HEARINGS HELD BY COMMISSIONERS

Senator MCKELLAR. What kind of hearings are held by the Commissioners?

Mr. PORTER. Senator, those are, in the broadcast situation, where, for example, in any particular community there would be multiple applicants for the same facility. Rather than having these people come in to Washington with the congested conditions here, we have adopted the policy which, I think, is sound, of going out in the communities and holding the hearings there where local citizens can come in and testify. I think, further, that it is a good thing for the Commissioners, in conducting these hearings, to get out in the field and see what the local problems are.

Senator REED. I agree with you completely on that. For a long time I have advocated that the Interstate Commerce Commission adopt that very policy, of having a Commissioner, even if he desires, to have two examiners, go around a circuit, very much like the Supreme Court judges used to do when they held court on the circuit. Mr. PORTER. That is precisely what we are doing now.

Senator REED. I think it is advisable, from the standpoint of the Commissioners to come in contact with these people. I think it is advisable from the standpoint of the people who are dealing with your Commission for your people to go into their communities, instead of requiring, in all cases, to have them come here. Of course, some of them may be so small that they cannot go to the expense and time of coming to Washington. That should be done as far as it is practicable. It is not completely practicable that you hold hearings in small communities, that is, in all small communities, but I think it would be highly desirable in many instances.

Mr. PORTER. We are doing it wherever possible. For instance Commissioner Denny has been in Orangeburg, South Carolina, for the last two days. And Governor Wills, the newest member of the Commission, is in Florida holding a series of hearings.

Senator MCKELLAR. Let us go to the next item.

ACCOUNTING DIVISION

Senator MCKELLAR. Let us get back to these questions. How many divisions and subdivisions do you have in your Accounting Department?

Mr. PORTER. In the Accounting Department, there is a Broadcast Branch, Carrier Accounts Branch, Rates Branch, Economics Branch, and four field offices.

Senator MCKELLAR. That is five all told, is it not?
Mr. PORTER. Yes, sir.

NEED FOR SUBDIVISIONS IN ACCOUNTING DIVISION

Senator MCKELLAR. Why is there necessity in accountings in these branches in the Accounting Office?

Mr. PORTER. Senator, that is one of the least spectacular and perhaps less understood functions of the Commission.

The Accounting Department bears the burden of rate regulation of the common carriers, the Western Union, the A. T. & T., and our International Communications.

Congress has created by statute two great monopolies in the field of common-carrier communications. We are charged with regulating rates. We are charged with maintaining the service. We have to analyze their tariffs.

SAVINGS IN TELEPHONE RATES

Just only recently Commissioner Walker, who is head of the telephone committee of the Commission, has effectuated savings of around 60 million dollars just as the result of one conference on longdistance telephone tolls. And we still have some distance to go.

WESTERN UNION RATE STUDIES

With Western Union we have continuing rate studies. The accountants in the field offices are there to get information where the records for these common carriers are kept, to analyze and digest it, and send it back to Washington here for our consideration in determining and fixing rates for telephone, telegraph, and other communication services.

NEED FOR PROPER SUPERVISION OF ORIGINAL COST ACCOUNTING STUDIES

In connection with the accountants, I think it is fairly obvious that effective regulation, if it is going to be accomplished at a minimum of expense, requires as thorough work in the supervision of these original cost-accounting studies that we have under way, the_prescription of proper depreciation rates, which is a duty of the Commission, and the maintenance of the continuing property records.

REDUCTIONS IN OVER-STATED NET BOOK COSTS OF TELEPHONE PROPERTIES

I made reference a moment ago to certain savings. The original cost-accounting studies which the Commission is engaged in have already resulted in reductions of about $10,000,000 of overstated net book costs of telephone properties, and have permitted the segregation of other overstatements in the aggregate of $15,000,000.

