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Telephone
Mergers Illegal
ADDRESS BY
A. C. LINDEMUTH
President International
Independent Telephone Association
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. Published by - -
THE INTERNATIONAL INDEPENDENT
TELEPHONE ASSOCIATION
Monadnock Block, Chicago











“The Integrity of the Independent Telephone
System and its Universal Extension’’
HE history of the telephone reads like a ro-
mance. The origin of the telephone, the
circumstances of its invention and conflict
of the patents; the organization and power
of the great Bell telephone monopoly which
for seventeen years, entrenched behind and
protected by its patents, farmed out the
telephone business of the United States to
numerous subservient companies and plant-
ed its powerful influence into the judicial,
executive and legislative departments of the
states and the federal government; the
splendid legal battles waged by the National
Independent Telephone Association against
the attempted fraudulent extension of the patents and the
further perpetuation of the monopoly and the signal victory
of the people; the heroic efforts and generous contributions
of those engaged in that struggle; the birth of the Inde-
pendent telephone movement and the highway methods of
the old monopoly to throttle and destroy its first attempt,
after lawing and harrassing those so presumptious as to
engage in building and operating telephone exchanges—by
burning and destroying their telephones and equipment;
the wonderful growth of the Independent telephone move-
ment and the marvelous multiplication of telephones under
the stimulus of free and popular competition; the spring-
ing up of numerous Independent telephone factories, Sup-
ply houses and accessory concerns to meet the demands of
this new and popular system; the scientific perfection of
telephonic apparatus under competitive influence and the
great diversification and extension of its use; the wasting
of millions of its stockholders’ money by the Bell company
in its unsuccessful efforts to rule or ruin the Independents;
the present supremacy of the Independent telephone system,
and the splendid assistance rendered by a small coterie of
stanch and able telephone journals to that end. These are
but the leading chapters in the story of the telephone—par-
tially told by many, but completely told by none.
Interesting as the story is, I must leave it. I regret my
inability to take the time to go more fully into the history
of telephonic development, for, absorbing as it may be to the
student and historian, it is always necessary to a clear
understanding of the Independent telephone movement;
how and why it came about; its present condition and its
future possibilities. By the light of that history, too, we are
better able to analyze and determine what the present atti-
tude of the Independent telephone movement is and what
its future policy should be.

AN OLD PROBLEM UNDER A NEW FORM.
One of the problems which perhaps is occupying our at-
tention more than any other, is the changed attitude of the
Bell Telephone Company and its subsidiary companies in
their efforts to better their own condition and at the same
time break down the Independent system of the country, by
combining, merging and otherwise making physical con-
nection with Independent companies. The remarkable fact
about this arrangement is that in every instance where
physical connection is made with the Bell company by an
Independent company, the Independent company is joined
to the Bell system and the Bell company never joined to the
independent system. Such connection is always so regard-
ed by the general public and by the Bell company itself.
That I speak the truth with respect to the Bell company is
shown by the last annual report of the president of the
American Telephone and Telegraph Company to his stock-
holders issued a few months ago. On page 32 all telephones
of Independent exchanges are added to the Bell system. He
says: “Including all companies connected with the Bell sys-
tem, the number of stations is 3,839,000 against 3,OOO,660
at January I, I907, an increase of 768,340 stations.” On
page 3, he says: “The number of stations at the end of the
year operated directly by the associated companies which
constitute our system in the United States was 3,035,533, an
increase of 308,244. In addition to this number there were
755,316 exchange and toll stations connected to our system
by our toll and long distance lines.” If it were not for these
Independent connections there would have been an actual
falling off in the increase of Bell subscribers’ telephones in
the United States over the previous year as admitted by
the president himself on page 4 he says: “The increase in
the number of subscriber stations operated directly by one
associated companies was less than last year, due to more
rigid collection of bills and more careful scrutiny of appli-
cants.”
