THE POST OFFICE AND THE TELEPHONE COMPANIES

The first telephone brought to England by Lord Kelvin in 1876 was a very crude instrument, useful only for experimental purposes and of interest only as a forecast of later development. In the following year two Post Office officials introduced some machines which had been presented to them by the American inventor Bell, and although not very efficient, they were of some commercial use. The Post Office made arrangements with the agents of the inventor for the purpose of supplying its private wire renters with these machines if they should wish to make use of them. With the invention of the microphone in 1878, and its application to the telephone, a thoroughly practical method of transmitting speech was at last introduced. In the same year a company was formed to acquire and work the Bell patents. They endeavoured to come to an agreement with the Post Office by which the latter might obtain telephones at cost price, and would in return facilitate the operations of the company, but the negotiations came to nothing. There was then no suggestion of an exchange system, and the company proposed merely to supply telephones and wires to private individuals. In 1879, the Edison Telephone Company of London was established, an announcement having been made in the autumn of 1878 that it was proposed to establish exchanges. An attempt was made to amend the Telegraph Act so as to confer specifically upon the department monopolistic control over telephonic communication, but the amendment failed to receive the sanction of the House of Commons. The Postmaster-General then filed information against both companies, on the ground that the transmission of messages by telephone was an infringement of the telegraphic monopoly. In the summer of 1880 the two companies amalgamated as the United Telephone Company, and in December judgment was given by the High Court of Justice in favour of the Post Office.[826]

In April of 1881 the Postmaster-General granted the United Telephone Company a licence to establish and operate a telephone system within a five-mile radius in London, the central point to be chosen by the company. On the other hand the company agreed to pay a royalty of 10 per cent of its gross receipts and to accept the judgment of the High Court. Licences were also granted to establish telephone exchanges in the provincial towns within a radius of one or two miles, all the licences to expire in 1911. The Postmaster-General reserved the right to establish exchanges for the department and the option of purchasing the works of the licencees in 1890 or at seven-year intervals from 1890, six months' notice having first been given. The policy of the United Telephone Company was to confine its own operations to London and to allow patent apparatus to be used in other parts of the country by subsidiary companies, leaving them free to negotiate with the Post Office for provincial licences.

The telephone policy of the Post Office from 1880 to 1884 consisted in the granting of licences to the companies in restricted areas, so that the telegraph revenue might suffer from competition as little as possible, and the establishment by the department of exchanges in certain places not as a rule served by the companies. Owing to the refusal of the Government to solicit business, their exchanges did not prove a success. The department itself would probably have preferred to take over the whole telephone business in 1880, but this policy met with no favour from the Lords of the Treasury, who were of the opinion "that the state, as regards all functions which are not by their nature exclusively its own, should at most be ready to supplement, not endeavour to supersede private enterprise, and that a rough but not inaccurate test of the legitimacy of its procedure is not to act in anticipation of possible demands." The operation by the government of the unimportant exchanges possessed by them was sanctioned by their Lordships, "on the understanding that its object is by the establishment of a telephonic system to a limited extent by the Post Office to enable your department to negotiate with the telephone companies in a satisfactory manner for licences." The London and Globe Company was given a licence in 1882 to establish exchanges in London, but they were entirely dependent upon the United Company for instruments, so that there was no real competition. The department proceeded to issue licences for the establishment of competing systems in places where there were already government exchanges. From 1880 to 1884 the Postmaster-General granted twenty-three licences, and some twenty-seven towns, with 1141 subscribers, were served by the department. The policy of the Post Office during these years, as thus outlined, was far from satisfactory to the public, due largely to the desire to protect the telegraph revenue, and the failure to appreciate the possibilities which the new system of communication was capable of offering. The companies, restricted as they were to local areas, could not offer any means for communication between these areas, since special permission had to be obtained for the erection of trunk lines. The Government offered to provide these on condition that a direct payment of £10 a mile per double wire and one half the revenue over that sum should be paid for their use, but this offer the companies naturally refused to consider. The Lancashire and Cheshire Company proposed to fix their trunk-line charges so low as to pay expenses only, but they were informed by the Government that they must charge 10s. a mile annual rental. In addition, they were not allowed to charge less than 1s. at their call offices, the then prevailing fee for a telegram. A few trunk lines, it is true, were constructed by the Government and rented to the companies, but they were quite insufficient to satisfy the demand. In London, the United Telephone Company was not allowed to extend its system beyond the five-mile radius without special permission and the payment of an increased royalty. In addition, the companies had no way-leave powers, but had to depend upon the good will of householders to fly their wires from house-top to house-top, with the result that in London there was a ridiculously large number of exchanges. Finally the companies were restricted to connecting subscribers with the exchange or their place of business, and, although messages could be telephoned for further transmission by the telegraphs, there was not that close connection between the telephonic and telegraphic systems which might eventually have led to the mutual advantage of each. Moreover, in 1882, the Government announced that they would grant no more licences unless the subsidiary companies agreed to sell to them all the instruments they wished, the intention probably being for the Government to supply instruments to companies which would establish exchanges in real competition with the United Telephone Company. Since the subsidiary companies could not supply these instruments without the consent of the parent company, the only result was still further to restrict telephonic development.[827]

