the record, and if the Chairman please, immediately in front of the statement to be made orally by Mr. Crowley. Senator ELLENDER. What is the time limitation you speak of? Mr. BAILEY. We understood that only one witness could appear for an individual industry. Senator ELLENDER. Who made that rule? Mr. BAILEY. I don't know who made that, Senator. It was merely related to us. Senator TUNNELL. I don't know that there is any exact rule, but there have been, as I understand from Mr. Kramer, a great many applications. Senator ELLENDER. I do believe, however, Senators, that you will agree with me that on this very important issue we should obtain all the facts possible. This measure is far-reaching. Senator TUNNELL. We should obtain all the facts. But I don't think it is necessary to call innumerable witnesses to get those facts. I think that there should be representatives of the different industries. Senator ELLENDER. It strikes me that, in this instance, if the other gentleman is present, that they might both appear and present their statements, and subject themselves to such examinations as we might find fitting. I don't suppose there would be any objection to that. Mr. BAILEY. We hold ourselves subject to the opinions of the committee, Mr. Chairman. It is agreeable to me to submit my statement in the record, and I will be here with Mr. Crowley. Senator TUNNELL. That is very good. (Mr. Bailey's statement is as follows:) STATEMENT OF CLYDE S. BAILEY, EXECUTIVE VICE PRESIDENT, UNITED STATES INDEPENDENT TELEPHONE ASSOCIATION, BEFORE SUBCOMMITTEE OF SENATE COMMITTEE ON EDUCATION AND LABOR, ON S. 1349, TO AMEND THE FAIR LABOR STANDARDS ACT GENERAL STATEMENT My name is Clyde S. Bailey. I am the executive vice president of the United States Independent Telephone Association. This association, with headquarters in Washington, D. C., is the trade organization which represents that branch of the telephone industry usually referred to as the "independents." There are approximately 6,200 independent telephone companies which furnish telephone service in 12,000 cities and towns throughout the United States. The Bell system operates in only 7,000 communities, but its companies provide service principally in the large metropolitan cities. The independent telephone companies maintain approximately 63 percent of the telephone exchange offices in the United States. The Bell system companies maintain about 37 percent. Of a total of 24,850,000 telephones in the United States, approximately 4,800,000 or 20 percent, are served by the independents. Independent telephone companies operate principally in the smaller communities and in the rural areas. It has been estimated that these companies serve about 70 percent of the geographical area of the country. They employ approximately 72,000 people. The dotted map placed before you shows the locations of the 12,000 cities and towns our companies operate in. Bill would bring about wholesale telephone rate increases and deprive thousands of workers of jobs Our association and the independent companies it represents are greatly concerned over the provisions of the bill which is the subject of this hearing. For reasons which I shall endeavor to present, the purpose of this bill could very aptly be said to be to produce wholesale increases in telephone rates at most of the telephone exchanges in the cities and towns and the rural areas in which our independents operate. Its purpose could also be said to be to deprive thousands of persons of their jobs in our branch of the telephone industry. This is no mere idle assertion, and I crave your indulgence while I explain the basis for it. Small-town telephone revenues can't support proposed wage levels Of our 12,000 exchanges, approximately 10,000 have fewer than 500 stations. More than 11,000 have less than 1,000 stations. Thus our companies are small business in a very real sense. In a news article in the Wall Street Journal some time ago it was stated that the independent telephone industry was the largest small business in the United States. It was alluding, of course, to the large number of small entities. Our companies operate generally in towns having a population under 4,000 and in the rural areas. It is true that some of our independents operate also in such places as Rochester, N. Y., Tallahassee, Fla., Tampa, Fla., Santa Monica, Calif., Fort Wayne, Ind., Jefferson City, Mo., and other towns. But these are the exception. În appearing here, while of course solicitous of the interests of our larger companies, we are primarily concerned about the smaller companies. Our companies are unable out of the revenues they receive to pay wages similar to those which are paid in large cities. A subscriber in a metropolitan area will willingly pay from $3 to $5 a month or more for residence telephone service, but in the smaller communities where we operate telephone rates much in excess of $1.75 or $2 a month are considered prohibitively expensive. At many of our exchanges the rates are as low as $1.25. The average annual per station gross operating revenue of the Bell system companies, which operate in the metropolitan centers and do more than 98 percent of the long-distance business, is $82. The average per station revenue of even the class A companies in the independent field is only $46.10, or 56.22 percent of the per station revenues of the