| Summary |
For a period of one year (August 1, 1918 through July 31, 1919) the telephone industry in the United States was under the management and control of Albert Sidney Burleson, the Postmaster General under President Woodrow Wilson. Congress authorized government control in 1918 as a wartime measure. This is the only instance in the history of the industry when control was taken from private management and vested in the federal government. Contrary to public expectations, Burleson increased telephone rates substantially during the period of government control. The rate increases created intense public resentment, and Congress repealed government control after one year. Only two theories have previously been offered to explain the rate increases, and those two theories are inconsistent. In official government reports (October 1919, and February 1921) Burleson stated that the rate increases had been necessary because wartime inflation had substantially increased the cost of operating the industry. However, in 1939 Noobar Rethos Danielian, an outspoken critic of the Bell Telephone System, published a book in which he implied that the rate increases had been caused by government contracts which overcompensated the telephone companies. This thesis applies four tests to evaluate the conflicting theories of Burleson and Danielian. The four tests are: (1) an evaluation of the contracts by which the telephone companies were compensated during the period of government control; (2) an examination of cost increases experienced by the telephone industry during the First World War; (3) comparison of revenues, expenses, and capital costs for the telephone industry under government control with revenues, expenses, and capital costs over an eleven-year period, 1912 - 1922; and (4) an evaluation of the rate-of-return for the telephone industry under government control. On the basis of the foregoing tests, I concluded that Burleson is right -- the rate increases were caused by wartime inflation, and not by contracts which overcompensated the telephone companies. This thesis also offers a new theory for the failure of government control that considers several factors other than those cited by Burleson and Danielian. Those factors include: (1) defective draftsmanship in the congressional resolution and presidential proclamation which authorized government control; (2) Burleson's miscalculation as to improved efficiencies to be achieved under government control; (3) Burleson's failure to anticipate the impact of inflation; (4) inadequate administrative staff, and delegation of decisions to an Operating Board dominated by telephone industry representatives; and (5) Burleson's political miscalculation as to the willingness of the public to accept rate increases. Collectively, these factors made the failure of government control almost inevitable. |
