TELEPHONE COMPANIES. (Hansard, 7 July 1890)

§ THE DUKE OF MARLBOROUGH,
in rising to call the attention of the House to the fact that the period within which Her Majesty's Government can serve 903 notices to terminate the existing licenses to the National Telephone Company expires the end of this month, and to move a Resolution, said: My Lords, the subject upon which I have placed a Motion on the Paper is one upon which I have had the honour to address your Lordships on two previous occasions; and though the subject is perhaps one which is not of interest to every Member of this House, yet, at the same time, it is one which is of great interest to a vast number of persons, and it is one with regard to which I think really I need make no excuse for venturing to trespass upon the time of this House by stating the case in somewhat fuller terms than I did on the previous occasions. On the first occasion of my bringing the subject before the House last year Lord Salisbury stated, on behalf of the Government, that the whole question of the telephone system was one which would have to be considered at some time during this year, as the patents under which the telephone is worked would lapse at the end of 1890. I put a question on the Paper at the beginning of this year, and I then alluded further to the subject; and the answer given me was that the matter was under the consideration of the Government, but that the Post Office Authorities had not come to any decision as to the line they would adopt, still that the Government recognised that the time was rapidly drawing near when a decided line of action would have to be resolved upon. Now, my Lords, a question was asked the other day in another place of the Postmaster General, whether the Government intend to exercise the powers they have under the licences granted to the National Telephone Company, to buy up the telephones, and the answer of the Postmaster General was that the Government have no such intention. Therefore, the question arises whether the remarks made by the Prime Minister last year do not call for some further statement now. The Prime Minister admitted that the matter was one of great public importance, that a decision must be come to, and that some steps should be taken; and I venture now to urge very strongly that the Motion which I have put upon the Paper is one of considerable public interest. I do not think I need go into the whole story of the telephone, because your 904 Lordships must be acquainted with the uses to which it is applied, and to which when perfectly organised it can be applied. In every large town, certainly in every capital town in Europe, the use of the telephone is considerably extending. In Paris, for instance, there must be three or four times the number of subscribers that exist in London. Unfortunately, during the whole history of the telephone in London it has been met with two difficulties, one the amount of money which the monopolists, the present company, wish to make out of the thing, and the other the limited facilities which that company has been able to acquire from the Government. I think, therefore, I cannot do better than lay the case as it exists between the company and the Government before your Lordships. When the telephone was first introduced, and the lawsuit between the company and the Government was brought to an end by a compromise, the company acquired a licence from the Government. That licence was in a particular form, and in that licence, which was for 30 years, to carry on the work of the telephone under certain regulations from the Post Office, a clause was inserted giving the Government power at each period of seven years during the 30 years to exercise an option of purchasing out the Telephone Company. The clause in that licence is so very vague and so very peculiar that it would be almost impossible, I venture to say, for the Government to have succeeded in that, or to have known beforehand to any extent the amount they would have to pay upon a valuation for the telephones. The clauses of the agreement regulated the conduct of the Telephone Company with regard to the Government, and provided a period for the process of buying them out. The company agree to pay a 10 per cent. royalty on all gross receipts to the Post Office, and the company also undertake that they will neither assign, underlet, or dispose of the powers, privileges, or authorities thereby given, or any such powers, privileges, or authorities without the consent in writing of the Postmaster General. I wish particularly to point out that clause to your Lordships, because I shall have to allude to it further on in regard to what has taken place. The last and most operative 905 clause of the agreement is with regard to the power of purchasing outright the Telephone Company. It is to the effect that the Government shall buy out the Telephone Company With all their rights, powers, privileges, and works, and all the property of the company appertaining to and forming part of the business of the company, and that in case of difference it shall be determined by arbitration as thereinafter provided; and then, further on, the award of a single arbitrator is to be sufficient, and they are to conform to the provisions of the Common Law Procedure Act, 1854. Now, your Lordships will have observed that in this licence there is nothing stated as to the mode of the valuation. It does not say whether is shall be a valuation of plant; whether there is to be a valuation of goodwill; whether there is to be a valuation of unearned increment or what. In fact, it simply says "the