In 1884, the prevailing public discontent in connection with the Government's treatment of the situation manifested itself in the press and in the House of Commons. The Post Office was accused of practising a policy of strangulation toward the companies, and the Postmaster-General, Mr. Fawcett, acknowledged that there was some truth in the charge. He advised the Treasury that the companies' areas of operation should be unlimited, and that their operations should be confined to the transmission of oral communications. The restricted licences were withdrawn and new, unrestricted licences granted, terminable in 1911 with the same qualifications with reference to royalties and government purchase that were inserted in the old licences. Nominally the result produced free competition, but actually competition was impossible until the expiration of the fundamental patents in 1892. The year before their expiration, the companies succeeded in getting control of the situation by an amalgamation of the United Telephone Company with its licencees under the name of the National Telephone Company. Mr. Dickinson, Deputy Chairman of the London County Council, stated that the nominal capital of the United Telephone Company, £900,000 (with an actual capital expenditure in 1887 within the Metropolitan District of £228,180) was taken over by the National Telephone Company at a cost of £1,484,375, and the Duke of Marlborough said in the House of Lords that of the £3,250,000 capital of the new company over £2,000,000 was "water." Mr. Raikes, the Postmaster-General, who was in favour of competition, wrote to the United Company, disapproving of the whole transaction. With the expiration of the patent rights, the New Telephone Company was resuscitated, with the Duke of Marlborough as chairman, an agreement having been concluded with the Telephone Subscribers' Protective Association for a twelve guineas' service in London, but it in turn was absorbed by the National Company, much to the disgust of the members of the Association. So far as way-leave rights were concerned the position of the companies remained in a very unsatisfactory condition. A committee of the House of Commons advised that certain way-leave rights should be granted, but nothing was accomplished, although a bill was introduced in the House of Commons in 1885 to enable the companies to erect posts without the consent of the road authorities.[828]

