Government Telephones

GOVERNMENT TELEPHONES

JAMES MAVOR, PH.D. Professor of Political Economy in the University of Toronto: Author of "An Economic History of Russia," etc., etc.

TORONTO THE MACLEAN PUBLISHING CO. 1917

NEW YORK MOFFAT, YARD & COMPANY CONTENTS PAGE INTRODUCTION...... I

CHAPTER I THEACQUISITION OF THE BELL SYSTEM ... 13 Early telephone development under private enterprise. Political agitation for public ownership of tele- COPYRIGHT. 1916. BY phones. Substantial reduction in telephone rates MOFFAT, YARD AND COMPANY promised under public ownership. Construction by the NEW YOlK Government of a competitive telephone system begun in 1907. Government purchase of the extensive system of the Bell Company, December 30, 1907. Promises of the Government as to reduction of rates, commercial management, and profitable operation.

Telephone management vested in a Commission under the control of the Government. Telephone policies determined by political considerations ; Governmental interference in the telephone management. A sectiondl increase in rates; telephone management dominated by political influence. Substantial profits from the first year's operations alleged by the Government. Real deficit in 1908 concealed by unsound accounting methods. A moderate rate reduction effected by the Government for political purposes. Labor difficulties. Deficit in 1909 concealed by the accounting methods prescribed by the Government. Construction policy of the Government ineconomical and marked by political abuses. Financial result in 1910 again an apparent profit but a real loss. Fictitious profits disappear iu 1911; an aggregate loss of over $300,000. Govern- ment policies result in extravagance, ineaciency and CONTENTS CHAPTER PACE discrimination in violation of promises. Lone distance rates increased; proposal to revise exchange- rates violently attacked by the public. Appointment of a Royal Commission, under the control of the Govern- ment, to investigate the Telephone Commission. Tele- phone mismanagement ascribed by the Royal Commis- sion to the Telephone Commission instead of to the Government. Resignation of the Telephone Commis- PREFACE sion. Although there are many difficulties inherent in Governmental management of industrial enterprises, Appointment of a single Telephone Commissioner and although in practically every country these diffi- followed by ostensible, but largely ineffectual, administrative reforms. Exchange rates increased; private culties have emerged in a more or less acute form, telephone competition prevented. Telephone accounts still defective; a real loss of over $zoo,ooo in 1.912. any new example of such management, especially one Inadequate provision against depreciation ; real finan- upon a considerable scale, is worthy of careful exam- cial result in 191.3 again a deficit. Quality of service unsatisfactory. More administrative reforms, with ination in order to determine to what degree, if at extension of Government control; accounts show an- all, the inherent difficulties have been overcome other deficit in 191.4 and improper use of telephone funds. The telephone management a campaign issue; either by the sagacity of the Government or by the extension of telephone service less than that in the coincidence of unusually favorable conditions. The United States; the passing of the Government. System used for political purposes by the new Government; test of practical experience is after all a good one; an aggregate loss of $r,ooo,ooo. Increasing deficits and the study of a living organism offers certain ad- despite reports of profits; no prospect of relief from political abuses. vantages over the study of an organism whose life history is closed. The disadvantage is that the living organism cannot without risk be cut open to see what is going on inside and that therefore the view of it must be an external one aided by diagnosis of its interior condition derived from the external ap- pearances. Under the influence of such reflections, during the summer of the memorable year 1914, I made an inquiry into the telephone system of Manitoba in order to ascertain the facts of the case. The Provin- v vi PREFACE PREFACE vii cia1 Government had undertaken the ownership and My inquiry was necessarily of a much less formid- operation of the telephones in the Province in 1908; able character. It was unavoidable to confine it al- the system was the largest under Government own- most altogether to the history of the system in so far ership in America; the Provincial Government had as this history might be gathered from published been by no means modest, either in promises or in documents, from contemporary newspapers, and announcements of performances; political capital from conversation with those who had had relations had been raised upon the credit of the telephones by with the system or opportunities to know the course Cabinet Ministers and by candidates at elections; the of events. The inquiry was greatly facilitated by alleged success of the enterprise had been widely the fact that a considerable mass of privately col- advertised in the organs of the Government and in lected authoritative data relating to the subject for- those of the advocates of "public ownership." On tunately came into my possession. The following the other hand, politicians of the party opposed to pages are the result of a critical analysis of all the the Government and the Opposition press, while in material at my disposal. Much of it was found to general approving of the policy of public ownership be inaccurate or biased and was therefore rejected. in the abstract, attacked the management of the Gov- The narrative is scrupulously documented. It pur- ernment, sometimes abusing the Government for ex- ports to set forth statements of fact readily suscepti- travagance and at other times for parsimony. ble of confirmation by any one who will take the For the reason that a living organism was in- trouble to consult the authorities which have been volved it was not easy to study the Government tele- given. The conclusions which are drawn from the phone system in Manitoba in actual operation. An statements of fact seem to be irresistible, and they exhaustive investigation into the contemporary tech- are stated with due reserve. The book must there- nical and financial position of the system would nec- fore be judged not as an attack upon the Manitoba essarily have the character of a post-mortem. Such Government nor upon its administration of the tele- an investigation could moreover be competently con- phone system, but as a critical narrative of historical ducted only by an impartial tribunal appointed by facts written from a point of view as impartial as extra-Provincial authority and endowed with full possible. powers to call for witnesses and documents, to take It should be noticed that since my inquiry was con- evidence upon oath, and to employ experts to excluded, the Government which was responsible for amine the accounts and to appraise the plant. the purchase of the telephone system and for its ad- viii PREFACE ministration during the first seven and a half years of Government ownership has ceased to exist. Some of its members were indicted for infringement of the criminal law; but the disagreement of the jury avoided a positive verdict. The present Govern- INTRODUCTION ment has been in existence only a short time; nevertheless, certain of its acts have been significant and The invention of the telephone has probably pro- ominous, and brief mention of these acts has been duced more important social reactions than either included in the narrative upon the basis of such the railways or the telegraph, although the telephone printed authentic information as has recently come to was introduced only forty years since, while the rail- my notice. way is nearly a century and the telegraph about My inquiry included the telephone systems in the three-quarters of a century old. The rapidity of Provinces of Alberta and Saskatchewan where, as in the development of the telephone and the wide ex- Manitoba, Government ownership of telephones was tension of its use have resulted from the application adopted about a decade ago; but the systems in these of the inventive genius of a large number of persons Provinces are really too small to warrant extended and from the encouragement of this genius by private consideration and I have taken no steps toward pub- enterprise, especially in America. lishing my notes on them. However, it may be said In Europe the telephones are now very generally that, on the whole, the history - and results - of owned by the Governments of the respective coun- public ownership both in Alberta and in Saskatche- tries in correspondence with the view of the charac- wan have been analogous to those in Manitoba, al- ter and functions of the State which has developed in though of course on a smaller scale. Central Europe during the past seventy-five years. JAMES MAYOR. This view involves the more or less complete subor- Toronto, dination of the individual to the State and places I st September, I 9 I 6. enormous industrial and financial power in the hands of the governing groups. This power has been used to the full during recent years to establish and to continue the political pre-eminence of these governing groups. The interests of the public are lost sight of I 2 INTRODUCTION INTRODUCTION 3 in the pursuit of the assumed interests of the State - phony, it is probable that to no industry is State man- a body by no means identical with the mass of the agement less readily applicable than to the telephone public, but to be regarded rather as a body of per- industry. The intricacy of its technique and the sons whose interests are frequently opposed to those highly fluid character of its methods mark it off de- of the community of persons who constitute the cisively from certain industries whose technique has nation. become settled and whose methods have come to be There is no reason to believe that the policy which subject to routine. Whether or not industries of has been adopted by the Central European Empires the latter character may be successfully administered and copied in a less extensive degree by the nations by the State is open to discussian on general and on of western, southern and northern Europe, will be special grounds; but experience has shown that the permanent. There have been many oscillations in methods of State administration are in general too historical times between what may be generally called cumbersome for their application to rapidly develop- medieval legislative and administrative restriction ing industries, with the doubtful exception of those and modern freedom of the exercise of industrial which are of a definitely military or naval character. functions. Whatever may be the tendency at a par- Even in the latter case experience has also shown the ticular moment, there is no justification for nourish- immense advantage of the distribution of technicaI ing illusions upon the alleged advantages of restric- skill in private establishments as a reserve which tion over freedom, even although liberty has its may in case of need be diverted to the service of the drawbacks when pushed to the extreme of laisser State. Where, from a mistaken view of the public f aire. interest, the State establishes a monopoly in its own The most obvious disadvantage of State collect- favor, the inevitable result is the suppression of in- ivism is the degeneration of the administration into a dividual initiative and the absence of reserves of bureaucracy of which red-tape becomes the symbol. technical skill and efficient labor. Under the pressure of red-tape, invention is un- The argument which at the moment is frequently doubtedly sterilized. As a matter of fact, the de- employed, that for military purposes in time of peace velopment of the telephone owes nothing to the State as well as in time of war it is important for the tele- in any country. It has even been impeded by legis- phone to be in the hands of the Government, does lation and by the fear of the possibility of public not apply because if the telephone is in private hands confiscation. Under the technical conditions of tele- the Government can in an emergency exercise the 4 INTRODUCTION INTRODUCTION right of eminent domain and can commandeer the and the public interest in the widest and deepest telephone service, even if it were not voluntarily sense may be conserved by the Government, provided placed at the disposition of the Government, al- that: the visitatorial power is exercised in an impartial though that would undoubtedly be done. Under manner. Where, however, the Government enters private operation of telephones the Government has into direct competition with private enterprises, its thus the advantage of having at its disposal a tele- +tatorial powers cannot be exercised disinterest- phone system developed by private initiative with- edly and must therefore be ineffective; and where the out cost to itself and much more extensive than any Government exercises a legal monopoly, the visita- which would have been at all likely to have been torial power disappears altogether and there is neces- developed under Government auspices. sarily a tendency, not only towards administrative In democratic countries the people are in general stagnation but also towards laxity, incompetence, severely censorious about Governmental actions and and even fraudulent intromission with public funds. frequently even abusive of the executive Govern- Thus a public service which is rendered by persons ment; but an attitude of this kind is rarely of an voluntarily cooperating as in a joint stock enterprise, intimate or effectively critical character, especially when subjected to the possibility of Governmental in- where the actions in question are connected with the spection and criticism by Governmental agents hav- operation of a complex industry. The minutiz of ing power to call for the production of all relevant such an industry are not understood by the public at data, is more likely to be conducted efficiently than a large and if the State is the sole employer of the public service rendered directly by Governmental em- experts, the assistance of these experts is not gen- ployees who are not exposed to effective criticism by erally available for an examination of the Govern- any constituted body. mental operations because they are professionally So also financial considerations are decisively and economically at the mercy of the Government. against overloading Governmental agencies with pe- Under the conditions of a competitive system where cuniary responsibilities. The investor in Govern- there is no Governmental or other monopoly, criti- ment securities regards as the prime element in their cism may be continuous and effective. Under con- saleability, not the alleged assets of the Government ditions of quasi-monopoly, the visitatorial power the value of which he is not competent to judge, nor which is inherent in Governmental administration the alleged earning power of any of the enterprises may properly be applied by Government inspectors in which the Government may engage, for the effi- INTRODUCTION 7 6 INTRODUCTION 10 The absence of incentive to economical man- ciency of the management of these enterprises is also agement; 2' the employment of persons on political beyond his knowledge; but the investor regards ex- rather than on professional or technical grounds, and clusively the taxing power of the Government and therefore the employment of a number of persons the apparent ability of the people to sustain the bur- larger than is necessary; 3" the reluctance with which den of the taxes which are likely to be placed upon the Government appoints persons of superior pro- them. In this estimate of the solvency of a com- fessional qualifications because of the relatively high munity, the aggregate amount of the public debt, salaries such employment involves, the employment State and municipal, in relation to the numbers of the of the cheap official being regarded as most easily people is a prime factor. Increase in public indebt- defensible; 4' the sale of the service, whatever it edness in excess of the increase of the numbers of the may be, at a price determined also rather on political people means, therefore, an increase in the rate than on technical grounds; and 5' the restriction or of interest because the security is proportionately the absence of competition. diminished. In a country where the chief employ- The consequence of these conditions is that the cost ment is agriculture, the principal security upon which to the nation of any service rendered by the Govern- debt is created is clearly land; and when the aggre- ment is always greater than the cost of the same serv. gate debt amounts to a high sum per acre of land in ice rendered by competent persons other than those cultivation, it is time for the investor in public se- in the Government service. This consequence makes curities to consider the situation because the taxes its appearance even although the functionaries of the being the first charge upon the land, the amount of Government practice the most scrupulous integrity. these taxes determines all other credits, and defaults Where corruption enters, the consequences are some- in tax payments involve flight. If the population times even disastrous. deserts the land, all other forms of security in the The demands of a growing population for the ex. country shrivel into no importance. The attitude tension of Governmental services of a strictly legiti- of the investor is, therefore, perfectly sound. mate character are increasing so steadily that the tax- The experience of every Government shows quite bills as well as the debt of the modern State are sub- conclusively that Governmental management of en- ject to constant expansion. If in addition to this terprises of an industrial character is ineconomical. legitimate increase in the amounts taken from the The ineconomical management of such enterprises pockets of the people and placed at the disposal of arises from the following main causes: 8 INTRODUCTION INTRODUCTION 9 the Government, the increase of taxes and of debt by adv~cate~and by opponents of public ownership. is amplified by Governmental adventures into inec- The public interest is affected not merely by balance onomically conducted industrial enterprises, the finan- sheets, but even more importantly by those influences cial fabric of the nation becomes more and more seri- not distinctly tangible but nevertheless real which ously imperilled. The resources which should be contribute, along with the pecuniary factor, to deter- available for the promotion of increased production mine the movements of population, the efficiency of are absorbed by the Government, a period of indus- industry, and the character of the people. trial stagnation supervenes, while individual enter- The Manitoba experience of Governmental man- prise and even individuality itself are checked. Un- agement of the telephones is very instructive because der such conditions the more energetic of the popula- it affords an iIIustration of the fatal weakness of po- tion migrate to some other region where a smaller litical administration of industry. Although the proportion of their earnings is absorbed by the Gov- scale upon which it has been attempted is small com- ernment and where they can enjoy a field for their pared to the scale of a great country, it is neverthe- powers less hampered by Governmental restrictions. less large in relation to the total activities of the This cycle of development has occurred in certain Province. The purchase of the telephone system European countries, where the reactions of excess of doubled the Provincial obligations and the expendi- Governmental control have worked themselves out. ture on the telephones has formed a very material The continent of America has indeed been largely proportion of the total Provincial expenditure. In- peopled by emigrants from Europe fleeing not from stead of proceeding cautiously and circumspectly in ancient feudal disabilities which have long ceased a new adventure as the Government might well have to have any tangible force, but from the modern done, the Government plunged at once into a rela- feudalism which subordinates the individual to the tively vast extension of the telephone system without assumed interests of the nation. regard to the cost of it and considering only the tem- Even although a State enterprise were conducted porary political advantage to the Government then profitably in a pecuniary sense, there would be a in power. The public interest was wholly disre- net public disadvantage unless the administration garded. The members of the Government who of it was such as to avoid the injurious effects spoke most confidently about the telephone system not primarily of a pecuniary character. Too great knew, as they themselves admitted afterwards, noth- stress is often laid upon the pecuniary factor alike ing whatever about it. They promised things that 10 INTRODUCTION INTRODUCTION in the nature of the case they could not possibly per- form; for example, they promised to "cut the rates ought properly to be provided without delayuout of in two." They undertook to manage the telephone the general resources of the Province from taxation business without the assistance of superior technical and placed in a fund in the hands of trustees inde- advice and superintendence, while they hampered of the Government for the security of the their own officers in the performance of their duty holders of the Telephone debentures and stock; and handicapped the enterprise by saddling it with otherwise these securities must in effect be depre- charges and overcharges of purely political origin. ciated by about ten per cent., taking into ac- The accounts were presented in a manner of which count the losses of the past alone and taking no no competent chartered accountant could approve account of the losses of the future. The politi- and to which no such person could put his name with- cian accustomed to vague rhetorical generalities is out qualification. The Government pretended to used to denouncing all serious criticism; but the in- entrust the telephone business to the Telephone Com- vestor is not always easily deluded and one day the mission and yet from the beginning assiduously used Province of Manitoba will find in a restricted money the telephone business for political ends, reducing market and an abnormal rate of interest the conse- the rates without competent technical advice and quences of the failure of its executive Government forcing upon the Commission a series of financial to transact its business in a businesslike way. arrangements of a highly questionable character. Among the financial reactions of the war must un- The representations made by the Manitoba Gov- doubtedly be the increase of the public debt of Eu- ernment which acquired the system, and even those rope, the great increase of the fund holding classes, made by the present administration, as to accruing and the urgent necessity for State economy. This profits are absolutely without foundation. Until the economy can only be effected if the State relinquishes Government writes off the amount which its own all but its necessary and obvious functions and re- auditor regards as the excess value of the plant, as frains from increasing its total obligations. Only by shown by the books, over the real construction cost such means can normal social conditions be re-estab- of the plant, it is idle to talk of profits. Strictly lished. Unless on the American continent a similar speaking, the Manitoba Government Telephones restrictive policy as regards State action be adopted, have up till the present time involved the Province in America will find itself burdened by overwhelming a loss of upwards of a million dollars. This sum public obligations with all the social reactions to which these obligations give rise. THE ACQUISITION OF THE BELL SYSTEM

EARLY TELEPHONE DEVELOPMENT UNDER PRIVATE ENTERPRISE PUBLICtelephone service in the Province of Man- itoba was first given in 1880 by a private individual who opened a telephone exchange in Winnipeg and charged an annual flat rate of $60 per instrument. In 1881, however, this exchange was purchased by the Bell Telephone Company of Canada, which, in 1882, established exchanges in Brandon and Portage la Prairie.l The Bell Telephone Company began its service at a time when there were only some 60,000 people in the entire Province, when the population of Winnipeg was only 8,000, and when Bran- don and Portage la Prairie were only village^.^ As early as 1884, there were 340 subscribers in Winni- peg,3 a large number in proportion to the population at that time. Credit, therefore, is justly due the Bell Company for assuming the burdens and the risks of a pioneer, for anticipating the needs of the ' The Winnipeg Telegram, January 16, 1908. Cf. Fifth Census of Canada, 1911, vol. i, pp. 522, 554-555. The Winnipeg Telegram, January 16, 1908. I3 14 GOVERNMENT TELEPHONES ACQUISITION OF BELL SYSTEM 15 public, and for developing a substantial business to ~~"~rnrnent-developedsystems in Rome, Paris or serve the public. Vienna. It was not until after 1900 that a rapid Moreover, the successful development of the busi- expansion of the service in Manitoba became possi- ness was not a matter of smooth sailing; the eco- ble. Between 1900 and 1908 the service did expand nomic seas in those days were extremely turbulent rapidly and the Bell Company anticipated and pre- and often treacherous. Although a period of boom pared for still further expansion.& and prosperity accompanied the completion of the extension of the Canadian Pacific Railway to the pOLITICAL AGITATION FOR PUBLIC OWNERSHIP OF TELEPHONES Pacific Coast in 1886-87, yet the telephone industry at that time was too young to participate in the gen- In 1898 there arose, chiefly in the sparsely settled eral expansion. Somewhat later, the growth of the '' rural municipalities," a mild sentiment in favor business was retarded by the local depression which, of the installation and operation of telephone ex- beginning in I 8 8 8-89, continued for several years, changes by municipal authorities. The first munici- - a depression which had as one of its causes a de- pality to take up the matter actively was Neepawa, crease in immigration. Furthermore, when a vig- which had slightly more than ~,oooinhabitants. It orous immigration movement again set in - in I 895 was found, however, that the Municipal Act of the -the nature of the immigration was such that little Province did not endow municipalities with power to impetus was given to telephone development, for establish commercial undertakings. Consequently, during the period 1895-1900 the immigrants were despite the fact that as a whole the municipalities predominantly of the peasant class with slender were not anxious to embark in a venture involving knowledge of the English language, self-contained the provision and risk of capital, to meet the individ- habits, and small purchasing power. Thus it is ob- ual case of Neepawa and to provide for a few sim- vious that up to 1900 the telephone business could ilar cases, in 1899 the Provincial Legislature passed not grow otherwise than slowly. Nevertheless, it an Act permitting municipal ownership and opera- is found that in 1900 the Bell Telephone Company tion of local exchange^.^ served more subscribers, in proportion to population, Cf. pp. 26-28, infra. In Manitoba " rural municipalities " comprise rural territory in each of the towns of Winnipeg, Brandon and exclusively. They are somewhat analogous to rural counties in Portage la Prairie than are served to-day in the Eastern Canada and in the United States. 7Statutes of Manitoba, 62-63 Vic., 1899, cap. 25. Cf. also The 4Cf. The Winnipeg Telegram, January 16, 1908. Winnipeg Telegram, February 4, 1908. I 6 GOVERNMENT TELEPHONES ACQUISITION OF BELL SYSTEM 17

Since the municipal exchanges established under provincial Government to expropriate the Company's this Act were not entitled to connect with the long property in Manitoba.12 As the granting of any distance lines of the Bell Telephone Company, the such request would obviously have seriously impaired Manitoba Government then began to consider, the value of all charters whatsoever, the request was though in a rather vague and abstract manner, the naturally refused.13 expediency of constructing and operating long dis- As a result of the " quiet " inquiry of the Premier tance lines. No tangible action was taken until and the Minister of Public Works, the Government 1905, when, on January 26th, the Select Standing resolved to commit itself to a specific policy of pub- Committee on Private Bills of the Provincial Legis- lic ownership of telephones. The first definite an- lature, in a report rejecting the application of two nouncement: of this policy was made in a speech by embryo telephone companiess for charters of in- the Premier on November 23, 1905. In this speech corporation, recommended that during the legisla- the Premier stated: tive recess the Provincial Government should in- " The government is now prepared to recommend quire into the whole subject of telephone service to the (Provincial) legislature the establishment of with a view to initiating public ownership and ope- a telephone system in the province of Manitoba to rati~n.~The Government accepted the responsibil- be owned and controlled by the municipalities and the ity for this recommendation and promised a thorough government jointly. . . . investigation.1° To use the Premier's own word, "We have reached this conclusion from the fact this investigation took the form of a " quiet " inquiry that the telephone is, and must be, necessarily one of on the part of himself and the Minister of Public the natural monopolies, and yet is one of the most Worlts.ll It is worthy of note, however, that the desirable and necessary facilities for the despatch of Government at about the same time requested the business and for the convenience and pleasure of the Dominion Government to amend the charter of the people. Therefore, the price of telephones should Bell Telephone Company so as to empower the be made so low that laboring men and artisans can

