Back
Private vs. public telephones — Bell company criticized for not providing adequate phone service
Jun 06, 2011
by Bruce Cherney (part 1)
Bell Telephone of Canada company officials at times must have felt they could count the number of friends they had in Manitoba on one hand. Almost daily, Manitoba newspapers criticized the company’s business practices, farmers ripped into the company for failing to extent telephone service into rural areas, and politicians threatened to end the company’s near stranglehold on the marketplace and create some form of publicly-owned telephone system.
While Bell wasn’t the only private company operating in Manitoba — a profusion of telephone companies arose after 1885 when key portions of Bell’s telephone patents were voided by the Canadian government’s patent commissioner (when the Bell patent expired in the U.S. in 1893, even more telephone companies entered the Canadian market) — it had the most customers. As such, Bell became the most readily identifiable target for widespread customer dissatisfaction with their telephone service.
Periodically, disgruntled Winnipeg business customers held meetings with Bell officials requesting a reduction in the company’s rates. On April 9, 1885, a number of businessmen met with company officials in Leland House (Hotel). At the meeting, Bell manager F.G. Walsh offered to lower the company’s rates to $50 for businesses and $10 for private phones, provided three-year contracts were signed. The company also proposed the purchase of a telephone for $25 and the payment of three-cents per call.
Kenneth McKenzie, the president of the Winnipeg Board of Trade and chair of the meeting, told Walsh another Toronto-based company had offered a much lower rate of $20 per telephone and an annual fee of $15 for service.
The Bell manager told those gathered that they were already receiving a “cheap rate,” when compared to other centres. He cited rates of $150 to $210 in New York, $110 to $120 in Philadelphia, $100 to $125 in Chicago, Montreal $50, Toronto $50 and Hamilton $60.
“He pointed out that the expenses of the company here were large,” reported the Winnipeg Daily Sun on April 10, 1885, “principally because of the heavy freight on construction and the high salaries.
“The payroll at the head office in Montréal was only twice as large as here, although they had more than three times the number of subscribers there,” according to Walsh.
At the time, Bell said it had 400 subscribers in Winnipeg, and the income derived was just $14,000 with costs — taxes, fuel, light, etc. — leaving only $3,422 to pay its employees.
Some complained about the high rates, but Alderman Edward L. Drewry said he paid with pleasure and believed he received value for his money. Still, a resolution was passed calling for lower rates from Bell, offering the company $40 per year for a business line and $30 a year for a personal line. In the event that the company refused the offer, the telephone committee was authorized to open negotiations with the other unnamed company.
What the subscribers did not know was that Bell surreptitiously controlled a so-called rival company and was in the process of driving the only “true” rival out of the marketplace.
To counter its many critics, Bell went on the offensive and began selling its version of telephone service in the province, although by then it was essentially too late.
Bell took out full-page advertisements in Manitoba newspapers outlining how it had improved service across the province. One such ad posing as an article appeared in the July 1, 1905, Manitoba Free Press. The text was accompanied by a map of the Bell network in Manitoba from Moosomin in the west to Ridgeville in the east, Eden in the north and Snowflake in the south. While it appeared to be an extensive network, the reality was that much of the system was “projected or under construction.”  
According to the ad, Bell had initiated its service in Manitoba by buying out a small exchange owned and operated by Horace McDougall, the manager of the Northwest Telegraph Company in Winnipeg, in 1881. “There were but a few subscribers and the equipment was primitive, and the service not by any means as efficient as it is to-day, the rate charged was $60 per annum.”
The company then explained that it expanded outward from Winnipeg to Portage la Prairie in 1882 and then to Brandon a year later. 
“In Winnipeg during a period of sixteen years, the central office apparatus style of telephone, system of wire construction, etc., has been entirely changed four times and the company has built two new buildings, or in other words, the whole investment has been repeated at an added cost each time every four years.”
Bell particularly drew attention to its new Winnipeg switchboard that was installed at a cost of $180,000.
A July 28, 1905, Bell ad in the Free Press was meant to counter claims that the company purchased its equipment from U.S. manufacturers “at high prices, and that subscribers are paying for this in their rates.”
The ad asserted there was no substance to the claim: “Practically everything that goes into the construction of a modern telephone system is produced in the factories owned and controlled by the Company. The prices charged the Company are fixed by competition with the largest electrical concerns on the Continent. That the prices are reasonable and the articles of the highest merit is demonstrated by the fact that nearly  fifty per cent of the output of these factories is sold to other Canadian consumers in competition with producers in the United States and Europe.” 
Despite the company’s assertions of its benefits to Manitobans, momentum was steadily building to end Bell’s power in the province in order that the government create a publicly-owned telephone system. 
Bell had for years been sowing the seeds of discontent across Manitoba by giving the impression that it was arbitrarily raising phone rates to line investors’ pockets. Also, rural Manitobans were becoming increasingly frustrated by the company’s failure to deliver promised telephone service to their farms and communities. The Grain Growers Grain Company (forerunner of the United Grain Growers) led the fight for rural lines and government ownership, claiming the existing companies were only interested in communities where high populations made telephone service profitable.