Bell companies. A class A company is one having revenues in excess of $100,000 a year. In the independent field we have 169 class A companies. The average annual per station gross operating revenue of 60 independent class B companies, those having revenues of between $50,000 and $100,000, is $37.77, or only 46.06 percent of the per station revenue of all Bell system companies. The remaining 5,870 of our 6,200 independent companies are class C (revenue $25,000 to $50,000), class D (revenue $10,000 to $25,000), and class E (revenue under $10,000). We do not have Nation-wide figures from which to draw off the per station revenue of class C, D, and E companies, but a fair estimate of the per station revenue of a class C company would perhaps be about $25 or $30. We have, then, the following per station revenues for the various revenue classes of companies: It will thus be seen that the per station telephone earnings of our independent companies are far lower than those of companies which have the benefit of higher service rates because they operate in metropolitan centers and serve more people. Facts, gentlemen, are stubborn things. General economic conditions in independent towns are different from those in metropolitan centers A substantial number of our independent companies operate in the very smallest towns and in farming communities-towns having a population of from 5,000 down to 150 or even less. Many of these companies have never been able to earn anything even approaching a fair return on the capital invested in them. They have been able to continue in operation from year to year mainly because the employees living in those communities have found it possible to get along satisfactorily on wages which, while lower than those paid in larger places, were sufficient to meet their needs in the relatively simple circumstances in which they live, where they live. This is understandable when it is realized, for example, that a five-room house that would normally rent for $60 in a city of 50,000 people. or for $75 or more in a metropolitan area, will seldom bring more than $15 or $20 in a community having a population of 2,500 or under. We have listened to the economic and cost-of-living testimony introduced here by Dr. Hinrichs and others. Dr. Hinrichs spoke learnedly and with apparent conviction. He said there was a difference of only about 10 percent between living costs in large cities and small towns. We do not believe that he had in mind living expenses in the very small towns in which our independents operate, and furthermore, we are sure he did not have specifically in mind the particular class of people who make up the bulk of telephone employees, viz, switchboard operators. We believe that practically all living expenses in small towns, such as are typical of those in which the majority of independent telephone companies operate, are much lower than those to be found in the larger and more populous centers. These small communities are self-sufficient in many respects. Vegetables, poultry, eggs, etc., are usually produced in the backyard or are available from local trades people, and hence are not loaded with the usual costs of passing through several intermediate hands before reaching the consumer. Many a household raises its own chickens and has a cow in the barn. Telephone operators walk to work, and live at home. Movies cost only one-third of the cost in a large town. A few years ago a dentist in Washington extracted one of my teeth and charged me $5. I visited a small town a few days later, population about 1,500, and by a dentist friend of mine practicing there was told that his charge for an extraction was $2. Despite attractively drawn charts and testimony offered by perfectly honest people from a bureau of our Government, we say that social and economic life is far less complex and far less costly in the small towns than in the larger communities. To require small employers in small towns, under the conditions I have described, to pay metropolitan wage rates would, we think, be manifestly unjust. The equal treatment of unequals is itself unequal. The girls who work as switchboard operators are usually young girls just out of local school. They ordinarily have no dependents. They live at home with their parents. They are not the breadwinners of the family. Their earnings merely supplement what dad makes and provide pin and dress money pending the time when they find husbands. They usually find them, and thereupon the telephone company finds and trains successors. The 500-station exemption in the present law As the members of this committee know, in 1939 Congress adopted an amendment to section 13 (a) of the Fair Labor Standards Act exempting from the wageand-hour provision "any switchboard operator employed in a public telephone exchange which has less than 500 stations." This is the only amendment which has been tacked on to the statute since it was enacted 7 years ago in 1938. reasons which actuated Congress in adopting the amendment are described in House Report No. 1448, Seventy-sixth Congress, first session, August 3, 1939, reading as follows: The "The exemption for the operators of some small telephone exchanges is necessary to insure uninterrupted telephonic communication service for the farmer and for the small rural community. Small telephone companies, on the whole, are financially