owned the companies. We have provided $26.5 million, some odd, to the REA financed companies, from conventional loan sources after we owned them.

Mr. JONES of Missouri. Is it the policy or the custom or the operational procedure, I guess, that the more customers you have in one exchange the higher the rate is going to be for that exchange-is that true?

Mr. LUCIER. That is not a policy, sir. Again, the rates are set on the investment. And by and large the telephone business is the kind of business where the more telephones you have in a give area, it does not necessarily mean that the rates will be lower-it is quite the contrary. Mr. JONES of Missouri. That is just the contrary to the electrical concept.

Mr. LUCIER. Yes, sir; it is quite different.

Mr. JONES of Missouri. It is just the opposite?

Mr. LUCIER. By and large the more

Mr. JONES of Missouri. What I am trying to get at is as to this case down in Georgia where you took six companies over and consolidated them-what was the increase in the rates per subscriber afterwards? Mr. LUCIER, None, sir-no increase.

Mr. JONES of Missouri. That is not in conformity with what you said happens. If you had six small companies and you put them into one large company, then it would seem to me that the rates would have

gone up.

Mr. LUCIER. No, sir. What I was talking about is concentration in a given area. Now, again, it is hard to make a generality. A large metropolitan area will have many technical complications that cost, a very high investment, and by and large will have higher rates. Part of the reason, however, is because the service is worth more.

Now you get into a very thin area, such as in western North Carolina, for instance, or in Kansas, where Mr. Dole is from, where the rates will be fairly high because of extreme density, but some place in between, by and large, in the high density areas, the metropolitan area will call for a high investment and there are other exchanges where you have very scattered, sparse areas that will take a high investment per telephone, too.

In the middle it is different.

Mr. JONES of Missouri. Of course, when you go from eight-partyline service to one-party-line service, you naturally will charge for that. Mr. LUCIER. Yes, sir; that is true.

Mr. JONES of Missouri. You said a minute ago that when you increased the number of subscribers that you could expect the rates to go up. I am not criticizing you for doing that. I was trying to find out what happened in Georgia where you purchased six companies and put them into one company. That was evidently an unusual circumstance. And you did not increase the rates there.

Mr. LUCIER. No, sir. That was not an unusual circumstance. The act of putting the companies together made possible certain economies. It meant one thing, that we would make somewhat more money within the regulated process allowable. It also means very likely that that company will not get a rate increase as soon as if they were six separate companies. There are wages, all kinds of things that change all of the time-material costs go up. In any given circumstance, a company may or may not need a rate increase over some period of time, but

the fact of the consolidation in that instance makes for economies. The number of subscribers in the company has not so much bearing, as in the problem that you are talking about, as does the concentration. You cannot move the subscribers together. In other words, the company may have many subscribers, but if they are not in the right areas concentrated, then it costs more.

Mr. JONES of Missouri. I think that you did not get my point. In my home county the telephone companies always want to make it so that you can call more towns. And every time you can call more towns without it being long-distance, the rates go up.

Mr. LUCIER. Your local rates go up.

Mr. JONES of Missouri. Your basic rates for that telephone go up. Mr. LUCIER. Yes, sir.

Mr. JONES of Missouri. Although 90 percent of the people living in that small town do not need that extra service, but it is forced upon them, so that is what I am trying to get at. When you do combine and consolidate, as in the case of the six companies, you continue to operate them as separate entities, although they were grouped together in the financial statement as one company.

Mr. LUCIER. Yes, sir.

Mr. JONES of Missouri. That is all. Thank you.

The CHAIRMAN. Mr. Wampler?

Mr. WAMPLER. You testified that Continental Telephone Corp. is a holding company?

Mr. LUCIER. Yes, sir.

Mr. WAMPLER. What investments do you have other than telephone companies?

Mr. LUCIER. We own a manufacturing company-technically two of them-one very small. We also have a CATV property. We own a leasing company. I think that about summarizes it.

Mr. WAMPLER. Were you present at the hearing yesterday?
Mr. LUCIER. No, sir; I was not.

Mr. WAMPLER. Have you had an opportunity to analyze and study the amendments that were offered by Mr. Bollinger?

Mr. LUCIER. Yes, sir.

Mr. WAMPLER. Do you find yourself in opposition or in agreement with them?

Mr. LUCIER. Generally, in agreement. I concur in their findings; that is, of the USITA.