8 The Independent Telephone Company of Canada and the North- have the convenience and advantage of the telephone, west Telephone Company. as well as the merchant, the professional man and 9 Journals of fhe Legislative Assembly of Manitoba, Session 1904-5, P. 73. l2 Cf. Journals of the Legislative Assembly of Manitoba, Session lo The Winnipeg Telegram, January 27, 1905. 1906, pp. 97-98. 11The nlanitoba Free Press, Winnipeg, November 24, 1905. l3 Cf. The Ottawa Free Press, April 26, 1906; The Citizen, Ot- tawa, April 28, 1906; The Herald, Montreal, September 15, 1906. I 8 GOVERNMENT TELEPHONES ACQUISITION OF BELL SYSTEM 19 the gentleman of wealth and leisure, and it is our in- mitted itself to a policy of public ownership, never- tention to recommend to parliament (i. e., the Pro- theless in its session of 1906 (January 29, 1906) vincial Legislature) a proposition of this kind with a the provincial Legislature, on the motion of the view of giving a telephone system to all classes at Government, appointed a committee to inquire into c0st.l1 l4 the telephone question.16 The chairman' of this This announcement of the telephone policy committee was the Attorney-General of the Province. adopted by the Government is highly significant in [The committee took evidence in Manitoba and in- two respects. In the first place, the program con- spected the independent telephone systems in several templated by the Government provided that the local United States cities and, on February 27, 1906, (exchange) service should be operated by the its report, which consisted of a series of reso- municipalities and that only the long distance lines lutions to the effect that should be controlled by the Provincial Government. (a) The telephone should be owned and oper- Secondly, and more important still, is the fact that ated as a Government and municipal undertaking; the only reason advanced for the adoption of the (b) The existing rates in Manitoba were exor- new policy was that rates could be considerably re- bitant and could be considerably reduced; duced under public ownership, since service would be (c) The Government should build the long dis- given at cost. Absolutely no objection was taken to tance lines and the municipalities should supply the the character of the service furnished by the Bell local systems.17 Telephone Company. The public press, even while On February 28, 1906, the Government brought supporting the doctrine of public ownership, admit- before the Legislature a Bill based on these resolu- ted that the Bell service was " efficient and satisfac- tions.18 .In a lengthy speech introducing the Bill, the tory." l5 Throughout the politically-conducted agi- Attorney-General contended that the Bell Company's tation for public ownership of telephones, the dis- " theory " that unit costs increased with the number cussion centered around the question of rates; all of telephones in use, was " fallacious," and declared: later references by the politicians to the quality of " I am satisfied that the present rates in Canada the service were purely incidental and secondary. could be cut in two and still leave a very satisfactory Although the Government had thus already com- leJournals of ihe Legislative Assembly of Manitoba, Session 1906, P. 1"The Manitoba Free Press, Winnipeg, November 24, 1905. 35. 15The Manitoba Free Press, Winnipeg, November 25, 1905. lbid., pp. 88-90. Is Ibid., p. g4. 20 GOVERNMENT TELEPHONES ACQUISITION OF BELL SYSTEM 21 The Bill passed the Legislature, and be- profit." l9 SUBSTANTIAL REDUCTION IN TELEPHONE RATES came law on March 16; 20 but the Government were PROMISED UNDER PUBLIC OWNERSHIP content with having secured what they regarded as statutory sanction for whatever course they might Although the members of the Government knew eventually decide to pursue, and they took no imme- nothing about the telephone business (a fact which \ diate action toward carrying out their policy. they admitted afterwards 22), nevertheless through- The political situation in Manitoba in 1906 was out the campaigns which preceded the municipal elec- such that, in view of the approaching elections, both tion of December, 1906, and the general election of the party in power and the Opposition were desirous 1907 they continued to make high-sounding and reck- of bringing forward some project which might less promises regarding the rate reductions which be popular without being politically dangerous. could be effected under their proposed policy. The Such questions as the question of compulsory educa- chief spokesmen of the Government were the tion were considered too complicated and too thorny Premier and the Attorney-General. On September to be injected into the political arena. The question 5, 1906, the latter publicly declared that " the Gov- of public ownership of telephones, on the other hand, ernment will be able to accomplish a result that will was assumed to be both a simple one and one which cut the cost of the telephone in two." 23 In an in- would be immediately popular, as telephone service terview published on December 10, the same official could readily be offered to everybody at cost. Both said: " In the country the reduction will be one-half parties, therefore, sought to advance their political the existing rates." 24 On the same day the Premier said: It is simply a matter of those who use tele- fortunes by advocating public ownership : the propo- " sition of the party in power was the combined Gov- phones paying for them, and also, only to pay half ernment and municipal system already described, what the Bell people now charge." 25 Three or four whereas the Opposition- as a plank in its politi- days later the Premier said: "We will more than cut the Bell figure in two "; 20 and, speaking in cal platform - urged that both local and long dis- Neepawa on December 2oth, he said that by one tance service be operated by the G~vernment.~~ 22 Cf. P. 96, infra. 19 Resolutions and Memorials of the Legislative Assembly of 2a Speech before the Canadian Independent Telephone Associa- Manitoba respecting Public Telephones. Winnipeg, 1906. tion, September 5, 1906. z0 Statutes of Manitoba, 5-6 Edw. VII, 1906, cap. 89. ZB The pvinnipeg Telegram, December 10, 1906. 21 Cf. the Manitoba Free Press, Winnipeg, February zo, 1907. 25 The Winnipeg Telegram, December 11, 1906. The Winnipeg Telegram, December 15, 1906. ACQUISITION OF BELL SYSTEM 23 22 GOVERNMENT TELEPHONES year from that time "they would be able to speak service can be provided by the Government, I might over a Government-owned long distance line from say that it is absolutely certain that the majority of Neepawa to Winnipeg at less than half what is your farmers can obtain rural service at $12 a year, charged by the Bell Telephone Company at the pres- and that the residents of every municipality can obtain a telephone at the same rate."" Again, at ent time." 27 These glib promises are typical of many others which the Government asked the voters Birtle, on October 3 st, he said: " We are abso- of the Province to believe. lutely satisfied that with few exceptions every farmer Some months after the Government had openly in this Province can be supplied with telephone serv- committed itself to a policy of public ownership and ice at the rate of $1.00 per month. I know the Bell after promises to cut the Bell rates in two had al- Telephone Company will take exception to that." 30 ready been made, the Government perceived that As a climax to the campaign preceding the municipal it would be advisable to give the case the appear- elections the Government issued and widely circulated ance of being founded on a substantial and scien- a pamphlet by this This pamphlet was primarily designed to influence the voters in the rural tific basis. Consequently, on August 21, 1906, it called to its aid a telephone expert who was known districts and in it were reiterated the statements that to agree with the Government's contention that rates a rural telephone service could be furnished for $1.00 could be greatly reduced. As a matter of fact, how- a month.32 ever, this expert was secured primarily to direct " a CONSTRUCTION BY THE GOVERNMENT OF A COM- campaign of education along telephone lines," 28 that PETITIVE TELEPHONE SYSTEM BEGUN IN 1907 is, he was to be the publicity manager for the Gov- ernment's proposal. In that capacity the expert im- In order to ascertain the measure of popular sup- mediately plunged into the thick of the political cam- port which would be accorded an immediate execu- paign, making speeches throughout the Province in 29 The Manitoba Free Press, Winnipeg, October 30, 1906. The Manitoba Free Press, Winnipeg, November 3, 1906. which he addressed himself especially to the farmer. 31 The Manitoba Gowernment and Public Ownership of Tele- For example, at Brandon, on October 29, 1906, he Phones, Winnipeg, 1906. 32Although the Government later endeavored to throw upon said: " In regard to the price at which a telephone their expert the responsibility for their failure to fulfill their promises, it should be observed that the Government had entered upon 27 The Winnipeg Telegram, December 21, 1906. their career of extravagant promise long before the advent of the 28 Letter of Attorney-General requesting the services of the ex- expert, whose views, also, were known to the Government before pert; quoted by the expert in a speech at Brandon, Oct. 29, 1906, re- his services were engaged. ported in the Manitoba Free Press, Winnipeg, Oct. 30, 1906. 24 GOVERNMENT TELEPHONES ACQUISITION OF BELL SYSTEM 25 tion of their scheme of joint Government and mu- by municipal authorities, and it prepared to begin nicipal ownership, the Government had arranged the construction of some long distance lines, relying that the following question should be submitted to ulpon the power conferred by the Act of March 16, the voters in each municipality at the municipal elec- I 906. tions in December, 1906: Shall this municipality The general elections were held in 1907 and the own and operate its own telephones? The vote pur- Government was returned to office. Thereupon the ported to be a test vote pure and simple: an answer Government immediately announced that its pro- in the negative would mean that the municipality posed telephone policy was vindicated and that it would refuse to construct a local system in coopera- was supported by public opinion." At the same tion with the Government; an answer in the affirma- time it found itself in a position to take effective tive would signify merely that the Municipal Coun- action, for the financial position of the Province had cil, at its own discretion, could take steps to install a been considerably improved between 1900 and local system in pursuance of the Government's gen- 1907.~' It mas soon learned, however, that the eral scheme.33 In spite of the fact that the promises vote of the municipal elections was not meaningless of the Government on the eve of the election were and that the municipalities would not install local ex- unusually recltless, and although the aggregate popu- changes as they were expected to do. Even the mu- lar vote favored the affirmative, a majority of the nicipality of Winnipeg, where for several years there municipalities of the Province declined to cooperate had been an intermittent agitation for a local mu- with the G~vernment.~~The Government, however, nicipal system, refused to submit to the Government's obstinately refused to accept the result of the vote pr~position.~~The Government, therefore, was as a rejection of its policy; on the contrary, it was confronted by a dilemma : either to abandon the pro- actually interpreted not only as an endorsement of posed scheme altogether or to embark upon a Gov- the plan, but even as a direct mandate from the ernment-owned system of local exchanges as well as people to carry out the program of joint Govern- of long distance lines, which was exactly the policy

ment and municipal ownership. The Government 35 Cf. Letter of the Premier to the President of the Bell Telephone therefore began to urge the installation of exchanges Company, dated Winnipeg, March 11, 1907. Sessional Papers. Legislatiwe Assembly of Manitoba. Session 1908, p. 356. 3F Cf. Public Accounts of the Prowince of Manitoba for the re- 33Statuies of Manitoba, 5-6 Edw. VII, 1906, cap. 90. Cf. the spective years. Manitoba Free Press, Winnipeg, September 29, 1906. These P.ccounts are printed as Sessional Paper No. I in the Sessional Papers of each year. 34 The Manitoba Free Press, February 12, 1907. 37 The Manitoba Free Press, Winnipeg, April 4, 1907. 26 GOVERNMENT TELEPHONES ACQUISITION OF BGLL SYSTEM 27 advocated by the Opposition. The Government $~,ooo,oooin Manitoba in various works, putting in chose the latter course as the lesser of the two evils new switchboards, new conduit work and long dis- and inaugurated the new program by issuing Pro- tance wiring. During the last year a new exchange vincial bonds to the amount of one million dollars, building has been erected in Fort Rouge at a cost of with the proceeds of which the construction was $~o,ooo,. . and a great deal of the underground and begun in September, 1907, of a telephone exchange cable work has been done preparatory to opening in Winnipeg in opposition to the local system of the this exchange. Then there has been a large addition Bell Company.38 to the Winnipeg switchboard. A modern central energy, multiple switchboard has been installed in GOVERNMENT PURCHASE OF THE EXTENSIVE SYS- Brandon, and the whole work in the city has been re- TEM OF THE BELL COMPANY, DECEM- constructed. . . . BER 30, 1907 " In 1905 there were 6,224 subscribers and 892 It is necessary to pause an instant at this point to miles of long distance and rural lines. To-day there direct attention again to the important fact that dur- are more than 14,ooo subscribers in the province and ing 1906 and 1907 the Bell Telephone Company more than 2,500 miles of pole lines." 39 vastly improved and increased its plant and extended In other words, this Opposition statement shows its service. As the Opposition seems to have over- that during one year ( 1906) the plant investment of looked this significant fact in their later criticisms, the Bell Company had almost been doubled, while the following statement has been taken from the the number of subscribers was more than doubled columns of the leading Opposition newspaper of the during the two years 1906 and 1907. Moreover, in Province : a speech before the Legislature on February 13, " On February 2 I, 1906, Lewis B. McFarlane, 1908,~' the Premier stated that in 1907 over $700,- general manager of the Bell Telephone Company of ooo was expended on the Bell system, an amount Canada, . . . stated that the capital investment of which, although less than the expenditure in 1906, the company in Manitoba (on December 3 I, 1905) was still over one-half as great as the entire invest- was $1,360,787. . . . ment up till December 31, 1905. In view of this re- " In the year 1906 the Bell spent approximately 39The Manitoba Free Press, Winnipeg, January I, 1908. 88The Maniioba Free Press, Winnipeg, September 6, 1907. 40 The Winnipeg Telegram, February 14, 1908. 28 GOVERNMENT TELEPHONES ACQUISITION OF BELL SYSTEM 29 markable growth, the Bell Telephone Company cer- the purchase price the Government issued $3,500,- tainly seems adequately to have met the real demands ooo of 4% Provincial bonds, $~oo,oooof these of a period of prosperity and expansion. bonds being held in reserve by the Treasury Depart- The Government realized that to compete with the ment. Although the bonds could not have sold at Bell would be an extremely hazardous venture; and that time for more than 92 or 93, the Bell Telephone it considered that it would be much more economical Company accepted them in payment at par value.42 and advantageous to buy a ready-made system than The Opposition complained that the purchase was to go through the slow and laborious process of build- rushed through within two days before the opening ing up a business of its own. The effort to obtain of the legislative session; but the Government cited authorization to expropriate the property of the Bell the Act of March 16, 1906, as sufficient authority Company having proved futile,41 on December 12, for their action and they never submitted the specific 1907, the Government asked Mr. Sise, President of transaction to the representatives of the people for the Bell Company, to come to Winnipeg in order to ratification. The Opposition also contended that the discuss the project of a purchase of the Bell system Bell plant was out-of-date and criticized the price in Manitoba. Mr. Sise responded, but set a price paid by the Government as excessive. The main of $~,OOO,OOOon the Bell property, stating that he points of the Government's answer to these criticisms did not anticipate that the Bell would suffer by the were as follows. The Government pointed out: introduction of the Government-owned system and (a) That the Chief Engineer of the Provincial that he did not want to sell. After .negotiations an Department of Railways, Telephones and Tele- agreement was, however, effected, and on December graphs had reported ( I ) that the construction of the 30, 1907, the Bell property and business in Mani- Bell plant " has been well done, and is up to modern toba was purchased by the Government for $3,300,- practice generally "; and (2) that " the physical ooo - since there were 14,042 Bell telephones at 4ZLetter of the Premier to the President of the Bell Telephone the date of transfer, a price equivalent to $235 per Company, dated Winnipeg, Dec. 30, 1907. Sessional Papers. Leg- telephone - a further sum of $~oo,ooobeing paid islatiae Assembly of Manitoba. Session 1908, p. 359. Cf. the Mani- toba Free Press, Winnipeg, January I, 1908. The original docu- for supplies. The Government was to assume ments prove that the overtures in the transaction were made by the charge of the plant on January 15, 1908. To meet Government as early as March, 1907. Cf. correspondence between the Premier and the President of the Bell Company. Sessional 41Cf. pp. 16-17, supra. Papers. Legislatiwe Assembly of Manitoba. Session 1908, p. 356 ct seq. 30 GOVERNMENT TELEPHONES ACQUISITION OF BELL SYSTEM 31 plant is in a good state of repair, and is being kept (h) That the purchase of a going concern elim- SO '7. 43 inated the necessity for the payment of interest on 9 (b) That at the time of purchase between 30 the large amount of capital invested in non-revenue- and 40 per cent. of the Bell plant represented ad- producing plant during the period of con~truction.~~ vance construction for future needs; 44 Although the answer of the Government has never (c) That the depreciated value of the Bell plant had any appreciable effect on its critics, the im- had been placed at $3,2 10,098 by the Chief Engineer partial observer cannot fail to be impressed with the of the Provincial Department of Railways, Tele- strength of the Government's case. In view of the phones and Telegraphs; 45 numerous intangibles which the Government pointed (d) That the criticisms were largely based on the out were legitimately involved in the purchase, the state of the company's plant in 1905, whereas the fairness of the price cannot be determined from any plant had been much more than doubled in 1906 and mere valuation of the plant. At the time the pur- 1907 ; 46 chase was effected the Opposition press admitted that (e) That competition with the Bell Company " at the present market price of provincial bonds the would have been costly, while the number of Bell tel- price paid for the system at the present time is, in ephones was so great that there was no room for a round figures, about $~,OOO,OOO."51 If similar al- dual system ; 47 lowances be made for the other factors besides bond (f) That an allowance of 10 per cent. should be discount, there is no escape from the conclusion that added to the plant value on account of forced sale, the price paid for the plant and its inseparable in- franchise, and good will; 48 tangibles was not unreasonable. (g) That the discount on the bonds given in pay- The result of the transaction was that the debt of ment was at least 75per cent.; 49 the Province was doubled at a stroke, while the Prov- ince, without fully realizing it, had committed itself 43 Report of Chief Engineer, Department of Railways, Telephones and Telegraphs, dated Winnipeg, Dec. 28th, 1907. Sessional Pa- to still larger expenditures for future telephone pur- pers. Legislative Assembly of Manitoba. Session 1908, pp 364-368. poses. Moreover, it should have been realized, 44 lbid. 45 Ibid. though it was not, that these expenditures would in- 46 Speech of the Premier to the Legislature, February 13, 1908; reported in The Winnipeg Telegram, February 14, 1908. evitably prevent expenditures in public works which 47 Ibid. 50 Speech of the Premier to the Legislature, February 13, 1908. 48 Ibid. "The Manitoba Free Press, Winnipeg, January I, 1908. "9 Ibid. 32 GOVERNMENT TELEPHONES ACQUISITION OF BELL SYSTEM 33 might be undertaken as belonging to unquestionably an annual surplus of over $~o,ooo,and that this Governmental functions. Thus, when at a later amount would be increased to over $~oo,oooby the date the development of the extensive water powers elimination of head office expenses, which were de- of the Province was proposed,62 the Province was clared to be unnece~sary.~~The Government also unable to undertake this important public work be- undertook another public pledge and declared its cause its credit was so deeply involved in the tele- intention of managing the telephone system as a com- phone enterprise that the necessary funds could not mercial undertaking, i. e., on a strictly business basis, be procured. without political partisanship or influence. On the very day of the purchase, the Premier stated: " We PROMISES OF THE GOVERNMENT AS TO REDUCTION shall operate the system by a commission, which will OF RATES, COMMERCIAL MANAGEMENT, AND be free from all partyism." " In speaking of the PROFITABLE OPERATION contemplated Commission before the Legislature on Immediately upon the announcement of the ac- January 7, 1908, the Premier said: " We have quisition of the Bell system, the Government re- reached the conclusion that it is in the public interest newed its pre-election pledges as to reduction of that that commission . . . shall be free, as far as it rates " and as to profitable operation. The Min- is possible to make it, from party or political influ- ister of Railways, Telephones and Telegraphs 54 ence. . . . We have reached this conclusion for the even went so far as to estimate the expected amount reason that it is a commercial business; that it enters of profit and announced that, after the deduction of into the life and business of every home and office all interest and sinking fund charges, there would be that uses a telephone; that the service to be efficient 5Wf. the report on the Projected Hydro-Electric System for 'the and satisfactory must be of the very best type or Province of Manitoba, by H. A. Robson, K. C., formerly Public kind; and to secure that we must have men in charge Utilities Commissioner. " It should be noted that the promises as to rates which were made who have no interests to serve - who are subject to before the purchase of the Bell system was contemplated, were by no influence other than such as is of a telephone kind no means prejudicially affected by the eventual purchase; indeed, the sole effect of the purchase would be to facilitate the fulfillment or character. . . . And as the credit of the prov- of these promises, inasmuch as the purchase was consummated by the Government as being, in the end, more economical and advan- ince has been used to purchase this service, it is the tageous than the construction of a public-owned system. bounden duty of the government . . . to place the G4 A Department of Railways, Telephones and Telegraphs, with a small technical staff, had been created as early as March, 1907. 65 The Manitoba Free Press, Winnipeg, February 4, 1908. Cf. the Manitoba Free Press, Winnipeg, March 16, 1907. 66 The Manitoba Free Press, Winnipeg, January I, 1908. 34 GOVERNMENT TELEPHONES ACQUISITION OF BELL SYSTEM 35 service in the hands of men whose life business is to front. These politicians, too, did not fail to grasp give a telephone-user the best service possible, and the usefulness of a promised rate reduction as a have him realize that anything that is done is with votecatching device. Government ownership of a view of bettering the service, and is not done from telephones was adopted in Manitoba, not because of a political or a party motive or influence.'' 57 Speak- dissatisfaction with the quality and efficiency of the ing before the Legislature on February 13, 1908, the service furnished by the Bell Telephone Company Premier said: " It is the settled policy of the gov- and not because of any administrative abuses on the ernment and those who support it, that there shall be part of that company, but primarily as a means of no influence exercised or used upon that commission reducing rates to the end that political advantage in any way, in so far as it affects the management and might be secured by the Government. operation of that system. We want the system to For the purpose of securing popular support, the be an ideal one, one that will enjoy the confidence Government made a number of definite promises of my honorable friends opposite " - i. e. the Op- both before and after the acquisition of a public- position-" to as great an extent as it enjoys the owned telephone system. Among these promises confidence of the gentlemen on this side " - i. e. the were three cardinal pledges, explicitly and unequiv- Government party. " We feel that it must be kept ocally undertaken : clean and clear of all party politics or influence." 58 I. That the Bell rates would be greatly reduced, To recapitulate, in order to make political capital, " cut in two " being the term generally employed; both political parties in Manitoba diligently pro- 2. That the entire cost of operating the service moted a belief that the people of the Province were would be borne by the telephone users, i. e., that the paying tribute, in the form of exorbitant charges, system would be self-supporting; to the limitless greed of a conscienceless octopus. In 3. That the management of the system would be those days little effort was required to arouse a on a strictly commercial basis, absolutely free from popular sentiment against any relatively large vested political considerations or influence. interest. It was but natural, then, that within a In considering the history of the Government tel- comparatively short time the shrewd politicians were ephone enterprise, these pledges must constantly be safely able to force the telephone question to the borne in mind.

67 The Manitoba Free Press, Winnipeg, January 8, 1908. 58 The Winnipeg Telegram, February rq, 1908. UNDER FIRST COMMISSION 37

son, who was appointed Chairman, Mr. W. H. Hayes, the Commissioner Engineer, and Mr. El. J. Horan, the Commissioner Auditor. The salary of the Chairman was fixed at $5,000 per annum; the salaries of the two other members were set at $3,000 each.Vt is inconceivable that men of such proved THE GOVERNMENT SYSTEM UNDER ability should suddenly become incompetent ; if in- THE FIRST COMMISSION efficiency and extravagance appear, they must be TELEPHONE MANAGEMENT VESTED IN A COMMIS- charged to causes beyond the control of the Com- SION UNDER THE CONTROL OF THE mission. GOVERNMENT The Commissioners were officially appointed on January 15, 1908, and took up their duties on that THEmanagement of the Government's newly- day. The functions of the Commission, as origin- acquired system was committed to a Telephone Com- ally fixed, gave it the power to operate the system, mission of three members, this Commission being to appoint and discharge employees, to fix rates, and nominally independent but actually subordinated to to connect subscribers to the system, provided that a Department of Telephones and Telegraphs, pre- if the cost of such connection exceeded $500, the ap- sided over by a Cabinet Minister. The Commis- proval of the Minister of Telephones and Tele- sioners appointed by the Government were men of graphs must first be ~btained.~The Commission many years' telephone experience in the service of was not empowered to purchase supplies, but was re- the Bell Telephone Company in the Northwest and quired to send requisitions for all supplies to the were unquestionably well qualified for the task of Minister at least three months before the supplies managing a telephone system under normal condi- were needed; and the Minister retained an engineer- tion~.~Moreover, all three were recognized not ing staff of his own in control of constr~ction.~At only by the Company and by the Government, but * Order-in-Council No. 12545. Sessional Paper No. 14. Ses- also by the public, as men of high personal character sional Papers. Legislative Assembly of Manitoba. Session 1908, and as entirely detached from any political affilia- PP. 574-5. Ibtd. tion. These Commissioners were Mr. F. C. Pater- Wrder-in-Council No. 12545, Cf. Statutes of ~anhoba,7-8 Edw. VII, 1908, cap. 63. 1 Cf. The Gazette, Montreal, January 4, rgo8. 36 38 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 39 this point it should be observed that, whereas in the sion of the service. There can be no doubt that the Bell Company's organization the local administrative Commissioners pointed out the detrimental effects officers were subject to the supervision of, and re- such an unscientific and unnecessary policy would ceived assistance from, the staff of experts at head- have both upon expenses and upon organization; quarters (Montreal), when the Commissioners en- but remonstrance on the part of the Commissioners was futile, since they were dealing with, and were tered the service of the Manitoba Government they - found themselves suddenly deprived of the assistance under the control of, astute politicians whose sole which they had received from the Montreal staff of object was the retention of political power.G More- the Bell Company, all supervision and control being over, the policy of rapid ,construction included the vested in the Minister, or, in reality, in a group of provision of a considerable amount of free service politicians who had no knowledge whatever of the and other discriminations in the rural districts, which telephone business. were also in violation of the promise of non-partisan commercial management.' TELEPHONE POLICIES DETERMINED BY POLITICAL Nor were these the only immediate effects of the CONSIDERATIONS ; GOVERNMENTAL INTERFER- political influence which surrounded the administra- ENCE IN THE TELEPHONE MANAGEMENT tion of the system. Even in matters of detail the In spite of the Government's explicit pledge that Commission was subjected to pressure by members political considerations would be eliminated from of the Provincial Cabinet. For example, after the the telephone management, such considerations ap- Government's acquisition of the telephone system, peared at the very outset and, as a matter of fact, one of the members of the Government exerted dominated the Telephone Commission throughout an irresistible influence upon the Commission to its existence. The first effect of political control was, requisition an excessive number of poles, since the perhaps, in the matter of construction. ;The votes Cf. Stenographic Report of Evidence before the Royal Commis- sion of Inquiry 1912 (typewritten), vol. i, p. 35 et sfq. This Re- of the farming population being essential to the po- port is mentioned on p. 97 infra and is hereafter clted as Steno- litical welfare of the Government, the Government, graphic Report. OThe members of the Government who really determined tele- once in control of the system, made haste to curry phone policies conveyed their instructions to the Commission orally, favor with the farmer by ,forcing the Commission to carefully refraining from committing themselves to documentary evidence which might be brought against them. adopt a policy of rapid extension of rural lines with- Stenographic Report, vol, i, pp. 100-101. out regard to the legitimate demand for this exten- 40 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 41 contract for these poles could be placed with certain tails from coming to the knowledge of the public ex- clients of his who were then involved in financial dif- cept in rare and flagrant cases. ficulties and the payment for the poles would relieve In the realm of finance, too, the Government

the pressure upon then^.^ " Recommendations " failed to keep its promises of commercial man- even as to the employment of individuals were made agement. From the beginning of the Government by Cabinet Ministers; and although the Commission telephone service, the Commission was required to was under no statutory obligation to act upon these pay all its " receipts from earnings " into the Provin- (6 recommendations," nevertheless it was well under- cial Treasury and to draw upon the Treasury for the stood that the smooth working of the Commission- funds to meet all expenses; and thus there was ers' relations with the Government depended upon neither created nor maintained any reserve against the adoption of the " recommendations," which were depreciation or, in fact, any reserve of any kind what- always orally communicated. Moreover, it will be ever.1° The natural result of such political account- recalled that the prescribed functions of the Com- ing methods was that in each of the first three years mission did not include the purchasing of supplies, of Government operation the books of the system the control over such purchases being specifically re- showed an " excess of revenue over expenditure " served to the Government; that is, while the Com- which was erroneously described as a '' surplus " ; mission prepared requisitions, the Government de- while political credit was taken for these fictitious cided to whom contracts should be given. These profits and the success of Government operation of contracts were awarded for political effect and were telephones in Manitoba was widely trumpeted. made instruments by means of which the party po- Furthermore, it must again be noted that the Gov- litical organization was strengthened and party funds ernment continued such unsound methods of ac- were collected from the contractors. This system, counting in direct opposition to the advice of the Tel- of course, is one which is practised by both political ephone Commission. The Commission pointed out parties, though party interest prevents its sordid de- that an annual depreciation charge of at least 6 per cent. upon plant cost ought to be made, but still the Cf. p. 103, infra. An advertisement calling for tenders for 25,- . ooo poles appeared in the newspapers of November 5, 1908. On the Commission was not permitted by the Government excessive number of poles purchased by the Commission in consequence of political pressure, see e: g. Stenographic Report, vol. iii, 9 Order-in-Council No. 12545. p. 143 et seq. loStenographic Report, vol. i, pp. 28-29. 42 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 43 to set aside any reserve, even to meet reconstruction The immediate action of the Government in rela- expenses.ll tion to their pledges having thus been briefly indicated, with these pledges in mind we are now pre- A SECTIONAL INCREASE IN RATES; TELEPHONE pared to follow the history of the enterprise. So MANAGEMENT DOMINATED BY POLITICAL far as practicable, this history will be given chron- INFLUENCE ologically. In spite of the Government's glib promises to the In the first place, notwithstanding the activity of effect that the Bell rates were to be " cut in two," in- the Government in construction work, they did not stead of a reduction in rates, the immediate result of move fast enough to suit the Opposition. For in- Government ownership was a substantial, though sec- stance, about three months after the purchase, the tional, increase. Under the Bell Company, the tele- Opposition paper in Winnipeg denounced the Gov- phones of physicians, dentists and nurses had been ernment for failing to provide at least 1,000 miles granted a reduced rate; on February 20, 1908, the of additional long distance 1ines.l"he political ef- Commission issued a circular announcing that there- fect of such attacks was not lost upon the Govern- after such telephones would be charged for at the ment, who saw themselves forced to adopt a policy regular rate for business service, representing an in- of the most feverish energy in construction,- an il- crease of 25 per cent.12 Although this increase can- lustration of the fact that, after all, both political not, in itself, be especially condemned, nevertheless parties have been implicated in the mismanagement the Commission's action caused much controversy of the system. As has already been indicated, the because it was such a flagrant violation of the Gov- speed at which construction was forced in the years ernment's promises in regard to rates. Almost from 1908 to 191 I was very costly; but the Commission the beginning the Telephone Commission found was told to go on, that the Province could sustain itself the target of hostile criticism, for although it the financial burdens involved. The Commission had not been in the least responsible for the prom- was obliged to erect unprofitable and unnecessary ises made by the Government, yet it was in the posi- rural lines, to convert toll offices into exchanges be- tion of having to bear the responsibility for any fail- fore the amount of business warranted the change, ure to fulfill these promises. to give night service in small exchanges where day 11 Stenographic Report, vol. i, p. 31 et seq. Cf. also p. 55, note service would have sufficed and to give free service 42, infra. l2 A copy of this circular letter is given in the Winnipeg news- l3The Manitoba Free Press, Winnipeg, April 11, 1908. papers of February 22, 1908. 44 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 45

