TELEPHONE RENTS

Press, Volume LXXI, Issue 21506, 22 June 1935, Page 11

TELEPHONE RENTS

« MORE SUBSCRIBERS, HIGHER COSTS STATEMENT FOR DEPARTMENT "A recent discussion in Christehureh on. telephone costs has been carried on by a number of newspaper correspondents, who arc quite unable to understand why the cost of telephone rental is not reduced as the number of subscribers incr-.ases. A j;cund line of reasoning in most commercial activities is that as the demand for a commodity increases, 'overhead' is correspondingly reduced until it becomes possible to lower the rental price," states the Director-General of the Post and Telegraph Department, Mr G. McNamara. "But an entirely different set of circumstances prevails in the telephone service. It could be argued in defence of the increasing rental rate that the facilities for intercommunication are immeasurably greater for the £8 10s annual rental applicable to an exchange of 10,000 subscribers than for the £6 rental paid at exchanges with 200 subscribers. Viewed from the angle of possible range of calls, the subscriber to the £8 10s exchange enjoys a better bargain than the subscriber to the £(> exchange. It is not upon this consideration, however, that the Post Oifice bases its rental charges. The governing factor is the greatly increased complexity of the switching apparatus as the exchange grows, and consequently the increased cost of providing each subscriber with service as the number of subscribers increases.

Why Costs Increase • 'The greater the supply the less the cost' —an accepted economic axiom—is a proved fallacy in connexion with telephone service. If an exchange starts with 100 subscribers it must have the necessary internal equipment 1o provide full intercommunicating facilities between each and all of those subscribers. The addition of another ICO subscribers involves not simply the internal equipment for that extra 100 but full intercommunicating facilities to enable the second 100 to communicate! with each other and also the internal equipment to provide facilities for intercommunication between the iirst 100 and the second 100. '"To put it another way, when a new subscriber is connected to an exchange with 100 subscribers, he need be provided with only 100 channels of communication, but when he is connected with an exchange of 10,000 subscribers, he must be provided with 10,000 channels of communication. Thus, Che unit cost of providing service increases with the growth of the exchange at a much faster ratio than the gain in subscribers. It has been calculated that if an exchange of 1000 subscribers involved an expenditure of £SOOO, an exchange of 5000 subscribers would cost not £25,000, but £32,000 per annum: and an exchange of 10,000 subscribers not £50,000, but £ 72,500. Looking at the same phase in another way: if the unit cost n subscriber in a 1000-line system is £5, this becomes £6 -is in a 5000-line system, and £7 5s when the exchange system reaches 10,000 subscribers.

"The peculiar economic position created in an expanding telephone system has been the subject of discussion in many parts of the world, and no system provides any variation from the factors already mentioned. Fortunately for the exchange subscriber, the increased unit cost described above has been partly offset by the constant development taking place in the art of telephony, in the wide use of underground cables for reticulation in dense telephone areas, and in the use of branching multiple and automatic equipment at the largest exchanges. These features have enabled telephone service at those exchanges to be given at. reasonable cost. In the expanding telephone system, it is an axiom that to maintain telephone rentals at the same rental is actually to reduce them, for the reason that a greatly extended and more expensive service is given at the same rate."