Popular Science Monthly/Volume 71/October 1907/Notes on the Development of Telephone Service XI

by Fred de Land

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NOTES ON THE DEVELOPMENT OF TELEPHONE SERVICE

By FRED DELAND

PITTSBURGH, PA.

XV. Financial and Telephonic Conditions in 1884

IN 1884 the farmers in the United States harvested crops of wheat, corn and oats greater than in any previous year, while the amount of cotton raised by southern planters had been only slightly exceeded in two previous years. It should have been a good year for legitimate enterprises; but it proved an unfortunate period for many. The average export value of wheat was 20 cents a bushel less than the previous year, while the yearly range in the price of wheat in the Chicago market was 96 cents in February and 69¹⁄₂ cents in December. In 1883 wheat had ranged from 90 to 113; in 1882 from 91 to 140 and in 1881 from 95 to 143 cents a bushel. Thus the aggregate value of the wheat exported in 1884 was forty-six millions of dollars less than in 1882.

In January, 1884, came the suspension of the banking house of a well-known financier and also of the business of a leading broker. Following these failures a dreary dullness pervaded financial circles while a dread expectancy of further monetary troubles prevailed in all lines of industry, limiting outputs to the minimum required to meet immediate demands. Then came the eventful month of May, bringing to light the notorious wrecking of the Marine Bank, the failure of Grant & Ward, the suspension of several very prominent banking and brokerage firms and of many small ones.

As a result of the financial failures occurring on two days only. May 14 and 15, the market value of good securities depreciated over $240,000,000, a slump having a far-reaching effect many times greater than a depreciation of like amount would now have. Eleven national banks and more than a hundred private banks and banking concerns suspended payment during the year, while the total number of failures throughout the United States during 1884 was 10,968, with aggregate liabilities of $226,343,427. That is, nearly eleven thousand business houses were unable to meet monetary obligations in full, while more than ten times that number probably failed to attain to any measure of success; in other words, either went out of business for lack of funds to continue or because the future gave no promise of success. Then the net earnings of all railroads fell off about 9 per cent., while the construction of new railroad lines practically ceased, less than one fifth the amount being expended for this purpose in 1884, that was expended in 1882. The bank clearances, which had exceeded forty billions of dollars in 1883, fell to twenty-four billions in 1884, and, as a distressing industrial depression prevailed in several foreign countries, there was only a slight export demand for our products.

Quite naturally all these grave disturbances in financial, industrial and commercial circles seriously affected the growth of the telephone industry. Thousands of subscribers were compelled to dispense with the telephone through inability to pay for its use, or by reason of the closing of places of business, while hundreds who had expected to subscribe were compelled to postpone the adoption of this serviceable utility. Nevertheless, nearly all the larger exchanges reported a moderate growth, and the net gain in subscribers reported by all the Bell companies was 11,222 for the year, making a net increase of 9 per cent., a remarkable growth considering the times and conditions. The gross earnings of all the licensee companies in 1884 exceeded $9,500,000, or 18 per cent, on a total capitalization of $53,000,000, not including the capitalization of the parent company, which was $9,602,000.

On January 1, 1884, there were 1,325 Bell exchanges in operation. During the year 1884 there were 61 new Bell exchanges opened, which, added to the 1,325 exchanges in operation, should have made a total of 1,386 when the year closed. But of 133 small exchanges, "kitten exchanges," as they were called, that had been absorbed in the consolidation of local companies, 63 were converted by the new owners into toll stations, while 70 were closed for the time being, owing to an almost total lack of support. Thus there were only 1,253 exchanges in operation on December 31, 1884, or 72 less than a year previous. Referring to these exchanges, the parent company stated in its annual report:

As a rule, all the larger exchanges have had a steady growth, and there seems no reason to doubt that this will continue for some time to come. On the other hand, there is a pause in building exchanges in small places, and some 78 of those already started have been for the present given up, while 61 new ones have been established. The establishment of these systems in small towns was probably pushed too rapidly, in view of the stagnation of general business which followed. Many of these now abandoned will be restored upon a revival of business, and others can be put into operation under a system which is being worked out for small exchanges without a central office, and which, if as successful as we hope, will carry the telephone into a large number of towns and villages w-here it is now impossible to place them upon a paying basis.

In this connection it is interesting to compare the foregoing statistics with the following tabulated statement showing the average number of subscribers connected with Bell exchanges during the past twenty-five years, and to note the steady increase in growth that is recorded during the past ten years. In 1882, the average number of subscribers connected with Bell exchanges was only 91; in 1906, it was 558, an increase of more than six fold. This compilation is based on the statistics presented in the annual reports of the parent company, as of December 31 of each year:

Year	Exchanges	Subscribers	Average	Yearly Gain
1906	4,889	2,727,289	558	64
1905	4,532	2,241,367	494	53
1904	4,080	1,799,633	441	33
1903	3,740	1,525,167	408	29
1902	3,375	1,277,983	379	39
1901	3,005	1,020,647	340	51
1900	2,775	800,880	289	28
1899	2,426	632,946	261	43
1898	2,134	465,182	218	22
1897	1,962	384,230	196	15
1896	1,799	325,244	181	6
1895	1,613	281,695	175	6
1894	1,439	243,432	169	1
1893	1,409	237,186	168	-4
1892	1,351	232,140	172	5
1891	1,297	216,017	167	3
1890	1,241	202,931	164	13
1889	1,228	185,003	151	7
1888	1,194	171,454	144	11
1887	1,191	158,712	133	9
1886	1,180	147,068	124	7
1885	1,175	137,750	117	9
1884	1,253	134,847	108	15
1883	1,325	123,625	93	2
1882	1,070	97,728	91