Mr. WAMPLER. Let me ask you this question. Would your company generally pay more for a telephone property that has the 2-percent REA loan than one that has conventional financing?

Mr. LUCIER. No, sir; it will not.

Mr. WAMPLER. It will not.

Mr. LUCIER. No, sir; it will not.

Mr. WAMPLER. There are some of us on the committee who feel that there is a loophole in the law as to a property that has a 2-percent REA loan. Is it not a fact that the seller of the property can benefit substantially where there is 2-percent money?

Mr. LUCIER. No, sir; I do not believe that he does, so far as the value of his property is concerned. I think that there is a general misunderstanding as to this so-called loophole, because a group of individuals who are stockholders have elected under the laws of the

United States, and with the encouragement of the telephone associations-in view of the fact that he has no other choice as the availability of money-to pursue or to borrow under this act. And under the proposed act where he should not be denied what any other stockholder of any other company who has other resources available to him can do, which is about the increased value of his common stock or his equity--the fact that he borrowed 2 percent money does not get him as a holder or as an owner any particular advantage. The advantage through regulation is passed on to the subscriber.

The talk about denying him what everyone else in the business has got is no reason to deny him that-it is not a loophole. I do not understand it as a loophole. It has no direct bearing on his ability to sell.

Mr. WAMPLER. Since you feel it is not a loophole, then you have no objection if we tighten the language in this respect?

Mr. LUCIER. I do not know, I would want to see the language. The language that is in the proposed bill is not objectionable to Continental. I understand that it is not objectionable, generally speaking, to the USITA and it was not objectionable to the people who were here yesterday.

Mr. WAMPLER. Let me clear up the record. I do not feel that this proposed amendment is directed to Continental or to anyone else in particular.

Mr. LUCIER. I will have to disagree with you. I believe that it must be called the Continental amendment. [Laughter.]

Mr. WAMPLER. Do you support the Continental amendment then? Mr. LUCIER. I do not think that it will accomplish what they think they are going to accomplish.

Mr. WAMPLER. I can only speak for myself. Let me say that my concern is in seeing the rural areas of America have the telephone service they are entitled to. We do not want to see the taxpayers' money used unwisely, or to unjustly enrich those who sell and those who purchase.

Mr. LUCIER. I do not know of anyone who disagrees with you. Both general purposes are worthy objectives. So long as this bill is in substantially the same form as it is today, these objectives will be accomplished. There is general agreement on them.

I think there is considerable misunderstanding-and I do not want to take any more of the committee's time about the function of holding companies in the telephone business in that they may or may not relate to the historical borrowings of the individual subsidiaries. Mr. WAMPLER. Thank you. That is all.

The CHAIRMAN. Mr. de la Garza?

Mr. DE LA GARZA. I do not want to ask a question, Mr. Chairman. I wanted to say to the witness that, apparently, that he does seem to have an enterprising company that has been quite successful. I think that we should commend him. We need more of that type of enterprise in this country where we get somebody to do something for himself.

Mr. LUCIER. I might add that I do not know whether you are aware of the fact, but we have a plant in your district that is very successful. [Laughter.]

The CHAIRMAN. Are there any further questions? Does anybody else. have any questions that they want to ask?

Mr. Dow?

Mr. Dow. Just one quick question.

Mr. Lucier, generally, in the States of the United States do the regulatory commissions limit or control the rate of return or the earnings of such companies as telephone companies?

Mr. LUCIER. Sir, in 49 of the 50 States, Texas excluded, there are regulatory commissions which regulate the telephone companies, all of them, in relation to rates. And most of them in relation to financing. We are not operating in a vacuum in any respect.

All of these loans that the REA makes, or a substantial portion of all the loans made by the REA, must be reviewed and approved by regulatory bodies. All, or virtually all, acquisitions by us or anyone else, generally, are under some regulatory procedure, either in the State or in the Federal Communications Commission or both.

There is no mystery here. All matters that relate to the telephone business are matters of public record.

Mr. Dow. What proportion, actually, limit earnings of the companies what proportion of the States do?

Mr. LUCIER. Forty-nine out of the fifty, sir. In Texas, the regulation is on a local, or city, level. Their purpose is, also, to limit it. This is, really, the function of the commissions. They have other functions, like insuring good service but primarily it is to limit the rate of

return.

Mr. Dow. Suppose that you made a very skillful purchase and you succeeded in obtaining a company that on balance returned you an interest rate of 20 percent-how would the regulatory commission in most of the States regard the rates in a company of that sort?