Mr. Forbes, the chairman of the National Telephone Company, said to the Committee of 1892: "I am prepared to concede that the telephone company which conducts about 93 or 94 per cent of the whole telephonic business of the country conducts a great deal of it monstrously badly, but it is not their fault, it is the fault of Parliament"; and again in referring to the lack of way-leave power: "Take London for instance; London is very badly served, but why is it very badly served? Because everything depends upon the caprice of the individual." As a result of the complaints that the telephone system was giving an inadequate service because of the high rates on an inflated capital, because the utility of the telephones was impaired in that they could not be used in connection with the telegraph and postal services, and because of the lack of powers to erect poles in the streets or to lay underground wires or to connect their exchanges by trunk lines, the Government announced a change of policy in 1892.[829] This change was set forth in a Treasury Minute of the 23d of May, 1892, and in two memoranda of agreement of the same year to which the National and the New Companies were respectively parties, the arrangements being sanctioned by Parliament in the Telegraph acts of 1892 and 1896. So far as it affected the National Company the arrangement was embodied in detail in an agreement dated the 25th of March, 1896, no similar agreement being made with the New Company because that company went into liquidation in 1892, and in 1896 surrendered its licence. By the agreement of 1896 the National Telephone Company surrendered its previous licence except for certain definite districts called "Exchange Areas," a large number of which were specified in the agreement. These areas were as a rule coterminous with the urban districts, but comprised in addition certain areas made up of two or more urban districts together with the intervening country. Power was reserved to the Postmaster-General to specify other exchange areas, the understanding being, both with regard to areas already specified and those to be specified, that industrial areas of wide extent should be recognized in cases where there were no considerable towns forming centres of business, that neighbouring towns intimately connected in their business relations should be placed in the same area, and that small towns and villages should also be so grouped when each by itself would not pay. Outside these areas the Postmaster-General alone was entitled to carry on telephone business, no more licences being granted for the whole Kingdom, and for any particular town only with the approval of the corporation or municipal authority. Call offices for the use of the public were to be opened at the company's exchanges and connected with the post offices in order that exchange subscribers might telephone over the trunk lines to exchange subscribers in other towns. Where intercommunication took place between the systems of the company and the Post Office, a terminal charge on the part of the receiving system was allowed. Telephonic messages could be sent to the post offices for transmission as telegrams and delivery as such or for delivery as letters. Express messengers could also be sent for by telephone, and telegrams received at the post offices might be transmitted by telephone.

The Postmaster-General was authorized to grant to the company all such powers of executing works within its exchange areas (other than works under, over, or along any railway or canal) as were conferred upon him by the Telegraph acts of 1863, 1878, and Section 2 of the act of 1892. If required by the company, he must provide underground wires between different exchanges in the same exchange area, and must allow the company to conclude agreements with railway and canal companies over whose property he had exclusive right of way. In exchange for these privileges the company agreed to sell its trunk lines to the Postmaster-General, their value being fixed at a later date at £459,114, which amount was paid to the company on the 4th of April, 1895, the length of trunk line taken over being 2651 miles having 29,000 miles of wire. In order to remove a serious handicap to the success of competing companies, the trunk lines were henceforth to be controlled and extended by the Post Office, the company to receive five per cent of any gross charges for trunk-line tolls which it might collect as an agent of the Post Office. The rates charged by the Post Office for trunk-line conversations in 1896 were, for distances of 125 miles and under, the same as those previously charged by the company, and were lower than the old rates for distances in excess of 125 miles.[830]