Again the president of the Central Union Telephone
Company in his recent annual report to his stockholders, on
page 4 and 5 has added the telephones of all Independent
exchanges connected with the A. T. & T. lines in Ohio, In-
diana, and Illinois to the Central Union or Bell system. On
pages 7 and 8 he further says: “We must continue our lib-
eral policy toward the Independent sublicensees and recog-
nize at competitive points that a property exists on the In-
dependent side which we must reckon with ultimately (that
is the Bell must prepare to buy). We should continue our
endeavor to consolidate and unify the exchange systems
whenever it can be done upon a basis of true values, i. e.,
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actual investment —until the field is clear.” By language
and inference all the way through both of said reports, such
connections by Independents with the Bell Company, how-
ever made, are treated as Bell acquisitions. And we all
know wherever such a connection is made it is heralded
all over the country by the Bell press bureau as another In-
dependent company joining the Bell ranks.
This is significant. It indicates too plainly to be misun-
derstood the motive behind the movement. That it is the
aim and purpose of the Bell company to absorb the Inde-
pendent system and to again get control of the telephone
business of the country. Whether it shall do so or not,
rests wholly with the Independents and not with the Bell.
It is the opinion of all the ablest Independent telephone
men and important Independent telephone interests of the
country that such a combination would be subversive to the
best interests of the Independent telephone companies and
not for the public good and should be prevented.
ILLEGAL WARFARE OF THE BELL COMPANY.
The Bell Telephone Company, after having waged a re-
lentless warfare against the Independents for many years in
the operating field, by free and unfair competition, by a
most vicious literary bureau, and by other unscrupulous
methods originated and practiced only by that company,
and finding its opposition along those lines unsuccessful,
then sought to starve out or cripple the Independent ex-
changes by buying up the Independent telephone manufac-
tories of the country. In pursuance of this policy the Bell
company attempted to purchase the controlling stock of the
Stromberg-Carlson Telephone Manufacturing Company of
Rochester, New York, and of the Kellogg Switchboard &
Supply Company of Chicago, Illinois, two of the larger
opposition manufacturing concerns. The first attempt in-
volved not only the Stromberg-Carlson company, but also
the controlling interest in the United States Independent
Telephone Company of New York state, embracing Roches-
ter, Syracuse and other important Independent exchanges in
western New York.
Its purpose was completely thwarted by the prompt action
of the attorney-general of New York through efforts in the
name of the International Independent Telephone Associa-
tion. This attempted purchase was clearly in violation of
the anti-trust laws of the state of New York as tending to
destroy competition and create in the American (Bell)
Telephone and Telegraph Company a monopoly in the tele-
phone business and was therefore enjoined by the court.
These important properties have thus been retained in the
Independent system.
The second attempt, the purchase of the Kellogg Switch-
board and Supply Company was, after long and persistent
litigation, recently set aside by the court. That the purpose
of the Bell company was to starve out competition and
regain a monopoly of the telephone business of the United
States is shown by the findings of the court as set out in
its decree. -
After describing the two great telephone systems, local
and long distance, of the American (Bell) and Independents,
the court says, “and in January, 1902 (date of sale) and for
a long time prior thereto, said system of said American com-
pany and its licensee companies and said system of said In-
dependent telephone companies constituted two rival organ-
izations which during said time were in sharp competition
with each other in the rendering of telephone service, both
local and long distance, to the public throughout many parts
of the United States.”
Continuing the court says: “That each of said attempted
purchases . . . by said American company as afore-
said, in its necessary operation, at the time it was made,
tended, and tends to materially suppress competition and
create in said American company and its said licensee com-
panies a monopoly in the rendering of telephone service to
the public throughout the United States and in the different
cities and other places thereof and that it was the intention
and purpose of said American company in making each of
said pretended purchases of said shares of stock to so re-
strict and suppress competition in said telephone service and
create in itself a monopoly of said service.”
