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Private vs. public telephones — Bell fights back, but is accused of spreading misinformation
Jun 10, 2011
by Bruce Cherney (part 2 of 2)
The Liberal Party accused Premier Rodmond Roblin’s Conservative government of being “commercial bandits” for advocating the expropriation of the Bell Telephone Company’s assets in Manitoba. The Liberals said new Canadian government legislation was designed to bring order out of chaos and made it unnecessary for the province to expropriate Bell.   
Of course, history shows that there arose a hodge-podge of public and private ownership of telephone utilities. What Ottawa did through legislation was force all telephone companies across Canada to share distribution lines and equipment in order to establish a telephone network spanning the nation. The Liberal government of Prime Minister Sir Wilfrid Laurier did not take over the assets of any telephone company — either privately or publicly owned. In addition, federal legislation empowered the federally-appointed Board of Railway Commissioners to set rates for use of the national network.
A Free Press editorial (October 6, 1906) cited the new federal legislation as a reason to consider an alternative to the telephone system proposed by the Roblin government. The editorial proposed that a municipally-owned system could not be refused a connection with Bell. “The subscribers on the municipal system will be able to use the Bell trunk lines and talk to any subscriber of the Bell system in Winnipeg or anywhere else throughout the Province, and to do so at rates not fixed by the Bell Telephone Company, but the Board of Railway Commissioners.”
The Manitoba government sent a request to Ottawa asking for the amendment of the Act of Incorporation of the Bell Telephone Company of Canada that would allow the province to “lawfully expropriate the property, franchises and business” of the telephone company, including “land, plant, poles, wires, supplies, buildings, works, rights, franchises, easements, assets and appliances of every kind and nature.”
The request was subsequently firmly denied by the Laurier government.
“As the granting of any such request would obviously have seriously impaired the value of all charters whatsoever, the request was naturally refused” (Government Telephones: The Experience of Manitoba, Canada, by James Mavor, 1916).
Despite this setback, the Roblin government was intent on establishing a system of joint municipal and provincial telephone ownership.
In a December 6, 1906, article, headlined How Bell Crushes Public Phones and Why, the Telegram cited struggles in the United States against Bell’s power.
J.H. Shoemaker, of Iowa, associate editor of the Western Telephone Journal and general manager of one of the largest People’s Telephone companies in the U.S., told an Elm Creek audience on December 5 that 18 years of development under the Bell monopoly had resulted in only 300,000 telephones in the U.S. On the other hand, since the end of the monopoly,  the 7,500 people’s companies in the U.S. had 3.5-million subscribers and operated 12,000 exchanges in large cities and smaller cities, towns and villages.
In Iowa, the people’s companies operated 200,000 telephones, four times the number of Bell phones.
The people’s system in rural America grew out of necessity and had humble origins, according to Shoemaker, who cited an Iowa example of a farmer stringing a line to his son’s home. “The neighbours soon discovered how valuable a necessity such an arrangement is and that it only cost about $20 each, besides the labour for father and son, and the next home on either side asked for and obtained permission to connect on the same line in the same manner ... In this manner the line naturally grew until it numbered 20, including the merchant and the physician of the nearest village. Other neighbouring communities meantime had done likewise.”
Poles were erected between villages, an exchange built and telephone service naturally evolved to encompass more farms and communities, according to Shoemaker.
Shoemaker said Bell possessed powerful friends in Washington to implement legislation in its favour. The company also maintained its monopoly by undercutting competition (in some areas where the competition was particularly fierce, Bell actually provided free telephones to select customers) to drive other phone companies, such as the people’s exchanges, out of business.
An example of Bell’s duplicity in trying to undercut the competition occurred in 1885 when it set up The People’s Telephone in Winnipeg. The aim of the “fake” company was to undercut Bell’s own prices and those of its only rival, the Manitoba Telephone Company. The so-called people’s company — which by no coincidence like Bell had its headquarters in Montreal — offered a private telephone subscription for just $20, while the Manitoba Telephone Company could only offer a residential rate of $30 in the first year and $20 in the next year.
