The below is from a 1950 booklet entitled "Facts About the Bell System."
This booklet brings you information about the organization and financial structure of the Bell System and the services it renders. It also tells you something of the System's accomplishments and its objectives for the future. We hope you will find the booklet interesting.
The statistics given in these pages for the Bell System are consolidated figures for the American Telephone and Telegraph Company and its principal telephone subsidiaries.
We shall be glad to answer, at any time, any questions you may have concerning the system.
Donald R. Belcher, Treasurer, American telephone and Telegraph Company
195 Broadway, New York
April 1, 1950
This booklet under no circumstances is to be construed as an offering of securities for sale, or as an offer to buy, or as a solicitation of any offer to by, any securities.
Facts About the Bell System
American telephone and Telegraph Company and Its Principal Telephone Subsidiaries and Other Associated Companies
For many years it has been recognized that the American nation can best be served by a single, unified telephone system. Such a nation-wide service is provided by the Bell System and the independently owned telephone companies with which it connects.
Basically, the Bell System is made up of a closely integrated group of telephone companies consisting of the American Telephone and Telegraph Company, which owns and operates the long distance telephone lines, and its 20 principal telephone subsidiaries, which own and operate exchanges and toll lines within their respective territories.
Associated with the A. T. & T. and the operating companies are the Bell Telephone Laboratories, which carry on telephone research, and the Western Electric Company, which manufactures telephone apparatus and equipment, purchases supplies, and installs central office equipment for the System.
The Bell System makes possible nation-wide telephone service through the interconnection of its more than 34,000,000 telephones with about 7,400,000 telephones of some 5,600 other telephone companies and 60,000 rural or farmer lines outside of the System, but connecting with it. The co-operation between independently owned telephone companies and lines and the Bell System is an essential factor in enabling anyone anywhere to pick up a telephone and talk to anyone else, anywhere else, clearly and quickly.
The Bell System also provides telephone communication by wire with Canada, Cuba and Mexico and by radiotelephone with other countries, so that any Bell or Bell-connecting telephone can be connected with practically any other telephone in the world.
Although the main revenues of the Bell System come from telephone conversations, which number more than 132 million daily, numerous other communication services are furnished. These services include exchange teletypewriter services for the interconnection of teletypewriters throughout the country, doing for typewritten messages what telephone switchboards do for telephone calls; the leasing of private circuits for communication by telephone, teletypewriter and telegraph; and the furnishing of networks of channels to radio and television broadcasters, thus interconnecting their stations for simultaneous broadcasting of programs over wide areas.
About 590,000 men and women, employees of the A. T. & T. and its subsidiary companies, are engaged in providing a telephone service by which the American people may obtain easy communication with one another and with the outside world.
More than a million people own the securities issued to provide the capital used to supply these employees with the equipment necessary to their work.
One person in every hundred in the Unite States either works for the Bell System or owns its securities, and thus is helping to furnish the nation's telephone service.
Extent of the Bell System
More than 150 million people living in the 3 million square miles of continental United States are served by the Bell System and connecting telephone companies. To interconnect the telephones owned by the System and to link them with the telephones owned by connecting companies requires 133 million miles of wire, consisting of over 6 million miles of open wire on pole lines, about 45 million miles of wire in aerial cables, and 82 million miles of wire in underground cables.
So nearly universal has the telephone become that there is now a Bell or Bell-connecting telephone for every four persons in the United States. In fact, this country has more telephones than all other countries of the world combined, the telephone have become — to a greater extent here than anywhere else — an integral part of business and social life.
The Bell System telephone plant in service at the end of 1949 cost $9,222,000,000 or an investment equal to $276 per telephone. These properties are maintained at a high standard of operating efficiency and charges for depreciation expense are currently made to provide against the loss of investment when property is retired from service. The depreciation and amortization reserves amounted to nearly $2,650,000,000, or 28 per cent of the investment in plant.
Total assets of the System amounted to $10,775,000,000. Expenditures for patents by the A. T. & T. have been charged off as incurred and thus are not included in the asset accounts.
Organization of the Bell System
The high quality of telephone service in the Bell System has not just happened. It is in large measure the result of the advantages which have come from the centralized administration provided by the A. T. & T. as the parent company and the headquarters organization of the Bell System.
The A. T. & T. owns more than nine-tenths of the voting stock and more than three-fifths of the total capital obligations of its principal telephone subsidiaries, nearly all of the stock of the Western Electric Company, and jointly with the latter, all of the stock of the Bell Telephone Laboratories. It owns and operates the long distance telephone lines which link together the telephone systems of its principal telephone subsidiaries and other associated companies.