“It was operated as a profit-making monopoly, and so refused to extend lines into the thinly-populated parts of the province,” wrote Ed Whitcomb in A Short History of Manitoba, “precisely where most needed.”
The Baldur Gazette on October 4, 1906, contained an editorial that claimed the company had been in business in the province for 25 but the vast majority of farmers were still waiting to obtain service.
“A Company which has taken 25 years to discover that farmers require a telephone service in an agricultural country, such as Manitoba is, has little ground upon which to base the assertion that it is a pioneer and has shared the responsibilities of ‘old timers,’” ended the editorial criticizing the company’s claims that it was joining farmers as a pioneer in building up the wealth of the province.
This sentiment was echoed by the federal government’s Select Committee on Telephone Systems in 1905, which concluded rural telephone service was “absolutely neglected and discouraged in Canada by the existing companies, for the reason that it does not prove such a lucrative business as the exchanges in cities and towns.”
After investigating 58 existing telephone companies, the committee found there were only 2,566 “rural telephones” of a total 96,000 (70,000 belonged to Bell) telephones in Canada.
Manitoba Premier Sir Rodmond Roblin in November 1905 recognized a political opportunity and seized upon the burgeoning dislike Bell attracted. It helped that much of the dislike was located in rural areas where the vast majority of seats in the legislature were found. 
Roblin proposed a plebiscite allowing Manitobans to vote on their preferred type of telephone service.
In a November 23, 1905, speech reported by the Manitoba Free Press, Premier Roblin outlined the government’s telephone policy for “a telephone system in the province ... owned and controlled by the municipalities and the government jointly ...
“We have reached this conclusion from the fact that the telephone is, and must be, necessarily one of the natural monopolies, and yet is one of the most desirable and necessary facilities for the dispatch of business and for the convenience and pleasure of the people. Therefore, the price of telephones should be so low that laboring men and artisans can have the convenience and advantage of the telephone, as well as the merchant, the professional man and the gentleman of wealth and leisure, and it is our intention to recommend to parliament (provincial legislature) a proposal of this kind with a view of giving a telephone system to all classes at cost.”
The Roblin government established a special committee, headed by Manitoba Attorney-General Colin H. Campbell, to investigate  telephone service in Manitoba.
The committee heard that independent community companies in rural Manitoba — Gladstone-Plumas, Neepawa, Birtle, Russell and Melita — were highly successful and charged customers significantly lower rates than those levied by Bell.
David Smith of Gladstone, when testifying about the Gladstone-Plumas telephone system on February 1, 1906, which was in its third year of operation,  said it had cost $6,000 to build the system and within two years the debt was paid off. The fee was $20 per business line, $15 per private line, or $30 for both.
The one problem was that there was no long distance service as Bell said it was unable to connect the local system to its lines, according to Smith.
Neepawa ran its own electrical and telephone utilities, which town secretary-treasurer James W, Patterson said was under construction in 1899 and then initiated on January 1, 1900, at precisely 4 p.m. With the advent of the municipal telephone service, residents cancelled their Bell contracts and the company left town. The fee for a business  phone line was $20, while domestic lines were just $10 each.
To encourage other municipalities to follow the example set by Neepawa, enabling legislation was passed by the provincial government in 1899 for the extension of municipal telephone systems.
“Your Committee also went to the United States to further probe their investigation,” Campbell told the Manitoba Legislature on February 27, 1906, when releasing the findings of the committee, “and visited Minneapolis, St. Paul, Chicago and Grand Rapids, taking the evidence of the parties connected with the independent companies operating in these cities ... A thorough inspection was made of the telephone plants, both local and long-distance, in these cities, and the Committee was much impressed with the successful and satisfactory operation of the automatic system, particularly in Grand Rapids.”
Campbell said the independent companies in the U.S. were successfully competing with Bell and were able to cut rates in half.
F.W. Patterson, the manager of the northwest division of Bell, told the committee on February 7, 1906, that there were an estimated 3,500 business and 2,000 private lines in Winnipeg. Patterson was forced to estimate the numbers since he didn’t obey a subpoena issued by Campbell to produce the company books, which he claimed were still at Bell’s headquarters in Montréal. As a result, Patterson provided only sketchy information to the committee.
More extension information about the company’s operations in Manitoba was given by Bell Telephone Company of Canada’s general manager Lewis McFarlane.
McFarlane explained that the average charge per telephone in Winnipeg was $38 per year, the capital cost was $153. “The cost is $6.73 for operation, $16.60 for maintenance and appreciation; and $5 for the general expenses of the head office” (Manitoba Free Press, February 22, 1906). 
McFarlane told the committee on February 21 that his company was committed to expanding telephone service in the province and mentioned it had spent over $1 million on various projects such as new switchboards, lines and long distance wiring.
According to Bell statistics, by 1905 the company had 6,224 subscribers and 892 miles of long distance and rural lines, but only 1,500 phones were actually outside Winnipeg.
The February 27, 1906, report issued by the committee recommended the operation of a combined municipal and provincial telephone system, which became the basis of a bill passed in the legislature on March 16, 1906, although the government did not take immediate action to implement its new telephone policy.