In every instance thus far, the courts have been quick to
recognize the indirect attempt on the part of the Bell com-
pany to stifle competition and to create in itself a monopoly
and have declared such attempts illegal and void, so that its
efforts along this line have now ceased. This move was a
bold one because in violation of law, and a foolish one be-
cause new factories could have been built to take the place
of those purchased. It shows to what extreme measures
the Bell company will resort in the vain attempt to obtain
the exclusive control of the telephone business of the
country. -
It will be noticed that in both cases the court held that the
attempted purchase of these two large Independent tele-
phone manufacturing plants not only tended to destroy com-
petition and create a monopoly in the telephone manufactur-
ing business but indirectly tended to destroy competition
and create a monopoly in the Bell company of telephone
service throughout the United States or parts thereof and
that said attempted purchases were therefore illegal and
void. e
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Its new and latest plan to regain the telephone situation is
equally unlawful and must result in failure. It is to pur-
chase Independent exchanges or to induce Independent tele-
phone companies to merge, consolidate or combine with it
or to make physical connection with its wires and systems
and to become its sublicensees. All such combinations,
mergers and agreements that tend to stifle or destroy com-
petition and to create a monoply are in violation of law and
void and subject those participating therein to punishment.
That these combinations, mergers and agreements do stifle
or destroy competition and tend to create a monopoly is evi-
denced by the fact that the very purpose and reason given
for such arrangements by its advocates, is, that competition
may be removed and a monopoly created; claiming thereby
that all duplication and economic waste will be eliminated
and the telephone companies will profit thereby. And as an
“inducement” to procure Independent telephone companies
to enter into such combinations and agreements that company
has threatened to introduce competition into cities and towns
where no competition exists and offered to remove its com-
peting exchanges in cities and towns where both systems
are in operation. Influenced by fear in some instances and
by gain in others, a few of such unlawful combinations,
mergers and agreements have been entered into with the
Bell company by Independent companies, and these in-
stances are boastfully given publicity by even the high
officials of that company. That these last efforts will prove
equally disastrous to the Bell company, I have no doubt.
UNLAWFUL COMBINATION AND MERGERS.
There is no reason why telephone companies should be
permitted to violate the law with impunity any more than
railroads, telegraph companies, banks, gas or water com-
panies, paper or tobacco companies, or other corporate or-
ganizations, either public or private, should be allowed to do
so. The law should be no respecter of persons or interests,
and it matters not whether the company is an Independent
telephone company or a Bell telephone company, its duty
to observe the law should be equally required and if violated
the punishment should be impartially inflicted.
As a foreign policy, we as a nation are in favor of the
open market; as an internal or domestic policy we are op-
posed to monopoly and in favor of fair and unrestricted
trade. The principles of this policy so universally demand-
ed by the people have been embodied in an act of Congress
entitled “An act to protect trade and commerce against un-
lawful restraints and monopolies,” passed and approved July
2, 1890, and commonly known as the “Sherman Act.” This
law was successfully applied in the Northern Securities
7
case, dissolving one of the greatest and most skillfully de-
vised trusts in the country, and is now being invoked
against the oppressive paper trust. This act makes unlaw-
ful “every contract, combination in the form of trust or
otherwise, or conspiracy in restraint of trade or commerce
among the several states, or territories, of the Union and
makes criminally liable “every person who shall monopolize,
or attempt to monopolize, or combine, or conspire with any
other person or persons, to monopolize any part of the trade
or commerce among the several states, or foreign nations,”
and prescribes as punishment a fine not exceeding five thou-
sand dollars or imprisonment not exceeding one year, or by
both fine or imprisonment in the discretion of the court.
In addition to this federal statute, in nineteen of the states
anti-trust laws exist in my opinion sufficiently broad to cover
unlawful combinations, mergers, or agreements between
telephone companies tending to create monopolies and de-
stroy fair and legitimate competition between them; and in
all the other states the common law makes all such com-
binations, mergers and agreements illegal as in restraint of
trade and contrary to public policy.
In the face of these laws it is a remarkable fact that one
of the great telephone systems of the country is openly ad-
vocating the combination and merger of Independent and
Bell telephone interests of the country, the destruction of
competition and the creation of a monopoly in the telephone
business, and its officers and employes are active through-
out the country in counseling, advising and conspiring to
bring this about. A few of these illegal contracts and com-
binations have already been consummated with certain In-
dependent telephone companies, which contracts and merg-
ers are liable under the law to be dissolved and those par-
ticipating in bringing them about are liable to criminal
prosecution, and that, too, without respect to whether they
represented Bell or Independent interests.
It has been recommended to the important Independent
telephone interests of the country that a fund of at least
fifty thousand dollars be raised to be used in seeing that
the laws of the country are obeyed by those telephone com-
panies which are disposed to violate these anti-trust laws
and that those already guilty be dealt with as the law pro-
vides. This recommendation has been heartily approved.