In 1884, some of the Bell licensee companies gladly furnished periodical reports to the parent company giving detailed explanations as to the method of operation and maintenance, the number of subscribers, calls per subscriber, etc. Other licensee companies objected to any and all parental supervision, and especially to furnishing the monthly reports from which data of a uniform character could be compiled. Then, as many licensees were not under the direct management of the parent company, failure to prepare and transmit the desired reports could only be deplored. Again, some of the newer companies that had been established on a speculative rather than an investment basis objected to the proposed adoption of uniform methods of operation, maintenance and construction, although the economy and advantages in standardization in methods and practise, as well as in construction and equipment, were clearly apparent to the unbiased mind. Nevertheless, the parent company did succeed in securing many statistics that are now invaluable in illustrating the progressive growth of the telephone movement; and in its annual report for the year 1883 stated that:

With the acquirement of large interests in our licensed companies comes the necessity of more oversight of the business, and, as far as it can be obtained without absolute ownership, an exact comparison of results. The organization of the company should be shaped to meet these requirements, and with proper watchfulness and effort on our part, we may expect steady growth and improvement in the character of our business in all its branches.

The same difficulty in gathering statistics was experienced by the respective secretaries of the National Telephone Exchange Association, and by the committee allotted the work of gathering statistics. At the meeting held at the Continental Hotel, in Philadelphia, in September, 1884, Mr. W. D. Sargent, chairman of the committee on exchange statistics, presented a comprehensive report of great value, and representing an enormous amount of individual work, covering the number of exchanges, of subscribers, circuits, methods, wages, etc. Yet of the 906 exchanges belonging to members of the association, he was only able to secure reports from 310. Single exchanges formed the basis of 200 of these reports and included 30,421 subscribers, or an average of 152 subscribers to each exchange. But 79 of the 200 reported less than 50 subscribers; 49 reported between 50 and 100; 31 between 100 and 200; 14 between 200 and 300, and 10 between 300 and 400.

The editor of the Electrical World, in referring to the financial conditions prevailing during 1884, wrote:

Our country, equally with the other parts of the civilized world, has passed through a crisis of depression and distress. Commerce has languished, the busy hum of factories has ceased; costly machinery has rusted in idleness; banks have succumbed to the drain upon their reserves; mines have been shut down, and toilers by the hundreds of thousands have sought in vain for employment at the merest pittance. But amidst all these signs of dull times, and while suffering a natural sympathetic restriction, electrical industries of all kinds have prospered in the main and grown apace. . . . In January, when reports were current of a proposed deal between the Bell and Drawbaugh interests, the price of Bell stock was about 200. Then as the year and the hearing of evidence in behalf of Drawbaugh, in Pennsylvania, progressed, the price fell, until in May, at the time of the panic in Wall Street, it reached 150. That was the turning-point, and it rose gradually until Judge Wallace handed down his decision, when it jumped from 195 to 265.

Referring to the financial condition of the local companies at the close of 1884, the parent Bell company, in its annual report to its fourteen hundred stockholders, said:

Nearly all our licensed companies are in good condition, and many of them continue to pay regular dividends in spite of the general dullness. It has not, however, been a year when new enterprises of any kind could be easily promoted, and in common with other industries, the telephone companies have found it difficult to sell stocks or bonds for their construction purposes. It has been probably as much due to this as to the lessening of the demand for telephone service that our output of instruments has decreased. Most of the companies have met this condition of things by applying their net earnings in part, and in some cases wholly, to their new construction. The result of this consers-ative policy, although temporarily disappointing to stockholders, has been to materially increase the intrinsic value and earning capacity of the properties, and in view of the importance of an early occupation of the field while numerous infringing claimants were striving to gain a foothold, we have no doubt the policy was the right one. How far it should be continued under the more favorable conditions that now prevail is to be carefully considered by each company.

On December 5, 188-i, Judge Wallace delivered his opinion in the Drawbaugh case. In part it reads:

Concededly Bell was an original inventor of the telephone, the principle of which with the essential means for its application, are described in his first patent, and of the improved apparatus described in his second patent. . . . Mr. Cross, an expert, caused apparatus to be made in conformity to the description and to drawings as shown in Figure 7 of the patent, which proved itself to be an operative, practical telephone. Probably the date of his (Bell's) inceptive invention might be carried back to July, 1875, but irrespective of the time of the invention, the justice of his claim to be an original inventor of the telephone must remain unchallenged. It was through him also that the telephone was made known to the scientific public, and thence introduced into commercial use. . . . From 1867, to July, 1873, Drawbaugh was intimately connected with persons composing the Drawbaugh Manufacturing Company, which was engaged in manufacturing devices under Drawbaugh's patents. He was a stockholder and the master mechanic of the company. Among the officers and stockholders were many men of capital and enterprise. There came a time when the managers of the company wanted Drawbaugh to suggest new devices for the company to manufacture. He never suggested the telephone nor attempted to induce the managers of that company to investigate or exhibit his talking machine. A number of the managers and employees of this concern testify that they never heard of the existence of the talking machine during the life of the company. Without attempting to refer to other testimony to the same general effect, what has already been referred to, shows that if Drawbaugh had seriously desired to bring his talking machine into public notice and secure the fruits of his invention, he had ample opportunity to do so. . . . Without regard to other features of the case, it is sufficient to say that the defense is not established so as to remove a fair doubt of its truth, and such doubt is fatal.