The stockholders in the new Manitoba Telephone Company were 180 dissatisfied local Bell subscribers. Among the stockholders listed was leading Winnipeg businessman and civic leader James Ashdown.
When the Manitoba Telephone Company collapsed after just one year of operation due to the pressure of competition undercutting its rates, the “fake” people’s company immediately pulled out of town, “leaving Bell Telephone in command of the situation at the old rates” (Telecommunications in Canada, by Robert E. Babe, University of Toronto Press, 1990).
After the Manitoba Telephone Company’s demise, Bell monopolized Manitoba until its U.S. patent ended in 1893 and other telephone companies again dared to enter the marketplace.
“You have heard how the Standard Oil company will cut the price below cost if necessary in order to kill off the competition and when that has been accomplished they will go back to their former price,” Shoemaker told the Elm Creek audience in 1906.
Standard Oil’s monopoly was so blatant and its business practices so predatory that the U.S. government in 1911 took it to court, suing it for violating federal anti-trust laws. Eventually, the suit reached the Supreme Court, which ruled  in the government’s favour and forced the company to be broken up into smaller components to be sold in order to create a more competitive marketplace. 
Like Standard Oil, Shoemaker said Bell would use its massive profits earned in Canada and the U.S. to destroy the competition.
“That is why we of the United States are anxious that our neighbours to the northward should fall into line and march against the common opponent.” 
On November 8, 1906, the Telegram reported on a speech made by E.H. Moulton, the president of the Minneapolis Telephone Company. Moulton described “at some length the unfair warfare of the Bell Telephone Company, declaring that the worst that had yet been said about it in this chamber was all true ...
“He advised the people of Canada not to travel the thorny road of organizing independent companies to fight the monopoly, but to embark on municipal ownership at once.”
Meanwhile, Bell urged Manitobans, especially in rural areas, to vote “no” in the plebiscite scheduled to coincide with the municipal elections in December 1906, arguing that neither the municipalities nor the provincial government could afford the high cost of local and long-distance telephone service. Bell claimed that it could not be legally expropriated, therefore municipalities and the provincial government would have to compete with it, making it necessary for every business to have two phones instead of one and incur twice the cost for telephone service.
During a meeting in Ste. Agathe, it was alleged by a Bell official that the municipally-owned telephone system in Neepawa was draining the town’s coffers. But the Telegram reported the town was actually thriving and “not going in the hole every year on this account.” Testimony by the town’s secretary-treasurer during the provincial committee hearings verified this assertion in the newspaper.
Premier Roblin entered the debate by accusing Bell of spreading misinformation in a circular sent throughout the province and by sending agents into rural areas “pretending to be the ‘farmers’ friends.’”
Roblin said in an interview in the Telegram, published on December 15, 1906, that the chief argument used by Bell was “that the cost of construction, maintenance and operation will be placed on the taxpayer, same as on municipal tax ... (But) the collection of the charge (for a phone) will be made separate and distinct from ordinary rates ... the taxpayer will not know from his rate bill that there is such a thing as a municipal phone. I desire to emphasize the fact that only those who use a phone will have anything to pay — exactly as the Bell.” 
By this time, Winnipeggers (only men 21 and older who owned property valued at $400 in the city had the right to vote) had already said “yes” to the plebiscite question, “Are you in favour of the city of Winnipeg owning and operating its own telephone system,”  by a 2,864 to 786 margin in the December 11 civic election. 
Despite the evidence of strong support for public ownership even before the vote, Winnipeg businessman James Ashdown, who was elected the city’s mayor on December 11, reserved judgement on municipally-owned telephones during the election campaign.
“I have not made up my mind,” he said in a Selkirk Hall speech. “I think, however, that .... The time will come when telephones will be owned by municipalities.”
