Senator EELLENDER. So that you represent about 50 percent of the exchanges?

Mr. BARNES. Yes; and they serve 85 percent of the independent telephones, so we represent 85 percent of the independent telephones. Senator ELLENDER. Well, is your board unanimous in having you appear here today to oppose this bill? In other words, was there any opposition among the independents that you represent as to your testimony here today?

Mr. BARNES. It was action of the board. I am appearing here in accordance with the wishes of the board.

Senator ELLENDER. Well, are we to understand that your entire membership is able to obtain financing so as to expand to the extent they desire?

Mr. BARNES. No, sir; we have members and telephone exchanges which have difficulties. The difficulty arises largely from a revenue standpoint, because if you do not have satisfactory operating conditions, if you are unable to pay maintenance and all the costs of operating the exchange, you are for that reason in an unsound operating condition.

Senator ELLENDER. What prompts the question is this. I attended hearings on Friday, I believe, and quite a few independents appeared as being in favor of this bill, and the main reason for appearing was that they were unable to obtain finances so as to maintain what they had. Banks would not loan them any money and they could not obtain more than-I think the limit they could obtain was-$25,000.

Because of their inability to obtain these finances, it caused many farms to be without telephones. If there was an easier way to obtain credit, why they could probably serve more people. Are they correct in that?

Mr. BARNES. We have examined the statements of those companies, and we find they are only 65 in number, representing 1 percent of the total independent companies that have made these signed statements to that effect. They operated three-tenths of 1 percent of the 6,841,000 telephones in the United States.

We are private enterprise, and there are all grades of management, as in any other private enterprise, and there will be those who have difficulties in the operations, as in any other business, but with sound operation we feel that there are finances available.

Senator ELLENDER. When you say "a sound operation"

Mr. BARNES. Sufficient revenue to pay the operating cost. Senator ELLENDER. Well, in some places though, that kind of operation cannot be put into operation. In other words the distance is so great that they are not as fortunate as you are in South Carolina where you have a system of a lot of small towns that help you out in getting sufficient revenue so you can help those on the outside, where if you only had those on the outside, you would have a loss.

Mr. BARNES. Well, Senator, I feel that if you are not operating and making any return on the operations and you are paying maintenance, you cannot pay any rate of interest, regardless.

Senator ELLENDER. In your system are there any sections that you serve that are in the red?

Mr. BARNES. I have only one exchange in Rock Hill, sir, and we serve with lines reaching out 8 to 10 miles.

95401-49- -14

Senator ELLENDER. In answer to a question by Senator Holland a moment ago, you complained about the fact that you pay taxes and that if this goes through, others will not pay taxes. What do you mean by that?

Mr. BARNES. Well, I understand that the cooperatives do not pay income taxes or other taxes on their operations, and by the elimination of taxes, which are part of our operating expenses

Senator ELLENDER. But there is ad valorem taxes on the lines, the wires and the exchanges and everything elase.

Mr. BARNES. By the local bodies.

Senator ELLENDER. You had income taxes in mind?

Mr. BARNES. Well, income taxes, excise taxes also, and they are the taxes which take a part of operating expenses or a part of the cost of service to the telephone users.

The CHAIRMAN. Are there other questions? We thank you, Mr. Barnes.

Mr. BARNES. Thank you very much, gentlemen.

The CHAIRMAN. The next witness is Mr. Lumpkin. For the record state your full name, post-office address, and business or connection.

STATEMENT OF R. A. LUMPKIN, PRESIDENT, ILLINOIS CONSOLIDATED TELEPHONE CO., APPEARING ON BEHALF OF THE UNITED STATES INDEPENDENT TELEPHONE ASSOCIATION AND THE ILLINOIS TELEPHONE ASSOCIATION

Mr. LUMPKIN. Mr. Chairman, my name is R. A. Lumpkin. I am president of the Illinois Consolidated Telephone Co., with headquarters in Mattoon, Ill., where I reside.

The CHAIRMAN. Mr. Lumpkin, you have here a statement covering 15 pages. Of course the statement will be placed in the record exactly as presented to the committee, and if it be agreeable with you, we would prefer for you to just tell us what you think about this bill. Your statement will be placed in the record at this point, but we would like you to tell us your objections to the bill. It would be more effective to do it that way, if that would be agreeable.