powers, privileges, works and other property of the company." That is an extremely vague condition, and if Her Majesty's Government had exercised the power which they possessed up to the 30th June last of giving notice for the next seven years—because it was on that date that the power of giving notice to the company expired—they would, of course, have had to purchase. The proviso is that the Postmaster General may at any time, by giving six calendar months' notice in writing, terminate the licence on the 31st December, 1890, the 31st December, 1897, and so on. Therefore, the six calendar months' notice would have required to be given on the 30th June; and as the Postmaster General did not then serve notice, he is unable to do so until the 30th June, 1897. That is a very important point. If the Postmaster General had served notice on the Telephone Company to terminate their licence, the Government would have had to pay a valuation for the goodwill or plant, or whatever the arbitrator appointed might say was the valuation to be paid, since the provision in the clause which I have referred to is "the powers, privileges, works, and other property of the company." No person of any practical experience would venture to say whether it would be £1,000,000, £2,000,000, £3,000,000 or 906 £4,000,000 that Government would have to pay to buy out the Telephone Company under the terms of the licence which they had themselves granted to the company. This is a very important fact, because I wish to bring to your Lordships' attention the position of this company, not because I have any feeling with regard to the company whatever, and there is nothing that I should have heard with, greater satisfaction than an announcement from Her Majesty's Government that they were prepared to go to the country for a grant of £3,000,000, for that it has been estimated, I think, would be the sum required in order to establish a Telephone Department of the Post Office, like the Parcels Post, to acquire the whole of the telephones of this country, and to afford to the country one inexpensive system. That would have been the best thing, I think, for the country that could have been carried out. But as they have not done that, we must look not only to what the Government intend to do, but at the position of the present companies, because we have the question of the public interest to consider in this matter. Now, with regard to the public utility of the telephone, where it is used properly as a system, you can save half your correspondence. You can have a little box at your side, and talk into it from this place where I am standing to a friend at Brighton, and you would hear each other just as clearly as you hear me at this moment. You can sit at your writing desk, having that little box beside you, and go on with your ordinary work, and communicate with anybody within reach, and in that way do half your correspondence in writing and the other half by actual speech. But, in order to do that, you must have an efficient system. Now, the history of the present company is really a very curious one. This company, which obtained a licence from Her Majesty's Government, issued a certain amount of capital. Upon that capital they found that, even with the experimental system which they possessed, and which really was only used in the City among stockbrokers and business people, that the profits were very large, and last year they paid 17½ per cent. dividend, before the amalgamation to which I shall presently refer. They have pooled their 907 interest with certain other companies. The process was this. In the first instance, a company was started called the United Telephone Company. They possessed all the Bell patents, for which they paid about £37,000. They then formed subsidiary companies, called the Lancashire and Yorkshire Company, the National Company, and one or two others, which each had their particular capitalisation. When the telephone was proved to be successful, after a certain number of years, about the beginning of last year the shares of the United Company had risen from £5 to £15, and the shares of the other companies had also risen very considerably. Those other companies were subsidiary, and were, in fact, children of the father concern, the United Company, which held a large interest, to the extent of many thousands of pounds, in each of those companies. It was then agreed between them that the whole value of those shares—the market value, not the par value—should be pooled, and certain other considerations were added, and that a Joint Company should be formed which should be called the National Company. Now, my Lords, when this took place a very strong remonstrance was issued by the Postmaster General to try and prevent the amalgamation, on the particular ground that it was a breach of the agreement; but the thing was not pressed, and I venture to say that, as a matter of fact, the formation of those companies was in direct contravention of the 12th clause of the Agreement, which I have read to your Lordships, that the company should not assign, underlet, or otherwise dispose of their powers. However, that would have been a case for legal decision. No doubt the Postmaster General offered a very strong resistance against what then took place. What took place was that the National Company was formed with a capital of £720,000. The United Telephone Company pooled its capital of £1,000,000 at £1,250,000, and the Lancashire Company pooled its capital of £400,000 at £520,000. The holding of the National in the United was £225,000 and in the Lancashire £65,000. There wore deductions added to