# Popular Science Monthly/Volume 71/November 1907/Notes on the Development of Telephone Service XII

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* NOTES ON THE DEVELOPMENT OF TELEPHONE SERVICE
By FRED DELAND
PITTSBURGH, PA.
XVI. The Hard Times of 1885
THE year 1885 will never be forgotten by the "hard times" sufferers—nor by many operating telephone companies. For commercial and industrial conditions rapidly slid down to bedrock, and thousands who were thrown out of employment suffered for the bare necessities of life. Some of the local telephone companies had a fair income, but nearly all had to defend at heavy cost, a series of systematic attacks upon the rates charged for local service. In 1885 the bank clearances were over fifteen billions of dollars less than in 1883, the production of pig iron was lessened by nearly 600,000 tons, while its price fell to $18 a ton from $22 a ton in 1883. So great a commercial and industrial depression naturally affected the financial growth of the parent Bell company; and then, that its bitter cup might be full to overflowing, all the power of the United States government was brought to bear on the fundamental Bell patent, in the hope that it might be invalidated. Referring to this most unjust and discreditable attempt to lend the dignity and the power of the United States to a deliberate scheme to filch honors justly awarded, the editor of The Nation wrote that this
decision to have the validity of the Bell telephone patent tested in the courts... insures the success of one of the worst stock-jobbing schemes now before the public. The stock in trade of the companies on whose motion the suit is brought consists of a paper capital of several millions, and a few patents of insignificant value which they probably never intended to use.
In July commercial conditions in the east experienced a brief boom, brought about by the absorption of the costly West Shore line by the New York Central interests. But the farming community had invested heavily in West Shore, and following the reaction due to heavy losses distributed among a large number of grangers came increased distrust not only in railway, but in all industrial securities, including even those of the best local Bell companies.
However, the farmers were enriched by the greatest crop of corn ever grown up to that year, exceeding by one hundred and forty million bushels the bumper crop of the previous year, while the yield of cotton secured by planters in the south was nearly as large as the summer before. But the farmers harvested one hundred and fifty-five million ​bushels less of wheat than in 188-i, and a bushel of wheat was worth nearly two bushels of corn, wheat selling at an average export price of 87 cents and corn at 49 cents per bushel. On the Chicago market wheat ranged from 73$^3$⁄$_8$ cents to 91$^3$⁄$_4$ cents per bushel. During the fiscal year beginning July 1, 1885, there was exported only 57,759,209 bushels of wheat having an aggregate value of $50,262,715, as against 106,385,828 bushels in 1882 having an aggregate value of $119,879,341.
Each month brought reports of the large number of telephones taken out at the request of subscribers; yet, when the returns for the year were tabulated, the totals for all the Bell companies in the United States showed a net gain in subscribers of 2,903, Owing to the extreme financial depression this was an entirely unexpected increase.
One company, in reporting a gain for the year of nineteen stations, expressed its elation over the fact that it meant a net gain of thirty paying stations through the elimination of a number of deadheads. This company reported having "removed 1,147 instruments and placed 1,179," during 1885, and added:
This company was operating thirty-three exchanges with an average of 171 subscribers to each exchange, and was in a stronger financial condition than three fourths of the other companies. Yet its treasury stock was unsalable at any reasonable price, even though the purchaser knew that the entire proceeds of the sale would be devoted to new construction. Two and three years previously people went wild over telephone stocks, not only borrowing money from banks to use in purchasing telephone securities, but actually mortgaging homes. But during 1885, it was only possible to dispose of many local telephone stocks by allowing an enormous discount of from 50 to 80 per cent, from par value. So this company told its stockholders that
Notwithstanding the several concessions granted its licensees by the parent company during the previous year, it perceived early in 1885, that the prevailing industrial conditions coupled with the low financial condition of a majority of the local companies, rendered necessary a further modification in relationship. During 1884 the parent company returned $806,634 to the operating companies in which it held shares of stock, which was its proportion of the net earnings. ​that this amount might be spent for necessary improvements and extensions on the part of the local companies.
Following many of the numerous consolidations, the parent company granted to the consolidated companies a perpetual license covering the exclusive use of Bell equipment in specified territory, in exchange for the short-term licenses that had expired or were about to expire. In return for these perpetual exclusive rights the local companies issued to the parent company from 20 to 33 per cent, of the capital stock of the new organizations. Thus parent and operating companies became joint partners having every reason to protect each other's interests, even after the expiration of the fundamental patents.
