COMMUNICATIONS: A.T. &T. v. U.S. Control

A.T. &T. v. U.S. Control

The power and prestige of four billion dollars and of 469,000 stockholders were thrown last week against any Federal commission which might be set up to regulate U. S. telephone and telegraph companies as the Interstate Commerce Commission now regulates the railroads. The four billion dollars and 469,000 stockholders were those of American Telephone & Telegraph Co., personified by Walter Sherman Gifford, A. T. & T. president. Mr. Gifford told the Senate Interstate Commerce committee that, while he favored U. S. regulation “in principle,” he opposed it in practice because, in his opinion, it would annihilate control of communications by State agencies just as State regulation of railroads has vanished.

Mr. Gifford was testifying on the bill offered by Senator James Couzens of Michigan to establish a Federal Communications Commission. This Commission would regulate valuation, profits and service rates of telephone and telegraph companies. Theoretically such companies are now regulated by the Interstate Commerce Commission but that potent agency, already overwhelmed with its railroad work, has never attempted to exercise communications control beyond receiving financial statements and ordering changes in accounting methods.

Mr. Gifford’s opposition to a Communications Commission sprang, he said, from the fact that only 1½% of U. S. telephone business is interstate, not enough to warrant the Federal Government’s taking away State regulation of the 98½% of intrastate business.*

The committee room broke into laughter when he said that the I. C. C. had never attempted to regulate his telephone companies because nobody had ever complained about their rates. Declared he: “It’s discouraging to be found fault with on that account. We try to run our company business so that no complaints will be filed against us and we hoped we had succeeded in accomplishing something in making regulation of our rates unnecessary.”

Montana’s Senator Wheeler and others on the committee remarked uponthe fact that A. T. & T. opposed Federal regulation yet would not willingly submit itself to the control of State agencies on the claim its interstate business was beyond their jurisdiction.

Mr. Gifford was also asked why the largest of his subsidiaries, New York Telephone Co., failed to argue out with the New York Public Service Commission the merits of its demand for a rate increase, but took flight into the U. S. District Court. His reply was that he was no lawyer. The District Court last month granted the New York company permission to increase its rates to earn a 7% profit on its investment, on the legal theory that lower rates would produce a return which was constitutionally confiscatory. N. Y. T. Co. prepared to up its rates $15,000,000 per year. Two days after Mr. Gifford testified, the New York Public Service Commission took belated jurisdiction, cut the company’s proposed increase 20% temporarily. N. Y. T. Co. threatened to obtain a U. S. court injunction against N. Y. P. S. C. barring it from such rate-making. New York’s Governor Roosevelt stressed the need of legislation “to deprive Federal Courts of power to interfere with actions of State regulating bodies.” Simultaneously in Chicago a U. S. court was upholding an injunction which prevented the Illinois Commerce Commission from enforcing a rate reduction order against Illinois Bell Telephone Co.

Mr. Gifford was able to tell the committee that A. T. & T.’s rate of return was now only 6^ or 6|%, whereas it should be 8% to be constitutionally correct. He assured the Senate committee: “There’s not the slightest incentive to make undue profits. We only say that if we can’t have 8% we can’t give you telephone service.”

Gifford on Merger. Most of the Senate Interstate Commerce Committee’s current hearings have dealt with the now prohibited merger of cable and radio companies, as in the proposed union of Radio Corp.’s wireless business with International Telephone & Telegraph (TIME, Dec. 23 et seq.). While not “impressed” with Owen D. Young’s argument that such a merger was necessary to meet foreign communications monopolies, Mr. Gifford said he could see no “fundamental reason” for keeping these two facilities apart. Their union, he thought, might produce cheaper, better service.

Behn on Merger. More forcefully in favor of a cables-and-wireless consolidation was Col. Sosthenes Behn, Chairman of the Board of I. T. & T., who also appeared last week before the Senate Committee. He saw eye to eye with Owen D. Young, whose radio communications business he would purchase for something like $100,000,000 in stock. Said he:

“A situation is developing in South America which could not exist for a moment if we were married to our fiancee, Radio Corp. We hope that you will establish a church so that the marriage can take place.”

Suggesting that there was “more or less of an illicit relation between you now,” Montana’s caustic Senator Wheeler asked : “Isn’t J. P. Morgan & Co. holding the shotgun to bring about the marriage?”

Col. Behn denied this, explained that the house of Morgan was only I. T. & T.’s banker. Declared he: “In this merger I have been the compelling force. I certainly tried to get better terms . . . but in this case Mr. Young was a better man than I was.”

* The Interstate Commerce clause of the Constitution (Art. 1, Sec. 8) gives the U. S. authority to regulate any enterprise, no matter how small, crossing State lines. Of all U. S. railroad business, 85% is interstate.