Bonds, stocks, and notes of the American Telephone & Telegraph Company and its licensee companies. For the sake of brevity we will refer to the former as the parent company and the latter as the operating companies. The impression prevails that an extensive amount of securities is being issued from time to time by the parent company, but, if the following facts are taken into consideration, it may not seem so excessive. A large percentage of the telephone business is under the control of the parent company through ownership of stock in the operating companies. The securities of the former are issued to pay both for its own construction and also to acquire its proportion of new stock as issued by the latter. It owns, on the average, nearly 90% of the stock of these operating companies. Instead of this 90% being put upon the market, in each case, as the stock of different operating companies, it is represented by an issue of securities bearing one name, as it were. Of course the telephone investment is small compared to that of the railroads, but imagine, by way of illustration, that one parent railway company issued a uniform bond to pay for its subscription to a controlling interest in all the new stock issues of a large part of the operating railways of the country. The idea would prevail that there was an enormous over-issue. The bonds of the American Telephone & Telegraph Co. are virtually a stock issue without voting power on account of having for security the stocks of the operating companies. The soundness of these bonds as an investment rests largely upon the success of the telephone business of the country as a whole, and the success or non-success of one, or even a few, of the operating companies, stocks of which are behind the parent company's issues, cannot affect the payment of the interest or principal of the same.

1 The foregoing are extracts from the rulings of the State Comptroller of New York.

One point deserves serious treatment, and much literature has resulted from its consideration, viz., the large amounts of money which seem to be required, from time to time, for the development and the equipment of the telephone business. Yet such a demand for money must be the result of the enormous increase in the telephone industry itself. The rapid increase in the number of telephones in use during the past few years of prosperous times is something enormous. There seems little expectation of an end of this in a growing country like ours so long as this growth continues. The telephone is becoming daily more and more a necessity of modern business and social life.

The stocks and bonds of the Bell operating companies as investments depend entirely upon their locality and the existence of competition. They have proved very satisfactory so far, and there seems to be no reason why, as a class,. they will not continue to be. The investor, in each case, should select with care, as he would the securities of any other corporation.

The independent telephone companies are very largely situated in the West, and have been a fruitful source of competition to the companies above mentioned. But the factor is a disappearing one. Since the creation of so many Public Service Commissions, the public no longer thinks it necessary to hold an imaginary check over the American Company by means of competition, and, as no one relishes the inconvenience of a dual system, the tendency is towards consolidation, where the same is not in conflict with the anti-trust laws.

The independent companies, several thousand in number, which do not operate in towns where the Bell companies have exchanges, are nearly all connected to, and exchange traffic with, the Bell System, though they are owned by local investors. Some of these are quite large and cover considerable territory. But most of them are comparatively small and do not attempt to give the continuous day and night comprehensive service of the Bell companies, and they are able to give at lower rates a kind of service that is tolerable to the rural communities they serve, but which would not be acceptable in larger places.

In the report of the President of the American Telephone and Telegraph Company to the stockholders on March 12,1917, appears the following, covering the year ending Dec. 31, 1916:

" At the end of the year, the number of stations which constituted our system in the United States was 9,847,192, an increase during the year of 695,971, of which increase 577,380 were owned by the Bell Companies and 118,591 were Bell connected stations. Of the total number of stations in the system, 6,545,490 were owned and operated by Bell Companies and 3,301,702 by local, co-operative and rural independent companies or associations having sub-license or connection contracts; the so-called connecting companies. The total mileage of wire in use for exchange and toll service was 19,850,315 miles, of which 1,344,770 were added during the year. Of the total mileage, over 17,167,405 miles were exchange wires, and 2,682,910 miles were toll wires." Further on it is stated that these figures do not include the mileage of wire operated by connecting companies.

For the past four years the companies show the following increase in subscribers' stations owned by them:

1913

Increase over previous year

461,762

1914

"

"

"

"

347,799

1915

"

"

"

"

392,892

1916

"

"

"

"

577,380

The fact that telephone companies, as a rule, are peculiarly-exempt from certain disadvantages common to many other corporations rendering public service, should be given a moment's thought. There is less likelihood of strikes and labor troubles and comparatively small liability from accidents and resulting losses for damages. Telephone service usually being paid for in advance, little loss of revenue is experienced from bad debts.

Some of the competing companies, for various local reasons, have earned, and continue to earn, sufficient to pay good dividends. But give due thought to the fact that the independent companies, on the one side, are a lot of disunited corporations, with many different managements; on the other hand, the centralized management of the " licensee companies " through their parent company must give the Bell system a certain advantage.

One word more. The belief, long held by some, that even in periods of widespread business depression there would be but a slight falling off of earnings, if not a positive gain, in the telephone business, has been substantiated. Naturally, there is more or less economizing in this direction, but many of the telephones are in on yearly contracts, and it was believed the subscribers, in any event, would be likely to order out their instruments as one of the last means of economy, and, furthermore, that a great many business concerns would take a chance of marketing their goods by the less expensive means of a toll call, in place of sending a representative. Through the periods of depression of 1907 and others following, it was discovered that the telephone business continued to increase, but the rate of increase incident to the more prosperous years fell off somewhat. The main point is, however, that the number of subscribers increased and likewise the toll receipts.