A Centralized Staff
The staff of the A. T. & T. is composed of experienced engineers, scientific investigators and specialists in all phases of the telephone business. They constantly study problems of engineering and operation, of finance, accounting, and law, as well as a great number of other problems that affect the Bell System.
This centralized staff develops new methods of operation and — in co-operation with the Bell Telephone Laboratories — improved types of plant and equipment, and avoids wasteful duplication of effort. Advice and assistance are given to each Bell System company in the solution of its own problems, and improvements in the practices of each are made available to all.
Regional Operating Companies
The speed and quality of the telephone service rendered by the regional companies have caused the service in the United States to be generally acknowledged as the best in the world.
Telephone people try to make the service as friendly and helpful as it is technically efficient. This has, in fact, become a way of life for telephone workers, who have shown their loyalty to the service and to the public on countless occasions and under all kinds of conditions.
Bell Telephone Laboratories for Scientific Research
For many years the Bell System has carried on scientific research to make telephone service ever better and more economical. In the Bell Telephone Laboratories there are about 6,000 people of whom some 2,300 are scientists and engineers. Another 1,200 are draftsmen, laboratory assistants, skilled mechanics, and technicians. They are responsible for the origination and design of new and improved systems for electrical communication adapted to the transmission of spoken words, of Teletype letters and of pictorial detail. They also carry on fundamental research which looks to the distant future and to the uninterrupted progress of the art of communication.
This research work has been of inestimable value in extending the scope of electrical communication service and in making it more economical, efficient and dependable. It has been largely responsible for the continued leadership of the Bell System in the technical field of wire and radio telephony.
From this research have come telephones, cable, loading coils, repeater tubes, switchboards, dial apparatus, coaxial cable — all the countless physical details that combine to form the intricate plant necessary for the quick and clear transmission of speech. From it also have come radiotelephone systems by which any Bell telephone may be connected with the telephones of countries overseas and with telephones in motor vehicles and ships at sea or in coastal or inland waters.
Through Bell Laboratories research new metal alloys have been discovered, new designs in apparatus achieved and the size and consequently the cost of numberless items of equipment have been reduced. This has saved millions of dollars for the telephone users of the nation. Success in introducing improvements and economies has widened the demand for service, made it possible to pay steadily improving telephone wages over the years, and safeguarded the money invested in the business by hundreds of thousands of people in all walks of life.
Among the more recent developments of Bell Laboratories for extending the scope of telephone service are: operator toll dialing, whereby an operator can dial calls straight through to distant telephones without the assistance of other operators along the route or at the distant places; apparatus which enables telephone users to dial toll calls to nearby places in the same way that they dial local calls, while an automatic message accounting system gathers the information necessary for billing; and coaxial cable and radio relay systems capable of transmitting either telephone messages or television images.
Other developments which promise great benefits to telephone users are the Transistor, a tiny and amazingly simple electronic amplifier which can perform many of the functions of an ordinary vacuum tube and do other things besides, and miniature tubes, which save space and power and have a longer life, for use in radio relay and mobile telephone service.
Western Electric Company for Equipment and Supplies
Very early in the development of the Bell System it was realized that standardization of apparatus and a dependable source of supply were essential to the building up of a nationwide telephone service. Accordingly, 68 years ago control was acquired of the Western Electric Company, manufacturers of electrical equipment since 1869.
The function of the Western Electric Company, as the manufacturing and supply unit of the Bell System, is to manufacture apparatus and equipment of uniform standard for the associated telephone companies as they may require, and to purchase for them supplies which it does not manufacture. In practice, although their contracts with the Western Electric Company do not require it, these telephone companies have found it to their advantage, because of the high quality and low cost, to buy most of their equipment and supplies from the Western Electric Company. High quality is maintained because the Bell System's needs are the Western Electric Company's chief care, and low cost is achieved through economies of quantity production and quantity purchasing.
The Western Electric Company maintains five principal manufacturing plants and 28 distributing houses in the larger cities throughout the country. These distributing houses provide convenient and economical reserve stocks of telephone apparatus which will fit and work perfectly with existing equipment in any section of the nation. This means good service to telephone users under normal conditions, and in emergencies such as fire, flood, or storm, speeds the work of restoration.
In addition, Western Electric maintains a nationwide force of specially trained technicians who install the complex apparatus required in Bell System central offices.