It is estimated that the additional work which we are starting in this next fiscal year will produce more reductions of about $97,000,000 in the overstated net book cost. That is the base on which rates are predicated. The savings that are involved to the users and the subscribers of the telephone service are going to be tremendous. I think that you can get a picture of the magnitude of the problem when you see the fact that in 1944 the depreciation charges of the Bell System alone were $201,000,000 or about 12 percent of their gross revenues.

Senator REED. As a matter of information, what rate of return do you allow?

Mr. PORTER. Senator, can I talk off the record on that?
Senator McKELLAR. Off the record.

(There was a discussion off the record.)

Senator REED. Your total net earnings is a factor always, but the dividends of 9 percent, or any other percentage, are, too?

Mr. PORTER. Correct.

Senator BANKHEAD. That is only 4%1⁄2 percent.

Senator REED. It is probably worth a billion dollars, that is, the property is worth that, I presume something like that, the evaluation of the A. T. & T.

Mr. PORTER. I think it should probably; that is, if you take the whole Bell System, their gross revenues were about two billion dollars. Senator REED. Of course, if that was bonded to an extent where most of their outstanding obligations were taken care of, they paid a fairly low rate of interest, which they would pay. I am not familiar with the detail of it. And the amount of stock out was relatively small as compared with the total investment, well, then, of course, that stock might get a very heavy return; that is, dividend return. I am not saying this is justification' for anything. I merely say that a dividend rate, in and of itself, is not conclusive of anything.

Mr. PORTER. Yes, I think that is certainly true, but we do not have established standards. Of course, we are concerned only at the moment with the interstate communications. We have our relationships with the State commissions, as you konw. We have a special committee that tries to help out the State commissions whenever they call on us. And they do that quite frequently.

Senator REED. I have been on that.

Mr. PORTER. I know you have. There is no fixed percentage standard.

Senator REED. Of course, your obsolescence in telephone equipment is so great that it has to be added or included, as you please, with your depreciation. The rate of obsolescence in telephone and electrical equipment, generally, is so great that it constitutes a very important factor.

MODERNIZATION PROGRAM OF BELL TELEPHONE SYSTEM

Mr. PORTER. The telephone company has a program now; that is, the Bell System, of modernization within the next 2 years of $2,000,000,000 and they have scheduled those expenditures. It involves supplementing and extending of facilities throughout the country, new techniques, new systems.

EXTENDING OF TELEPHONE SERVICE TO RURAL AREAS

There is one thing that I think that is contained in your justification that would be of particular interest to this committee. An aspect of regulation of the proposed telephone expansion program is the question of extending adequate telephone service to rural areas. Congress has several bills before it. However, recently, the Commission made economic studies.

DECREASE IN NUMBER OF TELEPHONES ON FARMS

I want to give you these figures. While the total number of telephones in the United States was increasing from 14,000,000 in 1920 to 23,000,000 in 1940, the number of telephones on farms were simultaneously declining from 2,500,000 in 1920 to 1,500,000 in 1940.

Senator BANKHEAD. Is that because the farmers were not able to pay the charge?

The

Mr. PORTER. I think that it was due to several factors extension of telephone service to the rural users is not necessarily one of the most profitable aspects of the operation. They skim off the pay-dirt market first, naturally. Their extensions have been neglected in those areas.

Mr. MCKELLAR. They do not try to extend them.

Mr. PORTER. The Bell System is working on a number of projects to put telephone carriers on power lines. Your colleague, Senator Hill has a bill on that.

Senator BANKHEAD. You mean rural electrification?

Mr. PORTER. Yes, sir. Some farm users are further handicapped by the fact

Senator BANKHEAD. Let me ask you another question about that reduction in the number of telephones on farms. You would not have a reduction, I presume, practically the same number, the same people at one time of those who had the service installed and paying for it. Is this reduction the result of the number of farmers stopping their service because they quit paying?

Mr. PORTER. That, or the abandonment of local mutual systems.

