scribers will give up. This phrase, "what the traffic will bear", however, has a meritorious significance which differs from its popularly-accepted meaning of taking all that the customers will pay. According to its meritorious and correct meaning, it signifies that the charges made for service are adjusted as between the company and each group of its customers, so that the company finds the dealings profitable with each, when the full situation is considered, and each customer receives service which, as nearly as practicable, meets his requirements and costs a price which makes the service advantageous to him, while no unjust discriminations between customers are allowed.

In passing, I will make a note that the last phrase does not involve equal prices to all customers, but does involve the treatment of all customers so that they obtain from the company relatively a fair return for their money.

It seems to me that the test of the reasonableness or equitableness of the rates maintained by a public service corporation is found in: (1) The effectiveness and simplicity with which the schedule classifies the customers, so that the total required income is collected in a manner which secures the same rate for all customers of a class obtaining approximately like service, though customers belonging in different classes may be subject to quite different rates because they obtain service with differences of character which essentially affect the cost per unit; and (2) the certainty with which the rates secure from each class of customers the full annual operating cost of the service in that class and such a proportion of the reasonable return on the investment as the customers' traffic can afford. It then becomes a matter of public policy to determine whether a company receiving a public grant shall be privileged to take a larger proportion of profit from one class of customers than from another, the word "profit " being used to signify the aggregate return on the investment. This is a relatively new question in public policy, and the ultimate limitations of the policy must rest with experience and the future expressed judgment of our most judicial minds. It would be a manifest injury to the nation if the policy became so circumscribed that the railroads would feel that equal proportions of profit must be earned on all parts of their systems and from

all kinds of traffic. What the effect of so circumscribed a policy would be in the case of corporations giving service within the limits of a single city or a single state like most of the telephone companies is not so clear, but it would probably be undesirable.

The cost of performing the service seems to me the most important factor in determining rates in stable and well devel

Celerity and
Accuracy

oped territory, but its application to telephone service must be made with a cautious consideration of all the facts. Reasons for this are obvious when the problem of telephone service is carefully scrutinized. In city service, the large business users demand a celerity and accuracy (quality) for the service which adds much to its cost. Physical conditions prevent providing this fast service for one class of subscribers and not for others in intimate intercommunication therewith. But some of the latter classes, as for instance, the residence users of moderate means, may have no interest in or care for the remarkable speed and accuracy which characterizes the telephone service of many American cities. Service of a lower grade of speed and accuracy, which is less costly to produce, would equally well satisfy the desires and needs of such subscribers. A distinction should, therefore, probably be made in class rates, so that the cost of the extraordinary speed and accuracy may be placed on the classes of subscribers who demand it.

A similar condition exists in the relations of city and rural telephone service. The business subscribers of the city demand the speediest and most accurate service obtainable at any cost, but rural subscribers are usually well satisfied by a more leisurely grade of service. However, the city conditions are forced, by the demands of the city, to be spread over both the city and the closely related rural communities; and, here again, the extra cost of the speedy service presumably ought to be borne by the classes of subscribers imposing it. As the provision of the speedier service requires greater investment in rural plant than might otherwise be necessary, it is obvious that the cost of performing specific service in the suburban communities may not be a fair basis of rates in case the cost is to be put where it belongs.

The foregoing indicates that city business rates may be reason

ably expected to be higher than residence or rural rates. A differentiation between business and residence users under flat rates has heretofore been common, and this is additionally justified by the lower average calling rate which is usually characteristic of residence subscribers where flat rates are in vogue. The relations pointed out above apparently justify an adjustment in favor of residence users of moderate requirements even when measured rates are adopted. The policy of some telephone companies apparently is in this direction.

Progress is plainly being made in the direction of rationalizing telephone rates. One of its indications is found in the syllabus of an opinion delivered in a telephone rate case by the Wisconsin Railroad Commission, which says:

"No reasonable objection can be taken to a schedule of rates based upon the actual quantity of the service rendered."