between certain exchanges,14- all of which was done scarcely less culpable. They appeared to be de- at the instance of the Government in order to placate nioralized by the fact that the telephone was a Gov- political opponents or to gratify supporters, and also ernment undertaking and exploited the telephone ad- in order to increase the patronage of the Govern- ministration in every way.17 ment and to promote the illusion that the system was After the Minister of Telephones and Telegraphs prospering. R~foreover, attention should again be (i. e., the Government) had awarded most of the called to the fact that it was impossible to expand contracts for the first season of constru~tion,~~a the internal organization to keep pace with the exchange in the form of administration took place. pansion in plant. Also, the scarcity of labor com- ;The existence of a Ministerial Department of Tele- pelled the Commission to keep an excessive number phones and Telegraphs in addition to the Telephone of men on the permanent pay-rolls, while, as a mat- Commission had led to division of control and re- ter of actual practice, the Commission was unable to sponsibility as well as to duplication of labor. Six select its employees.15 Men were forced upon fore- months after the transfer of the Bell system to the men by members of the Provincial Legislature; Cab- Government, this dual control became not only ob- inet Ministers made " recommendations " over the viously absurd but also positively embarrassing to telephone, while at the same time solemnly assuring the Government, for both the telephone users and the public that the Commission was not being inter- the general public regarded the Telephone Depart- fered with and. that the business was being conducted ment, and not the Telephone Commission, as the on a commercial footing. Indeed, hangers-on of real authority and therefore complaints and demands both parties were always on the look-out for political crumbs; in the words of one of the Commissioners it 17 A side-issue of the Government's construction policy should be mentioned here. Even after the Bell system in Manitoba had been is found that " the whole running of the system has acquired, the Government did not entirely abandon its cherished attitude toward municipal ownership of local exchanges, but contin- been permeated with politics." lG Finally, while the ued to encourage municipalities to install local systems by offering to Government was playing fast and loose with the provide plans, to superintend construction, to supply the necessary materials at cost, and to guarantee the debentures issued by the mu- real interests of the Province, the people were nicipalities to secure the funds necessary for the establishment of such systems. This policy was so far from being successful, however, 14 Memorandum by the Commissioner Auditor (typewritten) pre- that not only were few new municipal telephone systems established, pared early in 1912. but some of those which were in existence at the time of the acquisi- Ibid. tion of the Bell system were subsequently sold to the Government. lo Ibid. Is Cf. the Maniioha Free Press, Winnipeg, June 3, 1908; The Winnipeg Telegram, June 4, 1908. 46 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 47 for exceptional consideration were made either di- While the Telephone Commission was doing its rectly to the Telephone Department or, more fre- best - under pressure - to carry out the Govern- quently, through a member of the Legislature to the ,mentYspolicy in regard to the rapid extension of the Minister. The Government thus saw themselves in telephone system (a policy dictated solely by politi- a position of responsibility, and this responsibility cal expediency), the Commission could not redeem having soon become intolerably embarrassing, it be- the pledges in regard to the reduction of rates. In came necessary to take further action to throw the general the Bell rates continued to be retained nominal responsibility upon the shoulders of the throughout 1908; in certain cases (some of which Commission. Therefore, in June, 1908, the Min- have already been mentioned) they were materially ister of Telephones dispensed with the technical staff increased.20 The Opposition newspapers did not which he had employed in the Telephone Depart- cease denouncing the members of the Government for ment at a cost of $~o,oooa year, and the power to having failed to live up to their promises; but the purchase supplies was transferred to the Commis- fault lay in having made the promises rather than in sion, the Minister retaining, however, the power of having failed to fulfill them. Had the Government 6 t supervision." l9 Thus this administrative change met all the demands of the Opposition - or, indeed, was essentially a change in form without a change in all those of the public - the telephone enterprise substance, for so long as the Minister retained would speedily have been reduced to hopeless bank- 6 t supervisory " powers the Commission could not be ruptcy; even as it was, the credit of the Province had free from political influence. As a matter of fact, undoubtedly suffered.21 The general situation cer- the chief result of this change in the form of admin- tainly justified the following summary made by an istration was to enable members of the Government Opposition newspaper toward the close of the first to reply to inconvenient claims and complaints to the summer of Government operation : " The carrying effect that the patronage had passed out of their out of the Government's telephone policy has re- hands into those of the Commission, while it still resulted in the people of Manitoba having had placed mained open to the Government to bring pressure to upon them an indebtedness of close upon $~,OOO,OOO. bear upon the Commission in order that political in- The interest on this indebtedness makes a heavy terests might be adequately served. fixed annual charge. The service is no better than

19The Manitoba Free Press, Winnipeg, June 13, 1908. Cf. Or- 20 Cf. the Manitoba Free Press, Winnipeg, August 28, 1908. der-in-Council No. 13011. Cf. the Manitoba Free Press, Winnipeg, September 22, 1908. 48 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 49 was given by the Bell Telephone Co., whose share- 1908, Winnipeg and other papers contained re- holders now hold the Province's bonds and have to peated announcements " on reliable authority " that be paid their interest regularly. The rates are no the first year of Government telephone operation had lower than the Bell rates were, in some cases they been so successful that there would be a profit of are higher." The accusations against the Gov- $200,0oo,~~$2 25,00o,~~or $250,000.~~ Again, in ernment, however, were disposed of in the most cav- January 1909, a Cabinet Minister took credit to the alier manner; for example, one of the Cabinet Min- Government for the alIeged profit and announced isters said quite cynically that " when they engaged that ['with such a showing there is no doubt that we in the battle with the Bell Telephone Company, it will reduce rates." 28 That these press statements was necessary to make strong statements " 23- were inspired by the Government is shown by the which is tantamount to a frank avowal that the state- fact that similar claims were made at about the same ments made by the members of the Government dur- time by members of the Government in election ing the telephone agitation were made without re- speeches; and such statements were employed widely gard to truth. to induce a belief in the success of the Manitoba telephone venture, and in the absence of proof to the contrary they were accepted in good faith. OPERATIONS ALLEGED BY THE GOVERNMENT The session of the Manitoba Legislature at which In November 1908, when the Government tele- the first report of the telephone service was pre- phones had been in operation for almost a year, a sented, began on February 4, 1909. The extent to rumour was circulated to the effect that rates would which the telephone was regarded as a political issue be " cut in half" on January I, 1909, this rumour is illustrated in the statement of the Government pro- being based upon a statement of a Cabinet Minister gram which opened the session, for of the four par- that the Telephone Department, for its first year, agraphs comprising this statement, the telephone would show a profit of $~oo,ooo.~~In December question occupied two. In one paragraph it was an-

22The Manitoba Free Press, Winnipeg, September 22, 1908. nounced that " a most substantial surplus has been 2s The Manitoba Free Press, Winnipeg, November 16, 1908. , 19, 1908. 24Cf. The Minneapolis (Minn.) Journal, November 14, 1908; 25Cf. Telephony, Chicago, December The 1908. The Detroit News Tribune, November 15, 1908; the New York 26Cf. Tribune, Winnipeg, December 25, 27 4, 1909. Tribune, November 16, 1908. Cf. The Tribune, Winnipeg, February 28The Manitoba Free Press, Winnipeg, January 5, 1909. 50 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 5 1 obtained." 2Vfew days later a discussion of the " balance " from the year's telephone operation of telephone question was introduced by an Oppositon only $168,9 I 5, as follows: 33 member and a vigorous debate ensued, in the course of which one speaker said that " he suggested that Receipts: Telephone rentals ... $6569486.74 members should tell the Government what was Disbursements : wanted in the constituencies. Since he had been a Paid to Telephone Commis- member ...he had always laid his case before the sion ...... $300,000.00 Minister of Public Works and had benefited by so Expenses of Telephone De- partment ...... 19,319.33 doing. Every member should do the same, not only to the Minister of Public Works, but to every de- Interest: Debentures-Series H. 32,020.00 partment." 30 In other words, the exertion of politi- . Debentures-Series I. .. 136,231.67 $487,571.~ cal pressure at any point in the Government would produce the desired results ! Balance ...... $168,915.74 When a telephone profit was announced by the Government, of course its often repeated promise On February 15th' the Provincial Treasurer, in explaining his budget for the year 1909, said that the that service would be provided " at cost " 31 was recalled, and the Opposition newspapers began to de- Government confidently believed that its telephone policy was sound and that it was giving " a serv- mand " rebate cheques for telephone users." 32 But although me,mbers of the Government, in pre-elec- ice that was equally as cheap as similar services are being given elsewhere." No reference was made to tion statements, had insisted that a profit of $2oo,ooo had been produced the first year, the Public Accounts the fact that this opinion as to the cheapness of the of the Province, when they were placed before the service was not the view which had been presented by members of the Government in regard to the rates Legislature on February 11, 1909, failed to confirm these pre-election announcements, but showed a prior to the acquisition of the system,- rates which had not been reduced by the Government. The 29 Journals of the Legislative Assembly of Manitoba, Session 1909, Provincial Treasurer also declared that since only pp. 1-2. Cf. The Winnipeg Telegram, February 4, 1909. The Winnipeg Telegram, February 10, 1909. a small proportion of the population of Manitoba 31 Cf. p. 18, supra. s2 Cf. the Manitoba Free Press, Winnipeg, February 11, sgog, and were telephone users, whereas the whole population 1909. February 12, 33 Sessional Papers. Legislative Assembly of Manitoba. Session 1909, PP. 111, 355-357. UNDER FIRST COMMISSION 53 52 GOVERNMENT TELEPHONES ince in heavy financial loss." 3F However, even the had become responsible for the debt on the telephone re-statement of the accounts made by the Free Press account, the excess of revenue over expenditure included no charge for accrued depreciation. should go into the general exchequer of the Prov- The accounts of the Telephone Department were in~e.~~He failed to observe, though, that this posi- issued a few days after the Public Accounts had been tion was quite inconsistent with the Government's presented to the Legi~lature.~~The component promise to provide telephones " at cost." 35 items of these accounts did not agree with those given The Opposition press was not slow in detecting in the Public Accounts, since for example the the peculiar system of accounting, or rather the lack - - gross revenue included a large amount of unearned of proper accounting, as a result of which this ap- rentals; but the accounts disclosed no materially dif- parent surplus of $168,915 made its appearance. ferent state of affairs, though by making allowances For example, it was shown that the current expenses for unearned rentals and for accrued depreciation of the Commission during the year ($~OO,OOO) the Opposition press was able to argue that the real amounted to only 46 per cent. of the gross receipts, whereas under the Bell Company during the ten result of the year's operations was a deficit of about years 1895-1904 the annual percentage of operating $30,000.~~ and maintenance expenses to gross receipts had aver- REAL DEFICIT IN 1908 CONCEALED BY UNSOUND aged 71 per cent., so that it appeared that the Gov- ACCOUNTING METHODS ernment had really charged practically all maintenance expenses to plant account. The Manitoba Although it is true that the telephone accounts Free Press pointed out that if all maintenance ex- for 1908 as given both by the Provincial Treasurer penses had been charged against revenue and if and by the Telephone Department were character- combined operating and maintenance expenses had ized by a total lack of the elementary principles of consumed only 70 per cent. of gross receipts, then commercial accounting, the revisions of the accounts this " surplus " of $I 68,9 I 5 would have almost made by the Opposition were also unscientific and disappeared; and the Free Press naturally con- cannot be accepted as accurate representations of the cluded that if the Government, to "save its face," true situation. In order to arrive at any approx- should reduce the rates, it w.ould " involve the Prov- 36The Manitoba Free Press, Winnipeg, February 16, 1909. 37 The Winnipeg Telegram, February 23, 1909. 34 The Winnipeg Telegram, February 16, rgog. 38 The Manitoba Free Press, Winnipeg, February 24, 1909. 35 Cf. p. 18, supra. 54 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 5 5 imation of the real financial results of Government 1909. In recasting the accounts in these pages, telephone operation, it will be necessary to recast the therefore, 40 per cent. has been allocated to the accounts of the system so that they will accord with year 1908, 40 per cent. to 1909, and 20 per cent. accounting methods which are recognized to be to 1910; that is to say, sums representing these per- sound. From the stand-point of sound accounting centages of $336,232 have been deducted from the practice, the accounting methods employed by the plant account and have been added to the current Government were obviously deficient in two re- expenses for " Maintenance " in the respective years. spects : (b) As has already been observed,40 the Tele- (a) A considerable portion of the maintenance phone Commission had pointed out that in order to expenses were charged to capital (instead of being provide an adequate reserve to meet the reconstruc- charged against revenue) ; tion expenses arising from constantly accruing de- (b) No reserve was set aside to meet the recon- preciation, a sum equivalent to at least 6 per cent. of struction expenses arising from the inevitable con- plant cost should be set aside from current revenue stant depreciation of the plant. each year. In view of the fact that the climatic con- In order to eliminate the effects of these deficien- ditions in Manitoba are such as to cause abnormally cies upon the published accounts, the following pro- rapid deterioration in out-door plant,41 it is certain cedure has been adopted here : that no less a sum would have been sufficient to pro- (a) The amount of maintenance expenses which vide an adequate reserve; and in recommending that were improperly charged to capital in the telephone such a sum be set aside, the Telephone Commission- accounts was adjudged, according to an appraisal of ers - as they themselves did not fail to point out - the plant made in 1915,3' to reach in the aggregate to were understating rather than overstating the amount $336,232, all of which sum was found to have been of depreciation reserve which the best telephone en- charged to capital during the first three years of gineering experience had found to be necessary.42 Government operation: 1908, 1909 and 1910. Al- 40 Cf. p. 41, supra. though it is impossible to apportion this sum among 41Reference to the effect of the "extraordinary weather conditions" in Manitoba upon the life of the plant may be found in the the three years accurately, yet it is not unreasonable Seventh Annual Report of the Manitoba Government Telephones to assume that the greater part of it - say 80 per for tf~eFiscal Year ending November 30th 1914, p. 14. Cf. p. 140, infra. cent.-was charged to capital during 1908 and az For example, in a letter to the Minister of Public Works, dated April 19, 1911,the Chairman of the Telephone Commission said that 39 Cf. pp. 151-152, infra. the telephone plant "should have an annual reserve set aside to 56 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 5 7 But the Government refused to allow the Commis- from the published accounts the exact amount of the sion to set aside any depreciation reserve to meet re- actual reconstruction expenses, owing to the fact construction expenditure, and thus for.ced the Com- (mentioned above) that the expenditure for mainten- mission to adopt the unsound and hand-to-mouth ance and the expenditure for reconstruction were policy of charging reconstruction expenses each year combined into one item of " Maintenance " each directly against current revenue; as a result, during year and were not shown separately. However, by the first four years of Government operation recon- assuming each year that the portion of these com- struction expenses were included with maintenance bined expenditures (including the maintenance ex- expenses in the telephone accounts. Therefore, in penses deducted from plant account as explained recasting the accounts, it is necessary to include with above) which was in excess of a reasonable allow- each year's current expenses an amount equivalent to ance for maintenance expenditure represented recon- 6 per cent. of the cost of the plant; 43 and on the struction expenditure, an approximation of actual other hand, it is necessary to exclude from each reconstruction expenses may be obtained. Accord- year's current expenses the expenses of the recon- ingly, in recasting the accounts for the first four struction actually effected during the year, as expenses years, maintenance has been assumed to have re- for reconstruction should properly be met from de- quired each year an amount which bore the same re- preciation reserve. In regard to the latter process lation to the cost of the plant as did the amount of -the exclusion of actual reconstruction expenses the maintenance expenses in those years in which from current expenses - unfortunately during each maintenance expenditure is shown as a separate item of the first four years of Government operation in the accounts; and the balance of the combined ( I 908-19 I I inclusive) it is impossible to determine maintenance and reconstruction expenditures in these provide for its replacement of at least 6%, assuming it is to earn in- four years has therefore been excluded from current terest. All authorities agree that the average life of a well built expenses as representing reconstruction expenditure. telephone plant is twelve years, or an annual depreciation at the rate of a%." By eliminating the deficiencies in the accounting 43 The cost of the plant, as used in this work, represents each year the cost at the end of the preceding year, as derived from the an- methods employed by the Government and by recast- nual accounts of the Government telephone system given in the ing the published accounts in the manner described, Sessional Papers. All intangible items and all current expenses improperly charged to capital, as shown by an appraisal of the plant the financial result of the first year of Government made in 1915, are excluded. Cf. pp. 151-152, infra. operation appears as follows : 5 8 GOVERNMENT TELEPHONES UNDER FIRST CONIMISSION 5 9 Gross Revenue ...... $656,487 (such as the value of work done free of charge by Expenses : other Government departments). Thus, as regards Operation ...... $256,129" the preceding revision of the accounts (and the sub- Maintenance ...... 94, I 62 sequent similar revisions), failure to make allowance Depreciation ...... 149,860 Total Expenses ...... 500,151 for the effect of unknown deficiencies in the accounts Net Earnings ...... 156,336 merely decreases the losses shown and therefore Interest ...... 168,252 makes the results conservative. Moreover, the con- Deficit ...... $1 1,916 servatism of the results as stated here is enhanced *This figure is necessarily estimated, as operation expenses - in by the fact that in such revisions of the accounts no 1908 -are not shown separately in the published accounts. Cf. p. 51, supra. The figure bears the same elation to grosa revenue, deduction from revenue is made to provide for the however, as does the average of the actual figures for operation expenses in 1909, 1910, and 1911. Allowance has been made for gradual writing off of intangible capital, although it operation expenses incurred in 1908, but not included in the tele- cannot be open to question that annual provision for phone accounts until the next year. writing off intangible capital should have been made; This revision of the accounts eliminates the effect indeed, the necessity for the gradual extinction of of the two known deficiencies in the accounting intangible capital was later officially recogni~ed.~~ practice which the Government forced upon the It is clear from the above revision of the accounts, Telephone Commission; but it must not be supposed then, that all profits which had formerly been earned that these were the only deficiencies in the telephone by the Bell Telephone Company - over and above a accounts. An inspection of the books would doubt- sum equal to the interest charges paid by the Gov- less reveal departures from sound accounting prin- ernment on their telephone capital - were entirely ciples in a considerable number of other cases,- dissipated during the very first year of Government some serious, some petty. It should be observed, operation. Even if less provision against deprecia- however, that the effect of all deficiencies in the action had been made, this real result would not have counts is to increase the book profits of the system: been materially affected - and this real result was the tendency of Government bookkeeping is to in- produced under even higher rates than the Bell Com- clude with revenue items which should properly be pany had charged ! 45 excluded (such as revenue received during the year, 44 Cf. p. 154, infra. but not earned during the year) and to exclude from 45 Cf. pp. 42 and 47, supra. Moreover, the Government system is exernpt from practically all taxation, whereas tbe Bell Company expenses items which should properly be included paid almost $10,000 a year in taxes in Winnipeg alone (The Mani- 60 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 6 I

On March 9, 1909, the Report of the Public Ac- of the Public Accounts Committee show that the Op- counts Committee for the year 1908 was brought position, for political ends, early adopted every before the Legislature. The Committee had made means in their power of calling the Government to a somewhat detailed inquiry into the telephone ac- account for deliberately misleading the people of the counts and had confirmed such significant facts as Province into the belief that the administration of that the telephone revenue for the year had included the telephone system had been financially successful; cnearned revenue and that many current expenses and although the evidence as to telephones taken on had been charged to capital. Nevertheless, the oath by the Public Accounts Committee is not printed, Committee's report was a purely formal generaliza- it has already been seen that enough material of an tion containing no reference to details.*' But the indisputable character remains to prove that the Gov- Opposition was unwilling to allow the occasion to ernment administration of the telephones in Mani- attack the Government's accounts to go by default toba exhibited from the beginning a complete disre- and an Opposition member of the Legislature there- gard of sound principles of finance. fore moved the adoption of an amended report which stated the case against the accounts accuratelv. A MODERATE RATE REDUCTION EFFECTED BY THE In this amendment attention was called to the in- GOVERNMENT FOR POLITICAL PURPOSES clusion of unearned revenue with earned revenue; On February 25, 1909, a few days after the pub- to the existence of large bank overdrafts inccrred lication of the telephone accounts, the Minister of for telephone expenditures; and to the absence of Public Works, speaking before the Legislature, very any provision against depre~iacion.~~Needless to justly complimented the Telephone Commissioners say, however, this amended report was rejected and upon their management of the system, for there can the original colorless report adopted.48 Neverthe- be no doubt that they made the best of highly unless, the proceedings in connection with this report favorable conditions and that, so far as they were toba Free Press, Winnipeg, December 13, 1908, and December 24, concerned, the system was generally managed effi- 1908). This exemption from taxation is a factor which must be borne in mind throughout the consideration of the financial results ciently and economically; the deficiencies in manage- of the Government telephones. ment lay altogether outside of the sphere of the Com- 46 Journals of the Legislatiwe Assembly of Manitoba, Session 1909, PP. 154r5. mission. In the same speech the Minister stated 47 Ibtd., pp. 155-8. that the real surplus" for the first year of opera- 4s Ibid., p. 158. " tion was $232,501, and continued: " In view of the 62 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 63 magnificent financial results as shown by the financial 2 Party line, residence: existing annual statement, it becomes my pleasant duty to announce charge of $2 I reduced to $15. the conclusions reached by the government in respect Snzall Towns. to a reduction of rates." 49He did not say that the Individual line, business: existing annual Government had been advised by the Telephone charge of $24 reduced to $20. Commission that the telephone accounts showed that Individual line, residence : existing annual reductions could be made; he intimated clearly that charge of $I 8 reduced to $15. the reduction of rates was due to the policy of the Farmers' Lines. Government. Existing annual charge of $24 reduced to The Minister of Public Works then announced the $20. new rate schedule, which applied to exchange rates Existing annual charge of $30 reduced to only, long distance rates remaining unchanged. The $25. chief provisions of the new schedule were as fol- c) A 2 party line, business, unlimited service rate lows : was introduced in the cities; and a meas- a) The flat (i.e., unlimited service) rate for in- ured service rate for individual line busi- dividual line, business service in the cities ness and residence service was introduced ($50 per year in Winnipeg) was left un- in the cities as an alternative to the flat changed. rates for such service. b) The other flat rates were reduced as follows: While the introduction of the measured service Winnipeg. rates was an innovation in Manitoba, nevertheless, Individual line, residence : existing annual since the flat rates were retained and the measured charge of $30 reduced to $25. rates were merely optional, the innovation was prac- 2 Party line, residence: existing annual tically unheeded and caused no comment. The new $24 charge of reduced to $18. rates were to go into force on April I, 1909. Brandon and Portage la Prairie. The new schedule was in effect a political scale Individual line, residence : existing annual devised by the Government for the purpose of pla- charge of $25 reduced to $20. cating the politically most influential classes. There $* The Winnipeg Telegram, February 26, 1909. can be no doubt as to its source, in view of the fol- 64 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 65

lowing extract from the evidence of the Chairman provided by the new schedule were insignificant in of the Telephone Commission before the Public Ac- comparison with the pledge that rates would be counts Committee in 1910. The Chairman, when 6 L cut in two." questioned by a member of the Committee in regard Although the results of the first year's operation to the reduction of the farmers' rate from $24 to of the Government telephone system gave little sat-

$20, replied as follows: isfaction in Manitoba, notwithstanding the " sur- " Q.- Was the reduction from $24 to $20 made plus " resulting from the Government's manipula- by the commission? tion of the accounts and notwithstanding the reduc- " A.- No, we put it in effect, but it was a reduction in rates, some of the politicians in the Dominion tion made by the Government. Parliament at Ottawa attempted to make political " Q.- Were you consulted as to the reduction capital out of the alleged success of the Manitoba being made ? Telephones. In the Dominion Parliament on "A.- Yes, I was consulted. March I, 1909,one member moved the adoption of " Q.- And did you advise that it should be made ? a resolution that "it is the immediate duty of the " A.- I cannot say that I did." government to initiate and carry out such measures And in another place : as will . . . secure to the people of Canada, other " Q.- And you are sure that the suggestion of than the people of Saskatchewan, Alberta and Mani- the $20 rate did not come from you? toba, a rate of service at least as moderate as . . . 66 A.I am sure of that." 5n prevails in countries where a national telephone serv- No comment is necessary to illuminate this testi- ice is maintained." 52 In support of his motion the mony; it is also self-evident that the reductions member referred especially to the case of Manitoba,

