L. 146]

In re APPLICATION OF THE LINCOLN TELEPHONE AND TELEGRAPH COMPANY FOR AUTHORITY TO APPLY LINCOLN RATES TO SUBSCRIBERS IN UNIVERSITY PLACE.

Application No. 5102.

Decided January 12, 1924.

Discrimination Found and Eliminated Application to Apply Lincoln Rates to University Place Exchange Granted.

FINDINGS*

In the spring of 1923 applicant company completed the reconstruction of its telephone plant in University Place, changing it from manual to full automatic. It reconstructed much of the outside plant, extending the use of cable distribution, increased the trunks between Lincoln and University Place from 97 to 135, and constructed a new telephone central office in the city. It invested an additional amount of money, approximating $100,000, in this program.

Application was made to the Commission for authority to charge the subscribers of University Place the Lincoln rates, inasmuch as complete automatic interchange of service was provided between the two exchanges. Hearing was held and argument submitted on May 25 at the offices of the Commission.

The rate changes proposed by the application would increase business subscribers $1.00 a month and residence subscribers 25 cents per month. Farm line subscribers are no longer attached to the University Place exchange and none are affected by the application.

The company submitted detailed testimony to show that the proposed rate increases, involving approximately $4,500 per year, would return to it not more than a fair return on the investment now existing in the exchange at University Place. The usual allocations of common ex

TAYLOR, Commissioner, filed a concurring opinion; RANDALL, Commissioner, filed a dissenting opinion.

penses were made in arriving at this result. Respondents, representing the city of University Place, objected to the property account of the company, totaling $222,066.91 at the conclusion of the reconstruction. At their request the Commission's engineer checked such portions of the property as were in dispute and filed a report, copy of which was submitted to respondents and to applicant, showing only small variations from the company's figures of additional investment. This check did not include the cost of the building, which was not in dispute. Contrary to the testimony it did show that a certain proportion of poles and cables in the city of Lincoln, installed by reason of the increase of intercommunication between the cities, had been charged into the cost of the University Place exchange. No further proceedings were asked by representatives of the city succeeding the furnishing to them of the copy of the engineer's report. By agreement the case had been held open to afford that opportunity.

The company presented its testimony on three points; first and primary, that the additional investment entitled them to the additional money asked in order that a return might be received on that investment; second, that the service to University Place had by reason of the reconstruction become identical with that of Lincoln, both in nature and extent, and third, that discrimination existed by reason of continuing to charge different rates in University Place than in Lincoln. Respondents answered to the effect that the additional investment had not been solicited by the subscribers of University Place and that the service furnished by the prior facilities had been reasonably sufficient.

We are not impressed by the testimony of the company as to the need of additional revenue from University Place to meet the rewards essential for the heavy additional investment. Such rewards are, of course, the company's due when it invests additional dollars. We think the company overlooked the fact that the reconstruction program was not entirely for the benefit of the University Place sub

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scribers. It is true that the plant in that growing city had become entirely saturated and there was little or no chance to take care of the growth that was continuing. In all telephone plants, when such situations arise, extensive reconstruction, both in central office and outside plant, has to be made and such reconstruction involves a certain amount of economical advance construction. However, the exigencies of the problem at the main Lincoln exchange were not overlooked in the reconstruction program. That exchange, too, has by growth become approximately filled to its maximum. It is not yet worn out and each additional year's use is very economical if inadequacy does not interpose irresistibly. The company transferred to the University Place exchange 464 Lincoln stations. This transfer was made possible by the reconstruction in University Place and relieved the main Lincoln office to that degree so that it can take care for a time of the additional city growth. It will thus be seen that two factors, only one of which existed in University Place, made the reconstruction at this time imperative. It would appear that the subscribers of the Lincoln exchange, benefited by the economies of this plan, should bear a portion of the burden of meeting the return on the additional investment.

The problem, however, still exists. It appears to us that question, made secondary in the testimony of the company, viz., discrimination, is really the main question in the case. There are now attached to the University Place switchboard 12 business subscribers and 442 residence subscribers who pay the Lincoln rates. Their service is identical with that of 80 business subscribers and 1,155 residence subscribers who are paying a lesser rate. This situation can not continue to exist.

It was suggested at the time of the hearing that the discrimination might be removed by reducing the rates of those who are paying the higher amounts to the level of the rates paid by the majority of subscribers on the University Place exchange. This would cause a loss of revenue to the

company of $1,500 and would in no way compensate it for the additional investment unless its prior earnings on the prior investment had produced more than a fair return.

But the problem of discrimination does not end here. The subscribers of University Place, by the manipulation of the dial on the instrument, receive identically the same service as any subscriber in Lincoln and are able to reach all subscribers in the Lincoln zone in the same manner as subscribers connected to the main exchange in Lincoln. In fact, University Place subscribers cannot, so far as service is concerned, tell to what exchange they are connected. The service of University Place subscribers is physically identical with that of a very large number of subscribers in the south part of the city of Lincoln. The Lincoln automatic system now comprises three central offices, the main one in the downtown section of Lincoln and additional exchanges in South Lincoln and in University Place. The connections between University Place and the main office and between the South Lincoln exchange and the main office are identical in nature. The subscribers in South Lincoln pay the Lincoln rates.

It was urged by respondents that the nature of the service in University Place is more limited than that in Lincoln and does not require so wide a use; therefore, the company is offering more service than the subscribers in University Place need and they are paying for that which is unessential. While no figures are at hand on the subject, it is probable that the use of telephone facilities by subscribers in University Place is fully as wide as the use of telephone facilities by either merchants or private subscribers connected to the South Lincoln exchange, and fully as great as the use of telephone facilities by the people of West Lincoln and by merchants in the outlying sections of the city of Lincoln. Fifty-seven per cent. of all calls originating in University Place pass over trunks to points outside the limits of the exchange.

The plant might have been so engineered as to provide for local service at University Place and toll messages

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between University Place and the rest of the zone. It was not so engineered, and we think the history of the company in its University Place exchange warranted the present arrangement.

In 1913* the rates in Lincoln, University Place, and various parts of the so-called Lincoln zone were readjusted in a case of wide importance. A local rate was provided as an option for subscribers in University Place and a zone rate. The local business rate was $2.00 a month less than the zone rate. The local residence rate was 25 cents a month less. At the time this arrangement was made it was assumed that the local service would be largely used.

During the war, when telephone rates had to be readjusted to meet the rapidly increasing expenses, the local option at University Place was eliminated and at the time of the elimination there were only three business subscribers and 19 residence subscribers continuing to receive the local service. All others had exercised the option of paying a higher rate and getting service throughout the zone and thereby eliminating toll calls. While there was some difference in opinion among those representing the city of University Place, the general impression was that local rates and local service would not have been satisfactory.

In 1913 the business rate for zone service was made $6.00 in Lincoln and in University Place. The two-party rate was made $4.50, the one-party residence rate $2.25 and the two-party residence rate $1.75. It is seen that between 1913 and 1919 almost all the subscribers of University Place were paying the Lincoln rates. In 1918 residence rates in Lincoln and University Place were raised 25 cents a month. No increases were made in the business rates. In 1919, further revenues being necessary, the Lincoln business rates were increased from $6.00 to $7.00 per month and the two-party business rate from $4.50 to