It would be difficult to quarrel with this, provided "quantity' is construed to comprehend the number of messages or reasonable time-length and the distance of the message transmission; it being understood, however, that any comparison must rest between users needing service of equal quality. If the latter condition is not tacitly understood, the statement ought to be amended so as to read that "no reasonable objection can be taken to a schedule of rates based upon the actual quality of the service required and quantity rendered.”

As also showing the tendency toward rationalizing rates, I will quote from a recent finding of the Massachusetts Highway Commission in respect to telephone rates in the large city of Boston and its surrounding important suburban districts:

Knowing that a certain revenue must be raised, the Massachusetts Commission has pointed out:

"That the district to be covered by a given telephone rate should be the territory generally used by the great majority of the subscribers therein, rather than a much larger territory, the greater portion of which is seldom used by the majority of subscribers.

That the company should collect its revenues for calls between more distant portions of the territory from those who make use of such service, rather than from those who use only local

Massachusetts

Recommend

service involving the use of a much smaller portion of the plant. "That the suburban exchanges have of necessity so much occasion for calling into Boston and vice versa that the five-cent toll rate between Boston and suburban exchanges should be extended to cover the longest distance consistent with a well-balanced schedule and with fairness to the

ations

company.

"That business service, at least, except for essentially local service, should be placed on a measured basis; and

"That so far as it is possible to do so, the rate schedule should be so made as to furnish telephone service to the small user at the lowest yearly charge that is fair and equitable, and, on that as a basis, adjusted to meet the requirements of the medium user."

Telephone companies still assert that no rational basis for telephone rates can be found. A few of the companies have adopted their rate schedules as the result of certain actuarial operations, but most of them have arrived at their schedules by the path of expediency and gradual modification. Few can support the reasonableness of their schedules on a foundation of facts produced from their accounting records, but I believe that this condition not only ought to be overcome, but is likely to be overcome. The willingness of the telephone companies to co-operate with supervisory commissions, in gathering, and, to some degree, in studying, cost and traffic statistics, is an encouraging indication. With accumulating statistics which give a clearer understanding of costs of giving service and the relation of speed and accuracy of service to its costs, each modification of rate schedules under the supervision of wisely-constituted commissions ought to approach closer to a rational basis. A more effective organization of cost keeping than has yet come into vogue should be insisted on. It must also be constantly remembered that traffic is a factor of the utmost importance, and traffic statistics must be made of record and carefully studied.

The telephone rate problem seems as complex as any facing the public service commissions, not excepting the problem of railroad freight rates; but telephone rates are usually made for the territory of an individual city, or, at most, an individual state, which gives ground for expecting more rapid progress in improving the basis of fixing telephone rates than can probably be reasonably expected for freight rates.

The Street Railway Situation In Detroit.

By PAUL LEAKE,

Secretary Wholesalers' and Manufacturers' Association, Detroit.

In accepting the commission to prepare a paper on the street railway situation in Detroit, and its possible or probable solution, I realize that there are about as many opinions as there are students of the urban transportation problem. I cannot please every one, but will endeavor to give a clear, unbiased statement of one of the most complex questions in our municipal life.

To put the cart before the horse, I will state that it looks as if the people, as represented by voters at the polls, do not want a settlement of the street car question, as at the time this is written both the Republican and Democratic nominees for mayor have injected into their campaigns the street car question, and strange to say, both are leaning to the ultra-radical, and bidding for votes on the municipal ownership basis.

In the presentation of this paper it must be understood I take neither side of the question, but endeavor to place the situation before you as a citizen and a taxpayer.

To handle the question intelligently it is necessary to give a brief historical review of the transportation question in Detroit.

Historical
Review

In the course of evolution, the horse car gave way to the electric lines, capitalists from Cleveland, including Tom L. Johnson, invaded Detroit and sought a franchise. Hazen S. Pingree, then mayor, and afterward governor, countenanced the granting of a franchise to what was then considered an independent line under the name of the Detroit Railway Company, and a grant of rights through the streets was given until 1924. It was specified that in consideration of the privileges granted by the city that the new railroad line was to give so-called three-cent fares, in other words, a straight five-cent fare when the cash was paid, but eight tickets for a quarter good from a little after daylight until eight in the evening, when six for a quarter rules.

It was understood, however, that transfers could only be given