Over twenty thousand dollars of the fund has already been
subscribed and I have no doubt but that the entire amount
will be oversubscribed within a short time. It should be the
duty of the federal and state authorities to see that unlawful
mergers and conspiracies among telephone companies are
dealt with as such violations of the law are treated with
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respect to other interests and steps will no doubt be taken
at an early day to see that these matters are fully and
forcibly called to their attention.
All approaches or conspiracies on the part of our common
competitor looking towards the formation of unlawful
mergers, combinations or agreements, should receive no
recognition whatever by the Independent telephone com-
panies because if consummated they would be destructive
of competition and be detrimental to the best interests of the
general public and the Independent companies themselves
and are in plain violation of law.
Information has also been received by the International
association that some of the concerns dealing in telephone
supplies and equipment have formed and for some time
have maintained an unlawful combination for the purpose
of preventing competition and maintaining prices in such
supplies which lay such firms and companies and those
concerned therein liable to the same laws above referred to
and these violations should be treated with equal impar-
tiality as those participated in by operating companies.
It is anticipated that the International association will
soon take upon itself the responsibility of looking after the
enforcement of these wholesome laws and in that duty the
association solicits the faithful co-operation of all citizens.
COMPETITION.
Competition in the telephone business is bound to exist in
some form or other, unless the business should be taken
under the absolute ownership or control of the government
or municipalities, and of this there is little or no probability
under modern laws and conditions. So long as monopolies
are abhored and every man rightfully free to engage in any
lawful enterprise, it is reasonable to expect that there will
always be men and capital ready to enter the telephone field
as they would any other business where no competition
exists. Government or municipal regulation may regulate,
but it can neither lawfully prohibit or destroy competition.
This being true it is my opinion that the Independent
companies can best subserve their own interests and the
public good by accepting the present known competition and
by continuing to meet it fairly in the field. The conditions
of competition have been and now are those of a monopo-
listic and foreign company as against a system of Inde-
pendent local companies organized, officered, financed and
managed by the people of their respective communities. The
Independents have nothing to fear from such competition
and having had the loyal support and approval of the public
in the past, they may rightfully expect it in the future. When
the Independents entered the telephone field in competition
9
with the Bell company, secured their franchises, obtained
the patronage of the people and connected up with other
Independent companies, they assumed a trust towards the
general public and their co-Independent companies which
they have no moral right now to abandon or barter away.
And this obligation is by no means one sided. The general
public in return have not only a direct interest, but a moral
responsibility to sustain the Independents in maintaining the
benefits of legitimate competition. -
A GREATER INDEPENDENT SYSTEM.
I am of the opinion that the Independent telephone com-
panies of the country fail to comprehend the importance of
their own position and the relative value of their respective
properties. Many rights and by-products which now lie
dormant and yield no return whatever, only await a con-
structive hand to arouse them to activity and organize
them into a dividend bearing asset. The time has now
come when instead of considering the forming of unlawful
alliances with an unprofitable competitor, the Independent
telephone companies should improve the financial and
physical condition of their properties and assist in the more
complete organization and perfection of a great Independent
telephone system. There is a growing need for this, for the
work ahead is such that no other existing telephone
system is so well fitted to accomplish and no individual
company adequately equipped to finance. Past experience
has proven that it is impossible for any one company organ-
ized upon lines other than a popular system such as the In-
dependent to develop the undeveloped field and at the same
time take care of the wonderfully increased popular use of
the telephone as well as the natural increased demand inci-
dent to a rapidly growing population.
When we take into consideration the wonderful increase
in the number of telephones in the last ten years; the
amount of undeveloped territory; the cities and towns and
rural communities wherein telephone competition does not
yet exist; the rapidly increasing popularity of, and multipli-
cation of opportunities for the use of the telephone; the
great undeveloped telegraphic facilities in connection with
the long distance toll lines, and at the same time bear in
mind that the average yearly increase in population in the
United States is in excess of one and a quarter millions, the
necessity for more extensive organization, equipment and
activity must be apparent to all.
