Bits for $400,000

First weeks of the Federal Communications Commission's investigation of American Telephone & Telegraph Co. were enlivened by digressions into lobbying, horse racing and cinema production (TIME, March 30 et seq.). In the matter of revealing what Congress had appropriated $750,000 to have revealed--the how and why of telephone rates--Commission Counsel Samuel Becker got next to nowhere. In the past fortnight, however, Counsel Becker has borne down more consistently on the prime purpose of the investigation, giving Commission accountants a chance to talk. Questions raised thereby put FCC in a better position to ask Congress last week for an additional $400,000 to continue the investigation after July 1.

Among solid bits of testimony likely to help FCC get its money were: P:On rentals of some 13.000,000 telephones to its 23 associated operating companies from 1902 to 1927, A. T. & T. made no less than $50,000,000 and, by one method of computation, $216,000,000 above a 6% return on investment. Rental charges were included in a general charge of 4 1/2% of operating company revenues ''for engineering, financial and legal service." In 1927 A. T. & T. sold the telephones to the operating companies for $38,000,000, making $14,000,000 on the deal. At the same time, however, A. T. & T. reduced its annual service charge from 4 1/2% to 1 1/2%.

P:To the suggestion that such services, although customary holding company functions, resulted in an increase in local telephone rates when charged to the operating companies, A. T. & T. officials re- plied that they were the "backbone" of the Bell System, that A. T. & T. really lost money furnishing them. C, To the suggestion that A. T. & T. made inordinate profits on the rentals and finally on the sale of the telephone equipment, President Walter S. Gifford replied that the reduction of service charges in 1927 saved the operating companies about $17,000,000 per year.

P:Commission Accountant John H. Bickley hinted that A. T. & T. found it convenient to sell the telephone equipment in 1927 because the new hand sets were coming into use and the risk of obsolescence of the old telephones could be passed on to the buyers. State rate cases involving the service charges were another reason for A. T. & T.'s decision to reduce them, said he.

P:Seeking information on the meeting in 1927 at which the sale was decided upon, Counsel Becker subpoenaed A. T. & T. Directors George F. Baker, chairman of Manhattan's First National Bank; and David Franklin Houston, President of Manhattan's Mutual Life Insurance Co., onetime Secretary of the Treasury under President Wilson. Neither could remember the reasons for the sale. C. A. T. & T. long-distance earnings between 1913 and 1935 were shown to have been $400,000,000, or an annual return of 10.9% on investment despite several voluntary rate cuts. In the same period the associated companies made an average of 6.7%. Commission Accountant J. A. Krug noted that while the operating companies were subject to state regulation, A. T. & T.'s long lines department was not. A. T. & T. Vice President Charles Proctor Cooper's explanation: "It is inevitable that earnings on various parts of a nation-wide system will vary from-time to time."

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