unable to comply with the wage provisions of the act, and the sporadic character of the demand for services makes the application of the hours provision of the act impracticable.' That exemption, it should be noted, applies only to switchboard operators. All other employees at the 500 station and underexchanges, and, of course, all employees including switchboard operators at all other exchanges, are covered by the act. This 1939 exemption has enabled many an independent company to continue in existence and give unimpaired service. But it may be pointed out, at the same time, that experience has shown that, notwithstanding the exemption, even the small exempted exchanges have not been able entirely to avoid the impact of the establishment of the minimum wages and maximum hours provided for in the law up to this time. This is understandable when it is remembered that switchboard operators have a way of getting together, and comparing notes. If in town A there is an exempt exchange having 200 stations and in town B, 5 miles away, there is a nonexempt exchange with 510 stations, the town A exchange is almost compelled to meet the wage level of the other. Hence, it will be seen that even down to the very smallest town filter repercussions of any wage increases that may be made. Fortunately, not all towns are close together; and it is this fact which has enabled the 500-station exemption as to switchboard operators to provide the relief Congress contemplated. 78595-45- -22 Loss of telephone jobs definitely threatened At the outset of my remarks I stated that the bill which is the subject of this hearing could be called one to destroy employment opportunities for thousands of telephone workers. I would now like to explain that statement. Of our 72,000 employees in the independent field, roughly 55,000 are telephone operators. If the wage costs of our companies are increased many of our telephone companies will be compelled to take three steps: (1) Curtail telephone service as it is known today. Curtailment of service would be inevitable Although we would hate to curtail service, that would be the first step in many cases as an expedient to avoid increasing rates. The duty of a telephone company, not necessarily prescribed by law but done to meet the needs of the community, is to provide a 24-hour service. Ours is a round-the-clock business. Our service is a personal service that in many, many cases is manufactured on the spot according to the individual specifications of each subscriber. We are on the job 24 hours every day in the week. We have not deemed it proper to work only 8 hours a day, close up shop for the night and then open in the morning. It is in the middle of the night when doctors are needed, when babies arrive, when fires occur, when robberies take place. But if you put in a higher wage we will be forced to resort to measures that will have a definitely harmful effect on telephone service as we know it today. It should be borne in mind that when service is curtailed in any community there are repercussions in all other communities by reason of the fact that subscribers living elsewhere are unable to reach subscribers in the community where service has been reduced. The economic and social implications may well be far reaching. Furthermore, we should like to have you bear in mind that we are on three 8-hour shifts, and any increase in wages to us is, therefore, a triple increase. It would be bad enough to be hit once by a wage increase but to be hit three times in one day is something to cause more than a mere case of the jitters. Curtailment of service would have to be limited to those services for which there is no direct or added charge. This would include elimination of free calls between two exchanges having a community of interest, information calls including time of day, location of fires, early morning calls and calls as to directory information, secretarial service, etc. In addition there would undoubtedly follow a curtailment of night service at the smaller exchanges as well as Sunday and holiday service. Some of our small exchanges have already been compelled by rising expenses to limit service, and increased costs of operation would substantially increase the number. All of these measures mean loss of jobs to telephone operators. Furthermore, in exchanges with approximately 1,500 stations or less, where the companies now maintain commercial offices for the collection of customers' accounts, the local bank would be employed for such work and the employees of the telephone company hired for this purpose would no longer have their jobs Further job losses through dial conversions But the principal cause of the expected loss of jobs will come from conversions of manually operated exchanges to dial operation. In a small community the average telephone company employs from three to s dozen telephone operators, depending on the size of the manual exchange. These people are all an integral part of the community and regard the telephone company as one of the "opportunities" for employment along with the local stores, the light company, the flour mill, and other local business concerns. If the imposition of a wage scale higher than the local telephone company can support causes the replacement of manual switchboards which require operators, with dial switchboards which do not, has the town or