hudson river, one for Buffalo, and so on through the country. Professional and business men, attracted by the novelty, began to engage in the telephone business.

The licensors continued their efforts to improve the telephone and make it practical, as well as to discover remedies for the countless troubles which existed. Thousands of different types and models of receivers, transmitters, etc., were tried out. Between 1881 and 1888 a battery transmitter was developed. After passing through a long series of evolutions the Blake transmitter was superseded by the granular carbon transmitter. Then came the metallic circuit, and finally a process of making hard drawn copper wire; the first line built from Boston to New York being made possible through the use of copper wire. Improvements continued until the telephone came to be of practical commercial value. More companies were organized and apparatus became standardized. The telephone, today accepted as a necessity in the business and social life of the country, has been of rapid development and the modern telephone system, one of comparatively recent growth.

The New York Telephone Company.

The New York Telephone Company, authorized by charter to carry on a general telephone business in the State of New York, is the result of the consolidation and merger of 175 different companies, corporations and private enterprises, formerly carrying on the telephone business in the states of New York, Northern New Jersey and a part of Western Connecticut. The process of consolidation and merger was a continuing one from 1883 to 1920.

These early companies in New York state were licensees of the Bell Telephone Company of Boston. They furnished local exchange service, using crude equipment, the outside construction being of open wire carried on pole lines; instruments were cumbersome wall telephones with battery boxes of the magneto type. Toll service was a by-product of the local exchange business. These companies paid for their license privileges a combined consideration consisting of stock plus an annual payment of money. About 1899-1900 independent telephone companies began to operate throughout New York state, and competition in the telephone business developed to the extent that in nearly every community both Independent and Bell Companies were operating. Subscribers were often obliged to maintain both telephone services. Telephone rate wars were in progress, and in the competition for business, rates were fixed without regard to return. Service deteriorated so rapidly that in very few localities of the State was it satisfactory, and almost none of the companies were financially

successful. As has been stated, the New York Telephone Company took over, merged and consolidated these various companies, and now, for all practical purposes, furnishes telephone service throughout this State.

The New York Telephone Company also owns and controls telephone companies outside the State, as well as other companies and corporations of a business character having some affiliation with the telephone industry. Among the most important companies in which the New York Telephone Company has 100 per cent stock ownership, are: The Cayuga Southern Telephone Company, the Chesapeake and Potomac Telephone Company, the Chesapeake and Potomac Telephone Company of Baltimore City, the Chesapeake and Potomac Telephone Company of Virginia, the Delaware and Atlantic Telephone and Telegraph Company, the Electrical Securities and Construction Company, the Friendship Telephone Company, the Maryland Telephone Company of Baltimore City and the New York Telephone Realty Corporation. It controls through 90 to 99 per cent stock ownership, among others, the Mountain Home Telephone Company, the Empire City Subway Company, Ltd., and the Otsego and Delaware Telephone Company. It owns 87 per cent of the stock of the Bell Telephone Company of Pennsylvania, and 91 per cent of the stock of the Wayne Telephone Company, and the entire preferred stock as well as one-third of the common stock of the Rochester Telephone Corporation (Annual Report 1921). It has additional investments in preferred stock and bonds of telephone and other companies.

It furnishes telephone service in New York state in 1355 tax districts, covering 59 counties. It owns 158 parcels of land, on which are 143 buildings; 404 central offices are operated, the switchboards ranging from those with positions for over 200 operators, down to boards with but one position. It uses 215,000 miles of aerial wire and 38,000 miles of aerial cable, strung on 700,000 poles, these pole lines extending for 17,800 miles. Its 70,000 miles of underground cable are contained in over 15,000 miles of underground conduit. In 1921 it handled 2,000,000,000 exchange calls and over 82,000,000 toll calls in the State of New York. On October 31, 1921, it had 786,430 subscribers in the State and operated 1,404,992 company stations.

Capitalization of New York Telephone Company.

The issued common stock of the New York Telephone Company (August 31, 1922) was $204,692,000. The preferred stock outstanding as of the same date was $12,155,600. Bonded indebted

ness was:

Bonds assumed in the purchase of properties. 42% First mortgage bonds, N. Y. Tel. Co..... 6% Refunding mortgage bonds, N. Y. Tel. Co.

6% Debenture bonds (now mortgage bonds) N. Y. Tel. Co.

$714, 200 65, 680, 810 49,760,000 23, 510, 200

The company's real estate is mortgaged to the extent of $154,000. This makes the total capital obligations of the company covering the operation of the company over its entire field, in the telephone business and otherwise - $356,666,810.