60 Sessional Papers. Legislative Assembly of Manitoba. Session and spoke of the Government Telephones there as 3910. Appendix A. Evidence Taken before the Publrc Accounts having yielded "a surplus of $380,000 for the Comrnzttee durzng the Sesszon of 1910, p. 703. 61 This evidence, however, is further proof of the situation in re- eleven months and a half in which they have been gard to the Telephone commission. There was at the head of the Commission an absolutely honest and upright man who was doing operating." 53 But on being questioned on this the best he could for the Province, a man technically trained who point, the proposer of the resolution admitted that knew that more or less disastrous failure was inevitable unless a change of policy occurred. On the other side there was the Govern- 52 Oficial Report of the Debates of the House of Commons of the ment, merely desirous of retaining its power and utilizing the Domin*oti of Canada. First Session - Elwenth Parliament. Val. telephone system for the purpose of securing party advantages, how- LXXXIX. Column 1761. ever temporary and at whatever cost to the Province. " Ibid., Column 1769. 66 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 67 he had not analyzed this surplus, while another had been the accepted practice of the Bell Telephone member of Parliament showed that the actual situa- Company to have a ten-hour day during the summer tion in Manitoba was well understood by pointing season, those workmen who were paid weekly or out that the Government service had produced an monthly wages - about 60% of the total number actual deficit and continuing: " I am aware that the employed - immediately resented the increase when telephone system is operated by the commission. it was adopted by the Commission. The Trades and But I am also aware that, so far as policy is con- Labor Council of Winnipeg denounced the Govern- cerned, the commission is under the control of the ment. " Such action," one of the members said, government, and the revenues received by the com- " would be borne in mind in the next election." 55 mission are paid over to the provincial treasury. Since, however, the Government were being kept in The rates are certainly controlled by the govern- power by the vote of the farmer and not by the vote ment, and not by the commission '' since " there was of the urban artisan, the threat carried no weight. no justification for that reduction, there were no Still, the fact that an administrative change led to business reasons for it." 6" a political attack illustrates one of the difficulties So much for the events connected with the first encountered by public authorities which engage in year of the Manitoba Government telephones. industrial enterprises." It is also worthy of note that in November, 1909, as a protest against the LABOR DIFFICULTIES discipline enforced by the Commission, the exchange The second year of Government operation ( 1909) operators in Winnipeg threatened to strikesE7 had scarcely begun before the Telephone Commis- On September I, 1909, the Telephone Commis- sion encountered some labor difficulties. A desire sion effected a reorganization of the administration - for economy, as well as the necessity for speed to of the system, introducing what is known as " func- meet the conditions imposed by the Government in tional " organization. The entire business was di- the reduction of the rates for rural telephones and 55 The Manitoba Free Press, Winnipeg, April 16, 1909. in the policy of rapid construction, induced the Tele- "That continued employment in the telephone service depended upon political corisiderations is evident from the fact that, upon his phone Commission - in April, 1909 - to increase nomination as the Opposition candidate for Killarney (Manitoba) the working day of its line employes from nine to at the next election, the long distance agent of the Government teie- phones at Ninga was dismissed. The A4anitoba Free Press, Winni- ten hours during the summer season. Although it peg, July 7, 1909. 67 Cf. the Manitoba Free Press, Winnipeg, November 6, 1909. 54 Zbid., Column 1780 et seq. 68 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 69 vided into three departments, viz., commercial, ing the year and no reserve against depreciation was traffic and plant. The only territorial distinction set aside; moreover, the Commissioners were not was between Winnipeg and the rest of the Province. able to include in the accounts the interest paid during the year upon the telephone capital, the payment At the head of each department there was placed a -. superintendent, reporting to the Commission. In of such interest charges having been specifically re- speaking of the change, Mr. W. H. Hayes, one served to the Provincial Treas~rer.~~According to of the Telephone Commissioners, said: " All tele- the accounts in the report of the Telephone Com- phone companies are gradually working into this missioners, there was an " excess of revenue over new form of organization; it has proved to be far expenditure" for the year of $271,797; but when superior to the old method in facilitating the han- the effect of the known deficiencies in accounting dling of the business. It arranges for a more de- methods is eliminated in accordance with the pro- tailed supervision of every locality on the system." 5s cedure already described," and when the interest In view of the generally recognized efficiency of the upon the telephone capital 62 has been deducted, the " functional" type of organization, its early intro- results of the year's operations appear as follows: duction reflects great credit upon the Telephone Gross Revenue ...... Commission. Expenses : Operation ...... DEFICIT IN 1909 CONCEALED BY THE ACCOUNTING Maintenance ...... METHODS PRESCRIBED BY THE GOVERNMENT Depreciation ...... Total Expenses ...... As a result of the deficiencies in the accounting Net Earnings ...... methods prescribed by the Government, the accounts Interest ...... Deficit ...... of the telephone system for 1909, printed in the 'This figure bears the same relation to plant cost as do main- brief annual report of the Telephone Commission- tenance expenses in those years in which maintenance expenditure er~,~~gave no indication of the real financial out- is shown as a separate item in the accounts. Jy Equivalent to 6% of plant cost at the end of the preceding year. come of the service during the year. As in 1908, GO Cf. p. 72, infra. maintenance expenses were charged to capital dur- Cf. pp. 54-57, supra. 62 Until 1913 the annual interest charges upon telephone capital 58 The Bulletin, Winnipeg, August 21, 1909. are shown only in the Public Accounts (i.e. the annual reports of the "Report of the Commissioners of Government Telephones for the Provincial Treasurer) in the Sessional Papers. year 1909. Sessional paper No. 20. Sessional Papers. Legislative GVessional Papers. Legislative Assembly of Manitoba. Session Assembly of Manitoba. Session 1910, pp. 624-627. 1910, p. 52. 70 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 71 In other words, the Government's accounting or from the bank on the credit of the Government, methods concealed a real deficit which, although it all sums required by the Commission for the con- was equal to only 2 per cent. of the gross revenue, duct of its business. The following evidence of the was nevertheless greater than the corresponding Chairman before the Committee shows conclusively deficit in 1908; while the recurrence of a deficit was that the responsibility lay entirely with the Govern- an ominous sign. Moreover, in thus creating real ment : deficits, the Government was of course compromis- " Q.- Has the Commission, within the years that ing the public credit, a fact which an analysis of the they have been operating the telephone system, Public Accounts of the Province will show. But set apart any sum whatever for sinking fund pur- even if it had been justifiable, as good public policy poses ? I ( A.- We have nothing to do with that. or as conducive to future advantages, to incur a loss L 6 Q.-Has the Commission set anything apart in the telephone enterprise, it would have been only proper for the Government frankly to have stated for that? such losses, instead of endeavoring to conceal them " A.- We pay every cent we get to the Provincial by means of lax and not entirely honest accounting Treasurer and don't set apart anything. (6 Q.- Then you can answer the question nega- methods. Unfortunately, however, the Manitoba Government from the beginning deliberately refused tively, the Commission has set apart no sum what- to look facts in the face; they preferred to deceive ever for sinking fund purposes out of the earnings the public - and probably themselves -by creating of these two years? LC A.- No, we have not. the illusion that their venture into commercial busi- L L ness was a financial success. No illusion could have Q.- Has your opinion ever been asked upon been greater. that, whether it would not be a good business to do When examined before the Public Accounts Com- so ? LL mittee in regard to the telephone accounts, the Chair- A.No. man of the Telephone Commission steadily refused " Q.- That is left entirely to the Government? to admit responsibility for the manner in which the " A,- Yes, that is left entirely to the Govern- accounts had been presented. He said that he was ment. L L obliged to hand over to the Government all sums Q.- Has the Commission set apart or recom- received by him, and to draw from the Government, mended the setting apart of any sum for deprecia- 72 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 73 tion or a contingency account or anything of that " Q.- As far as the farmers' rates are concerned, kind ? I believe your view was that $20 (i.e., the reduced < L A.- Well, the same answer applies to that rate) was too near the cost without leaving any- question. . . . thing for profit? " Q.-What profit did the Government tele- " A.- That is right. phones earn in 1909, do you remember? " Q.-You never suggested that the farmer " A.- We do not deal with the matter of inter; should get the benefit of anything that was coming est on debentures at all; we remitted some $775,000 in that direction? to the Provincial Treasurer, and have received from " A.- Well, the recommendation came from the him $~S~,OOO. Government to reduce the rates on the rural lines." 66 " Q.-Then the Commission, as such, does not And that the Government fully intended to take know what amounts were paid out for interest on the credit with the farmer, is shown by the follow- debentures ? ing passage : L L A.No. " Question (by Dr. Armstrong, a member of the i

" Q.- And that is what you purport to show? strong would like to charge the farmer more, but " A.- That is all we can show." G4 we do not propose to do so." In regard to rates, another passage from the evi- These extracts from the evidence given on oath dence of the Chairman of the Telephone Commis- by the Chairman of the Commission in regard to sion, referring to the reduction in rates, is signifi- the telephone accounts and rates are further proof cant : of the pervasive character of the Government con-

6Vessional Papers. Legislative Assembly of Manitoba. Session OVbid., p. 714. 1910. Appendix A. Evidence Taken before the Public Accounis 66 Sessional Papers. Legislatiwe Assembly of Manitoba. Session 1910. Appendix A. Committee during the Session of 1910, pp. 706-7. Evidence Taken before the Public Accounts Committee during the Session of 1910, p. 712. 74 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 7 5

trol of the Telephone Commission. They show On a party vote these proposed amendments ta that the Commission had in effect to do what it was the Report were rejected.FS told to do by the Government. It was forced against its desire to reduce the rates on rural tele- CONSTRUCTION POLICY OF THE GOVERNMENT IN- phones; the mere suggestion that these rates should ECONOMICAL AND MARKED BY POLITICAL ABUSES be increased was met with a contemptuous negative The year 1910 was the third year of the opera- by the Attorney-General. tion of the Government telephones and, in methods When the Report of this Public Accounts Com- and results, it was not distinguished in any essential mittee was presented to the Legislature on March from its two predecessors. At the end of the year 16, 1910, an Opposition member moved that the the system embraced 29,748 telephones, distributed Report be referred back to the Committee for as follows: amendment in order to insert, among others, the Business telephones ...... I I, I 8 I following paragraphs : 67 Residence telephones ...... I I ,537 "That the evidence of the Provincial Auditor Rural telephones...... 7,030 shows that the trust accounts of the Province are not audited by him." (The funds which are appro- Total ...... ~9,748~~ priated for telephone construction purposes consti- As the number of telephones at the time of the tute trust funds. Large sums had therefore been Government's acquisition of the system was 14,042,~~ disbursed by the Government officials without ef- the number of telephones had been doubled in the fective audit.) three years of Government operation. In spite of " That, since the first day of May, 1909, the the fact that this increase was secured at an exces- Telephone accounts have not been audited by the sive cost to the Province, and although there was no Provincial Auditor, the same having been removed real economic demand for some of the extensions from his jurisdiction by the action of the Executive." which had been effected, the growth of the service (The result of this action of the Government was 68 Journals of the Legislative Assembly of Manitoba, Session 1910, an inadequate audit which gave rise to some of the P. '75. s9 Report of the Commissioners of Manitoba Government Tele- abuses which were revealed later.) phones for the year ending grst of December, 19ro. Sessional Paper No. 14. Sessional Papers. Legislative Assembly of Mani- 67 Journals of the Legislative Assembly of Manitoba, Session toba. Session 1911, p. 582. 1910, 174. P- Vo Cf. p. 28, supra. 76 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 7 7 has certainly been the most unobjectionable feature announced that the work of connecting up Wood- of the history of the system under Government con- ridge with the provincial government's long distance trol. However, as will be pointed out in detail telephone system would be gone on with immediately later," it must not be assumed that this growth after the elections. was due to Government control, for no such assump- '' A number of voters were engaged, at the rate tion can have any basis in fact. Incidentally, it will of $6 per day per man and team, to do the work of be recalled that the number of telephones was doub- taking the poles out to the point to which it was led during the last two years of Bell management stated the trunk telephone line would be completed and that the Bell Company had anticipated a much in a week or two. larger growth in the following years; indeed, the " The Woodridge district is partly in the con- large amount of advance construction at the time stituency of Emerson and partly in the constituency of the acquisition of the Bell system was put for- of Carillon. It is a predominantly Opposition dis- ward by the Government as one explanation of the trict. apparently high price paid for the plant.72 "Within two weeks after the elections, a train Moreover, the Manitoba Free Press reported an of empty cars came along and gathered up all the example of the political abuses which were rampant telephone poles and brought them to Winnipeg even in the matter of extensions. Although it is im- again." 73 possible at this date to verify the incident which the The Free Press refers editorially to the incident Free Press relates, yet it seems so probable that it as a case of "fishing for votes with telephone is given here : poles." 74 "The people of Woodridge and the region sur- In 1910, the Government's policy of rapid con- rounding that station . . . are suffering from the struction did not take into account the state of the sort of hope deferred which maketh the heart labor market, with the result that the Commission sick, in the matter of securing telephone connec- found it impossible to secure an adequate supply of tions. experienced men fully to carry out that policy. In " In the closing days of last June, just before the consequence, a number of rural and long distance recent provincial general elections, several carloads lines had to be abandoned in the course of construc- of poles were unloaded at Woodridge, and it was 73The Manitoba Free Press, Winnipeg, October 8, 1910. 74 Ibid. Cf. pp. 146-148,infra. T2 Cf. p. 30, supra. 78 GOVERNMENT TELEPHONES UNDER FIRST COhliClISSION 79

tion and were unable to be completed until the sea- Gross Revenue ...... $982,636 son of 1911.~~ Expenses : Operation ...... $418,999 Maintenance ...... 135,316" PROFIT BUT 12 REAL LOSS Depreciation ...... 2 I 5,s57t The telephone accounts for 1910 were again prac- Total Expenses ...... 769,672 tically meaningless. Although without doubt fewer Net Earnings ...... 2 I 2,964 Interest ...... 278,5ooi8 maintenance expenses were charged to capital in I 9 10 Deficit ...... $65,536 than had been so charged in 1908 and 1909, never- *This figure bears the same relation to plant cost as do main- theless the amount of maintenance improperly tenance expenses in those years in which maintenance expenditure is shown as a separate item in the accounts. charged to capital was considerable even in 1910. +Equivalent to 6% of plant cost at the end of the preceding year. According to the accounts of the Telephone Com- mission there was an excess of revenue over ex- Behind apparent profits, therefore, there was a Moreover, it penditure of about $35o,ooo; 76 but the Commis- real loss during the year of $65,000. sion was still without authority to set aside any is obvious that in the absence of a depreciation re- reserve against depreciation, and their accounts did serve even apparent profits (after the deduction of not - and could not - include the interest paid the proper interest charges) could be maintained upon the telephone capital. If ( I ) all maintenance only so long as the actual reconstruction expenses expenses had been properly charged against revenue, each year were considerably less than the annual if (2) a reserve against depreciation had been in- amount which would have been required to provide cluded in current expenses and expenditures for re- an adequate reserve against depreciation - either construction had been excluded from current ex- naturally less because of the comparative newness penses, and if (3) interest on telephone capital had of the greater part of the plant or artificially less been shown, the accounts for 1910 would have stood because of neglect of necessary reconstruction and failure to keep the plant up to standard. For three as follows : 77 years the Government had succeeded in concealing 75 Report of the Commissioners of ~Zlanitoba Government Tele- Phones for the year ending ~1stof December, zyzo. Sessional 78 Sessional Papers. Legislative Assembly of Maniioba. Session Paper No. 14. Sessioizal Papers. Legislatiwe Assembly of Mani- The interest accounts for the year 1910 are very ob- toba. Session zyzz, p. 583. Z~ZZ,p. 57. scure, but a thorough study of all factors indicates that $278,500 is 76 Zbid, pp. 587-590. the amount of interest properly chargeable to telephone revenue T7 For details of this revision of the accounts, see pp. 54-57, supra. for the year. 80 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 8 I the truth, but in 1911, the fourth year of operation, purposes, assumed. Even at that late date, the the bubble of fictitious profits burst. Government might have greatly ameliorated the sit- When, after three years, the Government contin- uation by frankly confessing that they had made ued to show no sign of adopting, or allowing the three great mistakes, viz., the unnecessary and in- adoption of, any sort of commercial accounting, the economical haste with which construction, especially Telephone Commissioners naturally became very un- of rural lines, had been pushed, the failure to provide easy. They were well aware that the surpluses a reserve against depreciation, and the reduction of which the Government had announced were wholly the telephone rates. But such a confession, being fictitious and that the accumulation of real deficits politically inexpedient, was not made. must eventually be disclosed, involving the Commis- sion as well as the Government in the discredit con- FICTITIOUS PROFITS DISAPPEAR IN I9 I I ; AN AGGRE- GATE LOSS OF OVER $300,000 sequent upon the disclosure. The fact that the Gov- ernment were primarily responsible would not save The Telephone Commissioners could not go upon the Commission. It was necessary that some dras- the public platform and denounce the Government tic measure be adopted in order to bring the true for maladministration of the telephone finances, nor state of affairs openly before the public so that the could they utilize the press for purposes of propa- Government would be forced to take remedial ac- ganda. There was, however, open to the Commis- tion. No mere representations to the Government sion one course which would inevitably force action would have sufficed; the members of the Govern- -and this course the Commission took. What ment had shown a persistent disregard of the facts they did was to expend in 191 I what they conceived -they would not even read the reports submitted to be necessary to bring the plant fully or nearly to them from time to time by the Telephone Com- up to a reasonable standard, and to charge all main- mission. The plain fact is that the members of the tenance and reconstruction expenses against rev- Government were wholly occupied in the petty tech- en~e.~~No methods of bookkeeping could conceal nique of party political management, with the sole the inevitable deficit which resulted - and the Gov- purpose of keeping themselves in power; they were 79According to the annual reports of the Telephone Commis- at once unable and unwilling to devote themselves sioners, maintenance and reconstruction expenses amounted to $282,000 (including maintenance expenses improperly charged to to the task of comprehending the intricacies of the capital) in 1910 and to $500,000 in 1911. Sessional Papers. Legis- business the control of which they had, for political lative Assembly of Manitoba. Session 19II, p. 589; Session 1912, P. 534. 82 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 83 ernment were forced into a position of either meet. Gross Revenue ...... $1,280,633 ing this deficit out of the general revenue of the Expenses : Province or permitting an increase in rates; while Operation ...... $571,916 at the same time deference to public opinion obliged Maintenance ...... 2 I 8,6 I 8" the Government to abandon their obstinate refusal Depreciation ...... 347,932t to provide a depreciation reserve. Thus, by its ac- Total Expenses ...... I lI 38,466 Net Earnings ...... 142,167 tion, the Commission really rendered a great serv- Interest ...... 361,350'~ ice to the Province, but a service which eventually Deficit ...... $219,183 proved to be self-sacrifice, for the Government at *This figure bears the same relation to plant cost as do maintenance expenses in those years in which maintenance expenditure once began to hunt for a scapegoat upon whom their is shown as a separate item in the accounts. own sins might be cast. t Equivalent to 6% of plant cost at the end of the preceding year. When the telephone accounts for 191I were pub- Inasmuch as care has been taken to understate, lishedlS0they showed that, after the deduction of in- rather than exaggerate, these real deficits, there can terest chargeslsl there was a deficit of $153,ooo on be no doubt that the losses during the first four years the year's operations. During the year all current of Government ownership and operation exceeded expenses were charged against revenue; s2 but no three hundred thousand dollars ! reserve against depreciation was set aside. Upon recasting the accounts so as to include a depreciation GOVERNMENT POLICIES RESULT IN EXTRAVAGANCE, charge and to exclude reconstruction expenses, the INEFFICIENCY AND DISCRIMINATION IN VIO- real deficit is seen to be even greater; for the plant LATION OF PROMISES account had greatly increased during 1910 and a Perhaps it might be well to review briefly the chief correspondingly larger depreciation charge was specific causes of this financial dibicle: : properly required. The recast accounts follow ( I ) The Government's policy of rapid construc- 80 Fourtlr Annual Report of the Commissioners of Manitoba tion, which was adopted without regard to the abil- Government Telephones, 1911. Sessional Paper No. 25. Sessional Papers. Legislatioe Assembly of Manitoba. Session 1912, pp. ity of the telephone organization to carry it out and 534-536. was continued in the face of unfavorable labor con- 81Sessional Papers. Legislative Asrembly of Manitoba. Session 191.2, p. 60. ditions, forced the Telephone Commission to employ 82 SO far as is known, all current expenses have been charged against revenue in each year subsequent to 1910. Cf. p. 54, supra. 83 Sessional Papers. Legislative Assembly of Manitoba. Session 2912, p. 60. 84 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 8 5 men and to keep men on the pay-rolls who would not mission in almost every possible way. One result have been accepted or retained under normal condi- was that the estimated cost of construction of line tion~.~~ plant was nearly always exceeded. In November, (2) The Government's requirement that rural I 9 I I, the Chairman of the Commission stated :

extensions be made in excess of the real demand " Every mile of rural telephone lines which was esti- therefor, also necessitated the construction of lines mated would cost us $I 50 four years ago, we have with one subscriber per mile instead of with an ade- found by actual experience now costs us $200 "; sS quate number of subscribers per mile.85 in some cases the actual cost exceeded the estimated (3) The Government compelled the Commission cost by over IOO per cent. A large part of this ex- to transform toll offices into exchanges before the cess must be attributed to the extortionate charges volume of business (actual or potential) warranted of hotel-keepers, liverymen, etc.; such persons habit- it; and the Government obliged the Commission to ually charged the Commission much higher prices provide night and day service at small exchanges than they charged other customers, and yet the Com- where day service only would have sufficed. When mission was bound to employ them either because requested to do so by sufficiently influential persons they had a local monopoly or because they were sup- the Commission was also forced to give- free serv- porters of the Government and were able to bring ice between exchanges.sO influence to bear to have their bills approved. In (4) Not only did the Government interfere in a memorandum, dated March 25, 1912, Mr. Horan many subtle ways with the conduct of the telephone wrote to the Chairman of the Commission: " It business and not only did the members of the Pro- should be brought out in relief that not only have vincial Legislature of both parties exert influence we had to contend with the fact that politics came upon the Commission to procure favors for their into the question so much, but apparently a large per- friends, but the people themselves also utilized these centage of hotel-keepers, storekeepers, and livery- and other persons for the purpose of obtaining con- men have been hand and glove with our men- cessions through political pressure.S7 foremen and others - in cheating the Government. (5) The people also took advantage of the Com- . . . It is of course ~~nderstoodthat any remarks I34 Cf. pp. 43 and 44, supra. or suggestions I have made regarding the entry of 85 Cf. pp. 38-39, supra. Cf. pp. 39 and 43-44, supra. 88 Interview reported in the Matzttoba Free Press, Winnipeg, 87 Cf. pp. 39-40, 44-45, 50 and 67, supra. November 4, 1911. 86 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 87 politics into the running of the business applies just festly inexpedient, but they were also exceedingly ex- as much to the one party as to the other, as I do not pensive for the Commission. for a moment mean to say that if the Opposition In this connection we may recall the promises of were in power they would succeed any more than the Government that political considerations would the present Government in eliminating this unpleas- be eliminated from the telephone management and ant feature from the business." sg that the service would be self-sustaining. (6) The reduction in rates made by the Govern- ment was obviously unjustifiable and costly. LONG DISTANCE RATES INCREASED; PROPOSAL TO (7) The Government refused to provide any REVISE EXCHANGE RATES VIOLENTLY AT- financial reserve whatsoever, even a reserve against TACKED BY THE PUBLIC depreciati~n.~~ Since the people, in spite of all subterfuges on the (8) All receipts from the telephone service were part of the Government, continued to hold the Gov- handed over to the Provincial Treasury and the Gov- ernment responsible for telephone conditions, when ernment drew very heavily upon these telephone it was seen (early in 19 I I ) that an indication of the funds to conduct their decidedly amateurish financial real financial results of the telephone system would operations, using telephone credits to meet the gen- shortly become public property, the Government eral expenses of the Province and thus obliging the found itself in a highly vulnerable position; and in Commission, both for current and for capital ex- order to relieve the Treasury from the financial em- penditure, to overdraw its bank account to an extent barrassment which would necessarily result from which was, under the circumstances, at once very having to meet continuous telephone deficits, the Gov- large and very mischievous." For instance, on De- ernment resolved upon drastic action. It deter- cember 31, 1909, the overdraft of the Commission mined to raise the telephone rates, though in doing at the bank amounted to the considerable sum of so it was obliged to repudiate another pledge and to $367,000." Not only were such methods mani- admit that in undertaking to give a telephone service s9Memorandum (typewritten), March 25, 1912. at one-half the Bell rates, it had been altogether 90 Cf. pp. 41-42, supra. wrong. 91 Cf. p. 60, supra. 93 This sum was procured from the bank by the Commission with pendix A. Ewidence Taken before the Public Accounts Committee only oral authorization on the part of the Government. Sessional during the Session of 1910, pp. 700-701. Papers. Legislative Assembly of Manitoba. Session 1910. Ap- 88 GOVERNMENT TELEPHONES UNDER FIRST COMNIISSION 89 The Government's first step in this direction nounced, the Government took upon themselves the took place in the spring of 191 I, when it con- task of announcing them,96 but that when any in- sented to the Commission's proposal to increase long creases were to be announced the Government re- distance revenue by abolishing the reduced rates for quired the commission to assume the responsibil- long distance service at night and - in day service ityag7 -by substituting an initial period of two minutes The proposed schedule was as follows : 98 in place of the existing initial period of three minutes, though retaining the same, or nearly the same, (Installation charge of $2.50 on each new line.) rate for the two-minute period as had been charged for the three-minute period. The rates for each a) Business Service. additional minute in excess of the initial period were Individual line . . . $4 per month, allow- also raised. The new schedule, which went into ef- ing IOO calls per month without addi- fect on May I, 1911, therefore involved a consid- tional charge; calls in excess of 100, 2 erable, though indefinite, increase; indeed, the Mani- cents each. toba Free Press concluded that "the cost of long Individual Line, Prepayment Service . . . distance teIephoning wilI be just about doubled." 93 guarantee of minimum revenue of 10 Then, in November, I 9 I I, the Commission an- cents per day required; each call 5 cents, nounced to the public that the telephone accounts for but a rebate of 2 cents on each call in that year, when published, would show a loss of excess of guaranteed minimum. $150,000 and that the Commission intended to rec- b) Residence Service. ommend to the Government certain changes in the Individual line . . . $4 per month, allow- classification of subs~ribers.~~heproposed sched- ing unlimited service. ule of rates, thus presaged in this announcement, was Individual line . . . $1.50 per month, al- approved by the Government and announced by the lowing 30 calls per month without addi- Commission on December I 2, I 9 I I .9Vncidentally, tional charge; calls in excess of 30, 2 it should be noted that when the reductions were an- cents each.

g3The Manitoba Free Press, Winnipeg, April 13, 1911. 98 Cf. p. 62, supra. 94Cf. Winnipeg newspapers of November 4, 1911. 97The Government thus paved the way for diverting to the S5 Cf. Winnipeg newspapers of December 13, 1911. Commission the brunt of the subsequent attack upon the rates. 98 The Winnipeg Telegram, December 13, I~II. go GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 91 Individual Line, Prepayment Service . . . The reasons for the proposed adoption of an same rate as in the case of business serv- obligatory measured rate system in Winnipeg were ice. thus explained by the Chairman of the Telephone (The radius of the exchange area was increased Commission in a statement to the press: from two to three miles. Party lines within the ex- " The number of calls per subscriber (in Winni- change area were abolished.) peg) is more than double that in the cities of Great Britain, Germany, Australia, and the United States, All Other Exchanges. (i.e., all exchanges except where measured service is now fully developed. Winnipeg.) This indiscriminate use of the telephone not only pro- ANNUALSUBSCRIPTION duces congestion, but is primarily the first cause for --A No. OF SUBSCRIBERSIN EXCHANGE Business Residence Rural any poor service that may be experienced by the sub-