In the same year, the government was becoming increasingly alarmed by the anarchy reigning in the province that saw telephone companies using brutal tactics against each other to usurp customers. In some instances, a company would put up telephone poles only to later have the poles hacked down by a rival. The arrival of new competitors also meant that lines used by one company were not interconnected with another, 
resulting in customers having to purchase more than one phone in order to readily communicate with the outside world. 
The government decided the only way to end the escalating hodgepodge of rivals was to refuse to incorporate any more companies, although it was still receiving applications.
The Conservative government announced a plebiscite for the December 1906 municipal elections. In the lead up to the plebiscite, the company and politicians squared off in what can be appropriately described as the “great Manitoba telephone debate” over private vs. public ownership. Arguably, it was a very one-sided debate with the private-sector company receiving short shift from  many media outlets and a majority of politicians at the municipal and provincial level who saw potential votes in opposing “big bad” Bell.
The plebiscite ballots asked voters, “Shall this municipality own and operate its own telephone: ‘Yes’ or ‘No.’” The provincial government maintained its original intention to only control long-distance telephone traffic, leaving Manitoba municipalities in charge of local service. 
An affirmative vote “merely gave the council of the municipal power the right to go ahead and take up the problem,” according to an explanation provided in the  December 5, 1906, Morning Telegram. “There was to be no coercion. The question of building plants depended entirely upon the will of the municipalities themselves. The government of Manitoba merely provided for the people the necessary legislation to install municipally-owned telephones if they desired.”
Robert Rogers, the minister of public works, told reporters the provincial government was prepared to help municipalities acquire telephone service “at cost.” At the same time, the minister said he would support any future request from the Union of Manitoba Municipalities for the province to take over local exchanges.
Rogers asserted that he was confident the dual system would cut telephone rates in half to consumers and still realize a profit, a statement echoed by the premier.
Both the ruling Conservative Party and the opposition Liberal Party advocated public ownership of telephones, but instead of municipal and provincial ownership, the Liberals favoured only provincial government ownership.
By 1906, the debate filled the pages of Manitoba newspapers and was the main topic of political speeches.
The Free Press (a newspaper supporting the Liberal Party ) advocated some form of government ownership of telephones as long as it wasn’t proposed by the Conservatives. It was more guarded in its criticism of Bell than other newspapers, such as the Telegram (a supporter of the Conservative Party) which was openly hostile to the company. In fact, other newspapers accused the Free Press of being a hired mouthpiece for Bell. 
The reality was that as the organ of the Liberal Party, the Free Press, was more interested in taking potshots at Roblin and his colleagues. As the opposition newspaper that criticized the Roblin government whenever possible, the Free Press felt obliged to provide some grudging support to the company under attack from the Conservatives.
A November 25, 1905, Free Press editorial offhandedly dismissed Roblin’s proposal for a joint municipal and provincial government telephone system. The editorial claimed telephone service was “what economists term a ‘natural monopoly.’ It is not a public service which admits satisfactorily to the public convenience of being divided between two or more systems.” 
An opinion expressed in the Free Press (March 2, 1906) was that the Canadian government would not allow the Roblin government to expropriate the telephone assets of Bell. It was not a farfetched opinion as disallowance of provincial legislation was  common during the era.
Ottawa can ask the Crown to disallow provincial legislation and has in the past exercised this power whenever the federal government deemed the legislation inappropriate to the interests of Canada (contrary to federal legislation or policy, or else unconstitutional). The disallowance club was used against Manitoba in the 1880s when the provincial government granted charters to new railways that would be in competition with the Canadian Pacific Railway, which had been given a 20-year monopoly in the West by Prime Minister Sir John A. Macdonald’s government. In fact, Macdonald became noted for frequently using disallowance to overturn provincial legislation. After 1911, disallowance was rarely used by the federal government.
On the other hand, Attorney-General Campbell was confident that the province would be able to expropriate the assets of Bell through either negotiations or arbitration. He said it was possible that Ottawa would not give the province the power to expropriate Bell, but the Roblin government was determined to go ahead with its plan to enter the telephone business.
Horace Chevrier, a Liberal MLA, told the legislature on March 5, 1906, his party endorsed the proposition of public ownership of the utility.
“The day of public ownership has dawned,” he said. “The flowing tide is with it. 
Although he endorsed public ownership as a fact, Chevrier alleged that the Roblin government was “attempting to utilize this strong and growing sentiment for their own purposes.” 
Chevrier expressed the opinion that the provincial government may have been jumping the gun, and that the federal government was preparing to initiate a Canada-wide public telephone system.
“But the granting of the powers this province asks for (expropriation of Bell) would prejudice any such desirable development, for we should see a Dominion and a provincial system competing against each other in this province.”
Speaking against the legislation, Chevrier said it was “confiscation not expropriation,” and it would be impossible for the federal government to allow the legislation to stand if passed, as the provincial government would become “commercial bandits” by seizing the assets of Bell in Manitoba.
(Next week: part 2)