the money paid to the United £742,000, and to the Lancashire £125,000; and further capital added 908 £177,960, making a total of £3,250,000. Now, before I go further, I want to know this, supposing Her Majesty's Government had exercised their right under the licence of purchasing out the National Company, were they prepared to pay £3,250,000, of which, if I were to go into the thing, I could show that over £2,000,000 is what is vulgarly called "water"—that is to say, it is not subscribed capital. Well, then, such being the case, the question would arise as to whether the Government would have to pay on the basis of the £3,250,000. I venture to say that any appraiser or arbitrator would have said, "If you once; allow this pooling to take place, once you allow these companies to amalgamate in, this form, you cannot treat it as absolute value." Besides that, there will be the question of the plant or goodwill which may have arisen. Then what is the present condition of things? Here is the public paying £20 a year a-piece for the use of the telephone. I may say that I have seven telephones in my own house, but there is not one with which I can speak in the City, and there is no gentleman I know who is able to speak in the City with his. I will tell you why that is. The telephone is simply useless unless it is on two wires. If you have not two wires, they are subject to inductive disturbances; you get all the currents of the electric lighting, telegraphs, and the different things that are going on; but if you have two wires, it does not matter what is going on, and you can talk easily from hero to Brighton. The whole of the system of the National Company at present is on single wires, and for that we are bound to pay £20 for each apparatus. The number of subscribers to the National in London is not over 12,000, while in Paris it is 36,000; and the thing is only beginning there. Let me state to your Lordships what the position of the telephone might be in regard to the public. We should have in the West End, every one of us, one of these instruments, and not be bothered with it in any way. We might put them in the basements of our houses, and only connect them up when we wanted to speak to a friend. There are here and there a few isolated people who have telephones, but if you try to talk to them, you find that the exchange is so badly arranged, and the wires 909 so badly managed, that you cannot really use the instruments. Now, the Motion which I have put on the Paper here is, that it is advisable in the public interest that, as Her Majesty's Government have decided that they will not buy out the National Company, the work should be put to competition. Competition made the railways of England, and competition must give us the telephone. If, on the other hand, you are going to say you will not let anybody else come in, because you have retained to yourselves, under this clause in the Agreement, power to step in and set up business on your own account, in competition with any company you have given licences to, at any time you choose, I say that such an exercise of discretion as that would be altogether unjust and improper for any Government to undertake. I venture to say that neither your Lordships' House nor the other House would agree to such a thing as making a grant of £3,000,000 for the purpose of competing with a company to which yon had given a licence, and on the faith of which licence people have honestly subscribed for shares. The Agreement provides that— Nothing in these presents contained shall affect or prejudice the right of the Postmaster General, from time to time, to establish, maintain, or work any system or systems of telegraphic communication of a like nature to the aforesaid system of the company, or otherwise in such manner as he shall in his discretion think fit. If the Government were to go, say next year, to Parliament, and say, "We wish for £3,000,000, in order to establish a telephone system for the use of the public throughout the United Kingdom," I venture to say it would be an extremely unfair thing, whether to the National Company or any other company which has a licence from the Postmaster General; because the shares of the National Company would naturally at once fall to zero. The National Company has not got the facilities which the Postmaster General has, because the Postmaster General has not conceded to them the powers which he has of laying cables wherever wanted under ground, and, therefore, the National or any other company would compete at enormous disadvantage with the Postmaster General. I think therefore it would be an extremely unfair thing for the Postmaster General to 910 enter into competition with the National or any other company on such terms. One thing I venture to say, and that is, that Her Majesty's Government, having decided that they will not purchase out the present company and set up a Department similar to the Parcels Post, cannot honestly come to Parliament and ask for £3,000,000 in order to starve a company which, although it has behaved to some extent in an improper manner, has got a capital of £3,000,000 sterling subscribed under the authority of the licence from the Postmaster General. Put I say, although that cannot be carried out by the Postmaster General, Her Majesty's Government are bound to give us the use of the telephone, and that can only be done by enabling any responsible persons who apply for a licence and can show that they are prepared to obtain sufficient capital for the purpose, and are ready to establish a really good municipal system in this town, to obtain from the