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then charge in the unearned increment which is created by the same public, and then allow you to charge a return on that.

Mr. Bein. I quite agree with you. The market value of the consideration on this deal would be $100,000,000. I could not expect to be allowed that for a minute, and I would not recommend it before any commission that may be created, if I could justify only $40,000,000. Senator BROOKHART. Then if we laid down a rule that before you

KHA had such a monopoly your value must be held to the investment and then fix a reasonable return on that, then we would know what we are talking about.

Mr. Behn. That is all a matter of qualifying investment.

Senator WHEELER. Pardon me. You do not object, do you, to the commission fixing a rate according to the amount of money that you have actually got invested?

Mr. BEHN. Not at all.

Senator WHEELER. But I understand you to say that you do object to the commission supervising the amount of money that you put into a new proposition.

Mr. BEĦN. I think that is our risk to take, that we will not find our accounts approved, as it were. But if we buy property through an exehange of properties that does not affect the book value, when you come to regulate it you will not take the market value. I have no objection to that. But if you take the market figures on that, we do not claim on that. We only claim on the net invested value. I do not think we disagree about that.

Senator GLENN. I think you are asking only to be treated as other utilities in this country are treated?

Mr. BENN. Exactly.

Senator BROOKHART. That is what I object to. The other utilities make so much that they do not have anything left.

The CHAIRMAN. One at a time, Senators.

Senator Glenn. I say, you do not desire to take any advantage over this country from the ordinary treatment other people are getting?

Senator BROOKHART. The public utilities of this country are getting a valuation and a return on that valuation that is highway robbery.

Senator GLENN. You believe in treating them all alike?
Senator BROOKHART. I believe in

The CHAIRMAN (interposing). We will debate this in executive session, Senators. Let us get back to the question.

Senator BROOKAHRT. I want to ask another question on this. The Senator from New Jersey has asked a question about the European systems. The fact is that the European countries were so oppressed by the burdens of the war that they were unable to keep their systems up to date and are operating as we did in the beginning

Mr. BEHN. They were sick before the war, those systems were.

Senator BROOKHART. That was true to some extent; they were getting ready for the war and had some difficulty?

Mr. Behn. Yes, sir,

Senator BROOKĦART. And then, in addition to that, the rates charged by the American system were very much higher than the European rates.

Mr. Behn. No higher decording to the service rendered.

Senator BROOKHART. That is where we would disagree.

Mr. Behn. Relatively, Senator, the rates were no higher. It is a matter of relative values. Let me just give you an illustration to show you what I mean. In Spain, when we took over the system, no telephone could connect with more than 25,000 telephones. In certain cases we found it necessary to raise rates. We have built up the system throughout the country and connections with other countries, so that to-day any telephone in Spain can connect up with 27,000,000 telephones. Tell me what is the relative value.

Senator BROOKHART. Another thing: In Russia the development is great, and it is the only country that has surpassed the United States since 1917. The percentage of improvement is greater in Russia than it is in the United States.

Mr. Behn. In electrical development?

Senator BROOKHART. Yes; in all ways. Their telephone system is not in keeping with their other percentage and that is greater than we have had in the United States. Taking the expenditure, and what it is now, they have improved more.

Mr. BEHN. That goes over my head, Senator. I am not at all sure of that. We got burned in Russia, and have kept out of it.

Senator WHEELER. Tell me this: What is the rate you charge in Spain, as compared with the rate in the United States?

Mr. Bean. The Madrid rate on the gold basis, Senator, is about $5 a month, we will say, the average; about comparable with the American rates for similar cities.

Senator WHEELER. So you are charging approximately the same rates there?

Mr. Behn. We are charging approximately the same rate there; and we are giving them to-day first-class service.

Senator WHEELER. And practically the same service you are giving here?

Mr. Benn. The Spanish Telephone Co. has a larger percentage of automatic telephones than any other country in Europe, and greater than this country. About 51 per cent of the telephones are automatic, and they have instantaneous service to the four corners of Spain.

Senator WHEELER. I do not think I quite understood what you meant when you said that you felt that the commission would have absolute control if they did not certify your loss of the money you put in. What did you mean?