Less than 100 (day service only). . scriber. It is this waste of ~oo,ooocalls a day $::: $::: $::: Less than 100 (continuous service). . that has led the Telephone Commission to recom- 100-200 ...... 18. 25- 200-300 ...... 19. 26. mend to the government that measured service for 300-400 ...... 21. 27. Winnipeg can be introduced under conditions that 400-500 ...... 23. 29- 500-1000 ...... 40. 24. 31. will make the telephone even more reasonable in 100~~000...... 45. 27. 36. price than it is under the flat rate. It will reduce Ten per cent. discount for prompt payment of six months' subscrip- the cost of operation to a very large extent, provide tion in advance. a better service, and will be so regulated that the The proposed rates were to apply, from April I, heavy users will pay for the service they receive and 1912, to all subscribers and from January I, 1912, not, as in the past, have such service paid for by the to new subscribers. As may be seen, the schedule small user." g9 made the measured rate system compulsory (instead Although this application of the measured service of optional) for business service in Winnipeg; it principle of rate-making was, under the circum- abolished all flat rates in Winnipeg except for instances, technically justifiable, yet events showed that dividual line residence service (the rate for which at the time it was announced it was a tactical blun- was increased from $25 to $48 per year) ; and it der. An increase of the rates for unlimited service, increased the flat rates in small towns and in rural to which the people were accustomed, would with- districts in almost every case. OWhe Winnipeg Telegram, December 13, 1911. UNDER FIRST COMMISSION 93 92 GOVERNMENT TELEPHONES Government was deluged. In addition, many bitter out doubt have aroused opposition; but the strength complaints were made as to the quality of the serv- of such opposition could hardly have been so great ice, which was frequently compared - unfavorably as that which the novelty of compulsory measured with the service under the Bell Company; indeed, service actually encountered. Moreover, the nov- - one of the arguments advanced by the Chairman of elty of the proposal served to focus public discus- the Commission in defence of the proposed schedule sion and agitation upon the rates themselves, while was to the effect that the adoption of measured serv- the causes underlying the rates were obscured. ice rates would greatly improve the quality of the Thus in Winnipeg an essentially false issue was service a virtual admission that the service had raised. - deteriorated under Government control. Many Immediately upon the announcement of the pro- manifest instances of inefficiency and extravagance posed schedule (December 12, 19 I I), a storm of disapproval swept over the Province.' Public were also pointed out in the public press. For present purposes it will suffice to dismiss this destruc- meetings of protest were held. Petitions of remon- tive criticism with merely calling attention to the self- strance were circulated. Business men welcomed evident fact that the complaint as to " exorbitant" opportunities to give their views for publication and expressed their indignation vociferously. The Op- rates in the days of the Bell Company was insignificant in comparison with this popular attack on the position and the independent press were swamped schedule prepared by the Commission. with vibrating letters from outraged subscribers. The business men of Winnipeg, however, did not Ardent supporters of the Government were unable confine themselves to destructive criticism; a num- to restrain their wrath. The vitriolic outbursts of ber of commercial associations endeavored to offer irate citizens nearIy exhausted the supply of con- some constructive criticism in regard to the local demnatory epithets and adjectives. " Outrageous," rates. For instance, on December 13, 191 I, the '' ridic~lous,~~'' impossible," " preposterous," " out- directors of the Industrial Bureau of Winnipeg ap- landish," 'L absurd," " nonsensical," " unreasonable," pointed a committee to discuss " the increase of tele- and " extortionate " were among the many kindred phone rates with the authorities of the province "; terms which were applied to the proposed rates. and on December 19th~the Winnipeg Board of Even the Telephone Commissioners did not escape Trade also appointed a committee to inquire into the the torrent of denunciation and abuse with which the telephone situation. These two committees pro- 1 Cf. contemporary Manitoba press. 94 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 95 ceeded to cooperate, though they rendered separate alleging that the price was excessive. The defence reports. Both committees condemned the failure of the purchase price which the Government made to provide any reserve against depreciation and both at the time, however, is certainly very convincing. called attention to the prejudicial effect of revenue It will be remembered that the Government con- resulting from the unwarranted reduction of the resi- tended that the reasonableness of the purchase price dence rate in 1909. Both committees found oper- would be proved by consideration of such factors ating expenses unduly high - though neither was as that the plant purchased included much advance able to explain why 2- and both concluded that con- construction, that the Bell Company accepted pay- siderable economies in expenses could be effected. ment in Provincial bonds at par, that the alternative In view of the increased expenses, both committees to purchase was costly and precarious competition, recognized the necessity for an increase in revenue. that an allowance was properly made for forced sale, However, in suggesting rate schedules which, in their and that there were other legitimate intangible^.^ opinions, would provide the additional revenue re- Nevertheless, even assuming that the purchase price quired, the committees were not in agreement: the was excessive, its financial failure cannot be ascribed Board of Trade committee and Mr. Christie of the to that cause. The margin between success and Industrial Bureau committee recommended flat rates failure was not so small that a reduction of even as only, while Mr. Piper of the Industrial Bureau com- much as $50,000 a year in interest charges would mittee favored measured service in addition to un- have served to turn the scales, for the real deficit limited service. On the other hand, both commit- in 19 I I was over $~OO,OOO;and any argument that tees were unanimous in urging the use of two and the rates had to be saised as a result of the burden four party lines.3 of an excessive purchase price, cannot be held as Some of the critics of the Government - notably valid.6 the Manitoba Free Press - continued to attribute 4 Cf. pp. 29-31, supra. the failure of the telephone enterprise to the price Cf. pp. 81-83, supra. paid for the plant acquired from the Bell Company, 6Vague suggestions were made about corruption in connection with the purchase. However, not only has no specific charge been 2These committees did not deal with the question of the relation made against any one, but the circumstances of the time seem to pre- of the Government to the Telephone Commission. clude the possibility of any corruption having existed in that con- 3 Report of A Citizens' Committee of Inquiry as to Local Telephone nection. Rates. The Winnipeg Industrial Bureau, March 26, 1912. Re- port of the Telephone Committee, The Winnipeg Board of Trade, March 26, 1912. 96 GOVERNME,NT TELEPHONES UNDER FIRST COMMISSION 97 Barry of Minneap~lis.~This Royal Commission APPOINTMENT OF A ROYAL COMMISSION, UNDER THE appointed a Counsel, a Secretary, and a firm of ac- CONTROL OF THE GOVERNMENT, TO INVESTI- countants to aid in the examination of the accounts, GATE THE TELEPHONE COMMISSION and began its proceedings on February 2, 1912. In replying to the critics of the proposed rate The Commission held sessions at Winnipeg and at schedule, the members of the Government endeav- various places throughout the Province, and in- ored to divert the entire attack to the Telephone spected the telephone plants at St. Paul and Min- Commission. They admitted that they knew noth- neapolis (Minn.), La Crosse (Wis.), and Chicago ing about telephones and stated that they had as- (Ill.) ; 234 witnesses were examined and 70So folios sented to the new schedule with great reluctance, of evidence were obtained, at a total cost of $22,- and only upon the urgent advice of the Commission, 000.~ The final Report of the Commission was to which they gave a clean bill of health as being dated May 20, 1912, but was not made public by composed of competent and efficient telephone spe- the Government until June 14.l~ cialists.7 The whole responsibility lay with the Almost at the outset of their final Report, the Commission, they said; the Government had merely Royal Commission made this extraordinary admis- endorsed what the Commission, with its technical sion : knowledge, had seen fit to prepare. So great was 8Znterim Report. Sessional Paper No. 19. Sessional Papers. the violence of the attack, however, that the Gov- Legislatiwe Assembly of hlanitobn. Session 1912, pp. 508-9. The shrewd politicians comprising the Government went through the ernment m7ere forced, in self-protection, to adopt ceremony of having the Telephone Commission formally request the some more plausible means of appeasing public in- Government for the appointment of the investigating committee, whereupon the Government formally consented to the request. (Cf. dignation. Accordingly, by an order-in-council the Manitoba Free Press, Winnipeg, January 11, rgrz.) In spite of this elaborate pretense-which was typical of the subterfuges dated the thirtieth of January, 1912, the Govern- habitually practised by the Government - there can be no doubt that ment appointed a Royal Commission of Inquiry, the initiative in the matter was taken by the Government. Cer- tainly the Government carefully reserved to itself the right of deter- composed of Mr. Justice Cocke of the Manitoba mining the scope of the inquiry, which, as will be seen, was the all- bench, Mr. G. R. Crowe of Winnipeg and Mr. R. L. important factor. "be Manitoba Free Press, Winnipeg, June 14, 1912. This evi- 7For example, on January 4, 1912, the Premier said: "We have dence was not published by the Government. The only form in implicit faith in our (telephone) commissioners. We believe they which it exists is in the typewritten copies of the Stenographic Re- are honest, capable men, loyal to the interests entrusted to them!' port. The Tribune, Winnipeg, January 5, 1912. lo The Report of the Royal Commission was published only in the newspapers; e. g., the Manitoba Free Press, Winnipeg, June 14, 1912. UNDER FIRST COMMISSION 99 98 GOVERNMENT TELEPHONES a distrust of the good faith of the investigating A rather remarkable incident of the sessions of " Commission; for an analysis of the powers con- Winnipeg, in view of the deep interest undoubtedly ferred upon the Royal Commission by the Govern- taken by the public in the question, was the almost ment discloses the fact that the Commission was complete absence of volunteer evidence, a small dele- authorized to investigate only the acts of the Tele- gation from Binscarth and one citizen of Winnipeg phone Commission. The relation of the Govern- being the only volunteer evidence that was brought ment to the telephone enterprise was therefore in- before your Commissioners at the Winnipeg Ses- ferentially excluded from the scope of the inquiry. sions. . . At the meetings throughout the country . Indeed, the reference to the Royal Commission was there was invariably a very large attendance of the quite precise: it was authorized to investigate " the public. The Winnipeg Sessions were characterized conduct and administration" of the Manitoba Gov- by almost absolute indifference on the part of the ernment Telephones by the Telephone Commission public, as indicated by non-attendance." l1 appointed January 15, 1908; and in calling for evi- This phenomenon of public indifference in Winni- dence by means of public advertisements, the Royal peg fieserves analysis. Although without doubt it - Commission requested to hear from all associations was partly due to the volatile character of the com- and individuals '' having complaints against the said munity, yet it suggests two further explanations administration." l2 Thus there was no pretense of which are not inconsistent and are therefore prob- any thorough inquiry: the subjects of investigation ably both applicable. The first explanation lies in were to be the charges against the Telephone Com- the habit of leaning upon the Government which is mission, and, in its Report, the Royal Commission observable in communities of the type to which Man- took credit to itself for having endeavored to induce itoba belongs,- a habit which results in feverish such charges to be made. It is certainly clear that anxiety to get the Government to deal with a mat- the Government, finding itself in danger from the ter, followed by complete relaxation of interest as indignation of the public, had resolved to sacri- soon as the Government undertakes to deal with it. fice the Telephone Commissioners and had conse- This habit was apparent at the time of the acquisi- quently put the Commissioners in the position of tion of the telephone system and its recurrence is culprits at the bar -while the scales of justice were not strange. loaded against them. There is reason to believe But another explanation is equally valid, namely, Report of the Royal Commission (opening paragraphs). 11 Report of the Royal Commission. IOO GOVERNMENT TELEPHONES UNDER FIRST COMMISSION IOI that the Winnipeg public suspected the intention of Commission was largely under the thumb of the Gov- the Government and did not choose to lend assist- ernment, moved that a committee of the Legislature ance to a farce in which the Government pretended be appointed " to examine and inquire into all mat- to assume a disinterested attitude but actually care- ters relating to the Manitoba Telephone System." l4 fully concealed all important relevant matters. If The Government vigorously opposed this proposal this was the reason for the absence of the Winnipeg and on a straight party vote it was defeated.l" public from the sessions of the Royal Commission, their absence was very creditable to them: they re- TELEPHONE MISMANAGEMENT ASCRIBED BY THE fused to be parties to proceedings which could not ROYAL COMMISSION TO THE TELEPIIONE COM- fail eventually to bring discredit upon every one MISSION INSTEAD OF TO THE GOVERNMENT concerned. From the proceedings of the Royal Commission Since the evidence taken by the Royal Commis- it soon became evident that even the form in which sion continued until the end of April, before discuss- the questions were put - when the evidence was being this evidence chronology demands reference to ing taken- showed the influence of the Govern- two matters of record, indicative of the spirit in ment. Moreover, the interrogations by the mem- which the inquiry was conducted. Under date of bers of the Royal Commission were lacking in pre- March I, the Royal Commission made a brief interim cision; even those of the technical member of the report, consisting of a recommendation that the en- Commission (Mr. Barry of Minneapolis) were forcement of the proposed rate schedule be post- characterized by vagueness. Members of the Tele- poned until the conclusion of the inquiry.13 There phone Commission were expected to answer from is no doubt that this recommendation was inspired memory questions relating to accounts which were by the Government, who thus utilized the inquiry not placed before them, and conclusions were thus as a means of unostentatiously disposing of the pro- often based upon inaccurate or incomplete data. posed rates - for the rates, thus indefinitely post- The Royal Commission also endeavored to cause poned, were quietly killed. A fortnight later, in the Telephone Commissioners to commit themselves the Legislative session of March 14, 1912, the Op- to conclusions which had already been reached by position leader, evidently realizing that the Royal the Royal Commission. Quite unfounded assump-

l3 Interim Report. Sessional Paper No. 19. Sessional Papers. l4 Journals of the Legislative Assembly of Manitoba, Session 1912, Legislative Assembly of Manitoba. Session 1912, pp. 508-9. p. 87. Cf. the Manitoba Free Press, Winnipeg, March IS, 1912. lvbid., p. 88. UNDER FIRST COMMISSION 103 102 GOVERNMENT TELEPHONES the responsible agents. For example, the Report of tions which had been manufactured by members of the Royal Commission comments upon the excessive the Government were introduced into interrogations quantity of supplies which the Telephone Commis- and the Telephone Commissioners found themselves sion kept in stock, pointing out for instance that on in a dilemma: they had either to initiate an attack December 31, 191 I, there were 162,763 poles on upon the Government or to fence with the question. hand, while nearly 20,000 more were contracted for

Nevertheless, in spite of all the difficulties with but had not been delivered. L' In fact," adds the which they were continually beset, throughout the Report, " poles were in hand at the beginning of this inquiry the Telephone Commissioners never made year sufficient at 40 poles per mile to build 4069 any reflections on the Government, thus displaying miles of pole line, which is within a very little of a standard of loyalty and honor quite consistent with the total pole mileage constructed in the last four their characters. A thorough realization of this at- years." At that point, however, the Report stops titude on the part of the Telephone Commissioners abruptly, no mention being made of the reason for is essential to a proper perspective for considering this excessive supply of poles. But the explanation, the evidence before the Royal Commissioners, as it will be remembered, has already been given: the over and over again the Telephone Commissioners Telephone Commission had practically been obliged were made to appear responsible for practices and by a member of.the Government to purchase an ex- conditions over which they had been deprived of cessive number of poles from a client of his who was control.lB in financial difficulties.17 Again, the Report of the In view of the partiality of the inquiry and the Royal Commission drew attention to the excessive various assumptions, allegations and inaccuracies amount invested in real estate, but entirely neglected which appeared in the interrogations of the Royal to mention the fact that in concection with purchases Commissioners, it is not worth while to accord much of real estate, agents of the Government busied space to the details of the evidence before the Royal themselves to obtain commissions.1s Commission. In mere justice to the Telephone Com- In regard to the annual maintenance costs and the missioners, however, it is necessary to call attention accounts of maintenance expenditure, the evidence again to the real causes for the existence of some of before the Royal Commission was particularly dam-

the conditions and practices for which the Commis- l7 Cf. p. 40, supra. sioners, on the face of the evidence, seemed to be IsCf. the Manitoba Free Press, Winnipeg, March 6, 1908; The Tribune, Winnipeg, March 4, 1908. 10 Cf. Stenographic Report passim. 104 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 105 aging to the Telephone Commission; but even super- tion Engineer was help1ess;'he not only had to work ficial analysis will relieve the Commission of respon- with the material at his disposal, but hk had to force sibility for an undoubtedly pernicious state of affairs. the work. During 1910, 25 to 35 crews were work- In regard to the accounts, the Commission was de- ing and it was impossible to provide a skilled fore- prived of financial control - as has already been man for each crew. Under such conditions it was fully explained and thus reconstruction expenses inevitable that a certain amount of fraudulent prac- were included with maintenance expenses. In re- tice should arise.21 In 19 I I the construction was gard to costs, as a result of the Government's policy pushed into very difficult country, topographically, of rapid expansion, the Commission found great while the season was very rainy - all of which in- difficulty in finding competent employees, partly be- volved unusually high expenses.22 cause of the contemporary economic conditions in While the technical and the labor conditions

Manitoba and partly because of political conditions: rendered both maintenance and construction costly,*. the Commissioners scarcely dared to venture to ap- these were not the only conditions which made for point people from a distance even if they were pro- excessive expenditure - there was always the per- curable and, being confined to residents of ~Manitoba, vasive political influence. For example, the follow- they were forced to take Government nominees, ing statement, though colored with political partisan- partly through political pressure and partly because ship, is so consistent with known facts that some men were scarce.20 Large numbers of the men who weight must be attached to it. The statement was had to be employed were unfamiliar with the work contributed to the Manitoba Free Press by a cor- which they were required to do. Even "plant respondent at Brandon: " A high official of the chiefs " were unequal to the tasks assigned to them; government telephone system here, let the cat out and thus the discipline of the working gangs was of the bag this morning. Speaking to a staff man of very defective. Incompetent foremen were pro- the Free Press who is a stranger to him he stated in moted to responsible positions because there was no the most emphatic terms that every branch of the

alternative or appeared to be none. The Construc- 21 In a number of instances, construction foremen secured vouch- ers for larger sums than they had actually expended - and pocketed 19Cf. p. 41, supra, et passim. Another explanation perhaps is the difference. There was also a certain amount of leakage in con- that the Government did not require, and perhaps did not desire, nection with supplies. scrupulous accuracy in accounting. It was easier to hide deficiencies 2'Cf. Fourth Annual Report of the Commissioners of Manitoba when the accounts were kept in a loose manner. Government Telephones, 1911. Sessional Paper No. 25. Sessional 20 Cf. pp. 40, 44 and 77, supra, and p. 106, infra. Papers. Legislative h'~setnbly of hlanitoba. Ses~ion1912, p. 533. 106 GOVERNRdENT TELEPHONES UNDER FIRST COMMISSION 107 telephone system in the province was being used for ministered by a Commission which is hampered and political purposes. ' Some of my men,' he said, obstructed by politics. The Commissioners are not ' have been working practically night and day dur- politicians. ing the past three weeks and a great sigh of relief But they have to do what the politicians in power want done. The result is that the will go up from every telephone man when the elec- system is loaded with employees appointed for po- tions are over.23 In the Brandon district several litical reasons. . If the Commissioners were in- extra gangs were put on a short time ago to get the . . dependent of the control of the politicians, they goodwill of the people and at the present time in would manage the telephone system on purely busi- this one district we have no less than 42 gangs work- ness lines. As it is, they have to administer it on ing, each one of which is composed of 25 to 35 men. political lines." 25 In addition to that canvassers have been sent out, Strictly non-partisan newspapers were scarcely less not only through this district, but every part of Man- severe. For example : " There is no mincing of itoba, to have the farmers sign applications in the matters by the man-in-the-street, whether Grit or belief that a telephone line is about to be installed ,Tory; it is felt that the undoubted managerial abil- by a generous government. The whole thing is one ity of the Chairman of the Telephone Commission huge political graft and we who are rushed to death . . . and of other able officials, is too largely offset are heartily sick of it.' " 24 by indirect, if not direct, influences not unconnected Another contemporary criticism from the Free with politics." 26 Press may be held to state the case accurately: The Royal Commissioners made no mention of " The deterioration of the telephone service is a accrued depreciation or of a sinking fund for the standing proof of the manner in which the combi- amortisation of the debt. The only reference to a nation of public ownership and machine politics re- related question is in the following brief sentences: sults to the injury of the farmer. The complaints " Up to 19 I 2 there has not been any replacement of the unsatisfactoriness of the telephone service are account, such expenditure being included in mainte- constant. That unsatisfactoriness has gone on in- nance. We are of opinion that such account should creasing since the beginning of the present system in the Province of having the telephone system ad- 25 The Manitoba Free Press, Winnipeg, June 21, 1910. '6 Canadian Finanre, Winnipeg, December 20, 1911. It is needless to state that members of the Government of course always denied 23 The elections referred to were those of July 11, 1910. such charges and insisted that the Commission was not subject to 24The Manitoba Free Press, Winnipeg, July g, 19x0. political influences. 108 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 109 be instituted." 27 The implication is that the Tele- it was clearly their duty to transfer the functions phone Commission was responsible for the fact that previously exercised by the head office either to the no reserves of any kind were set apart. ,The state- Telephone Commissioners or to the Telephone De- ment is thoroughly disingenuous. The question of partment. As a matter of fact, however, the Gov- depreciation alone was vital to the whole inquiry. ernment adopted neither course. They entertained The sole power to provide reserves lay not with the the fantastic idea that head office functions were un- Telephone Commission, but with the Government; 28 necessary; indeed, one of their arguments in favor yet the Royal Commissioners chose to ignore this of the acquisition of the system was that the head important fact; and a ridiculous climax was reached office expenses would thereby be eliminated alto- when, in their Report, the Royal Commissioners gether.31 Moreover, when the Telephone Commis- completely whitewashed the Government. sion was appointed, the control over construction was By instruction of the Royal Commission, Messrs. expressly reserved to the Telephone Department, Webb, Read, Hegan, Callighan and Co., Chartered i.e., to the G~vernment.~~Yet the construction had Accountants, made an examination into the system to be carried out by the officers of the Commission, of bookkeeping used by the Telephone Commission and the supplies in the hands of the Commission had during the years 1909 to I 9 I I ; but this examination to be drawn upon for construction purposes. The was not permitted to include an audit of the books.29 result was inevitable confusion between the construc- In their Report, the accountants indicated that from tion and the operating accounts, and great confusion the beginning of Government operation the system in the stores accounts. Some of the defects in ac- of bookkeeping employed was scarcely commensurate counting were gradually remedied; but even apart with the magnitude of the ~ndertaking.3~It must from the confusion entailed by the division of re- be realized that prior to the acquisition of the sponsibility, it would appear that the internal organ- telephone system by the Government, the records of ization of the system was not able to expand to keep transactions were all forwarded to the head office at pace with the excessive speed in construction de- Montreal where the books of the Bell Company were manded by the G~vernment.~~ kept. When the Government took over the system, As has been indicated, throughout the long course of the Telephone Investigation from the beginning 27 Report of the Royal Commission. 2h 41-42 Cf. pp. and 71, supra. 31 Cf. p. 33, supra. 33 Cf. pp. 43-44, supra. 2gAccountants' Report (typewritten), May 15, 1912. 32 Cf. p. 37, supra. 30 Ibid. I 10 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION 111 of February until the end of April, 1912, the Tele- deliberately making scape-goats of men whom they phone Commissioners conducted themselves with had induced to enter their service on the pretense dignity and, for the most part, in silence. The that they intended to conduct the telephone business Royal Commissioners explicitly state in their Report on sound commercial lines. When the Telephone that they received from the Telephone Commission- Commissioners pointed out that the policies of the (6 ers, upon requisition, a tremendous amount of sta- Government were inconsistent with sound business tistical and other information "; and they express principles, they were told that their advice was not their obligations to the Telephone Commission,- wanted; but when these policies aroused the indig- especially to the Chairman for " the courteous and nation of the public, the members of the Govern- kindly manner in which he responded to our constant ment attempted to divert that indignation upon the demands upon him." The Royal Commissioners, heads of the Commission by instituting a tribunal however, felt that they should " report that all evi- for the purpose of trying the Commissioners as if dence got was the result of and in answer to our own they were culprits,- an ingenious but discreditable efforts and requisitions, and the (Telephone) Com- device. missioners apparently did not consider it their duty, In general the Report of the Royal Commission- and as a matter of fact did not offer or volunteer any ers is an inconclusive and unsatisfactory document, evidence whatever in aid of the inquiry or other- for the conduct of the Telephone Commissioners wise." 34 was inquired into and not the conduct of the Gov- This naturally was the dignified course for the ernment. At every point the inquiry led to the Telephone Commissioners to pursue. The Chair- threshold of the Government -but there it stopped. man of the Telephone Commission must have real- Instead of honestly taking their share of the blame, ized the fraudulent character of the Royal Commis- the Government chose the dishonorable course of sion. He could not impede it, but he could at least virtually prosecuting the Commissioners, whose refrain from giving its ridiculous proceedings the faults arose solely from the fact that they were con- advantage of his spontaneous assistance. The in- sistently loyal to a Government which was disloyal justice and cowardice of the Government are beyond to them. The people of Winnipeg, irrespective of description. The members of the Government political party, seemed to have understood the sit- knew perfectly well what they were doing: they were uation and spontaneously declined to be parties to 34 Report of the Royal Commission. the infamous proceedings. I 12 GOVERNMENT TELEPHONES UNDER FIRST COMMISSION I 13 The following is a copy of the letter of resigna- RESIGNATION OF THE TELEPHONE COMMISSION tion addressed to the Premier, dated June 27, 1912, When the Report of the Royal Commission was and signed by both Commissioners: presented toward the end of May, 1912, the Gov- ernment- in spite of the fact that nothing what- " Pursuant to your reque'st just conveyed through ever to the discredit of the members of the Tele- the Hon. Mr. Coldwell, we hereby tender our resig- phone Commission had emerged during the sessions nation as Commissioners of Manitoba Government of the Royal Commission - appear to have reached Telephones, to take effect July st, 1912, and in do- the conclusion that the easiest method of extricating ing so may we express the hope and belief that themselves from the difficulties in which they were neither your Government nor our successors will be involved, would be to have the two remaining Com- misled by the gross misstatements of fact, and the missioners sever their connections with the telephone erroneous opinions and conclusions expressed in the system.35 Now, if the Commissioners were dis- Royal Commission's report." missed from office they would be in a position to embarrass the Government by disclosing the true With the resignation of the Telephone Commis- state of affairs; but if they could be induced to re- sioners, the first phase of the history of the Mani- sign, the faults of the Government would be carried toba Government telephone system comes to a close. with them into oblivion. An emissary of the Gov- The entire period was dominated by political influ- ernment succeeded in securing the resignations of ence and political considerations, more or less ef- the Commissioners to take effect on July I, 1912, fectually concealed behind the elaborate pretenses although they did not actually leave office until two and the fair words of the Government. The pledge weeks after that date. That the resignations were of non-partisan commercial management was not in a manner forced, there can be no doubt; yet the kept. The Bell rates, far from being " cut in two " withdrawal of the Commissioners " saved the face " as promised on so many occasions, were maintained of the Government and afforded the members of the intact for fifteen months, when the Government ef- Government an opportunity of rehabilitating their fected such slight reductions as might best redound declining political fortunes. . to their political advantage. These unwarranted

35 The Commissioner Auditor had resigned on February 17, 1912. reductions, when combined with the political ac- Cf. the Manitoba Free Press, Winnipeg, February 17, 1912. counting methods employed by the Government, con- I 14 GOVERNMENT TELEPHONES tributed largely to the disastrous failure to fulfill the promise that the service would be self-sustaining. Finally, finding themselves in jeopardy from the wrath aroused by the force of the contrast between promise and performance, the Government deliberately sacrificed their loyal servants that their own sins might go unpunished. After four years of THE GOVERNMENT SYSTEM public ownership a prosperous business was well REORGANIZED along the road to ruin. APPOINTMENT OF A SINGLE TELEPHONE COMMIS- SIONER FOLLOWED BY OSTENSIBLE, BUT LARGELY INEFFECTUAL, ADMINISTRATIVE REFORMS UPONthe sudden, though not undesired, resignation of the Telephone Commission originally appointed, it was incumbent upon the Government immediately to give some outward and visible sign of an intention to purge the Provincial telephone system of the more conspicuous of the evils which accompanied political control; for a reform of the system - or at least the semblance of a reform - was essential to the Government's political welfare. Accordingly, on July I, 1912, Mr. R. L. Barry - who had been a member of the Royal Commission -was appointed to act as sole Telephone Com- missioner, and was charged with the duty of re- organizing " the property and management " ' so