During the war years, 1942 through 1945, Western Electric Company developed and supplied to the government more than two billion dollars worth of equipment for the armed services. In war as in peace, Western Electric's close working association with Bell Laboratories has proved to be an extremely important factor in providing communication equipment of the best quality when and where needed.
Western Electric Company makes available for commercial use inventions and developments of the Bell Telephone Laboratories that have application outside the communications field. The Western Electric Company also owns the Teletype Corporation, which manufactures teletypewriters employed in teletypewriter exchange service and elsewhere for the interchange of typewritten communications by wire.
Financial Structure of the Bell System
The financial structure of the Bell System is simple in character. The A. T. & T. has supplied the greater part of the required capital through funds received from the issue of its own stock and bonds which have been bought by investors living in every state of the Union. Most of the money thus received by the A. T. & T. has gone into the securities of the Bell System companies and thence into the construction of their properties. Some of these companies have also issued stock and bonds which have been bought by the investing public.
Because the A. T. & T. has supplied practically all of the equity capital of the Bell System, A. T. & T. stock represents in large measure the stock of the telephone industry of the nation. It is all of one class, the par value of each share being $100.
The total par value of A. T. & T. stock outstanding at the end of 1949 was over $2,500,000,000, for which the Company had received over $3,000,000,000 or some $500,000,000 more than the par value of shares outstanding. Thus the Company had received an average of $120.70 per share.
The total capital obligations of the System, including capital stock premiums and surplus, at the end of 1949 were nearly $7,500,000,000, of which debt amounted to over 50 per cent. Complete conversion of A. T. & T. convertible debentures would reduce this proportion of debt capital materially.
A. T. & T. Earnings and Dividends
The A. T. & T. owns approximately 97 per cent of the total common stocks of its principal telephone subsidiaries and more than 99 per cent of the stock of the Western Electric Company. Consequently, with the minor exception of earnings applicable to stock not so owned, all earnings in the Bell System from telephone operations and manufacturing, after the payment of interest on debt and dividends on preferred stock outstanding, accrue to the A. T. & T.
Since its service is nation-wide, the System depends on no single industry, community or section for its earnings. It serves the homes, the farms, commerce and industry in all parts of the country.
The consolidated net income of the System applicable to A. T. & T. stock amounted to $9.70 per share in 1949 as compared with $9.86 per share in 1948 and $7.66 in 1947. The latest report of earnings is inserted in the back of this booklet.
For more than half a century dividends paid to the public by the A. T. & T. and its predecessor have been not less than $7.50 per share per year. For about 15 years, ended in 1921, payments were $8 per share per year. Since then the rate has been $9, payable in quarterly amounts of $2.25 per share on January, April, July and October 15 to stockholders of record on a day which is about a month earlier.
On December 31, 1949, the surplus of the A. T.&T., accumulated over its 65 years of existence, together with the stockholders' equity in the surplus of its subsidiary companies, amounted to $14.23 a share. These amounts were in addition to the premiums of $20.70 a share which the Company had received on its stock. Accordingly, the total book equity at the end of the year was $124.93 per share. The $9 per share dividend amounted to 6.7 per cent on the average book equity per share during the year.
While Bell System revenues in 1949 were 123 per cent greater than in the last prewar year, 1941, operating expenses went up 168 per cent in the same period. Net operating income in 1949 was less than 3.5 per cent on telephone plant, compared with 4.75 per cent in 1941. The 1949 return would have been even lower if the value of total plant had been adjusted to prevailing costs.
To obtain the additional earnings needed to offset mounting costs, the Bell Companies since late 1946 have applied for increases in telephone rates in practically all states. Regulatory authorities generally have recognized the need. Increased rates have been made effective in many states, and further applications for increased rates are pending. Additional requests will be made.
The financial good health of the Bell System over a period of many years has been to the advantage of the public no less than the stockholders and employees. It is equally essential and in the public interest that telephone rates and earnings now and in the future be adequate to continue to pay good wages, protect the billions of dollars of savings invested in the System, and attract the new capital needed to meet the service opportunities and responsibilities ahead.
Fundamental Policy
The fundamental policy of the Bell System is founded upon the long-term undertaking to furnish the best possible telephone service at the lowest cost consistent with financial safety. In carrying out this undertaking, the management recognizes a fourfold obligation - to the telephone-using public, to the telephone art, to investors, and to employees:
- To see that the service shall at all times be adequate, dependable and satisfactory to the user, at reasonable cost.