Owing to the stress of financial conditions, early in 1885, the parent company decided to call a conference of the operating companies to ascertain what mutual action was advisable, in order to restore confidence among the shareholders of the consolidated companies, as well as to awaken an interest in telephone securities on the part of prospective purchasers. With that end in view it invited all local companies to send one or more representatives to a meeting to be held in Boston, June 8 to 13.
During the sessions of this conference all phases of relationship were broadly discussed and many perplexing problems thoroughly threshed out, several important concessions were made, and a further reduction in royalties announced. At the closing session the delegates tendered to the parent company a vote of thanks
In its annual report for 1885, the parent company referred to the results of this conference as follows:
While comparisons are rarely pleasant to present, yet it is interesting to compare this voluntary action on the part of the Bell company, with the resolutions passed by the licensees of another parent public utility company. This latter parent company was not in the telephone business, but it made arrangements
During the year 1885 systematic attacks upon the rates charged by operating Bell companies were started in several states, notably in Massachusetts and in Indiana. In Massachusetts the movement began the previous year, and is said to have been instigated by and supported almost entirely through the efforts of one man who felt that he had not been fairly treated by his associates when the local company in which he was a shareholder had been absorbed in a general consolidation. The method this man adopted was to employ boys in different cities to rapidly circulate petitions in favor of reducing telephone rates in the respective localities. Naturally, not only friends and acquaintances of the boys, but thousands of other persons signed the petitions to help the lads earn the promised pennies. In this manner a total of about 50,000 signatures were secured. When these petitions were presented to the legislature, it was shown that nearly three fourths of the signers were not subscribers to telephone service, that a number of names had been placed on the petitions without authority, and that many of the alleged petitioners could not be located. For instance, ninety signatures were secured in Lynn, and only four of the entire number represented telephone subscribers. Of the eighty-six non-subscribrs, the names of twenty-seven did not appear in the city directory, nor could the individuals be found. Then it was publicly charged that this lot of petitions had been shown to the Bell interests and offered to them for $12,000 in cash. It was further stated that
On April 13, 1885, the Indiana legislature passed a drastic law that later was repealed:
When this law went into effect, six different companies or individuals were operating telephone exchanges in Indiana under Bell licenses, ​and as this bill threatened to largely reduce their prospective incomes, it required wise planning to keep the outgo within the estimated income in order to avoid bankruptcy. The first step taken was to suspend night service in some places. In turn the citizens, the great majority of whom had never patronized the telephone company, exhibited an utter disregard for the rights of others by cutting down the telephone poles. A large number of exchanges and over one hundred toll stations in Indiana were closed, and all improvements and extensions ceased.
Fortunately for all concerned, there was a golden lining to the dark cloud that overhung the telephone field in 1885, in this that no less than six important decisions were rendered in favor of Bell interests. Five of these were judicial, being handed down in the United States circuit courts in the respective districts, and one was the important decision rendered by Commissioner Butterworth of the Patent Office.
It may be recalled that on October 23, 1884, the examiners-in-chief in the United States Patent Office, after a very thorough and complete investigation of certain interference claims involving the invention of the telephone, and after each claimant had had his rights fully presented in lengthy arguments, decided that
Earlier in 1884 the examiner of interferences had rendered a similar decision, after eighteen months of thorough investigation. This decision was exceedingly elaborate, making a printed volume of over three hundred pages, and reviewing the law and the evidence, including every fact and phase with great care. From this decision the claimants appealed to the examiners-in-chief, as stated, and from their decision to the commissioner of patents. After a seven days hearing the commissioner decided that
In January, 1885, Judge Butler, in the United States Circuit Court, District of Pennsylvania, in granting the motion of the parent Bell company for an injunction, decided that
In March, 1885, Judge Wallace, in the United States Circuit Court, Northern District of New York, in granting the request for an ​injunction against an infringing company, stated that
In June, 1885, Judge Wallace, in deciding that the Molecular Company had infringed "all the claims" of the Bell patent, stated:
In July, 1885, Judges McKennan and Acheson, in the Circuit Court of the United States, Western District of Pennsylvania, in allowing an injunction stated
In December, 1885, Judge Wallace said: