CONCLUSION

In concluding, we would like to call attention to the following words of the report (p. 53 of the Federal Communications Commission report to the committee on the telegraph problem):

"In considering the reasons which justify an attempt to find a solution to the problems of the telegraph industry through consolidation, it should be remembered that it is possible to superimpose the entire telegraph traffic upon the existing facilities of the telephone carriers. The expenditure necessary to accomplish this would be negligible compared to the investment of Western Union and Postal. Such development would maintain for the American public not only a Nation-wide telephone service, but also a Nation-wide telegraph service. It is reasonable to assume that such a monopoly, if properly regulated, would result in lower rates for both telephone and telegraph service."

We urge that the committee explore all of the facts supporting this statement, for such facts will prove the folly of resort to temporary expedient in dealing with the telegraph problem by abandoning, without benefit to the public interest and at terrific cost to labor, the ultimate system of communication facility and personnel.

THE NATIONAL FEDERATION OF TELEPHONE WORKERS, By THE EXECUTIVE BOARD.

VIEWS OF THE WESTERN UNION TELEGRAPH Co. SUBMITTED TO SENATE COMMITTEE INVESTIGATING TELEGRAPHS

MAY 13, 1940.

In response to the invitation contained in your letter of April 30, 1940, the Western Union Telegraph Co. is pleased to express its views on the subjects covered by Senate Resolution 95.

We observe that the resolution calls for a thorough and complete study of the telegraph industry, "including the economic conditions of the telegraph carriers, their relation to corporations engaged in other forms of communications, and the tendencies toward consolidation and monopoly in such industry."

It is our belief that the most serious problems arise from the burdens imposed by recent general legislation which happened to fall upon the telegraph industry with severity and disproportionate weight, as otherwise the industry would be doing reasonably well even with the present volume. However, Western Union has continued to meet all of its obligations but during the past 2 years its owners have been deprived of a return.

Western Union has made some profit every year during the depression with the exception of 1932 and 1938. In the first quarter of 1940 its profit was $210,472 as compared with a loss of $818,482 in the corresponding period of 1939.

During the last 7 years the company has made very substantial progress in strengthening its financial position, reducing its debt, and improving its service. The debt of the company at June 30, 1933, and at the end of each year from 1933 to 1939 is shown below:

It will be seen that since June 30, 1933, Western Union has reduced its debt by $22,324,000. The company's remaining bank loans and other funded debt are $87,448,000. Only about $7,000,000 of this will mature in the near future, namely, in 1941, and can be met at that time with current resources. There are no other important loans maturing before 1950.

During recent years, however, Western Union has not been able to earn a fair return for the owners of the business who have invested the funds to build and maintain the company's plant and equipment, provide it with working capital, and thereby make continuous employment possible. No dividends have been

paid to stockholders since July 1937. These stockholders for the most part are small investors to whom the suspension of dividends is a serious matter. Approximately 23,000 of the 29,000 persons owning Western Union stock hold 25 shares or less, and no individual stockholder of the company owns as much as 2 percent of the outstanding capital stock. About 13,500 of the stockholders are women, and over 6,200 are Western Union employees.

A number of causes have contributed to this recent inability of the company to earn a fair return for its owners:

1. The subsidized air mail.—In considerable measure, the air-mail competition with certain types of Western Union deferred service is a product of Government assistance, direct or indirect, given to aviation and the air-transport industries. Full support of aviation is, of course, a sound Government policy, but in accompanying that policy with the establishment of extraordinarily low rates to the users of the air mail, the Government has encouraged a broad use of air-mail communications, and at the same time has continued old burdens of the telegraph industry and created new ones which have placed it at a competitive disadvantage. 2. Subnormal rates on Government messages.-The Federal Government is one of the largest customers of Western Union. For its telegraph service, the Government paid only about 40 percent of the regular commercial rates up to January 1, 1940. Since that time it has paid only about 60 percent of the regular commercial rates. If the Government paid full rates for its telegraph service, as it does for the use of the telephone, the revenues of Western Union would be increased by approximately $800,000 a year.