Postmaster General a licence for this work, because, without a licence from the Postmaster General, of course no such company can start. Now, my Lords, the thing can be done with a very small capital from subscribers. I should like to state here the rates at which this is done in other countries. Speaking from recollection, as far as I can make out, about £6 is the average of what is charged in most of the capitals of Europe for the use of the telephone; in London, as I have mentioned, you are paying £20, and you must go on paying £20, as long as you are left in the bands of the National Company, because the National Company have added £2,000,000 of "water" to their capital, and they cannot pay 5 per cent. on their shares unless you allow them to charge £20 for their instruments. Now, those shares were issued again at £5; they are still going up in value; and are quoted at £6; that is, £1 premium, showing that the telephone business is an extremely paying one. There is no doubt, therefore, that if Telephone Companies were started in that way in this Metropolis, they would do a paying business. The charge made does not matter possibly very much to your Lordships. It does not matter much to you whether it is £20 or £6; but you must remember that to the business people in this town the use of the telephone is of enormous advantage. 911 There are people right and left who are demanding these facilities, and who are deprived of them because they cannot, and will not, pay £20 a year. The time has come, I think, when Her Majesty's Government should really give an answer. They have stated that they will not undertake the work themselves, and they are bound not to behave unfairly to the existing companies. On the other hand, they are bound to behave fairly to the public, and I think, therefore, that we should have a clear statement from Her Majesty's Government as to the line they are going to take with regard to the telephone. If we are really going to have the telephone, we must not adopt a suicidal policy. I have already advocated in this House that the Postmaster General should keep in his hands the main lines between London and Birminghan, London and Brighton, and other large towns. Those main lines should be kept in the hands of the Government, and facilities should be given to private companies for working in the towns, if Her Majesty's Government have decided not to go in for that work as a branch of the Post Office. But do let us know what is going, to take place. We should not, of course, act unfairly to the National Company; the National Company, as I have told your Lordships, have pooled their shares at an enormous value, though they have "watered" their capital. If you leave them in possession of their present monopoly, they would, I think, have a right to say afterwards: "What right have you to give those powers to another company, we having done the work upon the strength of the monopoly which we possess?" Now, my Lords, I think that the time has come when Her Majesty's Government should state what their policy is to be in this matter; whether they will grant facilities to other companies for the purpose of starting competition, which competition need not in the least interfere with the working of an efficient telephone system in this country, and yet which will give to the public the use of this valuable invention at the moderate sum of from £6 to £10 a year.

*THE PAYMASTER GENERAL (The Earl of JEESET)
My Lords, I quite agree that the question which my noble Friend has raised is one of considerable interest, for anything which will improve the moans of communication will always be welcome to the public. It is not necessary that I should follow at any length the remarks of the noble Duke, neither do I feel called upon to either defend or attack the existing companies. I have observed that the noble Duke has placed a construction upon the answer of the Postmaster General in another place which it can hardly be said to bear. The Postmaster General said that the Government did not intend to give notice to purchase the undertakings of the Telephone Companies at the end of the year; but that answer does not debar the Post Office from undertaking telephonic work in cases where it may be thought necessary or desirable. The Government do not intend to adopt the policy of purchase by the State of the Telephone Companies. To do so would be to involve the State in a gigantic enterprise into which the Government are not prepared to enter. But I think the answer which I have to give to the noble Duke is one of which he will approve. The policy which the Government intend to pursue is to grant licences to new companies which may apply for them, but, of course, each company will have to show that it is able to undertake the work for which it applies. The most important patent rights, which give a sort of monopoly to the present companies, will expire in the middle of next year, and then competition will most likely arise, and in that way the public will reap with the least possible risk the benefits which the noble Duke anticipates. I trust that the noble Duke will be satisfied with the statement I have made, and will not object to withdraw his Motion.

§ THE DUKE OF MARLBOROUGH
My Lords, the answer which the noble Lord has given is satisfactory as far as 913 our hopes are concerned. If the Postmaster General has arrived at a decision to give licences to other companies, that is a notice to the public generally that they are in a position to form companies if they wish; and, therefore, the notice which I have placed upon the Table of the House I now withdraw.