- To carry on the research and experimentation necessary for the further development of the telephone art.
- To protect the investment of the hundreds of thousands of owners of telephone securities.
- To pay salaries and wages in all respects adequate and just and to see that individual merit is recognized.
It is the policy of the management that earnings beyond these requirements be spent for the enlargement and improvement of the service furnished or the rates charged for the service be reduced. Earnings that are less than adequate will not assure the fulfillment of these obligations and must in the long run result in telephone service that is something less than the best possible.
Government Regulation
For more than 30 years state public service commissions have regulated the intrastate business of telephone companies. At the present time, the intrastate rates and services of the Bell System are regulated by 45 such state commissions and also by some municipalities. The Federal Communications Commission has jurisdiction to regulate the interstate rates and service of the Bell System.
Owners of the Bell System
The Bell System belongs to people in all walks of life, in the cities, towns and rural areas of America. In April 1950 there were more than 950,000 stockholders of whom 96 per cent were individuals, as follows:
| Women | 470,000 |
| Men | 235,000 |
| Joint accounts of men and women | 210,000 |
The remaining stockholders were trustees, colleges, churches and others holding the stock for a great many beneficiaries.
For the most part, A. T. & T. stockholders are people who have put aside small sums as savings. About 300,000 hold from one to five shares each. About 900,000 hold less than 100 shares each. The average number of shares per stockholder is 28.
Both large and small stockholders have invested their funds in the stock, but for fifty-nine years no individual or small group has owned a controlling or even a large proportion of the stock of the A. T. & T. or its predecessor. In fact, at the present time no stockholder owns as much as one-half of one per cent of the total stock. The 52,000 stockholders who own 100 shares or more include many large institutions and hold 44 per cent of the total stock.
Geographically, A. T. & T. stock is more widely held than the stock of any other corporation and it is distributed in general accord with the investment wealth of the country, with a somewhat higher ratio in New England where the telephone was invented and originally financed.
Six states have more than 50,000 stockholders each, a majority of the states have more than 5,000, and no state has fewer than 600 stockholders. The capital of the Bell System comes from the savings of the many rather than the wealth of the few.
The Bell System aims to provide nationwide telephone service within the United States and also telephone communications with foreign countries. Telephone service for a nation of more than 150 million people who depend on the rapid intercommunication involves the co-ordination of innumerable details of finance, research, engineering, construction, manufacture, operation and human relations. This service is given by about 590,000 employees who use the savings of more than 1,000,000 people. The cost is no more than is needed to insure good service, fair wages and financial safety, including the payment of reasonable interest and dividends to those who have invested their savings in the business. Thus—by hand and brain and money—the Bell System serves the telephone needs of the nation and brings closer the day when anyone may talk at a moment's notice with anyone else, anywhere. |
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
New York, April 5, 1950.
To The Stockholders:
The quantity and overall quality of Bell System telephone service reached the highest levels in history during the first quarter of 1950. About 500,000 telephones were added, bringing the postwar gain to more than 12,000,000 and the total number of telephones in operation to 33,900,000. New demand for service remains heavy and the volume of toll and long distance messages is appreciably ahead of a year ago.
During the postwar period, in order to furnish telephone service with maximum speed to the greatest number of people, it has been necessary to offer party-line service to many customers who would normally prefer individual lines. While a great deal of additional plant must be built to accommodate all subscribers on party lines who have asked for higher classes of service, we are making real headway in meeting their wishes. More than 250,000 requests have been taken care of since the beginning of the year. We expect to continue this progress in addition to installing telephones for people now waiting for service.
Continuation of a heavy construction program means, of course, a continuing need for additional new capital. As emphasized in the Annual Report issued in February, it is essential that this be obtained for the most part by issuing stock, either through conversion of convertible debentures or otherwise. About $80,000,000 of the Company's debentures were converted into stock during the quarter. This, together with the issuance of shares in February to employees who subscribed to the first off~ring under the Employees' Stock Plan, has resulted in increasing the number of shares outstanding by about 1,700,000 since the first of the year. About 200,000 employees have purchased a total of more than 1,100,000 shares under the Plan and employees are currently purchasing, through installment payments, the balance of the 2,800,000 shares authorized. The total number of the Company's stockholders now exceeds 950,000.
Complete conversion of about $600,000,000 of convertible debentures still outstanding, and sale of the balance of shares authorized under the Employees' Stock Plan, will reduce the proportion of debt in the Bell System's capital structure from the present level of about 50 per cent to about 40 per cent, and the debt ratio should be still further reduced.