Mr. LUMPKIN. I certainly want to suit your convenience, Mr. Chairman.

(The statement above referred to is as follows:)

STATEMENT OF R. A. LUMPKIN, PRESIDENT, ILLINOIS CONSOLIDATED TELEPHONE Co., BEFORE SENATE COMMITTEE ON AGRICULTURE AND FORESTRY My name is R. A. Lumpkin. I am president of Illinois Consolidated Telephone Co., with headquarters in Mattoon, Ill., where I reside. This company is a unit in the independent segment of the telephone industry. It operates 33 exchanges in a typically agricultural section of south central Illinois. These exchanges range in size from 150 stations to about 6,900 and serve in total approximately 35,000 telephones. Since about 25 percent of the company's main telephones are classified as rural, the farm telephone is a very important part of our business. We are naturally interested in any legislation affecting rural telephone service. My appearance here today is in behalf of the United States Independent Telephone Association and the Illinois Telephone Association in addition to my own company. Mr. Barnes has told you about the United States Independent Telephone Association. I would like to acquaint you similarly with the Illinois Telephone Association and its membership since I appear here in their behalf and at their request.

There are 378 operating telephone companies in the State of Illinois. Two of these companies are members of the Bell system. The remaining 376 belong to that segment of the industry known as "independent.' As of December 31, 1948, these Illinois independents were operating a total of about 447,000 telephones. Out of this total, 310,000 were urban telephones and 137,000 rural telephones. 121 independent telephone companies are members of the Illinois Telephone Association. These 121 companies operated a total of nearly 398,000 telephones at the year end. In other words, they operated then and still operate nearly 90 percent of all telephones operated by independent telephone companies in the State of Illinois.

The telephone industry welcomes every sound suggestion or proposal that will help it speed up the attainment of its objective to make good telephone service available to every rural resident who wants it and is willing to pay a reasonable price for it. However, after a careful examination of S. 1254, industry members generally have concluded that the proposals therein, if enacted into law as drafted, very likely would be more harmful than helpful not only to their rural program but also to other phases of their business. Thus they appear here in opposition to the bill.

The proponents of Federal rural telephone legislation cite Department of Agriculture figures to show that there were less farm telephones in 1945 than in 1920. This interesting fact is used to imply that farm telephone service is drying up and that without Government intervention it is only a matter of time until it will become virtually a thing of the past.

It should not be too surprising to find that there were less farm telephones in 1945 than in 1920. Census figures show that the number of farms had decreased by about 650,000 in the same period of time. For the greater portion of that time, in fact until the year 1941, cash farm income, including Government payments, was substantially below the 1920 level. For the remainder of the period material shortages and Government restrictions resulting from the war greatly curtailed normal installations of telephone service. The really significant thing about the 1920-45 figures is that they reveal fewer farms without telephones in 1945 than at any previous time in our history. The decline in the number of farms without telephones amounted to nearly 700,000 in the 5 years between 1940 and 1945 alone. And, as the Bureau of Census points out, its count of the number of farms in 1945 included "numerous agricultural activities such as Victory gardens, which because of lower prices would not have been considered farms in 1940."

Industry representatives have produced evidence to show that rural service is being rapidly expanded and improved, they cite that this has been accomplished without Government intervention, and give assurance that it will continue at a satisfactory rate without the proposed legislation. They have produced evidence to show that this expansion and improvement is proceeding at the most rapid rate in the history of telephone communications and that it is taking place as a part of the most comprehensive and large-scale program of expansion ever undertaken in peacetime by any American industry. According to the New York Times of Sunday, May 15, the Bell system alone has been spending $2,750,000 of new capital each business day since the end of the war. To this must be added, of course, the unprecedented expenditures of the independent companies during the same period in order to produce the whole picture.