Mr. Benn. Suppose we acquire a property-we also propose to build a telephone and telegraph cable from South America to Europe. The total South American traffic is two-thirds to Europe and onethird to the United States. We caught up some during the war, but now we are going back. We think we are helping considerably in the Pan American policy in helping to increase that traffic to America. We plan a cable from Pernambuco to Barcelona, Spain. Now, we acquire these properties. We acquire them in a minute. We may buy an existing company. And we pay for that in stock or we may pay for it in cash. They may insist on stock and want an investment. Some others may want cash. Now, we ought to be at full liberty to act immediately on that. Now, at the proper time the supervisory commission will get our statements and see what our earnings are. If they think we paid more than we should have,

they will say, "We think you paid a little too much.” Of course, it is awfully hard in a trade of that sort. If you bargain on just what a thing is worth, you may not get it at all. Against the vice of asking is the virtue of not giving. The other man might not want to sell to you. It might be to the advantage of the whole system to pay a little more for this one corner. Now, the regulating commission can decide what is the fair value. The company takes the risk of having paid 10 per cent too much or 20 per cent too much and will suffer in the long run. On the other hand, there are many properties acquired that do not have any return, but they have to be acquired because they fit into a situation. It would be very difficult to go before a commission and say, “Here, we are going to spend $5,000,000 or $10,000,000 and have no immediate return on it." The Government must protect the people, and we are quite in favor of it, by watching our properties; but they must give us that flexibility and facility to carry on our business to the best advantage of a general communications system.

Senator WHEELER. If you have those conditions and were subject to regulation in Spain

Mr. BEHN (interposing). That would not happen there, of course.

Senator WHEELER. But in the United States here I can not see any reason why, for instance-I can appreciate the situation might arise in some foreign country.

Mr. Bean. Yes; I was picturing the foreign situation that might arise.

Senator WHEELER. The situation might arise in some foreign country with which our people would not be familiar at all.

Mr. Behn. Yes, sir.

Senator WHEELER. Or perhaps it would be difficult to get the facts. But with reference to the United States, I can not see any reason why a commission should not have power to regulate your capital investment in the United States.

Mr. Bean. Senator, on that, perhaps, it would take a good deal of time, because it is a moot question and can be argued on both sides, and I feel that the communication business-it seems rather peculiar to say it—is in its infancy, because it seems like rather an old man to speak of it as an infant; but I believe the telegraph business has been rather stagnant in this country. In telegraph systems very few big improvements have been made in the last 20 years. I believe we are on the eve of extraordinary improvements in the transmission of record communications. I can picture to you a situation where it will be possible for the sender to send his message, and the one who is to receive it will not be at home, but the receiver will receive it when he arrives home; it will stay in suspense if the party is out at the time, and he will when he returns turn on a faucet and get his message. Now, all of those things are coming. It will cost millions of dollars and many of those millions of dollars will not show any return immediately. If you want the benefits for the people of the United States, and if you think these consolidations will not result in increased rates, I advocate and recommend that you give these companies, whether it is our company or any other company, every possible facility to develop these improvements, and increase its facilities.

Senator WHEELER. The only question, then, would be whether you had an intelligent commission or did not have an intelligent commission that could foresee the things they should see.

Mr. Behn. But the responsibilities of the commission, no matter how intelligent they are—it is very difficult for them to consent to a $5,000,000 investment. The investment of $5,000,000, or $10,000,000 in research which may turn out to be a flop. And we have many flops in this business; many flashes in the pan, and have to go out and start all over again. But the development is coming, a very extraordinary development, we anticipate in its relations to this country and many other countries.

The CHAIRMAN. Are there any other questions by the committee?

Senator Dill. One other question I want to suggest: You say that when this contract is completed with the Radio Corporation, you propose to file it with the Attorney General. You have not any hope of being able to draw a contract that will get around section 17, have you?

Mr. Behn. Absolutely not.
Senator Dill. I thought not.
Mr. BEHN. Absolutely not.
The CHAIRMAN. Are there any other questions?

Senator WHEELER. I thought perhaps the Attorney General would give him carte blanche to draw a contract.

Senator Dill. The President said not.

The CHAIRMAN. The committee will stand adjourned until the call of the Chair.

(Whereupon, at 12.05 o'clock p. m., the committee adjourned to meet at the call of the chairman.)

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