3. Cost of providing pensions and benefits plus social security taxes.-Western Union has had company-provided pension and benefit plans for its employees since 1913. In 1939 these plans cost the company $2,257,000. Since their inception Western Union has paid out $38,518,000 in pensions and benefits to its employees, and at the end of 1939 had 2,055 pensioners. In addition, with the enactment of Social Security legislation, which in part duplicates what Western Union was already doing for its employees, there has been imposed on the company a new and unusually heavy tax. As is shown in table X at page 2996 of the Congressional Record for February 21, 1938 (copy attached), the ratio of pay-roll cost to gross revenue is higher in the telegraph industry than in any other major industry. Sixty cents of every dollar received for services is paid out in wages and salaries. For this reason the Social Security taxes, which are based on pay rolls, fall on Western Union with severity and require it to pay a disproportionately large percentage of these taxes as compared with industry generally. Last year Western Union paid in social-security taxes $2,284,000. Social-security taxes plus pension and benefit payments under Western Union's own plans cost the company a total of $4,541,000, or 4.7 percent of its receipts.

4. The Wages and Hours Act.-The Wages and Hours Act has been construed by its Administrator to require telegraph companies to pay their messenger boys in all sections of the United States and at every place, large and small, at which a messenger boy is employed, the same minimum wage that is prescribed for adults. This has added substantially to the cost of conducting Western Union business. It has curtailed the number of messengers employed, and in many places has resulted in messenger boys receiving a substantially higher wage than boys employed by local industries.

Western Union is an independent company and, as has been shown, its owners for the most part are small investors. It has no relationships with other companies engaged in the communications industry except through its arrangements for the exchange of traffic. It is not seeking to merge or consolidate or to be merged or consolidated with any other communications company, and it is not tending to be a monopoly. It competes for business not only with others engaged in the telegraph business but with other forms of communications as well.

No reason occurs to the company why the present law which prohibits mergers of companies engaged in the telegraph business but permits mergers of telephone companies should not be amended and the telegraph and the telephone placed on an equal footing. Western Union has no objection to such an amendment.

As Western Union is the largest telegraph unit in the communications industry obviously it is deeply interested in your committee's study of the industry and will gladly cooperate with it in order that this study may be thorough and complete. Western Union furnishes the most extensive telegraph service in the United States and its business increased in 1939. In 1938 it handled 139,143,000 domestic telegraph messages, and in 1939 the number of these messages were 143,006,000. Directly or through connections, it furnishes telegraph and cable service to ali parts of the world. It maintains approximately 20,000 offices throughout the

United States and has arrangements for handling telegrams at thousands of other places. It employs more than 40,000 persons. The average annual wage which it pays to its land-line employees, apart from messengers, is $1,750. This average annual wage is materially higher than it was 10 years ago, and table X at page 2996 of the Congressional Record for February 21, 1938, shows that the telegraph industry has the highest percentage of wages to the value of product of any major industry. Moreover the company's messengers now receive the highest wage in history, while the number of its employees, exclusive of messengers, in the lower wage ratings is smaller than in more than a decade.

Normal business and financial activity in this country could not be carried on as efficiently without the service provided by Western Union. Its facilities are essential to the general welfare. In the event of emergencies or disasters, and in time of war, an adequate, efficient telegraph service such as that provided by Western Union is absolutely necessary to the national defense. The Western Union service is adequate, efficient, and economical. It is more dependable, more comprehensive, and costs the public less today than in many, many years. New types of service are being constantly developed to meet the public needs. Western Union continues to derive revenues chiefly from its services to other business enterprises. The company's revenues always have fluctuated and continue to fluctuate with changes in the general level of commercial and financial activity. The progressive program which the company has followed in improving its services, modernizing its plant and equipment, and reducing its debt, places it in a position to benefit in a substantial measure from any real and sustained increase in general business activity. This was amply demonstrated as recently as September 1939 during which month Western Union revenues rose sharply coincident with the temporary upsurge in general business following the declarations of war in Europe.

We are convinced that Congress never intended legislation to subject a particular industry to competitive disadvantages or abnormal tax obligations. We hope the study of the telegraph industry will result in a more equitable adjustment of the disproportionate burdens which have been imposed upon it by legis lation. If this is done it will assist Western Union in continuing to provide a high standard of service and to make even greater advances and improvements.

R. B. WHITE, President.

76TH CONGRESS 3d Session

SENATE

{

REPORT No. 1615

CONSTRUCTION OF CERTAIN NAVAL VESSELS

MAY 15 (legislative day, APRIL 24), 1940.-Ordered to be printed

Mr. WALSH, from the Committee on Naval Affairs, submitted the following

REPORT

[To accompany H. R. 8026]

The Committee on Naval Affairs of the Senate, to whom was referred the bill (H. R. 8026) to establish the composition of the United States Navy, to authorize the construction of certain naval vessels, and for other purposes, having considered the same, report favorably thereon with amendments and, as amended, recommend that the bill do pass. Amend the bill as follows:

Page 2, lines 7 and 8, delete the words "sixteen thousand seven hundred" and insert in lieu thereof the words "thirty-three thousand four hundred."