ABANDONMENT OF RURAL LINES

Senator BANKHEAD. Have they abandoned many lines? Mr. PORTER. Yes, there have been a great many abandoned. Senator REED. I would like to go back 20 years to my actual firsthand contact with this telephone for farmers. I was chairman of the Kansas commission. That was in the early twenties. Our principal headache was these cooperative farmer telephone lines and companies. At that time, there was virtually no service rendered on the farms by what you would call the town telephone companies or the well-established telephone companies; that is, the big ones. So your farmer got his service by a cooperative telephone company. Those cooperatives almost universally were always in trouble. It is not a profitable business. Their lines usually were not very good.

Senator BANKHEAD. They usually are party lines where you ring and ring the thing and everybody on the whole line knows it. Mr. PORTER. A form of recreation, rather than a service. Senator BANKHEAD. That kind is.

Senator REED. It is difficult to get electricity out on the farms which we have aided through the REA.

It is much more difficult and troublesome, I think, to get the farmers some telephone service at a price that they can afford and are willing to pay.

EXPANSION OF TELEPHONE SERVICE IN URBAN AREAS SHOULD NOT BE AT EXPENSE

OF RURAL USERS

Mr. PORTER. I certainly think that it is the responsibility of the Commission in this future telephone plan expansion, this 2-billiondollar program, that it shall not be the addition of more and more service to urban users that would be at the expense of the abandonment of rural users. The Commission is very much concerned in requiring extensions. We had a recent case in Maryville, Mo., where the rural telephone users had sought, for many years, through their State commission and other proceedings to hook up with the Bell System so their subscribers could have the benefit of the long-distance services. Well, you know what the difficulty is there.

Senator REED. The Bell Telephone Co. has never had any enthusiasm about hooking up with these cooperatives, generally speaking, for long-distance service.

Mr. PORTER. The head of the Missouri State Commission communicated with us, and Commissioner Walker went out there. As a result, we had an investigation and helped them work out the problem. They are getting the long-distance service now.

I would like to extend that activity wherever it is feasible from here

on out.

Senator REED. Twenty-five years ago I anticipated the present REA when I was chairman of the Kansas commission by beginning a discussion with the electric light and power companies about getting their service out on the farms, which has been done to a limited extent; that is also true in the telephone business now in my home county in Kansas, which is fairly representative, the Bell Co. has liberalized its practices and services to quite an appreciable degree. That liberalization is confined, so far, mainly to the smaller towns outside of my home town of Parsons, which is the big town in the county. They still do not have much for the farmer. I do not know just how you are going to do it. I wish it could be done.

USE OF RADIOTELEPHONE ON FARMS

Mr. PORTER. The technique of this thing, Senator, is such that by the use of radio frequencies, instead of wire lines-I have seen demonstrations on this mobile service-rural users can get a radiotelephone and can hook it up in a cooperative that will be just as efficient as wire lines and, ultimately, less costly.

USE OF WALKIE-TALKIE SYSTEMS

Further, there is another development that we are very much concerned with, and that is walkie-talkie systems for use on farms. We have had demonstrations on ranches in the far West.

The Country Gentleman had a long piece about it in which the farmer took this walkie-talkie out on his tractor and he could call his house, he could call the garage, the barn, and he said it saved him an infinite amount of time by being able to communicate. Of course, there are the big cattle ranches. Many of them are beginning to install this type of radio equipment.

T

ELIMINATION OF

INTERFERENCE

BETWEEN ELECTRIC POWER AND TELEPHONE LINES

Senator REED. Let me ask you a question. Is the art of the telephone developed to a point where you can avoid interference between electric power line and a telephone line?

Mr. PORTER. Yes. They can put on a carrier. I have seen that demonstrated in the Bell laboratories. They can put a telephone carrier on a power-line frequency. Mr. Sterling, who is the head of the Field Engineering Department, could give you the technical aspects of the thing. However, it has begun.

Senator REED. Is it being done to any great extent?
Mr. STERLING. Yes, sir; it is being extended daily.

Senator REED. That would be important, of course, because there are more power lines than there are telephone lines.