All this emphasizes again the need for telephone rates and earnings that will continue to attract substantial new investment in the Company's stock and maintain a reasonable return on the investment of present and new stockholders. This is likewise the foundation of good service to customers and opportunity to employees, for both depend on the financial integrity of the business. For these reasons the Bell Companies have numerous applications pending for additional increases in telephone rates, and other applications will be made.
Bargaining has been under way for varying periods between most of the Bell Companies and the unions. The Communications Workers of America (CIO), whose various divisions represent about half the employees of Bell System Companies represented by unions, have said they would strike on April 25 if new wage agreements satisfactory to them are not reached. The Companies have generally offered to continue or renew contracts which provide for higher wage payments to the large majority of their employees in the months ahead, and they are continuing their efforts to conclude satisfactory settlements and to maintain telephone service without interruption.
LEROY A. WILSON,
President.
| (Figures for March, 1950, partly estimated) | 3 Months Ended March 31, 1950 | 3 Months Ended March 31, 1949 | 12 Months Ended March 31, 1950 | 12 Months Ended March 31, 1949 |
| Operating Revenues | $56,460,000 | $54,913,597 | $222,900,000 | $224,906,654 |
| Operating Expenses | $39,440,000 | $42,009,239 | $162,200,000 | $165,748,251 |
| Federal Taxes on Income | 4,570,000 | 3,507,000 | 16,350,000 | 18,067,000 |
| Other Operating Taxes | 3,850,000 | 3,137,898 | 13,870,000 | 12,509,815 |
| Total Operating Expenses and Taxes | $47,860,000 | $48,654,137 | $192,420,000 | $196,325,066 |
|
$8,600,000 | $6,259,460 | $30,480,000 | $28,581,588 |
| Dividend Income | 67,260,000 | 56,073,682 | 251,080,000 | 215,197,216 |
| Interest Income | 3,330,000 | 3,377,648 | 14,940,000 | 15,358,558 |
| Other Income-Net | (70,000)* | 2,726 | 110,000 | 189,717 |
|
$79,120,000 | $65,713,516 | $296,610,000 | $259,327,079 |
| Interest Deductions | 14,720,000 | 12,301,113 | 57,620,000 | 46,578,705 |
|
$64,400,000 | $53,412,403 | $238,990,000 | $212,748,374 |
| Dividends | $59,810,000 | $52,966,591 | $222,970,000 | $207,282,217 |
| Earnings per share** | $2.42 | $2.27 | $9.65 | $9.24 |
| (American Telephone and Telegraph Company and its principal telephone subsidiaries) | 3 Months Ended February 28, 1950 | 3 Months Ended February 28, 1949 | 12 Months Ended February 28, 1950 | 12 Months Ended February 28, 1949 |
| Operating Revenues | $762,179,318 | $687,841,075 | $2,943,276,486 | $2,664,221,910 |
| Operating Expenses | $566,814,734 | $554,383,028 | $2,258,055,846 | $2,116,478,169 |
| Federal Taxes on Income | 41,335,205 | 20,684,644 | 134,228,495 | 98,176,230 |
| Other Operating Taxes | 61,718,213 | 54,317,416 | 230,927,547 | 196,995,377 |
| Total Operating Expenses and Taxes | $669,868,152 | $629,385,088 | $2,623,211,888 | $2,411,649,776 |
|
$92,311,166 | $58,455,987 | $320,064,598 | $ 252,572,134 |
| Other Income-Net (b) | 11,764,684 | 13,262,401 | 53,961,190 | 64,450,355 |
|
$104,075,850 | $71,718,388 | $374,025,788 | $ 317,022,489 |
| Interest Deductions | 28,726,475 | 26,044,971 | 113,653,565 | 94,150,320 |
|
$75,349,375 | $45,673,417 | $260,372,223 | $222,872,169 |
|
$2,446,597 | $1,423,533 | $8,635,934 | $6,546,551 |
|
72,902,778 | 44,249,884 | 251,736,289 | 216,325,618 |
| Consolidated Earnings per share** | $2.80 | $1.89 | $10.27 | $9.45 |
*Negative amount.
**Based on average number of shares outstanding.
(a) Does not include the Company's proportionate interested in undistributed earnings of subsidiary companies.
(b) Includes proportionate interest in net earnings of Western Electric Company and all other subsidiaries not consolidated (partly estimated).
W. SHELMERDINE,
Comptroller.