have the employees benefited by an increase in the wages paid? Although the dial method of telephone operation came into being over 40 years ago, less than 20 percent of independent telephones are now dial operated. In the Bell System, over 60 percent of the telephones are dial. Independent companies have continued to operate on a manual basis and been able to give reasonably good service at small-town rates, and their employees have apparently been contented and satisfied with the wages the companies could afford to pay. The proposed wage increase will unquestionably swing many companies over to dial with the result that the small community will suffer to the extent that less employment opportunities are available. If a community has a total of 200 opportunities for employment in a business district the telephone company with 10 operators represents 5 percent of the total. Is a community to be helped by eliminating 5 percent of the available jobs? The answer is "no." Curtailment of employment hurts a community. It may be asserted that conversion to dial is an inevitable technological development and that eventually our companies generally will come to it, regardless of what minimum wage is prescribed. It is true that there is a definite economic advantage to installing dial equipment. But we have found that life is not all economics. The jobs of thousands of girls and women are at stake. So is the welfare of the community. We individually and as a group feel this responsibility. It would force many of these women to hunt other occupations in communities where steady employment for women is hard to find, if there is an elevation in the minimum wage. Thus the administration of the Fair Labor Standards Act would operate to defeat the purposes of that act in smaller towns and in many large ones, too. It would be a great deal cheaper to pay the interest on a debt created to buy dial equipment than to pay the wages of the telephone operators whom the dial equipment would displace. If this bill is passed there will be a truly astounding recourse to mechanization of telephone service. But even if only 50 percent of the present manual exchanges go in for dial equipment there will still be a displacement of telephone operators running into the thousands. The tempo at which conversions will take place will be limited only by the capacity of the manufacturers to turn out the equipment. Wholesale rate increases will be required Another result of the institution of higher wage levels in our branch of activity will be the submission to the public service commissions of the several States of rate increase applications covering telephone service in hundreds and hundreds of small towns throughout the country. An increase of 25 or 50 or 75 percent in wages may not in each and every case call for an increase of a corresponding percentage in telephone service rates. But in most cases it will, and in all cases it will call for substantial increases. There is no place other than the subscriber to which our companies can look for the necessary money with which to pay the bill for the increased cost of operation. Unlike unregulated enterprise which may adjust its prices at will, we are a regulated industry whose rates are subject to strict public supervision. Our earnings are limited under our system of regulation usually to about 6 percent; but many of our companies have never made anything approaching even that amount of return. The small independent companies do not look with equanimity upon telephone service rate increases because they know it is terribly difficult to increase rates without losing customers. In large towns and the metropolitan centers it is easy enough to lose subscribers with rate increases, but in the small towns where family incomes are lower the hazards are particularly great. And even where traffic studies may show that a net revenue increase may result notwithstanding loss of subscribers, the job of persuading a public service commission that a rate increase should be granted, remains. Anyone familiar with regulatory processes knows that certain requirements must be met before a rate increase is permitted. This involves the making of engineering studies, accounting studies, and other studies to enable a commission intelligently to deal with a rate application. But it will nevertheless be apparent, particularly from some down-to-earth figures that will be presented to you by Mr. J. C. Crowley of Minnesota, who will follow me, that if wages are increased and rates are not increased, or if rates are increased and subscribers are lost, telephone service as it is known today in the smaller towns also is lost. This bill will leave us between his satanic majesty and the deep blue sea. There is a rather interesting thing connected with the rate increase situation. As you know, in the Emergency Price Control Act of January 30, 1942, Congress in section 302 (c) of title III provided that the maximum price regulation of the OPA should not extend to the rates of common carriers and other public utilities. This was because such rates were already subject to public regulation by State and Federal commissions. Congress did require in section 1 of the October 2, 1942, amendment of the Emergency Price Control Act that 30 days' notice of proposed increases in rates by public utility companies shall be served on the |