Wringing Bell

Though it is the world's biggest corporation, and earned $1.3 billion in the first nine months of 1965, the American Telephone & Telegraph Co. is not exceptionally profitable. Its return of only 8% on invested capital ranks it 43rd among the 50 largest utilities. By contrast, General Motors, which last week announced nine-month profits of $1.54 billion, the highest of any company ever, collects 22.8% on its capital. Reason for A.T. & T.'s modest return: as the nation's No. 1 private monopoly, it is sternly regulated and frequently investigated by Federal and state governments. Last week the Federal Communications Commission voted unanimously to begin history's broadest investigation of the Bell System's interstate and foreign rates, costs and earnings.

The FCC suspects that Bell may be charging too much for some services, too little for others. With its usual sympathy for Bell's smaller competitors, the Commission has been aroused by a complaint from Western Union that Bell is undercharging for services in which the two companies clash headon. A.T. &T. earns only 1.4% on the private-line telegraph service and 4.7% on the private-line telephone service that it sells to business in competition with Western Union, but gets a return of 10% on interstate telephone services which it monopolizes. The FCC will also investigate whether A.T.&T. pays unnaturally high prices for the equipment that it buys from its satellite company, Western Electric, in order to inflate its expenses and thus justify unreasonably high rates.

Sensing that any Government probe would call for lower rates and profits, many of A.T. & T.'s 2,674,141 investors sold stock, pushing A.T. & T. shares into a paper loss of $792 million before they recovered mildly at week's end. Actually, the FCC may well order A.T. & T. to raise some rates to take the pressure off competitors. Whatever comes of the investigation, which will last about two years and tie up considerable company talent, A.T. & T. does not stand to suffer much. Twice in the past two years it has reduced longdistance rates under FCC prodding--then quickly made up the difference by increasing its volume. A.T. & T. might well be able to pare long-distance rates still further, but a fat slash would create so much new business that it might lead to one big busy signal.

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