It is a remarkable fact, too, that all this increased business,
which has taxed the Independent companies to their utmost
capacity to accommodate, has come practically without so-
licitation or expenditure of money to obtain. While almost
10
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every other business under the sun spends a large part of
9
its earnings in soliciting new business and resorts to all sorts
of advertising schemes to attract new customers, no Inde-
pendent telephone company is compelled to maintain solicit-
ors in the field or spend any portion of its earnings to get all
the business it can properly take care of. This is but one of
a number of splendid features which should attract capital
to the telephone business and interest investors in the securi-
ties of telephone companies.
THE TELEPHONE BUSINESS UNAFFECTED BY THE PANIC.
The past year has been an eventful one for the business of
the country. We have just passed through, or rather are
passing through a financial panic and business depression
such as has not been felt in many years. It has been more
severe and wide spread than most men have been willing
to acknowledge, and has affected the industrial, mercantile,
commercial and financial interests and practically all other
branches of national trade—many seriously and some dis-
astrously. Some banks and trust companies have closed
their doors. Many factories have been running on short
time or have shut down altogether. It is said that a half
million of empty freight cars have been lying idle on the
railroad sidings of the country. Many concerns whose
solvency and credit are beyond question, have found it dif-
ficult to obtain sufficient funds to meet their pay roll and
impossible to borrow new capital even upon gilt-edged se–
curities.
It was the first experience of the Independent telephone
system with a panic. The last great panic was in 1893. What
its effect would be was, of course, problematical. What ef-
fect it has had is now known. Nothing in the history of the
Independent telephone system has been more remarkable
than its record during the panic. A new and complete list-
ing of the Independent telephone companies of the country
show over ten thousand, and if there has been any failure
among these during the year, it has not been reported to or
come to the knowledge of the officers of the International
association.
All of the many thousand companies in the United States
with but very rare exceptions have met their interest and
other fixed charges promptly and shown a substantial earn-
ing during the year. Every company of which I have in-
quired, and I have taken occasion to ask of many in my
travels over the country since January, has shown an in-
crease both in collections and business in practically every
month covering the panic over the corresponding months of
I906 and 1907.
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In Central Union territory, being the states of Ohio,
Indiana and Illinois, of the thousand and more companies
organized and operating upon a commercial basis—that is
not mutual—all with but few exceptions, where rates have
not been too low, have paid from four to twelve per cent
dividends on their capital stock or its equivalent in interest
and dividends when bonded, not only during the panic, but
practically since their organization. What a contrast to this
is the annual report of the president of the Central Union
Telephone Company recently made to his stockholders
wherein he says that: “The Central Union Telephone Com-
pany has not been making returns on the investment for the
past twelve years.” This, however, has not been due to the
panic, but as shown by the report to free service, the com-
petition of the Independents, the Central Union's excessive
bonded indebtedness, high operating expenses and extrava-
gant management.
The Independent companies have it is seen been practic-
ally unaffected by the financial and business depression, due
no doubt largely to the facts that telephone rentals are small
in amount, payable in cash in advance, and the telephone
being a household and business necessity, no one could af-
ford to dispense with it. These facts and this remarkable
showing during the recent panic has attracted the attention
of bankers and investors and given the Independent Tele-
phone companies a higher standing and credit in business
circles. -
There has been a decided advance in the Independent
telephone system in the country during the past year, both
in physical property and earning capacity. Many of the
companies have rebuilt or greatly enlarged their plants,
and all have more or less improved their service and man-
agement. Many of the companies, too, have secured an in-
crease of rates during the year, thus increasing their income
and placing their properties upon a firmer financial basis.
All companies should do this where the growth of their
system has out-grown their rates. No one should be timid
in this regard, because no one could foretell the phenomenal
growth of the Independent telephone system under popu-
lar and extensive service, and it is equally for the benefit
of the people that Independent competition be maintained
upon a healthy basis.
: NOTE:-At this date, June 8th, 1908, the subscriptions to the fifty thousand
($50,000) dollar fund to be used in preventing illegal telephone mergers and com-
bines referred to on page eight, have been increased to about forty thousand
($40.000) dollars. - - -
The latest directory of the Independent operating telephone companies, just
published, shows 12,045 in the United States and 334 in Canada, a total of 12,379.
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