Mr. LUCIER. I presume that you are talking about-well, 20 percent on a rate base-and there would be one obvious answer, that the rates would be reduced. Generally speaking, an allowed rate of return, depending on the cost of the money, varies from 3 to 7 percent.

Mr. Dow. Have any of the commissions ever required you to reduce

rates?

Mr. LUCIER. Yes, sir.

Mr. Dow. Thank you, Mr. Chairman. That is all.

The CHAIRMAN. Mr. O'Neal.

Mr. O'NEAL. I do have one question. I am interested in companies that you acquired in Georgia. Are they all in the same section of the State? Would you identify them?

Mr. LUCIFER. Mr. O'Neal, I think this is down in your territory. Generally, it is on an arc, running from Statesboro, Savannah, in that area, down around through the southeast, to Donaldsonville.

Mr. O'NEAL. They are scattered all across the State?

Mr. LUCIER. That is right.

Mr. O'NEAL. They are not in one area?

Mr. LUCIER. Not all of them, but there are several of them which are

grouped together.

Mr. O'NEAL. Could you name any of the others?

Mr. LUCIER. Yes, sir. The towns, sir?

Mr. O'NEAL, Yes.

Mr. LUCIER. Well, there is Claxton, Homerville-one of the areas up around Statesboro-down in your territory, sir.

Mr. O'NEAL. Some of them are 250 miles apart.

Mr. LUCIER. From one extreme to the other extreme.
Mr. O'NEAL. From Statesboro

Mr. LUCIER. No two that are that far apart.

So that there are two extremes, but they are scattered all the way in between. I would suspect 35 to 40 miles. The group over near your territory, sir, would be the farthest removed from the balance of them. Incidentally, in our office in Georgia, they also are charged with the operation of a company in north Florida, right across the line from that part.

Mr. O'NEAL. Thank you, sir. That is all, Mr. Chairman.

The CHAIRMAN. Mr. Jones.

Mr. JONES of North Carolina. Those you purchased in the State of Georgia, none were subsequently financed with REA money, prior to your purchase, were they?

Mr. LUCIER. Actually, we feel heir to that group. Another holding company purchased those companies and we, through a merger with another holding company, came into possession of the stock of those companies. All of them had been financed by the REA prior to our acquiring them. Subsequent thereto, none of them had borrowed or made new applications for loans from the REA.

Mr. JONES of North Carolina. That is all. Thank you.

The CHAIRMAN. If there are no further questions, we are very much obliged to you, Mr. Lucier. We appreciate your attendance here.

Our next witness is Adm. William C. Mott, executive vice president of the United States Independent Telephone Association, who is accompanied by Hugh Wilbourn, president of the Allied Telephone Co., of Little Rock, Ark.; Harold Payne, chairman of the REA Borrowers Committee and president of the Telephone Utilities of Pennsylvania, Export, Pa.; William Kingman, president of the Chenango-Unadilla Telephone Co., Norwich, N.Y.; and Bill Baine, president of the MidTexas Telephone Co., San Antonio, Tex.

We welcome you here, gentlemen. We will be glad to hear from

you now.

STATEMENT OF ADM. WILLIAM C. MOTT, EXECUTIVE VICE PRESIDENT, UNITED STATES INDEPENDENT TELEPHONE ASSOCIATION; ACCOMPANIED BY HUGH WILBOURN, PRESIDENT, ALLIED TELEPHONE CO., LITTLE ROCK, ARK.; HAROLD PAYNE, CHAIRMAN, REA BORROWERS COMMITTEE, AND PRESIDENT, TELEPHONE UTILITIES OF PENNSYLVANIA, EXPORT, PA.; WILLIAM KINGMAN, PRESIDENT, CHENANGO-UNADILLA TELEPHONE CO., NORWICH, N.Y.; AND BILL BAINE, PRESIDENT, MID-TEXAS TELEPHONE CO., SAN ANTONIO, TEX.

Mr. MOTT. Mr. Chairman and members of the committee, in previous testimony before this committee we made the point that our industry, like all industries affected by this bill, was not unanimous in its viewpoint on all provisions of the REA bank bill.

The last time I testified, I pointed this lack of unanimity out. I think that yesterday's testimony was an example which demonstrates to the committee that there has been and is some difference of opinion with respect to particular provisions of any bill which treats of an REA