I feel certain, Mr. Chairman, that your committee will not put its stamp of approval on the rural telephone bill and its many provisions, which depart so drastically from past legislation, unless the committee is firmly convinced that private enterprise in the communications field is incapable of performing the task which it has so heroically undertaken. In the face of what has already been accomplished, it seems unlikely that such a conclusion will be reached. Furthermore, I am sure your committee will want to ask about the risks involved in the proposed legislation, weighing carefully any dangers to our social and economic structures resulting from further possible Government encroachment upon the freedoms inherent in our private enterprise system, and examine the possibilities of new and more serious problems to follow if the legislation is finally enacted. The telephone industry here in the United States is the world's outstanding example of private capital in public service. It has provided this country with 60 percent of all the telephones in the world although there is only 6 precent of the world's population here to be served. Other witnesses point out that Nationwide, approximately 50 percent of our farms already have telephones and this percentage is showing a steady month-by-month increase; that in six of the nine census regions of the country, farm telephone development is 70 percent, the same

as in the cities; that, it is only in the southern and southwestern tier of States where farm telephone development is still on the low side and this results from the low economic status which prevailed for most of the farmers in those areas before the war; and, that the sharp rise in farm income since the start of the war has resulted in a new and increased demand for farm telephone service, some of which still remains to be satisfied.

However, it would be extremely unrealistic to consider all farm homes as prospects for telephone service. Competent commercial surveys taken in various parts of the country show that under current conditions a rural development of 85 percent in the very best agricultural sections would represent saturation. For example, since the first of this year, my own company has conducted a number of rural customer surveys in connection with our program of rural plant improvement and expansion. These surveys have been made over an area in which about 20 percent of our rural customers are located. They were conducted by competent commercial employees, trained in the selling of telephone service. The survey disclosed that 74.4 percent of the rural establishments already had service; 3.5percent were found to be unoccupied. This left only 22.1 percent as prospects. Our salesmen contacted all of this 22.1 percent preaching the value of telephone service in the same glowing terms as those used by the proponents of farm-tele-phone legislation. Yet only 2.7 percent of the whole ordered service when contacted. Our salesmen were unable to obtain orders from the remaining 19.4 percent. Surprisingly enough, 14.7 percent flatly stated that they did not want service, while 4.7 percent appeared unable to make up their minds. Nevertheless, it is these 22.1 percent, found to be without service in my company's area, and similar percentages in the areas of other companies, which form a large part of the "farms without telephones" and constitute the statistical basis of the arguments made by the proponents of this legislation, that the Government should step in and do something.

While it has been impossible for the industry to keep abreast of the demand in all areas of the United States, particularly in those areas in which farm income has risen from the lowest levels, it is a fact that the percentage of farms with telephones has nearly doubled since 1940. Approximately 1,600,000 rural tele-phones have been added since VJ-day alone-this is at the rate of well over 1,000 per day. In the great majority of cases, new installations are providing a service much improved over that at the start of World War II.

Take, for example, the record of my own company. Since Pearl Harbor, the number of rural stations served by the company's exchanges on that date has risen by 60 percent, while the number of rural stations receiving common battery or dial service through those same exchanges has nearly trebled. The latter is but one example of many improvements made in our rural service during the past few years.

It is impossible for me to cover adequately the many phases of the industry's current program and its spectacular accomplishments. In this respect I can only reemphasize the testimony of other witnesses from the telephone industry. This testimony is to the effect that rural telephone service is currently available without construction charge to between 80 and 85 percent of the occupied farms of the United States. No one has offered any evidence here that would controvert these industry figures.

Accomplishment thus far must make it clearly apparent that the aim of the industry is to make good telephone service available as fast as practicable to every farmer who wants it and is willing to pay a reasonable price for it. Moreover, the industry is hitting its mark. The Committee on Agriculture of the House of Representatives in its report on the Poage bill acknowledges that "the telephone industry has made significant strides since the end of the war." These strides have been made by the industry purely on its own initiative and without a single cent of subsidy or financial aid from the Federal Government. The industry can and it prefers to continue to do its job without the subsidy proposed in S. 1254 and supported solely by funds from private investors. We believe that a clear majority of the American people feel the same way about this matter. Proponents of this legislation have frequently quoted a statement contained in a report made back in 1945 by the finance task group of the United States Independent Telephone Association's rural telephone service committee. This state-ment reads as follows:

"The problem of financing for the small telephone company to provide funds necessary for plant replacement and improved equipment is one of major impor-tance in the independent industry."