In the mean time there was evidence of considerable opposition to the practical monopoly of the company within the exchange areas. A motion introduced in the House of Commons by Doctor Cameron, member of Parliament for Glasgow, in favour of government purchase of the telephones, received considerable support, but was rejected by the Government on the ground that the resulting increase in the number of civil servants, not paid at market wages and constantly trying to bring pressure to bear on members, was too serious an evil to receive the sanction of the Government.[831] The claim was also made by some of the towns and by Glasgow in particular that the municipalities should be allowed to install their own telephone systems in opposition to those of the company. A select committee was appointed to consider this demand on the question of "whether the provision made for telephone service in local areas is adequate, and whether it is advisable to grant licences to local authorities or otherwise," but, owing to the dissolution of Parliament, the committee did not present a report. Considerable evidence was heard, however, and the committee recommended that another committee should be appointed during the next session to consider and report upon the evidence already taken and, if necessary, take more evidence. The witnesses examined were as a rule of the opinion that the telephones should be taken over by the state; but there was a difference of opinion as to whether municipal licences should be granted. Dissatisfaction with existing conditions seemed to be widespread. The Glasgow Corporation expressed disgust with the service of the company on account of the difficulty of getting into communication with subscribers, frequent interruptions and noises, and the chance of being overheard by a third party, the first complaint being due in their opinion to inadequate exchange accommodations, the second and third to the one-wire system. The corporation was accused on the other hand of attempting to dislocate the company's system by refusing them permission to lay underground wires, while the overhead wires were unfavourably affected by the electric tramway currents. The Deputy Town Clerk of Liverpool was in favour of government telephones, but opposed municipal licences on the ground that they would increase the expense of telephoning between a municipal exchange and one belonging to the company. The London County Council advised that severe restrictions should be laid upon the company by imposing maximum rates, etc., or that the state should take over the company's system or that the municipality should do so. Questions were sent to subscribers in London by the County Council, by the company, and by the Commissioner of Sewers, asking for their opinion on the service rendered by the company there. As may be imagined, the replies sent to the County Council and the Commissioner were on the whole unfavourable to the company, while those sent to the company were generally favourable to them. It was shown that the number of subscribers in English and Scotch cities was fewer than in most continental cities, and that, comparing the population of the United Kingdom with that of the United States, the number of subscribers in the former should be about 145,000 instead of about 50,000; but nothing was said of the superior postal and telegraphic facilities of the United Kingdom as compared with the majority of foreign countries, facilities which would naturally reduce the demand for a comparatively new and in many cases unpopular method of communication. The rate of the company in the Metropolitan area for a business connection was £20 for a yearly agreement, with substantial reductions for second and additional connections, and £12 for private houses. On a five years' agreement the rates were £17 and £10 respectively. The rate in Paris at the same time was £16. For the provincial cities in England, such as Manchester, Liverpool, etc., the rate was £10 for a first connection and £8 10s. for second and additional connections, and for the large towns, such as Norwich, Chester, Exeter, etc., £8 within half a mile of the exchange, £9 within three quarters of a mile, £10 within one mile, and an additional £2 10s. for each additional half-mile, with reductions for extra connections. For small outlying and isolated towns the half-mile rate was £6 10s., one mile £8, and £2 10s. for every additional half-mile.[832]

In 1898, another committee was appointed with Mr. Hanbury as chairman, "to enquire and report whether the telephone service was calculated to become of such general benefit as to justify its being undertaken by municipal and other authorities, regard being had to local finance." The committee were of the opinion that the existing telephone system was not of general benefit either in the kingdom at large or in those portions where exchanges existed, that it could hardly be of benefit so long as monopolistic conditions existed, and that it was capable of becoming much more useful if worked solely or mainly with a view to the public interest. They condemned the flat rate subscription charge of the company as of benefit only to the wealthier commercial classes in English cities. They commented unfavourably upon the fact that in the London area there were only 237 call offices open to non-subscribers, and that as a rule messages could not be sent from them to subscribers except when the sender and recipient were in the same postal district or town, when the message might be delivered. They were of the opinion that the telephones were far more useful in other countries where the conditions were not so favourable. Conditions, they thought, were unlikely to improve under the present management. The company must pay dividends on an inflated capital; its licence would expire in 1911, and the Government was hardly likely to pay the company at that date for goodwill. In addition, there were no restrictions on charges, the company had a motive for limiting its subscribers, as expenses increased proportionately with an increase in their number, and the question of way-leaves was a source of great difficulty. Finally, they declared in favour of competition by the municipalities and the Post Office as tending to reduce rates, extend the system, and, if the Government should eventually purchase the telephones, give alternative systems to choose from. The Government adopted the committee's report, and, in a Treasury Minute of the 8th of May, 1899, laid down the principles upon which licences should be granted by the Postmaster-General to the municipalities, and announced that in London the Postmaster-General would himself establish an exchange system.[833]

In accordance with the finding of the committee and the resulting Treasury Minute, an act was passed in 1899, conferring upon the boroughs and borough districts to which the Postmaster-General might grant licences the right to borrow money upon the security of the rates for the erection and management of telephone systems. A loan of £2,000,000 was authorized for the use of the department itself in establishing telephone competition with the company in London. The act also defined the relations between the company and the municipalities (or other new licencees) in the event of competition. If the telephone company would agree to abandon the power of discriminating between subscribers and would consent to limit their charges within the maxima and minima prescribed by the Postmaster-General, the latter was to extend any way-leave rights already possessed for the period of the licence granted to the competing municipality or new licencee.