Ashdown’s caution may have arisen because he ran on a business-backed platform that included bringing greater fiscal responsibility to city government. At the time, Winnipeg was overdrawn by $2.9 million at the Bank of Montreal and $1.3 million at the Bank of Scotland with no prospect in sight that the city would be able to repay the debts. 
Ashdown may have thought owning a municipal telephone system would have further strained the city’s bottom line. Actually, the financial inability of local governments to implement municipally-owned telephones would later influence a change in the provincial government’s own position.
Roblin said the Winnipeg vote was a signal for the government to proceed at once with the construction of long-distance lines. Shortly after the Winnipeg vote, the public works department was instructed to “call for tenders for poles, wire, cross-arms, insulators, etc.,” said Roblin, “so that as soon as the frost is out of the ground, we can get to actual construction.” 
While the premier was making plans to get into long-distance telephone service there still remained plebiscite votes in other communities during the December 18 province-wide municipal elections. 
The vote was held in the 123 municipalities then within Manitoba. Many of the rural municipalities didn’t even have telephone service of any type.
But the premier was right to express confidence in the outcome. In the end, the majority of Manitobans said “yes” to municipal ownership — 7,835 voted for the proposal while 3,622 voted against it.
Rural farmers and residents were the only group which seemed to reject municipal ownership, but this was explained in the Telegram two days after the plebiscite as the result of accepting “the advice of enemies.” That is, Bell officials, who told them “the falsehood that non-users of municipal telephones would have to pay for possible losses in connection with a municipal service.
“The falsehood was repeated in towns and cities but there was more opportunity to meet and overcome the deception there  than  ... (in) rural municipalities.”
“The central fact is that the province has committed itself to public ownership of telephones and to an extent which not only ensures the success of provincial long-distance lines but guarantees these trunk line feeders important to the general services of municipalities as well,” according to an editorial in the  Telegram, which heralded the vote as “a great victory.”
Whatever the reason given, communities and municipalities such as Stonewall, Rockwood, Minnesdosa, Morris, Morden, Pembina, Plum Coulee, Dufferin, Westbourne, Springfield and Montcalm rejected the government’s plan. The final vote tally was skewed in favour of the proposal by voters in the larger centres of Winnipeg (2,864-786), St. Boniface (610-107) and Brandon (312-83). 
It should be noted that voters in the town of Portage la Prairie and the surrounding municipality of the same name voted against the government’s plan. In the town of Portage, a majority did vote in favour of the telephone bylaw — 201 for and 185 against — but in order for the bylaw to pass it had to have a 60-per-cent majority, according to the provincial law for plebiscites.
“As the matter stands now,” reported the Portage la Prairie Weekly Review on December 19, 1906, “although a majority of the people ... have declared themselves in favor of public ownership of telephones, the council cannot go ahead with the installation of a system in connection with the government’s long distance lines.”
The Portage newspaper blamed the failure of the bylaw to gain a 60-per-cent majority on the intervention of Bell employee V.G. O’Brien, “assisted by several other employees of the company and Senator Robert Watson, one of the few men in this country who enjoy the benefits of a free telephone from the Bell Telephone Company and the free use of the company’s long distance lines,” who worked hard “to defeat public ownership of telephones.” 
Actually, some of the communities and municipalities by simple majority did vote in favour of public ownership, but the 60-per-cent provision resulted in the local telephone bylaws failing. This was the case in communities such as Pilot Mound (40 for, 39 against), Minnedosa (43 for, 37 against) and Deloraine (51 for, 41 against).
In the meantime, Bell attempted to show Manitobans it was prepared to expand and improve its service, although such measures did little to convince Manitobans the company was finally addressing their concerns. Bell did double the number of subscribers in 1906 and 1907, and by December 30, 1907, there were 14,042 Bell telephones in the province.
The March 7, 1907, provincial election essentially was a contest between the Roblin government’s dual municipal and provincial system and the Liberal Opposition’s call for a single provincially-owned entity (a position also then endorsed by the Manitoba Free Press).