The statement was and still is manifestly applicable not only to small telephone companies but also to all companies, both large and small, in every segment of

American industry. The problem of financing replacements on the basis of costs that have resulted from inflation, costs that are two, three, and often five times reserves accumulated for such replacement, has been particularly important to each and every one of us for some time past, and it is not likely to be otherwise in the near future. Moreover, the problem of financing is always one of major importance to every growing business enterprise. This problem, however, is primarily one of obtaining additional equity money or risk capital. Increased debt is not the answer to the problem of financing the cost of either the improvement or the expansion of telephone service. However, the proposed legislation has nothing else to offer owners of distressed telephone property.

Senator Hill draws attention to a statement made by Mr. E. C. Blomeyer in writing about farm telephone development and Senator Hill's original rural telephone bill which was introduced in 1944. Senator Hill quotes Mr. Blomeyer as saying: "The vital question is that of how the small independent companies are going to get the money with which to do their part of the job if this legislation is not enacted." This statement followed another made by Mr. Blomeyer which I would like to quote for the committee's benefit: "Farm telephones are going to be increased whether the legislation is enacted or not." The latter statement was accurately prophetic. The legislation was not enacted and the record shows the extent to which farm telephones have increased.

Mr. John H. Agee, vice president and general manager of the Lincoln Telephone & Telegraph Co., Lincoln, Nebr., supplied an answer to Mr. Blomeyer's vital question in an article published June 30, 1945, in the magazine "Telephony." Repeating the question, "Where will the money come from," he replies by posing a second question, "Where did the money come from that was required to start these enterprises 40 years ago?" The answer to Mr. Agee's second question is, of course, that it came from investors who, having faith in the future of the telephone business, were willing to risk their savings or accumulated capital in it for the sake of what is known under the capitalistic system as a return on investment.

In an address given in November 1946, at the fifty-eighth annual convention of the National Association of Railroad and Utilities Commissioners, Commissioner Whitney of Wisconsin said:

"Up to this time it has been the experience of our commission that the problem of financing rural telephone needs has not been too serious. As a matter of fact, there have been few, if any, instances of a farmer being denied telephone service in Wisconsin at any time except on the grounds that material was not available." I commend Commissioner Whitney's address to your committee, Mr. Chairman, since it presents in a fairly impartial manner a nonindustry viewpoint of the rural telephone situation and the possible effects of legislation such as we are discussing here today.

If S. 1254 is intended primarily for the aid of small and financially distressed telephone companies, it is likely to fall far short of its purpose. In section 201 of the bill, we find the following restriction on loans:

"Loans under this section shall not be made unless the Administrator finds and certifies that in his judgment the security therefor is reasonably adequate and such loans will be repaid within the time agreed."

Companies that could qualify for a loan on this basis would not be turning to the Government for their funds. Under such conditions they would have no difficulty in obtaining money from commercial bankers and private investors.

There are, however, instances in which a few companies for a variety of reasons are unable to increase their capital obligations. Admittedly, their financial requirements are not large, and as witnesses have already pointed out, the RFC not only is equipped, authorized, and well-suited to take care of the requirements of these distressed situations, it has already done so in a number of instances. Some minor modifications in the authority which Congress has already granted the RFC such as the removal of the 10-year maturity limitation proposed in the Maybank bill, S. 2344, might prove advantageous in tailoring the term of telephone company loans to the life of their property.

Many have asked why the authority to make loans in the very specialized field of telephone communications should be vested in the Rural Electrification Administration. The rural telephone bill which Mr. Hill introduced back in 1944 would have established a separate Rural Telephone Administration. Perhaps that accounted for the lack of support which Mr. Hill's first bill received from the electric cooperative's lobby as compared with the all-out effort of Mr. Ellis and the National Rural Electric Cooperative Association in favor of S. 1254.

Despite its acknowledged accomplishments in the field of rural electrification, the REA still has but a mere nodding acquaintance with the operating problems of the telephone industry. It is true that power companies and telephone com