1 Fifth Annual Report of the Manitoba Government Telephones for the fiscal year ending November 30th~1912, p. 3. (This is the first annual report of the Government telephone system which was 1I5 I 16 GOVERNlMENT TELEPHONES REORGANIZED 117 as to produce the quick results demanded by the inevitable that the reorganization was largely nom- political situation, or, in other words, so as to enable inal. The cost of the " reorganization" ($14,- the Government to make immediate political capital 600)~though, was by no means nominal.6 out of an alleged telephone " reform." Although The result of the " reorganization" is stated to it appears from the contemporary Opposition press have been the immediate diminution of unit operat- that Mr. Barry did not actually assume charge of the ing cost^.^ As a matter of fact, however, the ex- system until July 16th~~yet so well did he fulfill the istence of a relationship of cause and effect between requirements of speed that on August 16th~exactly the " reorganization " and the reduction of costs is one month later, the work of reorganization was not established. That expenses were somewhat re- completed and he was able to re~ign.~There is con- duced is clear; but the reduction was to a large ex- siderable doubt, however, as to what took place un- tent a purely political move on the part of the Gov- der the reorganization; the details given in the an- ernment, who produced it by temporarily sacrificing nual report of the system for the fiscal year 1912 some of the influence which it and its political were couched in such ambiguous political phraseology adherents had been accustomed to exert. Further- and were so palpably contradictory as to be prac- more, the " reorganization " developed a good deal tically meaningless. Nevertheless, even from super- of friction among the employees, with the result that ficial analysis of the official reports it is clear that the a large number of employees holding executive posi- political principle of " reform for reform's sake " tions resigned; and the Government took advantage was carried out in many ways, that changes in form of the opportunity and effected appreciable econ- took place rather than changes in substance; and, al- omies by reducing the salaries attached to these su- though it is probable that some beneficial changes perior positions,- a practice which is by no means were effected-especially in the methods of pur- infrequent in Government departments. chasing and of handling supplies - the conclusion is Upon the resignation of Mr. Barry (August 16, issued as a separate document in addition to being printed among 1912)~Mr. George A. Watson of Minneapolis was the Sessional Papers.) appointed Commissioner of Telephones and the sys- By the appointment of the investigator as the administrator, the Government adopted a not unusual political method of assuaging tem was placed under the supervision of an Advisory popular discontent and distrust. Cf. the Manitoba Free Press, Winnipeg, July 4, 1912. Fifth Annual Report of the Manitoba Government Telephones Fifth Annual Report of the Manitoba Government Telephones for the fiscal year endins November 3oth, 1912, p. 12. for the fiscal year ending November 3oth, 1912, p. 3. Zbid., p. 4. REORGANIZED 1 I9 I 18 GOVERNMENT TELEPHONES that this improvement did not represent any delib- Board of which Mr. H. A. Robson, K. C., the Pub- erate attempt on the part of the Government toward lic Utilities Commissioner (a Public Utilities Com- a belated fulfillment of their promise of commercial mission having been created in April 12) was a 19 management; on the contrary, it was solely a conces- member. The effect of this change was to give the - sion to public opinion, a concession forced by the Commissioner of Telephones considerably more inde- Government's fear of the political consequences of pendent executive power than the original Telephone further reckless expenditure and brazen mismanage- Commission had ever been allowed to exercise, while ment and granted only to a degree which was cal- the conspicuous supervisory powers (for example, culated to appease public opinion. Moreover, it is in regard to rates and depreciation charges) were highly significant that the improved conditions were transferred from the Minister of Telephones and largely due to the ability and integrity of the Public Telegraphs to the Public Utilities Commi~sioner.~ Utilities Commissioner, whose personal character However, the Government continued to retain the and career inspired the public with confidence. In inconspicuous supervisory power, that is, the power other words, here is really excellent evidence of the to exert influence in subtle and obscure ways to make fact that, in the conduct of public utilities, an impar- use of the telephone system for political purposes; tial and efficient regulatory tribunal - or even indi- indeed, unless some concrete political advantage could vidual - secures results which it is impossible to at- be derived from the system, the Government would tain under any system of unregulated political con- have regarded the enterprise as a total loss politically trol. - as a political liability rather than as a political asset. Nevertheless, in consequence of this change, EXCHANGE RATES INCREASED ; PRIVATE TELE- an appreciable improvement may be assumed to ha1 e PHONE COMPETITION PREVENTED taken place in the relations between the telephone By their tactics - by the appointment of the in- system and the Government; it is certain that the vestigating Commission, by the resignation of the feverish energy of ineconomical expansion for politi- original Telephone Commission and by the widely cal ends was checked. But it must be emphasized advertised " reorganization " of the system - the 7 Journals of the Legislative Assetnbly of Manitoba, Session 191.2, Government succeeded in their purpose of allaying P. 175. Cf. An Act respecting Public Utilities, to create a Public Utility public indignati~n.~Consequently, during the suc- Commission and to prescribe its Powers and Duties. The Revised This result was also partly due to the fact that the wrath of the Statutes of Manitoba, 1913, vol. iii, Chap. 166. 120 GOVERNMENT TELEPHONES REORGANIZED 12I ceeding years there is relatively little documentary 19 I 2, the Telephone commissioner, having evidence as to the inside workings of the system; in- 25, secured the necessary approval of the Public Utilities deed, practically the sole black and white informa- Commissioner, issued a new schedule of rates appli- tion consists of the brief annual reports of the Tele- cable to Winnipeg. On August 13th a new schedule phone Commissioner. Moreover, these reports of- of rates applicable to the rest of the Province was fer little assistance to the analytical investigator, for issued.ll they are essentially political documents ; and the Gov- These new schedules provided flat (unlimited ernment met attempts to go behind the published service) rates only - apparently the politicians returns with reluctance and with evasion,- the best wanted nothing further to do with measured rates, possible evidence that all the workings of the system however equitable such rates might be. In Winni- were not able to stand the light of day. peg, the rate for individual line, business service (the It will be recalled that the proposed rate schedule only class of business service which the new Winni- which had been prepared by the Telephone Commis- peg schedule offered) was raised from $50 to $60 per sion in December 191 I, and which was based largely year, an increase of 20 per cent.; the rate for indi- on measured service, had been quietly killed by the vidual line, residence service was raised from $25 Government.l0 The need for increased revenue, to $30 per year, an increase of 20 per cent. ; and the however, survived; every day which passed under - - rate for two-party line, residence service was raised the existing rates meant a further step toward actual from $18 to $25 per year, an increase of 39 per cent. bankruptcy. While the investigation was in progress In the smaller towns and in the rural districts, the the Government lacked the audacity to submit an- increases ranged up to 67 per cent. Even the Gov- other rate increase to the public; but the investigation ernment press admitted that the new rates involved having been completed and a " reorganization " of (( considerable " increases ! the system having been announced, the time was The new schedules showed an arbitrary treatment politically ripe for effecting a general increase of of the consumer which was truly Governmental. In rates. The suitability of the occasion was not lost the first place, the recommendations both of the Win- upon the politicians in the Government and on July l1First Report of the Public Utilities Commissioner ilIanitoba for public had been diverted from telephones and had been directed the Six Months ending November 3oth, 1912. Sessional Paper No. against the Government's maladministration of the publicly-owned 11. Sessionnl Papers. Legislatiwe Asse?trbly of Manitoba. Session grain elevators. 1913, PP. 546-556. lo Cf. p. roo, supra. lVhe Wznnzpeg Telegram, July 19, 1912. I 22 GOVERNMENT TELEPHONES REORGANIZED nipeg Industrial Bureau and of the Board of Trade l3 company's application was referred to the Works were silently ignored. In the second place, the Committee, that body, although conceding the merits schedules, approved and promulgated on July 25th of the proposal, denied the application on the ground and on August 13th~were retroactive, becoming ef- that " it would be poor business for the citizens of fective as from July 1st. About the 10th of July Manitoba to allow a new company to come in to com- telephone subscribers received the following circular : pete with the government telephones." l6 AS the citizens of Manitoba are the proprietors of the Pro- "A bill has recently been sent you for telephone rentals. No rates have as yet been approved by the public utilities vincial telephone system, it certainly would have been commissioner. A new bill will be sent you in a few days."" " poor business " for them to have had to enter into competition with any system which showed prospects During the first half of July, in spite of the fact that of being efficiently and economically constructed and bills had been rendered, subscribers were in absolute operated ! ignorance as to how much their telephone service was A recommendation contained in the Telephone costing them. Commissioner's report on the " reorganization " of Contemporary press reports throw another inter- the system, submitted in August 19 I 2, also deserves esting and significant side-light on the new rates. It attention. According to the newspapers, " it was appears that, immediately after these rates were an- recommended in the commissioner's report that the nounced to the public, a private power company ap- construction work be let out on contract." l7 Being plied to the City Council of Winnipeg for permis- interpreted, this recommendation is an open admission to install and to operate a telephone system in sion that the Government could secure economy by that city, the representative of the company declar- turning their construction work over to private en- ing that "the matter of rates had been fully con- terprise.ls sidered " and that " the company had decided that it could give private residence service at $20 per year l6 The Winnipeg Telegram, October 5, 1912. The Manitoba Free Press, Winnipeg, August 24, 1912. and a general business service at $40 per year." l5 Is It is interesting to note that the annual report of the Postmaster General of the United States for the fiscal year ended June 30, 1914, In other words, the company offered to cut the Gov- contains a similar recommendation. In this report Mr. Burleson ernment rates by one-third. Nevertheless, when the stated: "There can be no question as to the one outstanding, self- evident fact that the identical service to rural mail patrons can be l3Cf. pp. 93-94, supra. maintained at this time with a saving of from $15,om,ooo to $20,000,- 14The iManitoba Free Press, Winnipeg, July 13, 1912. 000 per annum, and it is earnestly recommended that the necessary l5 Cf. the Manitoba Free Press, Winnipeg, July 23, 1912. legislation for placing all Rural Delivery Service on a contract basis 124 GOVERNMENT TELEPHONES REORGANIZED 1 25 showed maintenance expenses as a separate item, all REAL TELEPHONE ACCOUNTS STILL DEFECTIVE; A reconstruction expenses during the fiscal year having been properly met from the depreciation reserve In 19 I 2 the fiscal year for Provincial Government which had been set aside during the yeare20 departments was changed to close, in that year and In spite of this improvement in accounting thereafter, on November 30th~instead of December methods, however, it is still impossible to discover 3 1st. The published telephone accounts for 19 I 2 the real financial outcome of the year's business from therefore covered only eleven months, a period which the published accounts. ,The accounts showed a included six months under the original Commission "balance " of revenue of $366,1423; but interest and five months under the " reorganized " adminis- charges upon telephone capital were again omitted. tration. The accounts were checked and summar- Moreover, although the accounts conformed to sound ized by the firm of chartered accountants who had accounting principles in that a depreciation charge been appointed as auditors and, as might be expected, was included in current expenses, yet the amount of were much more complete and intelligible than those the charge ($126,ooo) failed to conform to the re- in former years. For instance, it was immediately quirements of the best engineering experience and noticeable that current expenses for the first time was quite inadequate to provide a sufficient reserve included a depreciation charge; for the Government against accrued depreciation,- a fact which was had realized that they could no longer with impunity pointed out by the auditors 21 and admitted by the violate sound accounting principles as to depreciation Telephone C~mmissioner.~~Consequently, it is and had acceded to the insistent demands of the Pub- necessary to recast the accounts by increasing the de- - lic Utilities Commissioner and of the auditors that a preciation charge to a sum sufficient to provide an reserve to meet reconstruction expenses be set aside adequate reserve; with such a depreciation charge from each year's revenue beginning with 1912. and with the inclusion of interest charges, the ac- Consequently, the accounts for the first time also counts for the eleven months are as follows: be enacted in order that the people may receive the maximum return "Incidentally, it will be noted that the method of dealing with for the minimum expenditure of their money!' Needless to say, reconstruction expenses in the accounts which has now been adopted Congress refused to enact the " necessary legislation " which would by the Government is re cis el^ the method which has been used here thus enable the United States Post affice Department to save from in recasting the telephone accounts in the preceding years. Cf. pp. $I~,OCXJ,OOOto $zo,ooo,ooo per year-on a single branch of the 54-57, supra. postal service- by utilizing the efficiency of private labor. 21 Fifth Annual Report of the Manitoba Government Telephones 1Vzfth Annual Report of the Manitoba Government Telephones jar the fiscal year ending November 30th, 19~2,p. 13. for the fiscal year ending November 3orl1, 1912, pp. 6-14. 22 lbid., p. 6. REORGANIZED 126 GOVERNMENT TELEPHONES 127 the increased rates had been in force only during Gross Revenue ...... $1,352,876 less than one-half (five months) of the fiscal period, Expenses : the full effect of the increase could not be expected Operation ...... $584,823 Maintenance ...... 275,905 until the nest year, the first complete year under the Depreciation ..., ..... 405,891~ new administration. Total Expenses .... 1,266,619 Net Earnings ...... 86,257 INADEQUATE PROVISION AGAINST DEPRECIATION ; Interest ...... 3 I 4,705'~ REAL FINANCIAL RESULT IN I9 I3 AGAIN Deficit ...... $228,448 A DEFICIT *Equivalent to 6% of plant cost at the end of the preceding year; adjusted to cover eleven months only. The telephone accounts for the next yearlZ5 the It is clear, then, that the system was actually twelve months ended November 30, 1913, were the most comprehensive accounts published up till worked at a greater loss during the fiscal year 19 I 2 that time, and they reflected the beneficial influence than during the calendar year of 191 I. But even this result is too favorable, for it will be noted that of the Public Utilities Commissioner. Interest the interest charges in 1912 were considerably less charges were included for the first time and the de- than those in the preceding year: owing to the change preciation charge was increased to $373,43 I - with in the date of the closing of the fiscal year, the Public the result that the accounts, instead of showing a Accounts included only six months' interest upon a huge credit " balance " as in former years, showed a L L considerable amount of the Provincial bonded in- surplus" of only $30,265, of which $26,691 was debtedness incurred for telephone purposes.24 If set aside as an additional reserve against deprecia- the interest charges had represented the whole tion, leaving a credit balance of only $3,574. The amount of interest accrued upon all telephone cap- depreciation charge was equivalent to the estimated ital during the eleven months included in the fiscal loss in value due to the depreciation during the year year, the above deficit would have been increased by of the plant at the end of the preceding year, the a sum of about $~O,OOO.Thus the accounts offered estimate of this loss in value being based upon a cal- the mulcted taxpayer little hope of relief; but since culation of the " average life, plus cost of removal, less salvage " of each of the principal kinds of tele- 23 Sessional Papers. Legislative ~i~ernbl~of Manitoba. Session 1913, p. 62. 26 Si~fllAnnual Report of illanitoba Government Telephones for 2g lbid. the fiscal year ending h'oaembcr 30th, r9r3, pp. 8-15. 128 GOVERNMENT TELEPHONES REORGANIZED 129 phone plant.2"his calculation of the average life reserve against depreciation is provided, the accounts of the various kinds of plant, however, was palpably reveal tlie following result : erroneous and unscientific; for instance, all buildings Gross Revenue ...... were entirely omitted from the calculation - although buildings are subject to deterioration like Expenses: other kinds of plant - and the average life of rural Operation ...... $598,637 Maintenance ...... 297,842 pole lines was placed at twenty years despite the Depreciation ...... 465,538" abnormal deterioration to which such lines are sub- Total Expenses .... 1,362,017 ject in view of the " extraordinary weather condi- Net Earnings ...... 345,133 Interest ...... 406,975 tions " 27 in Manitoba. The result was that the de- Deficit ...... $61,842 preciation charge was equivalent to only 4.2% of *Equivalent to 6% of plant cost at the end of the preceding year. the book value of the total plant,2s or to only 4.8%; of the actual plant cost, i. e. excluding the cost of in- Although the real financial result of the fiscal year (tangibles and the maintenance expenses improperly 1913 was thus a loss of at least $60,000, neverthe- charged to ~apital.~Vtis clear, therefore, that this less this result was a great improvement over the re- charge was again inadeq~ate.~~When an adequate sults in 191I and 19I 2. It is certain, however, that this improvement was due almost solely to the in- 26 Report of the Public Utilities Commission for the fiscal year ending 30111 Nooember, 1913. Sessional Paper No. 24. Sessional crease in exchange rates; it will be recalled that the Papers. Legislative Assembly of Manitoba. Session 1914, p. 322. new rate schedule involved increases of 20 per cent. 27 Seventh Annztal Report of the A4anifoba Government Tele- phones for the fiscal year ending Noocmber 3oii1, 1914, p. 14. and upwards and thus probably brought an increase 28The charge was equivalent to 4.91% of the book value of such plant as was taken into consideration in deter~niliirigthe charge. in gross revenue of approximately $2oo,ooo per year. 2QIt will be recalled that the cost of intangibles and the amount Indeed, the gross revenue from exchange service dur- of the maintenance expenses charged to capital was determined by I a subsequent appraisal of the plant made in 1915. Cf. p. 54, supra. ing the year averaged $3 .75 per telephone, or more Although the Public Utilities Commissioner approved the than the corresponding average revenue received in amount of the depreciation charge, yet he was not in a position to express an opinion as to its adequacy. Even assuming that he had I913 by the entire Bell Telephone System in the an independent staff of telephone engineers to advise him, which he United States, with its many huge exchanges! 31 had not, there could be no indication of the adequacy of any depreciation charge so long as such a charge was based, not upon tlie three years of Government operation. It is also significant that plant cost, but upon the book value of the plant, since the book practically all of the year's "surplus" was set aside as an addi- value of the plant included the cost of intangibles and the main- tional reserve against depreciation. tenance expenses improperly charged to capital during the first 31 Annual Report of the Directors of American Tel~phoneand 130 GOVERNMENT TELEPHONES REORGANIZED

While it is true that a number of operating and organizations and by no means eliminated wage dis- administrative economies were effected during the satisfaction. year, some of these economies were in reality more QUALITY OF SERVICE UNSATISFACTORY detrimental than beneficial to the service. This was especially true in regard to the economies in salaries The Annual Report for 1913 contained one fea- and wages resulting from the Government's policy of ture which will probably be continued in future re- employing cheap labor.32 Although the adoption of ports, namely, an attempt to prove by statistics that this policy was possibly due to the fact that such -no matter what the experience of the subscribers economies were the most obvious and the least dan- may have been - the service is increasingly satis- gerous politically, nevertheless it cannot be denied factory. For instance, the Report for 1913 stated: that it has always been difficult to convince the rural " Throughout the Province, exclusive of Winni- voter that any man is worth a salary of more than peg, 4,413 subscribers were personally interviewed $2,000 a year. Consequently, although the Public or called up during the year, with results as follows: Utilities Commissioner found the system in need of 83. per cent. reported service satisfactory; technical assistance of a high order, he was forced to 10.6 per cent. reported service fair; take the position that the expenses of the employ- 6.4 per cent. reported service unsati~factory."~~ ment of experts should be saved.33 It is true, as in- On its face this statement has a wholesome ring, even dicated in the Annual Report," that some increases though it admits that in spite of the " reorganiza- in employes' wages, especially as regards the schedule tion " of the system the Government had succeeded of operators' wages, were granted in 1913; but these in satisfying only 83 out of every IOO customers, cer- increases were largely the result of pressure by labor tainly not an enviable commercial record! As a Telegraph Company to the Stockholders for the year ending Decem- matter of fact, however, the statement is a mere po- ber 31, 1913, p. 13. 3Vor example, as has already been pointed out, the Government litical device for disarming obnoxious criticism. endeavored to economize by reducing the salaries attached to supe- Other Governments have availed themselves of the rior positions. Cf. p. 117, supra. 33 First Report of the Public Utilities Commissioner Ma~zitobafor ingenuousness of statements of this character for the Six Monfhs ending Nowember 30f1,, 1912. Sessional Paper No. similar purposes. I I. Sessional Papers. Lcgislaiiz~e,Assembly of Manitoba. Ses- sion 1913, p. 481. After the British Post Office at the end of 191I 34Si~thAnnual Report of the Manitoba Goroern~nentTelephones for the fiscal year ending Nooember 3ofh, 1913, p. 2. 8~i~flrAnnual Report of the Manifoba Go,vernment Telephones for the fiscal year ending November 30ih, 1913, P. 2. 132 GOVERNMENT TELEPHONES REORGANIZED I33 had acquired a monopoly of the telephone business above statistical statement of satisfactory service in the United Kingdom by purchasing the plant of must be read in the light of a record of some of the the National Telephone Company, the public con- " irregularities " experienced by the Public Utilities tinually complained that the service as operated by Commissioner with the telephone (Main 3024) in the Government was inferior to that formerly fur- his own oace. This record was so signiiicant that nished by the Company. In replying to some of it was published in the Report of the Public Utilities these complaints, in the House of Commons on July Commission for the fiscal year I 9 I 3 under the head- 3, 1914, the Postmaster General stated that the Post ing of " Partial Record of Telephone." The Com- Office had sent out inquiries to 135,ooo out of 209,- missioner's illuminating experience follows : ooo subscribers in London, with the result that 87 " August 2 I, I 9 I 3.- Main 3034 asked for three per cent. stated that they were perfectly satisfied times; telephone rang and I was asked what number with the service they were receiving from the Govern- I wanted; went to telephone on call three times, party ment." Upon investigation by still skeptical critics had been asking for number of National Transcon- and customers, however, it was revealed that the tinental, and was told it was M. 3024. Lt ~nquiry. " of the Post Office had consisted merely of LL August 22, 19 13.- Main 3014 asked for. asking the subscriber if his line were working all " August 26, 19 13.- Main 3034 wanted; called right, whereupon those subscribers whose lines were Main 3024. not at that particular moment out of order naturally " September I, I 9 13.- 'Phone rang; no one on responded in the affirmative, and were recorded as the line. finding the service satisfa~tory.~7 " September .2, I 9 I 3.- McMillanls (M. 3034) It is clear that any inquiry of this nature offers 'phone again; ditto twice. countless opportunities for manipulation, to the end LC September 4, 1913.- Call for M. 3025. LL that the results secured may be favorable to the con- September 10, 1913.- Twice called for wrong tentions of the persons conducting the inquiry; and 'phone ; once M. 2034, once M. 3034. unless the good faith and the impartiality of the i.n- " September I I, 1913.- Called for Main 3034. quiry is assured, the results are meaningless. In LC September 29, 1913.- 'Phone rang, no one the case of the Manitoba Government system, the there. L( 36 Parliamentary Debates. House of Commons. Friday, 3rd September 30, 19 13.- Cut off in the middle of July, 1914. Official Report. Column 773. conversation with Mr. - 37 The Morning Post, London, July 13, 1914. 134 GOVERNMENT TELEPHONES REORGANIZED '35