Page 3, line 1, insert after the word "useful" the word "nonrigid." Page 3, line 2, delete the word "less" and insert in lieu thereof the word "more"; delete the word "twelve" and insert in lieu thereof the word "eighteen".

Page 3, lines 11 to 17, inclusive, strike out the remainder of section 5 after the comma in line 11, and insert in lieu thereof the following: including not to exceed $35,000,000 for shipbuilding ways, shipbuilding docks, and essential equipment and facilities at naval establishments for building or equipping any ship, herein or heretofore authorized, and in addition, not to exceed $6,000,000 for essential equipment and facilities at either private or naval establishments for the production of armor or armament: Provided, That equipment and facilities procured for the production of armor or armament pursuant to the authority contained herein may be leased, sold, or otherwise disposed of, in the discretion of the Secretary of the Navy, when no longer required for use under

naval contract.

Add, as section 9, the following:

SEC. 9. For the purpose of modernizing the United States ships New York, Texas, and Arkansas, alterations and repairs to such vessels are hereby authorized at a total cost not to exceed the sum of $6,000,000. This sum shall be in addition to the total appropriation expenditures for repairs and changes to each of these vessels as limited by the Act of July 18, 1935 (49 Stat. 482; U. S. C., title 5, sec. 468a).

S. Repts., 76-3, vol. 2-79

Add, as section 10, the following:

SEC. 10. The provisions of Section 4 of the Act approved April 25, 1939 (53 Stat. 590, 592) shall, during the period of any national emergency declared by the President to exist, be applicable to Naval public works and Naval public utilities projects in the Fourteenth Naval District for which appropriations are made or authorized: Provided, that the fixed fee to be paid the contractor as a result of any contract entered into under the authority contained herein, or any contract hereafter entered into under the authority contained in said Act of April 25, 1939, shall not exceed 6 per centum of the estimated cost of the contract, exclusive of the fee, as determined by the Secretary of the Navy.

Add, as section 11, the following:

SEC. 11. There is hereby authorized and established a Naval Consulting Board of seven members to be appointed by the President, by and with the advice and consent of the Senate, from among eminent civilians in the fields of industry, science and research, to serve during the pleasure of the President. This board is hereby authorized to make recommendations to the Secretary of the Navy in any matter concerning the naval establishment and the national defense. The members thereof shall serve without compensation, but shall be reimbursed for all expenses incurred incident to their travel and employment as members of the board. There is hereby authorized to be appropriated, out of any money in the Treasury not otherwise appropriated, not to exceed $25,000 to effectuate the purposes of this section.

IMPORTANCE OF NAVAL DEFENSE

The most important question before the Congresss at the present time is that of maintaining peace and making sound provisions for our national defense. In view of world conditions the committee has made a resurvey of our national defense problem, with particular regard to the needs of our Navy. The views on national defense recorded in this report which the committee considered in arriving at its conclusions and recommendations do not represent the views of any one person or group of persons. They represent composite opinions derived from one or more of the following sources: Statements made by our best-informed citizens who have studied this problem, prior reports made by the committee to the Senate and data presented to the committee during the past 5 or 6 years by the most responsible naral officers and naval experts in America, including such prominent officers as Admirals Stark and Leahy, Chief and former Chief of Naval Operations; Admirals King and Cook, former Chiefs of the Bureau of Aeronautics; Admiral Laning, former president of the Naval War College; Admiral Taussig; and an outstanding national defense expert, Maj. George Fielding Eliot.

INSULAR POSITION OF THE UNITED STATES

From the military point of view the United States must be considered as an insular nation. We are separated from potential enemies on the east and west by broad and deep oceans. On our northern and southern borders are nations which have been friendly heretofore. Across these land frontiers could come no armies of sufficient strength to menace our security. Our situation is not similar to that of the British at the present time. Prior to the advent of air power the British Isles were insular countries. This complete insularity is now compromised in the military sense in that they are subject to damaging attack by aircraft based on the continent.

The armies of Europe and Asia do not menace us. they must be transported across the sea in ships.

To be a menace
Airplanes based