The Saint Paul globe. (St. Paul, Minn.) 1896-1905, 1900-04-09

THH SUBSCRIBERS PETITION THE
DIRECTORS TO ABOLISH THE
DUAL SYSTEM
ONE COMPANY OPERATING
Promoters OF New Concerns Make
Money at First, but the In
vestOrs Rarely Receive
Dividends.

The experience in Michigan, where
large number of Independent companies
have been In operation, Is particularly in
teresting. The Michigan Telephone COM
pany, which was formerly capitalized at
1880 900. with no bonds or other outStand-
ing Indebtedness. to speak of. operated
the telephone system of the state under
the Bell patents, including exchanges at
Detroit, Grand Rapids, Saginaw, Bay
City, Jackson and other cities, with
total OF about 10000 subscribers.
When the first patents on the telephone
expired, various companies were formal
throughout the state to compete with the
Michigan Telephone company, and with
in two years these Independent COM
panies, while covering only a very limited
territory with toll lines, and while having
less subscribers than the Michigan COM
pany, had an aggregate capitalization Of
over $S.0O0.0O0, and, as the various COM
panies were formed, promises of large
dividends were made. In other words.
the Michigan Telephone company, while
having three times the number of toll
lines and more subscribers, had capt.
talization of $2500,O00, ON which dividends
were paid at the rate Of per cent. The
competing companies promised 10 give
service at one-half or two-thirds Of the
rates charged by the Michigan company,
and, with capitalization of over three
times that of the Michigan company, pro-
posed TO pay 8 and 10 per cent an divi,
dends.
The largest of the Independent com,
panies started in Michigan were the De.
troit Telephone company and the New
State Telephone company
In the case of the Detroit Telephone
company, 100000 worth of bonds were
Issued and 100000 worth of stock. The
promoters, while making great promises.
for the future of the company, evidently
did not wish to hold all of the stock them
selves, so, In order to induce the public
to buy, offered to give one bond for SOD
with every share of stock, or, If that
proposition was not satisfactory, to sell
man 800 bond, and give him a share
of stock as a bonus. Both propositions
were. OF course, identical, the general re-
suit being that a man received 500 worth
of securities for 500 or less.
In connection with startling the Detroit
Telephone company, the promoters felt
1t necessary to organize and operate q
toll line company, as they soon found out
that the subscribers in Detroit would in
sist on having numerous toll line connec-
lions. The New State company was then
organized, total of $S50,000 worth of
stock being issued. The stock was sold
by canvassers. who received commits
selling the stock. All sorts of promises
were made as to the quality of the
service to be furnished and the business
In prospect, but the stock was not i'm
mediately4 taken by responsible investors,
so that 1t was necessary to push an active
canvass through the state to unload the
securities. The stock was sold In lots OF
one, two. five and ten shares, etc. some
times at par, sometimes at 80, and all the
way down to 60.
The company proceeded to construct
exchanges In q number of Michigan
cities; cheap pole lines were built In
some cases. abandoned telegraph lines be,
ing used for the purpose. Where small
towns wanted connection with business
centers, the New State company agreed
to build lines to such towns, providing
the small towns would purchase stock to
the amount of $780, 81, 900 or 81, 600, the idea
being to get enough money out of the
small towns to pay for the lines. The
company paid one small dividend but tes
timony was given by one of the directors,
in connection with some litigation, that
the dividend was not paid to all stock
holders. Ir other words sufficient divI.
dend was paid to outsiders to enable the
company to keep on selling stock. No.
account was kept Of the depreciation of
property, and every effort was made TO
make good financial showing, In spite
of which IT soon became apparent that
the company would have to invest several
hundred thousand dollars, if it intended
to stay IN the business The MICHIGAN
Telephone company was slowly gaining
ground.
In January, 1899. the control of the
Michigan Telephone company passed into
the hands of Mr. Glfdden and Others
connected with HIM. Mr. Glidden and his
associates have made a record as pro-
Sressive telephone people, and when they
started out to rebuild the Michigan com,
pany's plant, to furnish a high grade Of
service and announced a policy of Civ
ing the best possible service at the lowest
possible cost consistent with good service
what was left Of the public sympathy for
the New State and Detroit Telephone
companies disappeared. The directors of
those companies, realizing after a few
months. that they could not give the
service offered by the Michigan company.
and that they would, sooner or later. go
to the wall began negotiations looking
toward the sale of their plant
In January. 1890. the control of the New
State and Detroit companies was pur-
chased by Mr.. Glldden and his associates.
The Detroit Telephone company in 1899
had deficit of nearly $4,000 to say
nothing of the fact that its plant had
greatly deprecated. and that upwards of
S250000 would have been needed to put
the plant in shape. The New State TeTe-
phone company. with a capitalization of
$780, 00, had floating debt of Sl50. 900 It's
plant. however, was in as bad shape as
the Detroit Telephone company's It's
| toll lines had been hastily and cheanlv
built and were falling to pieces, and its
various exchanges were in much the
same condition. 1t was estimated that
| $500.600 would have to be spent to nut.
the company's system in fair shape The
directors and stockholders expressed
themselves as glad to get out OF the los
ing game.
A few days after the sale of these
properties the Michigan Telephone com
pany also purchased the stock and pron.
erty of the Central Telephone COMPANY
and the Mutual Telephone Company OF
Kalamazoo. the Dowagiac TELEPHONE
company. and other minor plants operat-
| ing in the southwestern portion of the
state. In each case. the story was ths
same. The promoters had made a great
| deal of money in getting the plant start.
| ed. while the investors in the stock had
! soon discovered that, with the rates pro-
posed by independent telephone COM
| panies, 1t was. impossible to build good
plants, give good service, and have any
! thing left for dividends.
A few days after the sale of the De-
| troit Telephone, company. 5000 subscribers
! in both companies signed petition. ad-
dressed to the directors of the two COM
| panies, asking for q consolidation of the
plants. SO as to do away with the dual
| system
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