" October I, 19 13.- Called for wrong number, " November 2 j, 1913.- ' Is that Clark's? ' (M. M. 3034; ditto; asked for M. 8091; asked for Mc- 8024). 6 6 November 28, 19 13.- Called for M. 3034. hlillan's number, M. 3034; wrong number, some (6 November 29, 1913.- Called for M. 3034. person wanted M. 4034; wrong number given LC December 8, 19 13.- Twice called for Mchlil- again. " October 6, 19 13.- Called for Mr. Wright; lan's (M. 3024) ; once for J. D. Clark's (hI. called for Standard Trust. So24). (6 December 13, 1913.- Called for McMillan's ; " October 8, 19 13.- ' IS Mr. Elliott there? ' " October 9, 1913.- ' Is that Clark's? ' ' Is I asked for Sher. 1489, got the Winnipeg Brewery; that McMillan's? ' M. 3034 called. called for M. 3034. "October 16, 1913.-Twice rang for nothing. " December I j, 19 13.- Asked for Sher. 1489 ' Is that M. 3034? ' ' ISthat Clark & Co. ? ' and got wrong number; then when got the right num- " October 21, 1913.- M. 3034 wanted. ber cut off in conversation. (6 December 22, 1913.- Twice called for M. " October 23, 1913.- M. 3034 wanted. LL October 24, 1913.- Called for M. 3824; called 3034. L 6 December 23, 1913.- Called for M. 3034. for M. 3034. 6 6 December 27, 1913.- Called for M. 3034. " October 27, 1913.- Called for M. 3025; ( L December 30, 1913.- Called for M. 3025. called for M. 3034. L 6 December 31, 1913.- Called for M. 3034. " October 28, 19 13.- Called for Clark's ; ditto. L 6 January 2, 1914.- Called for M. 3034; called " October 29, 1913.- Called for wrong 'phone. " November 10, 1913.-Bell rang twice; girls say for h4. 3034. t ( January 7, I 914.- Bell rang, no call. ' Number? ' LL January 10, 19 14.- Called for M. 3034. " November 11, 1913.-Called for M. 3034. L L January 12, 1914.- Called for M. 3014. LL November 14, 19 13.- ' Is that Clark's? ' LC January I 2, 19 14.- Called for M 3034. " November 18, 1913.- Called for M. 3034. L 6 January 14, 1914.- Called for M. 302 5.'' 38 I L November 19, 1913.- Asked for M. 3034. I I November 22, 1913.-Called for M. 3034; Report of the Public Utilities Commission for the jiscal year called for M. 302; ; called for McMillan's. ending 30th November, 1913. Sessional Paper No. 24. Sessional Papers. Legislative Assembly of Manitoba. Session 1924, p. 839. L L November 24, 1913.- Called for Mr. Miller. REORGANIZED 136 GOVERNMENT TELEPHONES I37 1915. Although the Report made no mention of MORE ADMINISTRATIVE REFORMS, WITH EXTENSION any proposed administrative change, the Report of OF GOVERNMENT CONTROL; ACCOUNTS SHEW the Public Utilities Commission showed that further ANOTHER DEFICIT IN I9 14 AND IMPROPER reorganization, of the system was contemplated. In USE OF TELEPHONE FUNDS the latter Report the Public Utilities Commissioner wrote : " The present telephone management hav- The following year, the fiscal year ended Novem- ing reached a stage of operation at which it seems ber 30, 1914, was the seventh year of Government advantageous to do so, there is being formulated a ownership and operation of telephones. It also code of organization such as is in use in large tele- marked the beginning of a period of depression. phone enterprises, but adapted to these conditions. The crop of 1913 in the prairie Provinces had been This is for the guidance of the higher officials and to unsatisfactory, immigration had fallen off and even systematize the work." 40 Although this statement the towns had begun to react after the decade of gives no indication of the nature of the reorganiza- prosperity they had experienced. The harvest of tion to be effected, it is clear that the administration 19 14 was again short, immigration practically ceased, of the system has been in a state of constant change, and in August the outbreak of the war found Man- -a condition which in itself must have precluded itoba in a precarious financial condition. The Pro- efficiency. vincial Government had exercised their borrowing In regard to the telephone accounts for the year,41 powers freely, there had been continuous speculation it is immediately noticeable that the endorsement of in both rural and urban land for several years and the chartered accountants who had audited the ac- the anticipated expansion of production had not taken place. The new transcontinental railroad lines counts for 1912 and 1913 is lacking. In the An- nual Report of the Government Telephones no ex- were approaching completion and the stimulus to planation is offered as to this apparent absence of trade which the construction period had involved, audit; the reason, however, is given in the following had passed away. There would undoubtedly have extract from the Report of the Public Utilities Com- been a period of depression in the Northwest, even if the war had not taken 40Third Annual Report of the Atanitoba Public Utilities Com- wission for the year ending November joth, rprg, p. 4. The Annual Report of. the Government Tele- 41Seoenth Annual Report of the Manitoba Government Tele- phones for the fiscal year ending November 3oth, 1914, pp. 3-4, phones for the fiscal year was not issued until August 14-19. 39Cf. The Canada Year Book 1914, Ottawa 1915. 138 GOVERNMENT TELEPHONES REORGANIZED I39 missioner: " The method of reporting the audit, ciation cnarge of $409,536, there was a " surplus " both monthly and annually, was changed in 1914. of $56,067, of which $54,824 was set aside as an Until recently the auditors reported to the Commis- additional reserve against depreciation, leaving a sioner of Telephones, and held their appointments credit " balance " of $1,243. The depreciation from him. It was decided that that appointment charge, too, was based upon precisely the same er- should be by the Government, and the monthly and roneous and unscientific cslculations as in 1913 43 annual reports made to the Provincial Treasurer. and, being equivalent to only 4.8% of the plant cost That course is now being followed." 42 In other at the end of the preceding year, was inadequate to words, the Government had taken back much of the precisely the same degree. When the depreciation control over the telephone finances which it had been charge is increased to an amount sufficient to pro- necessary for it to yield at the time of the " reorgan- vide an adequate contribution to the depreciation re- ization " in 1912 : the reports and recommendations serve, the accounts stand thus : of the auditors could easily be ignored or suppressed. Gross Revenue Although the power which the Government had been ...... $1,824,115 obliged to surrender in 1912 was, all things consid- Expenses : ered, not very great (for the power to exert influ- Operation ...... $621,033 Maintenance ...... ence for political purposes they had never given up), 3 15,797 Depreciation ...... 509,179" nevertheless no further evidence is necessary to prove Total Expenses . . . . . 1,446,009 that the Government had begun to maneuvre with Net Earnings ...... 378,106 Interest ...... the object of ultimately recovering every possible . . . 421,682 Deficit ...... $43,576 vestige of the power over the system which had been "Equivalent to 6% of plant cost at the end of the preceding year. theirs during the first four years of Government operation. Although this loss of at least $4o,ooo was - un- Except for the absence of the auditors' certificate, fortunately for the taxpayer - highly unsatisfac- the accounts for 1914 were similar in form to those tory, yet it was a slight improvement over the result for 19 13 - and they showed about the same result. in 19 13. However, inasmuch as gross revenue from After the deduction of interest charges and a depre- exchange service during the year increased to an average of $32.00 per telephone, it is apparent that 42 Third Annual Report of the Manitoba Public Utilities Com- mission for the fiscal year ending November 30th, 1914, p. 4. 43 Cf. pp. 127-128, supra. 140 GOVERNMENT TELEPHONES REORGANIZED 141 the financial improvement was again due, not to up to meet it. This policy was of course not economies or efficiencies in operation, but almost adopted nor is it adopted now. In view of these solely to increased revenue secured from subscribers. conditions there can be no question that an annual Since, however, the average revenue from exchange depreciation charge equivalent to 6 per cent. of plant service is already at the maximum possible under the cost at the end of the preceding year is certainly a present rates, the evidences of Governmental ex- distinctly moderate provision against reconstruction travagance and inefficiency which are revealed upon requirements. Indeed, a sound policy in respect to a close examination of the accounts cannot much extraordinary depreciation due to the climatic con- longer be concealed from the public unless there is ditions of Manitoba would demand an increase in another substantial increase in rates. In the future, the annual depreciation charge over and above 6 analysis of the accounts may be expected to show per cent. An annual depreciation charge of 6 per that the system is actually losing more and more each cent. has been used here in recasting the accounts year. merely to avoid even the appearance of an exaggera- One statement in the Annual Report for 1914 is tion of the real losses of the Government system. highly significant. Referring to reconstruction ex- Since the plant costs upon which the depreciation penses, the Telephone Commissioner wrote : " As charges have been based have also been understated the age of the telephone plant is extended it will be rather than over~tated,~qherecan therefore be no found that the expenditure on account of renewals question that the aggregate losses during the seven and reconstruction of the plant, due to extraordinary years of Government operation were at least $650,- weather conditions, obsolescence and inadequacy, will ooo. These losses, too, were incurred from a sys- increase accordingly." 4Vhese words give what- tem which included fewer telephones than there are ever confirmation is needed of the existence of ex- in either of the single cities of Toronto, Ontari~,~~or traordinary weather conditions, that is, conditions Milwaukee, Wis~onsin.~7 which should properly require extraordinary de- According to the Annual Report, the unexpended preciation reserves. The statement also implies that depreciation reserves deposited with the Provincial extraordinary depreciation should have been pro- Treasurer at the end of 1914 amounted to the sum vided for year by year and an adequate reserve built 45 Cf.pp. 152-154, infra. 46 The Toronto World, January 9, 1916. d4Sewenth Annrlal Refiort of the Manitoba Government Tele- *' The Milwaukee Sentinel, June 17, 1915. phones for the fiscal year etading hTo.uember3oth, IgIg, p. 14. 142 GOVERNMENT TELEPHONES REORGANIZED I43 Provincial debt of the ilidebtedness incurred for tel- of $73 1,s 15.~8 NOW,although this sum was an ab- surdly inadequate reserve, nevertheless it had been ephone purposes and the extravagant way in which large enough to attract the attention of the members the telephone funds have been expended, have of the Government. It seems that the total of the seriously compromised the credit of the Province. trust funds (which included the unexpended deprecia- This result would have occurred even in normal tion reserves of the telephone system) in the hands times, traces of it were noticeable prior to 1914. of the Government at November 30, 1914, was $I,- The ultimate reactions of the financial difficulties into 514,231.77 in nominal cash, but that only $150,529 which the Province has fallen as a result of experi- of these funds was in actual ~ash.~Vnorder to con- ments in public ownership, can only be a matter for ceal this discrepancy between nominal cash and actual conjecture; but in any case, it would appear that the cash it further appears that the Government bor- progress of Manitoba must be seriously retarded, rowed from the bank, by means of an overdraft, the while during the immediate future the Province will balance between these two sums, viz., $I ,363,702.- be unable to extend its governmental activities even 77.50 This transaction was clearly a piece of " win- in advisable directions, will be forced to curtail ex- dow dressing," the plain fact being that the trust penditure on telephone construction still more, and may be involved in difficulty in procuring funds for funds, including- the telephone reserves, had been used for the current expenses of the Province. other necessary and urgent p~rposes.~~

In any discussion of the finances of the Manitoba THE TELEPHONE MANAGEMENT A CAMPAIGN ISSUE ; telephone system, considerable emphasis must be laid EXTENSION OF TELEPHONE SERVICE LESS THAN on the far-reaching effects, especially in a period of THAT IN THE UNITED STATES; THE depression, of the existence of this burdensome Gov- PASSING OF THE GOVERNMENT ernment ownership and operation instead of efficient private operation constantly contributing to the pub- The summer of 1914 saw a closely contested gen- lic purse in the form of taxes. eral election and in the bitter campaign which pre- There can be no doubt that the addition to the ceded it, the management of the telephone system was one of the chief bones of contention, as was to 48Sewenth Annual Report of the Manitoba Government Tele- pones for the fiscal year ending Nowember 30th, 1914, p. f4. be expected. The Opposition raked the entire his- 4g Sessional Paper No. I. Sessio?zal Papers. Legislatrwe Assem- bly of Manitoba. Session 1915, pp. 8 and 17. tory of the enterprise over the coals, illuminating 50 Cf. also the Malzitoba Free Press, Winnipeg, Feb- Ibid., p. 5, " Cf. p. 32, supra. ruary 25, 1915. 144 GOVERNMENT TELEPHONES REORGANIZED I45 with perfervid invective the painful contrast between their promises.64 Other candidates spoke vaguely promise and performance. " The people of Man- about " splendid " service and expatiated upon the 'itoba," cried the Opposition, " are not getting as theoretical advantages of public ownership as compromised a better service at half the rates charged pared with alleged " extortions " of private cap- by the Bell. The prices have been increased very ital." Some " pointed with pride " to the extension considerably. The inability of the Government to of the service into the rural districts. Almost the keep its pledges . . . is the result chiefly of over- only defence of the rates which they devised, how- capitalization . . . wasteful construction methods ever, was comprised in statements to the effect that and inefficient administration, the direct consequence " the 'phones of the province did not cost as much of persistent manipulation of the system in the inter- per 'phone as the 'phones in the provinces to the est of the Government machine." 52 The Opposition west " 5"where there is also public ownership) and press was filled with varied charges of political ma- that telephone rates in New York City were higher nipulation, favoritism, incompetence and graft in than those in Winnipeg57- this latter statement the administration of the system; particularly bitter being meaningless in view of the fact that the Gov- was the charge that the Government were making ernment had learned, to their sorrow, that unit costs use of the system in every way (for example, by hav- increase with the number of telephones in an ex-

ing employees working at a distance transported to change. Of course, in such a maze of charge- and their respective polling places at the expense of the counter-charge, it is quite impossible to determine Province 53) in order to " swing" the election to where the exact truth lies. It is inconceivable that their own party. the Opposition did not magnify their charges of In view of the fact that irrefutable proof of the political manipulation, of inefficiency, and of graft; accuracy of many of the charges of the Opposition but that there existed considerable foundation for was public property, the Government candidates were such charges cannot be denied. As to rates, the hard pressed for adequate rebuttal. Indeed, in a Government themselves admitted their failure to re- number of instances they more or less frankly ad- deem their promises. mitted that the Government had made " mistakes " There is, however, one defence of the Provincial

in their telephone policy and were unable to fulfill 54 Cf. the Manitoba Free Press, Winnipeg, July 8, 1914. 65 Cf. The Evening Telegram, Winnipeg, July 8, 1914. 52 Liberal Na?rdbook 1914, p. gq. 56 The Evening Telegram, Winnipeg, July 7, 1914. b3 July z, 1914. Cf. the Manitoba Free Press, Winnipeg, 57 Cf. the Free Press News Bulletin, Winnipeg, July 8, 1.914. 146 GOVERNMENT TELEPHONES REORGANIZED I47 telephone system which the then Government party only 8,000 and when Brandon and Portage la Prairie always pleaded in extenuation of all their sins. This were mere villages.5g The service which the com- defence is the Government's record in extending the pany initiated at that time it nurtured through all the system, for whereas the system comprised only some successive periods of hardship and depression until 14,000 telephones at the time of its acquisition from a substantial business had been developed. The the Bell Company in January 1908, at the end of Manitoba Government, therefore, merely took over 1914 it included some 46,000 teleph0nes.6~ Dur- an established business and took it over in a period ing a period of seven years the Government had of expansion and prosperity which the Bell Company added 32,000 telephones and had more than tripled had anticipated and prepared for.60 Consequently, the size of the system. Although the fact that po- it is apparent that as regards physical extension, no litical rather than social motives impelled this ex- proper comparison can be made between the record tension detracts a certain amount of glory from the of the Bell Company and the record of the Govern- achievement, nevertheless it is quite true that the de- ment. The only possible comparison which can be velopment secured by the Government is highly cred- made is between the record of the Government in itable. But the allegations and insinuations of the Manitoba and the record of private enterprise in adherents of the Government to the effect that this similar communities in the United States, that is, in extension would never have been secured under any communities with large farming population^.^^ A rigime of unrestricted private enterprise are utterly glance at the telephone history of the United States, unjustifiable, for there is not a scrap of evidence to as shown by the statistics published by the Bureau of warrant any conclusion that private initiative would the Census at Washington, suffices to show that the not have developed the service to a similar extent. progress made by the Manitoba Government is by no In the first place, as has already been pointed out, it means unusual under private management, while as must be remembered that the Bell Company had regards the present development of the service, the borne all the burdens and assumed all the risks of development in Manitoba is considerably exceeded the pioneer, that it had gone into Manitoba at a time by that in the States of the Union which are most when there were only some 60,ooo people in the en- 59 Cf. p. 13, supra. tire Province, when the population of Winnipeg was "Of. pp. 26-28, supra. Comparisons with the Provinces of Alberta and Saskatchewan, the only similar Canadian communities, are unfortunately impossi- 58 Seventh Annual Report of the fiianitoba Government Tele- phones for the fiscal year ending November 3oth, 1914, p. 8. ble, as public ownership of telephones obtains in both of these Provinces as well as in Manitoba. REORGANIZED I49 148 GOVERNMENT TELEPHONES analogous to the Canadian Northwest. According Government to office. But only a narrow margin - separated the victors from the vanquished and it was to statistics prepared by the Government, at the end abundantly clear that the Government were rapidly of 1914 the total number of telephones in the Prov- ince of Manitoba was equivalent to an average of 95 losing prestige even in the rural districts. The misdeeds of the Government and the failure of their telephones per 1,000 population; according to the ventures in public ownership had been proved costly statistics of the United States Bureau of the Census and were destined to prove fatal, for so strong grew the number of telephones in Illinois and in Iowa, the the Opposition that in the spring of the year 1915 greatest farming States of the Union, were respec- the Government was forced to appoint a Royal tively equivalent to 139 and to 171 telephones per - - Commission to investigate the charges against the 1,000 population, while in Kansas, the great wheat administration. State, and in Minnesota, the great barley State, the The Oppositon had prepared their case well and the evidence before the Commission corresponding averages were 141 and 127 telephones soon revealed not only incompetence and inefficiency, per 1,000 p~pulation.~~In other words, in com- but led to the prosecution of the Cabinet Ministers munities which are very similar in their economic and in the criminal courts for fraud. Before long the social aspects, the development of the telephone serv- accumulation of testimony and proof was such as to ice is from 34 per cent. to 80 per cent. greater under shake the nerve of even the most hardened politician. private ownership than under public ownership.04 The Premier and his colleagues decided to resign Such official statistics effectually dispose of any con- and, in May 19 15, they surrendered the Government tention that unrestricted private enterprise could not, to their political opponents without an election.6" and would not, have secured in Manitoba as great a This change of political masters marks the end of degree of telephone development as has been secured what may be termed the second phase of the history under Government control. of the Manitoba Government telephone system. The general election of 1914 again returned the During the three years comprised in the period, there 82 The Manitoba Free Press, Winnipeg, February 20, 1915. 63 Telephones and Telegraphs and Municipal Electric Fzre-Alarm is less spectacular evidence of the political influence and Police-Patrol Signaling Systems. Department of Commerce. with which the system was inevitably surrounded. Bureau of the Census. R'ashington 1915. Pages 15-16. 134 Incidentally, the U. S. Census telephone statistics, which are the The Government realized that the whitewash ap- latest available figures, are for the year 1912, whereas the telephone 651n order to assure themselves of popular support, the new development throughout the United States considerably increased Government subsequently (in August) held a special general elec- during 1913 and 1914. The above percentages, therefore, are tion, at which they were continued in office. really too favorable to the Manitoba system. 150 GOVERNMENT TELEPHONES REORGANIZED 15 1 plied by the Royal Commission would serve to de- to the telephone system is relatively meagre. Short ceive only the more credulous among the voters. as has been the tenure of office of the present Gov- For publicity purposes, therefore, the Government ernment, however, certain of their acts and certain went through the motions of a "reform." As a of the immediate results of their administration are reluctant but necessary concession to public opinion, nevertheless significant as unmistakable auguries of they relegated a certain amount of regulatory power, their future relations with the telephone system. largely innocuous, to the Public Utilities Commis- In the first place it will be recalled that the politi- sioner. The chief feature of the period, however, cal partisans of the new Government had always was that the Government, having interpreted the contended that the price paid for the Bell plant had political handwriting on the wall, became even more been ex~essive.~~Immediately upon assuming the elaborate in their pretenses and even more subtle in reins of power in May, 1915, the Government their manipulations, though they openly maintained sought to substantiate this claim; and for this purpose their arbitrary attitude toward the consumer. The the Attorney-General in the Provincial Cabinet " re- violation of their pledges continued. The promises quested a statement showing the plant valuation of as to rates were repudiated and the " exorbitant" the Manitoba Government Telephones." 67 In pur- rates of the former Bell Company were exceeded; suance of this " request," officials of the telephone political control continued to preclude the possibility system made a valuation of the plant and submitted of commercial management; and the ownership and a report of their findings under date of June 23rd. (6 Complying with instructions," says this report, " we operation of the system continued to be a burden on the finances and credit of the Province. have compiled unit costs of all plant additions made during the period from January st, 1908, to No- SYSTEM USED FOR POLITICAL PURPOSES BY THE vember 3oth, 19 14, and, by applying these unit costs NEW GOVERNMENT; AN AGGREGATE LOSS to the plant as purcha~ed,~~find the construction costs OF $1,000,000 of total plant to be $1,138,568 less than stated in the At the time of writing the new Government have last annual report.6g Of this amount $802,336 per- not been in power long enough to permit a critical Cf. pp. 29 and 94-95, supra. 67 The Tribune, Winnipeg, July 5, 1915. review of their policies and performances to be un- Ga " The plant as purchased " evidently means the total plant at dertaken; and the public mind has been so intent November 30, 1914. 60 Viz., Sewenth Annual Report of the iblanitoba Government Tel- upon the world conflict that printed information as ephones for the fiscal year ending hTo;vember ~oth,1914. 152 GOVERNMENT TELEPHONES REORGANIZED I53 tains to the original p~rchase,~"and the remainder ment of the excess of the book value of the plant over consists of amounts charged to construction, but its actual cost of construction; but in view of the properly chargeable to maintenance, during the three spirit in which the unit costs were without years following the purchase." 'l doubt - though possibly unconsciously - compiled That this hasty and unscientific valuation - a val- and applied, it seems certain that the effect of errors uation on the basis neither of original cost nor of operating to increase the excess of book value must cost of reproduction new - was undertaken largely have been greater than the effect of errors operating for political purposes, is clear; for if the object of to reduce this excess. The result, then, is that the the valuation had been merely to measure the excess figure of $I, 138,568 in the appraisal report is prob- of the book value of the plant over its original cost ably somewhat too large. Nevertheless, for the (or over it,s cost of reproduction new) at the time purpose of the revisions of the accounts of the sys- when the present Government had assumed control tem in these pages the appraisal figure has been ac- of the system, it would have been unnecessary to de- cepted at its face value, and in recasting the accounts vote either the time or the money to estimating the the amount of the excess of book value pertaining to construction cost of the portion of the plan acquired the purchase of the Bell plant,- an amount which from the Bell Company seven years The represents the price paid for the intangible items in- portent of this appraisal is ominous: efficiency and volved in the purchase,73- has been excluded in toto economy will apparently always be subordinated to from the cost of the plant as shown by the annual political advantage. accounts; and the total amounts ($336,232) repre- As the valuation was unscientifically based upon senting the maintenance expenses improperly charged the " unit costs of all plant additions made during the to construction (or capital) during the first three period from January st, 1908, to November 3oth, years of Government operation has also been ex- 1914," it is clear that the figure of $1,138,568 in cluded from the cost of the plant as shown by the the appraisal report cannot be an accurate measure- annual accounts, the amount so charged to capital in each of the years having been carefully estimated.74 70 I. e. the purchase of the Bell plant. 71 This appraisal report was subsequently printed in Eighth An- The result is that the moderation and the conserva- nual Report of the Manitoba Gowernmeni Telephones for the fiscal year ended Nowember 30th~1915, pp. 4-5. tism of the results of the recast accounts have been T2 An estimate of the construction cost of the Bell plant was of enhanced: the plant cost (after the deduction of the course necessary to determine the portion of the excess of book value pertaining to the purchase of the Bell plant. 73 Cf. pp. 29-31, supra. r4 Cf. pp. 54-55, supra. 154 GOVERNMENT TELEPHONES REORGANIZED 155 excess of the book value over the cost of construc- have been about $50,000, or an aggregate sum of tion) being too small, consequently the annual de- $350,000 for the seven years of Government opera- preciation charges based upon the plant cost are too tion ending November 30, 1914. Since the ag- small, the total current expenses are too small, and gregate losses of the system during the seven years, the annual deficits are too small. exclusive of these charges for amortization of in- Now, in recasting the accounts, the maintenance tangible capital, reached the sum of $6jo,ooo, the expenses improperly charged to capital in the first total losses from Government operation up to the three years, after being deducted from the book end of 1914 aggregated at least a million dollars I cost of the plant, have been properly added to the current expenses for " Maintenance " in those years; INCREASING DEFICITS DESPITE REPORTS OF PROFITS; but no charge has been included in the current ex- NO PROSPECT OF RELIEF FROM penses of any year to provide for the gradual ex- POLITICAL ABUSES tinction of the amount of $802,336 paid for intangi- The telephone accounts for the fiscal year ended ble assets. There can be no question, however, that November 30, 1915,'~ published in June, 19 16, this intangible capital should eventually be written show a "surplus" of $22,541, of which $19,646 off and that, for this purpose, a charge should prop- was set aside as an additional reserve against de- erly have been included each year in current expenses; preciation, leaving a credit " balance " for the year indeed, the necessity for malting such annual proof only $2,895. Although the balance sheet shows visions for extinguishing intangible capital is recog- that the Plant Account had been reduced during the nized in the appraisal report, which states: " I year so as to represent the actual cost of construction would recommend that the excess in plant values be of the plant as determined by the appraisal- the carried as intangible capital, and charged off in an- excess of the former book value of the plant over its nual installments." 7s If, upon the acquisition of the cost of construction ($1,138,568) being carried as Bell Company's plant, the Government had decided intangible capital, as recommended by the appraisal to write off this intangible capital in equal annual in- report - yet in determining the amount of the de- stallments during a period of as long as fifteen years, preciation charge included in the current espenses of the amount properly chargeable to each year would the year no change was made in the calculation of the

75Eighth Annual Report of the Manitoba Government Tele- 76 Eighth Annual Report of the Manitoba Government Telephones phones for the fiscal year ended November 30th, 191.5, p. 5. for the fiscal year ended November joth, 19I5, pp. 3-4, 12-18. 156 GOVERNMENT TELEPHONES REORGANIZED I57 average life of the plant. Therefore, since the same the telephone finances is indeed a matter of grave rates of depreciation were applied to reduced plant concern. values, the result was that through a mere change in When the system was placed under the supervision the form of the accounts, the depreciation charge of the Public Utilities Commissioner in 1912,~~the became smaller instead of greater as it should have Commissioner decided that a condensed statement been. When an adequate depreciation charge is in- of the earnings of the system should be issued each cluded in the current expenses, the result is as fol- month. This practice, which has since been con- lows : tinued, was beneficial in so far as the Public Utilities Commissioner could govern it ; 7"ut the accounts Gross Revenue ...... 81,769,589 relating to interest upon the telephone capital did not Expenses : fall within the Commissioner's jurisdiction. Con- Operation ...... $602,366 sequently, these monthly statements of earnings have Maintenance ...... 320,839 not shown, and do not show, interest charges; they Depreciation ...... 525,5 10% Total Expenses ..... 1,448~15 show merely the excess of revenue over operating Net Earnings ...... 320,874 expenses, exclusive of interest charges- - in other Interest ...... 418,503 words, they show net earnings and not net profits. Deficit ...... $97,629 , Now, these monthly statements have been widely *Equivalent to 6% of plant cost at the end of the preceding year. circulated by the press; but in the press reports the Therefore, the real result of the year's operations net earnings in the statements have frequently been was a loss of about $~oo,ooo,exclusive of any charge mistaken for net profits. For example, the report for writing off intangible capital,- the largest an- of the statement for September 1915 in The Tribune nual loss since 1912. Even allowing for the de- of Winnipeg is headed " Month's Telephone Profits crease in business during the year, in view of the $42,441.23 " and begins : " Manitoba government fact that the Telephone Commissioner said that " the telephones brought in a net profit of $42,411.23 in policy of economy, as adopted for the year, was 78 Cf. p. 118, supra. judiciously applied wherever possible and spoke 7SSSusequent to the change of Government in 1915, the Public " Utilities Commissioner, whose influence upon the system was salrltary of the year's results as " gratifying," 77 the future of in so far as he had authority, resigned. In any consideration of the probable future relations of the Government with the telephone Eighth Annual Report of the fifanitoba Government Telephones system, the apparent significance of his resignation should not be for the fiscal year ended November 3oth, 1915, p. 3. overlooked. 158 GOVERNMENT TELEPHONES REORGANIZED '59 the month of September, according to a return issued shown by the unconcealed dissatisfaction which is to-day. The net profit for that month and the pre- rife at the present moment - dissatisfaction which, ceding nine months was $330,330.46." Such re- in spite of publicity work on the part of the Govern- ports naturally induce utterly false conclusions. ment, shows no evidence of subsiding. For exam- In the campaign preceding the bye-elections ple, the Manitoba Government Telephones is now held in mid-summer, 19 15,~~the Government were denounced as " one of the most iron-clad monopolies naturally able to make effective use of their prede- imposed on any people "; s3 and complaint is made cessors' record of continuous mismanagement. The that the rates should be "'cut in two " s4- the iden- appraisal report had also been completed in time to tical language employed eight and nine years ago dur- make an excellent basis for campaign arguments. ing the political agitation against the Bell rates! But the Government and their political partisans The people of the Province still have no prospect went even further in their efforts to secure campaign of ultimate relief from the abuses accompanying material: the Government press called the appraisal ~oliticalcontrol. 66 a preliminary investigation " and promised a " far 93 The Winnipeg Telegram, December 6, 1915. more searching inquiry into the telephone enter- 84 Zbid. prise " if the Government were continued in officemS2 In other words, promises in regard to the telephone system were once again used to attract votes; and the Government made no effort to conceal the fact that they were ready to use the system for political advantage by instituting an expensive " searching inquiry " which could serve .no useful purpose. This attitude on the part of the present Government clearly indicates that a change of political masters has not meant a change of political methods. The utter futility of the Manitoba Government's invasion of the domain of commercial business is