If the new licence were extended beyond 1911, the company's licence would be likewise extended, but if their licence were extended for as much as eight years beyond 1911, the company were bound, at the request of the licencee and under certain conditions, to grant interchange of communication within the area. The new licences would be granted only to local authorities or companies approved by them, and the National Company was prohibited from opening exchanges in any area in which they had not, before the passing of the act, established an effective exchange. The effect of the act was to limit competition to the municipalities, to confine the National Company to those towns and areas they were already serving, and to throw upon the Postmaster-General the duty of serving other parts of the country.[834]

The form of the licences for municipalities, among other conditions, contained provisions designed to secure for the public an efficient and cheap service. It was provided that the plant should be constructed in accordance with specifications prepared by the Postmaster-General, no preferential treatment should be allowed to any subscriber, the charges made should be within certain specified limits, neither the licence nor any part of the plant of the licencee should be assigned to or amalgamated with the business of any other licencee, and that the licence might be terminated if an exchange system were not established within two years. The provisions of the agreement of 1896 which secured coÖperation between the Post Office and the National Company and combined the telephone with the telegraph and postal services were also introduced into the municipal licences. The municipalities were bound to give intercommunication between their exchanges and any established by the Postmaster-General, and terminal charges for trunk-wire communications between the exchange subscribers of any other system and those of the local authority were forbidden. About sixty local authorities made enquiries with a view to taking out licences, but only thirteen licences were accepted. That of Tunbridge Wells was surrendered in 1903, owing to an agreement arrived at between the National Telephone Company and the corporation, the municipal telephones not having proved a success.[835] In the case of seven others the licences were surrendered or cancelled. The following corporations held licences in 1905:—

Hull licence terminating 31st December, 1911
Glasgow 1913
Swansea 1920
Brighton 30th April, 1926
Portsmouth 1926

In all the above cases except Hull, the National Telephone Company had agreed to forego the granting of special favours to subscribers, had established intercommunication, and their licence was accordingly extended in those places to the dates of termination of the corporation licences. In Glasgow the National Telephone Company made several applications for permission to lay underground wires, but the corporation refused the concession on any terms. In spite of this advantage and the inability of the company to meet the low unlimited user rate of the corporation telephones on account of agreements with subscribers in other towns, the corporation found it advisable to sell its plant to the Post Office in 1906 for £305,000 at a capital loss of between £12,000 and £15,000. Brighton followed suit a little later for the sum of £49,000, at a loss of £2450. Swansea experienced considerable difficulty in borrowing money to extend its system on account of the refusal of the Local Government Board to grant the necessary borrowing powers. The Post Office offered £22,000 for a plant which had cost £27,173. This offer was refused by the corporation, and an agreement was concluded with the National Telephone Company in 1907 for the sale of the plant at a price sufficient to repay the whole capital. Offers were also made to Hull and Portsmouth by the department, but were refused, as they were not sufficiently high to cover expenditure.[836]

As a rule the local authorities offered an initial flat rate lower than that paid by the company's subscribers in competing centres, but most of the other rates of the corporation authorities were somewhat higher. The service offered by the public telephones was not so satisfactory as had been hoped, and the more numerous connections open to the company's subscribers formed an initial advantage which it was difficult to overcome. On the other hand, the corporations often had the advantage of underground connections which were denied to the company, but the relatively small number of the subscribers of the corporation telephones, the high cost of underground connections, the clumsy service offered in many cases, and the ability of the company to offer lower rates in competitive areas proved too much for most of the corporations which were granted licences.[837]

In the meantime the National Telephone Company had been experiencing considerable difficulty in getting permission to lay underground wires in London. In 1892, the Telegraph act of that year authorized the Postmaster-General to grant to his licencees the same way-leave powers which he enjoyed, subject to the conditions that the licencees should not exercise such powers in London without the consent of the County Council, nor in any urban district outside London without the consent of the urban authority, nor elsewhere without the consent of the County Council. In pursuance of this authority the Postmaster-General, in the agreement of the 25th of March, 1896, undertook, at the request of the company, to authorize them to exercise his way-leave powers in any exchange area. The company did not apply for the exercise of such authority in London, but an attempt was made by them to obtain the consent of the London County Council to allow their wires to be placed underground, and the work proceeded with the permission of the local road authorities in London. Negotiations with the council were fruitless, largely on account of the price asked for way-leave and the demand for lower rates. The Postmaster-General was advised that it was his duty to see that the act of 1892 was enforced, and the resulting correspondence with the company having failed of any satisfactory result, an information in the name of the Attorney-General was filed against the company, asking for a declaration that they were not entitled to proceed with their underground works in London without the authority of the Postmaster-General and the consent of the County Council. An order to that effect was made on the 24th of July, 1900. This seemed a favourable opportunity for the Postmaster-General to secure from the company certain concessions with reference to their London exchange system as well as privileges for the subscribers of the postal exchanges which had been established in London and an agreement with reference to the purchase in 1911 by the Post Office of the company's London exchanges. These concessions and privileges were finally embodied in an agreement made on the 18th of November, 1901, by which the Postmaster-General agreed to furnish such underground wires on the demand of the company as he might think reasonable and likely to be useful to the Post Office later, as well as underground wires connecting the exchanges of the Post Office with those of the company. When the subscribers of the London Postal Exchanges exceeded 10,000 in number, the company agreed to pay half of the rent of the latter wires. No terminal charges were payable for a message passing over these wires, or for a message over the trunk lines between the subscribers of the Post Office in London and those outside London, or between subscribers of the company in London and those outside London. In addition, the Postmaster-General promised to afford to the company's subscribers in London all such facilities with reference to postal, telegraphic, and telephonic communications as he granted to Post Office London subscribers and upon the same terms and conditions. He also agreed to consider all applications from the company for way-leaves on railways and canals where he enjoyed such rights, and the company promised to establish telephone communications without favour or preference. A decision was also reached fixing equal rates for the postal and company's subscribers in London, based primarily on the number of messages sent with an unmeasured rate lower than that previously in force, no revision to be made without six months' notice being given. Finally it was agreed that in 1911 or before—if the company's licence should have been previously revoked—the Postmaster-General should buy and the company should sell at its fair market value all such plant as should then be in use by the company in London and be suitable for the Post Office at that date. None of the plant was to be considered suitable unless installed with the written consent of the Postmaster-General, the question of suitability to be decided by arbitration if necessary.[838] The local authorities protested in vain against the agreement, their contention being that the committee of investigation had advised competition, whereas the government had on the other hand succeeded only in making very unsatisfactory terms with the company.[839]

In 1905, the Postmaster-General and the National Telephone Company concluded an agreement for the purchase of the company's provincial plant based upon much the same principles which had governed the London agreement. The question of purchase in the provinces was complicated by the fact that in some towns there were competing municipal telephones, a resulting duplication of plant, and an extension of the licence period beyond 1911. By the terms of the agreement, the Postmaster-General on the 31st of December, 1911, shall buy and the National Telephone Company shall sell (a) "all the plant, land, and buildings of the company brought into use with the sanction of the Postmaster-General and in use on the 31st of December, 1911, for the purpose of the telephonic business of the Company, (b) any licensed business of the company in towns where there are municipal exchanges and where the licence extends beyond 1911, (c) the private wire business of the company (for which no licence is required) in use after the 31st of December, 1911, with buildings, plant, etc., (d.) all stores and buildings suitable for use in accordance with specifications contained in the agreement, (e) all spare plant and works under construction if suitable for the telephonic business of the Post Office." The plant, land, and buildings were deemed to be brought into use with the sanction of the Postmaster-General if they were in use or being brought into use at the date of the agreement; in the case of plant to be installed, if constructed in accordance with specifications contained in the agreement and of land and buildings, if acquired or constructed with the consent of the Postmaster-General. With reference to plant not constructed in accordance with the specifications, and plant and buildings of any kind in competitive areas, the Postmaster-General reserved the right to object to buy such plant or buildings, the question of suitability in competitive areas to be settled by arbitration. The value to be paid for the company's undertaking, not in the competitive areas and not being private wire business, shall be the value on the date of purchase exclusive of any allowance for past or future profits or any consideration for compulsory sale or any other consideration. The value in competitive areas is to be determined by agreement, regard being had to net profits and to the circumstances and conditions under which the company would carry on such business after the date of sale. The value of the private wire business (apart from the plant, land, and buildings used therein) is to be three years purchase of the net profits on the average of the three years ending 31st of December, 1911. Any other property or assets of the company may be purchased by the Postmaster-General, the price to be determined by arbitration, if necessary, and, after the date of sale, the telegraphic business of the company will be carried on (whether by the company or the Postmaster-General) at the expense and for the benefit of the Postmaster-General. In the meantime the company agreed to maintain its plant in good and efficient working order, not to show favour or preference among its subscribers, to accept minimum and maximum rates, to allow intercommunication without terminal charges between their and the Post Office subscribers in the same area, and not to collect terminal charges for messages sent over the trunk lines between subscribers of the company and those of the Post Office. The Postmaster-General agreed to extend to subscribers of the company all such telegraphic and postal facilities as his own subscribers enjoyed, and to undertake underground works for the company elsewhere than in London under the same conditions as in London. An agreement was also reached that similar rates should be charged where the Postmaster-General and the company maintained competing systems. As a result, measured rates were, as a rule, substituted for the old flat rates, much to the indignation of various Chambers of Commerce in the Kingdom. In the case of complaint as to inefficient service, if the charge is held to be proved before a person appointed by the Board of Trade, and if it is not the result of a refusal to grant way-leaves, the Postmaster-General may require the company to remedy conditions in the particular area concerned or may call upon them to sell the inefficient system to him. In the first case if there is no improvement or if the second alternative has been adopted, the Postmaster-General may require immediate sale under the same terms that would have held if it had not taken place until the 31st of December, 1911.[840]

The income received by the Post Office for the fiscal year 1906-07 from the London and provincial exchanges and trunk-line business was £908,246, working expenses, £456,459, balance for depreciation, interest, etc., £451,787, leaving a balance of £19,061 over and above an estimated amount of £432,726 for depreciation and interest at three per cent on the capital expenditure. The London exchange, with a gross income of £330,512, showed a surplus of £25,586 over and above depreciation fund and interest on capital expenditure, the provincial exchanges a deficit of £15,758, and the trunk lines a surplus of £9333. The number of subscribers to the Post Office provincial exchanges (excluding Glasgow and Brighton) was 10,010. Including the Glasgow subscribers (11,103) and the Brighton subscribers (1542), the total was 22,655. Arrangements were then being made for local intercommunication between subscribers of these exchanges and those of the company in the same places. Hull and Portsmouth were the only towns maintaining municipal telephonic systems in 1907, Hull having 2128 telephones in use and Portsmouth 2553. The number of telephones in the London Post Office telephone service was 41,236, including 425 public call offices. The agreement of 1905, providing for similar rates in the provinces between exchanges of the Post Office and those of the company, was followed after considerable discussion by the announcement of the adoption of a new scale in May, 1906. The rates are now based on the principle of a measured service under which each subscriber pays according to the quality and quantity of the service desired. He may contract for any number of calls from four hundred upward, and he may share a line with another subscriber at a reduced rate, or he may rent a line for his own exclusive use.[841]