The Roblin government used its telephone policy and the promise to significantly lower rates to great effect and easily won the election, despite Bell’s last-minute public relations campaign.
While the government had a mandate from the people to proceed with its telephone policy and undertook construction of long-distance lines, municipalities were more cautious in taking up the province’s proposal for local service “at cost.” Many municipalities, including Winnipeg, declined to co-operate with the government.
“The Government, therefore, was confronted by a dilemma: either abandon the proposed scheme altogether or to embark upon a Government-owned system of local exchanges as well as long distance lines, which was exactly the policy advocated by the Opposition,” wrote Mavor. “The Government chose the latter course as the lesser of the two evils and inaugurated the new program by issuing Provincial bonds to the amount of one million dollars, with the proceeds of which the construction was begun in September, 1907, of a telephone exchange in Winnipeg in opposition to the local system of the Bell Company.”
On December 12, 1907, Premier Roblin began negotiating in Winnipeg with Charles Sise, the president of the Bell Company, for the purchase of the company’s equipment and assets in Manitoba. Apparently, the Manitoba election result and the construction of the exchange in Winnipeg convinced  the Bell president that the company’s welcome in the province had come to an end.
In a January 1, 1908,  Free Press interview, Premier Roblin conceded, “Bell has evidently decided to retire (from) competition with governments, and will sell, if possible, to the other governments (Manitoba, followed by Saskatchewan and Alberta).” 
Sise set Bell’s value at $4 million, but the final figure agreed upon was $3.3 million.
“We purchased the Bell system for the purpose of avoiding a dual telephone system (under a dual system the government would have been in competition with Bell),” the premier told the Free Press interviewer, “and in that way preventing the waste of several million dollars of capital as well as the extra cost to the telephone user ... it is a good commercial proposition and whatever profit there is in the operation of the telephone system from this time on will belong to the people of Manitoba rather than a private company.”
The purchase gained widespread approval from small businesses and labour, especially in Winnipeg.
The government used a series of bills and orders-in-council over the period 1906-08 to accomplish the changeover to provincial ownership.
The new Manitoba Government Telephones officially became the only telephone company in the province on January 15, 1908, as well as the first publicly-owned telephone system in North America. It was to be operated by a three-member commission  made up of men who had previously been with Bell. In fact, the over 700 Bell officials and employees in the province became employees of Manitoba Government Telephones. The commission was chaired by F.C. Paterson, W.H. Hayes was appointed engineer and the auditor was H.J. Horan.
Premier Roblin said in the legislature on January 7, 1908, that the commission was to be an independent body free from political interference. “We have reached this conclusion for the reason that it is a commercial business ... that the service to be efficient and satisfactory must be of the very best type or kind; and to secure that we must have men in charge who have no interest to service — who are subject to no influence other than such as is of a telephone kind or character ...”
It was a hollow promise as politics soon began to permeate the operation of the new telephone system, especially when considering vote-rich rural ridings. The government “recommended” the commissioners begin the rapid extension of the service into these regions regardless of how costly the undertaking. The government had the final say as it controlled the awarding of contracts, as well as the approval of materials, for the construction of  telephone lines rather than the commission.
The example set in Manitoba was quickly followed by the Saskatchewan and Alberta governments.
Throughout its years of existence, the publicly-owned telephone system was used in one form or another as a political football to be kicked around at the will of the government in power. Government meddling was sometimes in the best interests of the public, but frequently it was not.
Between 1908 and 1912, southern Manitoba witnessed a flurry of activity with the number of subscribers increasing to 40,000. 
In 1921, Manitoba Government Telephones was reorganized into the Manitoba Telephone System (MTS). According to the 1921 MTS report, the Crown agency had an obligation to extend its service throughout Manitoba, “even at a loss, to points that have no other means of direct communication, as telephone service is one of the greatest factors in the development of the province.”
In 1997, the era of public ownership ended — shares were offered and MTS became a private company and was renamed Manitoba Telecom Services Inc.