March 26.
Without joining in the witch-hunt now being conducted in America against Public Utility Companies, responsible critics may reasonably feel that the attitude of President Roosevelt justifies caution in ex-arning proposals which, in any way, are associated with the financing of those organizations. This thought inevitably springs to the mind in noting the disclosures made by the Public Utilities Committee in_re~
Porting on the Shanghai Telephone Company's application for increased rates. The Telephone Company's connection with the International Telephone and Telegraph Corpora tion received special emphasis in those disclosures. Neither the Council nor the Company can hardly be surprised if the public is not disposed to be alert in endorsing the conclusions reached. In the statement issued on Saturday announcing the Council's willingness, subject to the concurrence of the French Municipal Council, to grant an increase equivalent to approximately half of what the company desired, the fact is revealed that a number of outstanding matters require the further attention of all concerned. To them reference will be made further down but in the meantime it is necessary to recall the primary cause for the situation in which the company finds itself to-day. In their plication for a tariff rate increase 1932 the representatives of the Telephone Ca. pointed out that in the reconstruction of the telephone system they had—_ expended. 4 capital outlay which exceeded by: 14 per cent. the estimates given in the Anson Report. Mr. Anson had predicated his report on a capital outlay of Tls. 8,000,000 when the tael was at 2/6%. This was, equivalent to G.$4,936,000 whereas. the amount actually spent was. G.$5,636,229. When expressed in taels this capital outlay became Ts. 17,342,242, approximately 117 per cent, above the silver expenditure estimated by Mr. Anson. That presents a fairly clear picture of the position conveying the uncom-tortable impression that there is nothing that can be done about it, and that Shanghai must continue to pay heavily in the future for the past vagaries of exchany With the I. T. & T. as holders of 70 per cent. in the common stock of the Shanghai Telephone Ca., 1t 1s, perhaps, just as well to ascertain what the former is receiving from the latter. However much amounts to the I. T. & T. is to be presumed to make an adequate profit out of the supply of material and equipment to the local concern. Tt also draws a five per cent. commission on equipment purchased abroad together with a management fee of four and one-half per cent. on gross revenue. With regard to the last item it is apparent that any change in the charges for the telephone service which increases the gross revenue must also serve to increase the I. T.
Ts, income from the management fee without necessarily increasing the amount of work it) has to do in this connection. It) came very much as a surprise to) read in the statement Issued by the Council the following:—
The Treasurer and Controller referred to his own adverse comment) two years ago on the relation of the 'Telephone company to the I. 7. & T. Corporation involving the payment by the former to the latter of a 5 per cent. purchasing commission and per cent. management fee. It] was not disclosed to him at the time that there was a 20 years' agreement between the two companies requiting payments to be made under] these headings.
The Telephone Company has now. been good enough to explain that. the information was not withheld from the Treasurer by any action on its part or any omission on his. it simply was not relevant to the discussions then proceeding. Of course there is no disposition to suggest that party acted in either anything but faith, but this good disclosure seems to add strength to the view that both the Council and the Company, whatever decision is reached, may do well to reinforce it by the judgment of independent investigation. The Company is evidently ready to lay before the Council's representatives the fullest possible information. It, doubt, would be prepared to show similar frankness to a responsible ad hoe tribunal set up to examine the whole situation in the light of the pressing uncertainties exercising the public mind.
The Company's contention that the United States Income Tax should be allowed as a charge against profits for the purpose of computing net return, apart from [the amount, roughly, of $850,000 involved during the next two years requires the most careful scrutiny. Tt has not the Treasurer's approv: Indeed, on reading Clause of the Franchise under which the Company appears to base its claim it would appear that he is right in assuming that only local rates, taxes and royalties were contemplated at the time the Franchise was drawn up. Obviously it is a very high price to pay for American registration, but apart from that aspect of the case the Company was not called upon to pay such a tax until four years after the agreement was concluded and cannot, therefore, be included under the' heading '"such other known or anticipated expenses as are necessary in the proper conduct of the Company's business." This }does not conclude the list of out~ standing questions not to be prejudiced by the modified increase to which the Council proposes to accede, but enough has been indicated to reinforce this journal's view that "the Council might carefully consider whether the data at its disposal is entirely sufficient to justify Immediate adoption of the Com. mittee's recommendations. Would it} Rat be, toils own advantage and to advantage of the Company if it followed precedent and appointed an ad hoc advisory independently In fairness to the company it has to be emphasized that the Treasurer has ascertained that during the past fieen months the Telephone Company has effected economies whereby expenses have been reduced by about $400,000 per annum, in addition to which it should be stated that the engineering efficiency of the company has not been ques-Hloned. But when that is admitted it has to be remembered that, on the disclosures vouchsafed in Saturday's statement, sufficient evidence has been forthcoming to suggest that not all the burdens which the company seeks' to lay upon its clientele should be borne by them and that the best and most convenient way of arriving at an equitable solution would be along the lines suggested. The completest investigation would thus be possible, and much of present uneasiness, which may or may not be justified, allayed once and for all,
Text read from the printed page and cleaned; old type leaves the occasional error.