80 The Tribune, Winnipeg, October 30, 1915. 81 Cf. p. 149, note 65, supra. 82 The Manitoba Free Press, Winnipeg, July 26, 1915. CONCLUSIONS I 6 I 3" From the beginning of public ownership, the telephone system was used for political purposes, sometimes overtly, at other times furtively, but always with a cynical disregard for the interests of the public. 4" The technical management of the system was CONCLUSIONS always subordinated to the political management. The net results of the foregoing narrative of the Even rates were determined not by the Commission course of events and the critical examination of the appointed by the Government, but by the Govern- accounts may be summarized as follows: ment itself; and in fixing these rates the Government I" The telephone system was taken over by the discriminated sharply against the urban areas. This Government not in obedience to widespread public discriminatory policy was not unskilfully conceived. demand, nor on any administrative ground properly It was a policy of dividing to conquer; for by setting so called, nor because the existing service was in- the interests of the classes who are in the majority adequate in scope or exorbitant in price, nor because against the interests of the citizens who are in the sufficient capital was not forthcoming for extensions; minority, the Government secured a political advan- but solely because the Provincial Government thought tage. they saw in its acquisition a party political advantage. 5" From the beginning the Government employed In other words, the Government acquired the system the balances of money in the hands of the Telephone not to promote the public interest in any real sense, Commission for its own general purposes. It also but to promote the political interest of the Govern- absorbed the funds which should have been held in ment party in such a way as to contribute to keep the trust for the replacement of worn-out plant. It neg- Government in power. lected to provide an independent continuous audit 2" The promises made by the Government in and when, forced by local public opinion, it did call order to stimulate a public interest which did not for an audit, it failed to adopt the important sugges- previously exist were made in some cases certainly tions of its own auditor. without knowledge of the subject, in other cases 6" The unsound financial policy and the misman- probably without intention of fulfilment, in all cases agement of the Government brought the telephone without justification. system to the pass that either the revenue had to be 160 162 GOVERNMENT TELEPHONES CONCLUSIONS increased or the system had to be permitted to grav- tice on the part of the Government. The fact is that itate rapidly into hopeless insolvency. In either the Government was not inclined to abandon the po- case the disclosure had to be made that the acquisi- litical leverage given it by an industrial enterprise tion of the telephone system had not really been at- whose operations were so widely extended through- tended by the success that the Government had been out the Province. constantly announcing. The straightforward thing 8" Then came the evacuation by the Government for the Government to have done would have been of a position which had been rapidly becoming inse- to admit the faults of their administration, to vindi- cure. The members of the Government resigned cate the Commission, to provide out of the general and their places were taken (without an immediate revenues of the Province the whole amount of the election) by their opponents. estimated loss at that period, and at the same time to go A spectacular incident in Provincial politics ask the Commissioners at what rates they were pre- occurred when the members of the Government pared to conduct the business. None of these things which had just resigned, were prosecuted for con- was done; instead, the Government proceeded to spiracy, fraud, etc. make the Commission a scape-goat, appointed a 10" Then came the resignation of the Public Util- Royal Commission to inquire into the conduct of the ities Commissioner; and owing partly to the condi- Commissioners - that not being at all in question -' tions induced by the war, but more largely to condi- and avoided scrupulously all reference to the Gov- tions in the previous history of the telephones, ernmental blunders and misdeeds that had brought development of the system was arrested. the telephone system into discredit. I I" The entire history of the Government tele- 7" The Government secured the resignations of phone enterprise in Manitoba affords evidence of the the Commissioners and proceeded to make hurried most positive character against Government owner- Li reforms." These reforms were expensive; but as ship. Practically all of the defects which have they were all made in a month it may be inferred that emerged elsewhere in the management of industries they were not very thorough. The new era of the by State officials have made their appearance in the telephone system was, however, ushered in by the case of the Manitoba Telephones. The manage- appointment of an overseer in the person of the Com- ment has been ineconomical, the enterprise has been missioner of Public Utilities. But even with these handicapped by political intrigue, the finances min- changes, there is no evidence of any change of prac- gled as they have been with the general finances of 164 GOVERNMENT TELEPHONES the Province have been unsoundly administered from the beginning, and the obligations of the public have been enormously increased without adequate com- INDEX pensatory advantages. It is possible that only by repeated and costly Accountancy practice of Gov- Accounts-continued ernment Telephones con- include interest charges, 127, failures such as the Manitoba Government Tele- demned by Chartered Ac- 138 countants, 108 include unearned revenue, 53, phones, will the public realize that the proper func- unsound from beginning, 41, 60 tion of Government is not the conduct of industries 53, 58, 68 Method of recasting, 54-57, See also Accounts 153-154 but the impartial inspection of them under intelli- Accounts of Government Tele- not properly audited, 74 gent laws adapted to the character and conditions of phones, as published, show Maintenance expenses as (1908) 51; (1909) 69; separate item, 125 the community and the country. (1910) 78; (1911) 82; Administration of Government (1912) 124-125; (1913) Telephones, Organization 127; (1914) 139; (1915) of, 36-38 155 Reorganization of, 67, I I 6, as recast according to sound I37 methods, (1908) 58; Admissions by Government of (1909) 69; (1910) 79; failure to fulfill promises, (1911) 83; (1912) 126; 145 (1913) 129; (1914) 139; Advisory Telephone Board ap- (19'5) 156 pointed, 118 condemned by Chartered Ac- Alberta, Telephone system in, THE END countants, 108 viii, 65, 147". criticized by Opposition, 52- Appraisal of Government tele- 53, 60 phone plant (I~IS),151 fail to include interest basis for campaign argu- charges, 69, 72, 78, 82, ments, 158 '25 Arbitrary telephone rates, 121 fail to include provision Armstrong, Dr., M. P. P., 73 against depreciation, 41, Attorney-General of Manitoba, 60, 69, 71-72, 78, 81, 82, 19, 211 73 86, 93-94, 107 Audit, Absence of, 74 fail to provide any Sinking Change of system of, 137, 138 Fund, 71 ineffectual, 161 improperly include Mainte- Auditor, Telephone accounts not nance expenses in capital, audited by Provincial, 74 54, 55, 60, 68, 78, 152 Australia, Telephones in, 91 include inadequate depreciation charge, 125, 127-128, Barry, Mr. R. L., of Minneapo- 139, 155-156 lis, appointed Royal Com- I 65 INDEX INDEX

increases rates (I~IZ),121 ~ebt-continued Barry, Mr. R. L.-continued Commission, Telephone, ap- Committee on Private Bills missioner (rglz), 97 pointed, 36 of Manitoba doubled by the (Manitoba Legislature), acquisition of Bell tele- Interrogations of, 101 Membership of, 36-37 16 appointed sole Telephone Original functions of, 36, 37 phone system, 31 Competition in telephone serv- See also Credit Commissioner, I I 5 lacks full power, 37, 38, 41, ice prevented by Mani- assumes duties, 116 66, 69, 70-711 72, 78, 104, Defence by the Government of toba Government, 122- resigns, 116 107, 138 its telephone policy, 146 Bell Telephone Company, 13, subjected to political pressure, '23. Deficit of Government Tele- Construction of telephones, Con- phones after accounts are 14, 15, 16, 18, 19, 21, 22, 38-42, 431 44, 46, 64, 74, trol over, by Government, recast on a sound basis, 23, 25n, 26, 27, 28, 29, 35, 84-86, 106, 107 361 42, 45, 45% 48, 52, 59, additional functions of, 46 31, 381 391 'P9 (1908) 58; (1909) 69; introduces functional organ- Feverish energy In, 43 (1910) 79; (1911) 83; 59nt 76, 87, 939 951 113, ineconomical and marked by 129, 146, 147 ization, 67 (1912) 126; (1913) 129; Birtle, Manitoba, 23 forces Government to meet political abuses, 38, 43, (1914) 139; (19x5) I56 Brandon, Manitoba, 13, 14, 22, deficit or increase rates, 76-78, 81, 83-86, 105 as published (I~II),82 Not all, justifiable, 38, 75, 84 concealed by unsound ac- 106, 147 81-82 Bulletin, The (Winnipeg), 68n. puts into effect reduced local retarded, 1x8, 143, 163 counting practice of the rates (~gog),62-64 to be let on contract under re- Government, 58 et passim organized system, 123 Canada Year Book 1914, 136 increases long distance rates, pointed out by Opposition Canadian Finance, 107 88 Cost, Promises by the Govern- press, 52-53 ment to provide tele- Canadian Independent Tele- proposes to increase local exceeds $300,000, 83 phone Association, mn. rates (I~II),88-90 phones at, 18, 50, 52 at least $650,000, 141 Capital account of Government Government expresses confi- per unit, Decrease of, un- aggregates at least $~,ooo,ooo, Telephones, inflated by dence in, 96 der reorganized system I55 improper addition of investigated by Royal Corn- (1912)~117 may be expected to continue, Maintenance expenses, 55, mission of Inquiry, 96- Increase of, with increased 140, '56-157 number of telephones in 60, 68, 78 111 Depreciation not provided for, expenditure of Bell Telephone made scapegoat for Govern- use denounced by the 54, 71-72> 789 81, 82, 86, Company, 26-27 ment, 99 Government as a " falla- 93-94, 107 Census of Canada, 1911, 13 loyal to Government during cious theory,"' 19 rapid on account of climate Chicago (Ill.), Telephones in, inquiry of Royal Commis- proved to increase with in- of Manitoba, 55, 55n, 128, creased number of tele- 97 sion, 102 140 Christie, Mr., Member of Com- made to appear responsible phones in use, 145 charge, Absence of, criticized mittee on Telephones, In- for practices over which Credit of Province damaged by by the Industrial Bureau dustrial Bureau of Win- it has no control, 103-109 Government ownership , and the Board of Trade of telephones, 32, 47, 70, nipeg, 94 resigns, 112 of Winnipeg, 94 Citizen, The (Ottawa), 17n. Mr. R. L. Barry appointed 143, 150 Absence of, noticed by Op- Climate. See Depreciation sole Commissioner, 115 Criticism of Government under- position, 60 Coldwell, Mr., Member of resigns, 116 takings by public not usu- inadequate, 125, 127-128, Manitoba Government, Mr. G. A. Watson appointed ally instructed or ef- 1399 155-156 sole Commissioner, 117 fective, 4 included in current expenses Commercial management of tele- placed under supervision of Crowe, Mr. G. R., Royal Com- for the first time, 124 phones promised by the Advisory Telephone missioner (rgrz), 96 Method of calculation of, Government, 33-35 Board, 118 unscientific, 128 Commission, Royal. See Royal given more independent pow- Debt, Effects of increase in pub- ought in the case of Mani- Commission er, 118 lic, 6, XI toba to be at least 6 per INDEX INDEX

~e~reciation-continued Farmers' telephones. See Ru- Head office expenses proposed system, 66-67, 83-84, 104, ral telephones cent. annually, 55, I41 to be saved under Gov- 130 placed under supervision of Finance. See Accounts, Deficit, ernmental management Scarcity of, 44, 77, 104 Public Utilities Commis- Depreciation, Overdrafts, of telephones, 33 La Crosse (Wis.), Telephones Profits sion, 118 functions, 109 in, 97 recommended by Telephone Finances of Manitoba, 25, 47, neglected by Manitoba Legislation permitting munici- Commission and refused 136, 143, 150 Government, 38 pal ownership and opera- by Government, 41, 56, Financial methods of the Gov- Herald, The (Montreal), 17n. tion of local telephone ex- 86 ernment in relation to the Horan, Mr. H. J., Commissioner changes (1899), 15 reserve improperly applied, telephone system, 41, 70- Auditor (First Telephone Legislature of Manitoba, 16, 19, 72, 80, 86, 104, 142 142 Commission), appointed, 27, 299 34 results of Government opera- Depression of trade in Mani- 37 Liberal Handbook (1914), 144 toba (I~I~),136 tion of telephones. See Memorandum by, 44, 85, 86 Locke, Mr. Justice, Royal Com- Deterioration of service, Al- Accounts Resignation of, 1x2 missioner (rgrz), 96 leged, 93, 106, 131 Free Press News Bulletin House of Commons (Canadian), Long Distance service, 18, 20, (Winnipeg), 145n. Detroit News Tribune, 4811. Misleading statements as 25, 43, 81 Development of telephone sys- Friction between Telephone to the financial results of Loss in operation of Manitoba tem retarded from vari- Commission and employ- the Manitoba Govern- Government Telephones, ous causes, 118, 143, 163 ees, 67, 117. See also ment Telephones made in See Deficit Employees, Labor Disadvantages of ~ublicowner- (1909)) 65 ship. See Public owner- Hydro-electric system for Mani- Maintenance expenses im8prop- ship Gazette, The (Montreal), 36 toba proposed and re- erly charged to capital, Germany, Telephones in, 91 Discrimination in service, 39, jected, 32 54, 55, 60, 68, 78, ?SZ 43-44, 84 Government ownership. See shown as a separate Item, Public ownership Dominion Government refuses Illinois, Telephones in, 148 125 to amend charter of Bell Government of Manitoba con- Independent Telephone Com- Manitoba Free Press (Winni- Telephone Company, 16- fesses ignorance of the pany of Canada, 1611. peg), x6n, 18n, zon, zrn, I7 telephone business, 96 Inspection rather than operation z3n, zqn, 2511, 26n, 2711, Increase of control by, in 1914, Parliament and the telephone the proper function of 3In, 32% 33n1 34nt 43% question, 65 1.38 Government, 164 454 46% 47% 48% 49n, Relations of, to Telephone Intangible capital, 29-31, 59, 95, 504 5zn, 53, 53% 604 Commission, 39, 97, 99, Eastern Canada, I5n. '539 '54 67n, 769 85n, 88, 88n, Election, General (1907), 25 ; 118 ought to be written off by an- 97n, 105, 106n, 107n, (19x4) 143, 14% x49; See also Political pressure nual instalments, 59, 154 112n, 11611, Izzn, 123n, Governmental management of (1915) 149:, 158 Interest. See Accounts 142n, 144n, 145n, 148n, Employees appointed for po- industrial enterprises in- Iowa, Telephones in, 148 158n. litical reasons, 40, 44, 66- economical, 6-7 Manitoba Government and Pub- 67, 104 Grain elevators, Public, 119n. Journals of the Legislative As- lic Ownership of Tele- incompetent, 104-105 Great Britain, Telephones in, sembly of Manitoba, 16n, phones, The, 23 91, 131-132 used for political purposes, 17% 19"> 50% 60% 74% Measured service rates intro- I44 7511, IoIn, 118n. duced (~gog),63 See also Labor, Patronage, Hayes, Mr. W. H., Commis- proposed to be made comprl- Wages sioner Engineer (First Kansas, Telephones in, 148 sory for business lines in Europe, Telephones in, 15 Telephone Commission), Winnipeg, 90 Evening Telegram, The (Win- 37, 48 Labor difficulties in Manitoba plan dropped, IOO nipeg), 14sn. Resignation of, 113 Government telephone Milwaukee Sentinel, The, 141n. INDEX INDEX Political origin-continued Milwaukee (Wis.), Telephones Opposition party-continued Public Accounts-continued upon Telephone Commis- in, 141 moves for Committee on Results of, in foreign coun- sion other than Govern- Minister of Public Works, 16, telephone system, IOI tries, 1-9 press and Government tele- mental, 85 Social disadvantages of, 2- 17, 50, 55% 61 situation in Manitoba in 1906, Telephorles and Telegraphs, phones, 26, 31, 43, 47, 50, 5, 8-9 32, 37, 45-46, 118. See 52,. 53, 92, I44 20 Utilities Commission, I I 8, also Telephones and Tel- criticizes telephone ac- Portage la Prairie, Manitoba, 124, 12811, 13% 157, 157n. egraphs, Department of counts, 52-53 139 147 I47 approves rate increase Railways criticizes increase of rates, Postmaster General of United (1912), 121 Minneapolis Journal, q8n. 92 States on cost of rural Beneficial influence of, 119, Minneapolis (Minn.), Tele- Orders-in-Council (Manitoba), mail delivery, 123n. 127 phones in, 97 37, 41, 46, 96 Private enterprise and the tele- Purchase of the Bell telephone Minnesota, Telephones in, 148 Ottawa Free Press, The, 17n. phone, Manitoba, 13-29, system by the Govern- Morning Post, The (London), Overdrafts from Bank by Tele- 122-123 ment, 26, 28, 29, 95, 151, 13x1. phone Commission, 60, 86, United States, 148 '54 Municipal Act (Manitoba), 15 142 Profits, Fictitious, 10, 41, 48, 49, price of Bell telephone sys- agitation for public owner- 51, 61, 65, 69, 70, 78, 80, tem, 28 ship of telephones in Paris, Telephones in, 15 '2.5, 127, I39 criticized by Opposition and Manitoba, 15 Paterson, Mr. F. C., first Chair- under new Government, defended by Government, exchanges, Isolation of, 16 man of Telephone Com- 1.~5, 157-158 29-31, 94-95 ownership of telephones in mission, 36, 55n, 70, 72, promlsed under Government not unreasonable, 31 Manitoba, 15, 19, 24, 25, 85, 919 107, 110, 113 ownership, 19-20, 32-33, of telephone supplies controlled by the Govern- 45n. Patronage in telephone admin- 3 5 istration, Political, 44, 46, See also Deficit ment, 37, 40 84-85, 104 Promises. See Commercial Neepawa, Manitoba, IS, 21 Piper, Mr., member of Com- management, Profits, Rates promised to be "cut in New York Tribune, 48n. mittee of Industrial Bu- Rates two," 19, 21, 22, 35 Ninga, Manitoba, Dismissal of reau of Winnipeg, 94 Public Accounts of Manitoba, reduced considerably, 17, 19, telephone agent at, on po- Poles for telephones, Excessive 254 50, 69n. 23, 32 litical grounds, 67n. numbers of, purchased by Committee (Manitoba Leg- reduced to "cost," 18, 20, North West Telephone Com- the Government, 39-40, islature), 60, 64, 70, 7211, 54 52 pany, 16 103 73% ?4, 8611. Retention of Bell Telephone Political origin of agitation for Exploitat~on of the Govern- Company's, 47 Government ownership ment telephone system by Sectional increase of (1908), Oficial Report of the Debates of of telephones, 16, 18, 22, the, 45 42, 47 the House of Commons 25, 34, 351 160 interests wholly overlooked in Reduction of, by Government (Canada), 654 66n. pressure exercised on tele- Government administra- for political purposes Opposition party in Manitoba phone management, 38- tion of telephones, 161 (1909), 62-64, 73 Legislature, 20, 29, 50, 60, 42, 43, 441 461 50, 64, 66, ownership, Future of, as af- Unjustifiability of, 66, 81, 86 101, 143, 144, I49 67, 74, 76, 84-86, 103, 106, fected by the war, 11 Increase of long distance, 88 attacks the terms of tele- 107, 118, 138, 144 not suitable or necessary Proposed increase of ( 191 I), phone purchase, 29, 31 , Apparent decline of, 149 for telephone business, 2- 88-90 criticizes telephone accounts, Apparent revival of, un- 4 technically justifiable, 91 60,. 74 der new Government, Origin of, in Manitoba, Violent opposition to, 92-93 criticizes telephone admin- 152, 158 summarized, 34-35 abandoned (I~IZ),IW istration, 144 promised to be avoided, 34 Pecuniary disadvantages of, Reports upon, by Winnipeg 5-6 INDEX INDEX

Rates promised-continued Report-continued Royal Commission-continued Service--continued Board of Trade and In- Telephones, 53, 55n, 68, Public indifference to, 98 istration, 47-48, 93, 106, dustrial Bureau, 93-94 754 784 IoSn, 115n, Interim report of, roo 131, 133-135, 144 placed under supervision of 116n, 117n, Izqn, Izgn, Evidence before, IOI Sessional Papers of Manitoba Public Utilities Commis- 12711, 12811, 13on, 137n, Influence of Government Legislature, zgn, 29n, 3711, sion, 118 rqon, 14211, 1464 1514 upon, 101, 102 51% 5611, 6411, 6811, 69n, General increase of (1912)~ 15211, 1541-1, 155n, 156n. makes no reference to De- 7% 73n, 75% 791-1, 8311, 121, 144, 145, 150 of Public Utilities Commis- preciation Reserve or 86n, 97n, loon, rogn, increases revenue by $200,- sioner of Manitoba, 12111, Sinking Fund, 107 11611, 126n, qzn. ooo per year, 129 13on, 135% 137, 138n. Final report of, 97-98 Sinking Fund, No provision for, produces insufficient reve- of Royal Commission of In- Unsatisfactory character of 71, 107 nue, 140 quiry into Telephone final report of, 1x1 Sise, Mr. C. F. (President of complained of by public, Commission (I~IZ),97, attempts to vindicate the the Bell Telephone Com- Government at the ex- I59 roo, I12 pany of Canada), invited of Bell Telephone System in of Telephone Committee pense of the Telephone to discuss terms of pur- the United States, I29 (Winnipeg Board of Commission, I I I chase, 28 Private company offers to re- Trade), 94 to investigate charges against State action, Habit of leaning duce, 122 Resignation of Manitoba Gov- the Manitoba Govern- upon, 98 General schedules of, 62-63, ernment (I~IS),149 ment (1915), 149 collectivism, Oscillations in 89, 121 of Public Utilities Commis- Rural municipalities, 15 attitude of public to- Rebates demanded on the sioner (Mr. Robson), rates, Reduction of, by Gov- wards, 2 ground of announcement 157n. ernment for political pur- usually adverse to technical of fictitious profits, 50 of Telephone Commission, poses, 62-64, 73 progress, 2 Reconstruction costs improperly I12 Proposed increase of monopoly, Effects of, 2 charged against current Resolutions and Memorials of (I~II),88-90 Statutes of Manitoba, isn, zon, revenue, 56, I04 the Legislatiwe Assembly Increase of (~grz),121 zqn, qn, 118n. properly charged against De- of Manitoba respecting telephones, Cost of installa- St. Paul (Minn), Telephones in, preciation Reserve, 125 Public Telephones (1go6), tion of, 85 97 Telephone Commissioner an- 20n. Extension of, 38, 43, 81, 84, Strike threatened by Winnipeg ticipates great increase Roblin, Sir Rodmond (Premier 106, 147 telephone employees, 67 promised on behalf of the Subscribers, Number of. See of, l@ of Manitoba), 16, 17, 21, Reorganization of Government 27, 29% 33, 96n. Government at $I per Telephones, Number of Telephones, (1909) 67 ; Resignation of, 149 month, 23 Surplus. See Profits (1912) 116 Robson, Mr. H. A,, K. C. (Pub- Plan for (I~IS),137 lic Utilities Comissioner), Salaries. See Wages Taxation, Government Tele- Report by independent account- 118, 157 Saskatchewan, Telephones in, phones free from, 59n, ants on Government Beneficial influence of, 119, viii, 65, 147n. 142 bookkeeping system, 108 127 Schedule of rates, (1909) 62- involves reduced yield of American Telephone and Resignation of, I 57n. 63; (1911) 89; (1912) from, 142 Telegraph Company Rome, Telephones in, 15 121 of Bell Telephone Company, (1913), 129n. Royal Commission of Inquiry Service, Quality of, Alleged de- 59n. of Citizens' Committee of In- into Telephone Affairs terioration of, 93, 106, Telephone Commission. See quiry as to Local Tele- appointed, 96 131 Commission, Telephone phone Rates (Winnipeg Scope of inquiry of, 99 under Bell Telephone Com- Commissioners. See Commis- Industrial Bureau), 94 Stenographic report of, 39, pany, 18 sion, Telephone of Manitoba Government 97 under Government admin- Telephones and Telegraphs, I74 INDEX INDEX Telephones-continued Telephone system-continued Telephone system-continued Telephone system-conttnued Department of Railways, Purchase by the Government sion of heavy loss upon, Misuse of trust funds of, 142 29, 30, 32, 36, 45-46 of the Bell, 26 81 Credit of Province damaged See also Minister of Tele- Position at the time of pur- Deficit in (I~II),83 by, I43 phones and Telegraphs chase of the, 27 Specific causes of financial Influence of change of Gov- Number of, 13, 14, 27, 28, 75, Terms of purchase of, 29-31 failure of the, 83 et seq. ernment upon (1915), 149 141, 146 Promises of Government re- Political influence in, 85 Appraisal of plant of, 151 Growth in, not due to Gov- garding, 32, 33, 35 Long distance rates increased Political influence still exer- ernment control, 76, 146- First Commission appointed in, 88 cised upon, 152 148 to manage, 36 New local rate schedule pro- Aggregate loss upon, 155 Telephone system in Manitoba, Commission for management posed for, 89, go Deficit in (1915), 156 Beginning of (ISSO), I3 lacks full power, 37 Measured service proposed Misleading statement of finan- Purchase of, by Bell Tele- Political pressure upon, 38 el for, go, 91 cial results of, 157 phone Company of Can- Sf?. Hostility to rates proposed for, Conclusions regarding, 160 et ada (1881), 13 Abolit~onof technical staff in 92 seq. Extension of (1882-84), 13 Telephone Department, Royal Commission of Inquiry Telephony, 49n. Economic depression causes 44 PO:, 96 Toronto, Ontario, Telephones slow development of Opposition criticism of, 47 Public Indifference towards in, 141 (1888-rgog), 14 Alleged surplus from, 48 Commission upon, 99 Toronto World, The, 141n. Character of immigration re- Political importance of, 49 Employees of, incompetent Trades and Labor Council of tards development of, 14 Accounts of (1go8), 51 and appointed for polit- Winnipeg, 67 Rapid expansion of (1900- Real deficit in, 53 ical purposes, 104, 105 Treasurer of Manitoba, 51 19o8), IS Current expenses of, improp- Alleged deterioration of serv- Tribune, The (Winnipeg), qgn, Inquiry by Government into, erly charged to capital, 54 ice in, 106 96n, IsIn, 157n, 158n. I 6 Necessity of recasting ac- Resignation of Commission Trust funds improperly applied, Application of Manitoba to counts of, 54 for management of, 112 142 Dominion Government to Absence of Depreciation Re- Appointment of sole Commis- sioner for, 115 amend charter of Bell serve in, 55 United States, Telephones in, 19, Company rejected, 16-1 7 Deficit (1908), 58 Resignation of Commissioner 91, 129, 147, 148 Project of joint Governmental Opposition crltlclsm of ac- for, 116 and Municipal owner- counts of, 60 Appointment of new Commis- ship, 17 Reduction of rates in, 62 sioner for, 117 Valuation of Bell system in Policy of Government regard- Unremunerative farmers' rate Public Utilities Commissioner Manitoba by Government ing, 18, 20 in, 64 to supervise, 1x8 engineer, 29, 30 Committee of Legislature on Influence of misstatement of Rates increased in, 121 Government plant (1915)~ (19061, 19. financial results in, 65 Deficit in (~grz),126 151 Alleged exorb~tant rates of, Labor difficulties of, 66 Deficit in (1g13), 129 bas~sfor campaign argu- 19 Reorganization of, 67 Unsatisfactory service, 131 et ments, 158 Rates to be "cut in two" by Deficit in (rgog), 69 seq. Public Accounts Committee, Auditor's certificate absent Government, 19, 21, 22 Vienna, Telephones in, 15 Construction of competitive criticism of, 70 from accounts of (~grq), Government system in Political abuses in, 76 '38. Winnipeg (1907), 23 Deficit in (I~IO),79 Deficit In (1914), 139 Wages, Decrease of, 117, 130 Municipalities reject Govern- Crisis of (I~II),81 Anticipated increase of re- Increase of, 130 ment policy in respect to, Disappearance of fictitious construction charges in, Dissatisfaction of employees with, 131 24 '' surpluses," and admis- 140 INDEX

War, Advantage of private Winnipeg-continued ownership of telephones Board of Trade of, Report on as preparation for, 3-4 rates, 93, 94, 122 Watson, Mr. G. A., Commis- Industrial Bureau of, Report sioner of Telephones, 117 on rates, 93, 94, 122 Webb, Read, Hegan, Callaghan Winnipeg Telegram, The, Ign, and Company, Chartered 14n, rsn, 1611, zrn, 27n, Accountants, Report of, son, 34n, 45n, son, szn, 108 53n, 62n, 89n, 121x1, 12311, Winnipeg, 13, 14, 22, 25, 26, 42, 159" 89, 90, 91, 92, 93, 97, 98, Woodbridge, Manitoba, 77 LOO, 1x1, IZX, 131, 146