Western Buse Telephone Company v. Northwestern Bell Telephone Company
| Decision Date | 07 April 1933 |
| Docket Number | 29,210 |
| Citation | 248 N.W. 220,188 Minn. 524 |
| Parties | WESTERN BUSE TELEPHONE COMPANY AND OTHERS v. NORTHWESTERN BELL TELEPHONE COMPANY |
| Court | Minnesota Supreme Court |
Proceeding before the railroad and warehouse commission initiated by eight rural telephone companies located in the vicinity of Fergus Falls, for the purpose of obtaining lower rates on the switching service furnished to them by the Northwestern Bell Telephone Company, which owns and operates the telephone exchange at Fergus Falls. After hearing, the commission made its order reducing the annual switching rate and the Northwestern company appealed to the district court for Otter Tail county, where the order of the commission was affirmed, Anton Thompson, Judge. From the judgment entered pursuant thereto the Northwestern company appealed. Reversed.
Telephone and telegraph -- connection of rural lines with local exchange.
Rates fixed by the railroad and warehouse commission for switching services between a local telephone exchange and the lines of rural companies are attacked as unreasonable and confiscatory. Held:
1. The duty to make physical connection between telephone companies rests in statutory law, not common law.
Telephone and telegraph -- rates for switching service.
2. Reasonable compensation must be paid for switching services. Any rate insufficient to constitute a reasonable return on the value of the property used and the services required is confiscatory.
Telephone and telegraph -- submission of issue of confiscatory rate.
3. The issue of confiscation must be submitted to a judicial tribunal for determination upon its own independent judgment as to both the law and the facts.
Telephone and telegraph -- method of apportioning property used in switching service.
4. A sound method of apportionment of property jointly used in such switching services is to base the apportionment upon use, which includes volume of traffic.
Telephone and telegraph -- rules of commission providing method of fixing charges.
5. The commission may disregard its own rules, which provide a method of determining the cost of service station's switching, when they are found inadequate or obsolete.
Telephone and telegraph -- testimony of valuation experts.
6. Upon the questions of value and depreciation, the rule is that the testimony by competent valuation experts, who have recently examined the property and made estimates as to its actual condition, is preferable to mere calculations based on averages and assumed probabilities. Opinion as to value based on book analysis carries little weight when compared to the testimony of reliable, competent witnesses who have made a physical inspection and examination.
Telephone and telegraph -- reproduction cost of switching facilities.
7. Reproduction cost means cost to the owner under the conditions which may be reasonably expected to exist if the property were to be replaced.
Telephone and telegraph -- depreciation basis to be used in ascertaining rate base.
8. The depreciation to be taken into account in ascertaining the rate base is that diminution in the value of the property which takes place in the physical thing, and is ascertained by physical inspection and examination of it.
Telephone and telegraph -- depreciation basis to be used in ascertaining rate base.
9. Past losses cannot be used to support a claim that rates for the future are confiscatory; and the law does not require the company to give for the benefit of future subscribers any part of its accumulations from past operations.
Telephone and telegraph -- depreciation basis to be used in ascertaining rate base.
10. Patrons of telephone companies pay for the privilege of using the company's facilities for verbal communications. They acquire no interest in the company's depreciation reserve; not the depreciation reserve, but the actual depreciation is to be deducted from the reproduction cost new to ascertain the present value. The rate is to be based upon the present value, not the company's investment.
Telephone and telegraph -- rate-making agency.
11.Neither the commission nor the court may, in the absence of a showing of mismanagement, substitute its business judgment for that of the company's officers. The court does not make rates. It is concerned only with the question of confiscation. Rate-making, with which the commission is concerned, is a legislative function and implies a range of legislative discretion.
Telephone and telegraph -- provision for depreciation reserve.
12. Adequate provision should be made by a telephone company for a depreciation reserve to protect it against losses and inevitable decadence.
Telephone and telegraph -- use of rural company's lines and facilities by local exchange.
13. Rural companies receiving such switching services are not entitled to a credit for the use of its lines and telephone facilities by the local exchange. Their rate is not payment for the use of the facilities of the local exchange except as to that portion necessarily assigned to use in such switching services.
Telephone and telegraph -- incompensable benefits occurring from connection.
14. Aside from such compensated service and contribution to such switching services, the resulting benefits to the local exchange, to the rural companies, and to the public must be regarded as incompensable. A telephone company having a quasi public character and acting under the regulations of a commission may well be required to make such beneficial connections, and this imposed duty rests primarily upon the public welfare. It does not subject any such company to any expense or loss.
Telephone and telegraph -- advertising profit derived from telephone directories.
15. The company entirely at its own expense furnishes to the subscribers of the rural companies two telephone directories each year -- nearly, 1,000 books in all. Because of the advertisements therein it makes a profit on each issue of about $571.74. The rural subscribers are not, by virtue of their relation to the exchange arising out of the switching services, entitled to any portion of such profit to be used as a credit in fixing their rate.
Telephone and telegraph -- switching expense not to be shared by toll lines.
16. The fact that the company owning the local exchange also owns the toll lines occupying three positions on its switchboard, and to and through which the switching services give the rural subscribers access to almost everywhere, does not entitle them to have the toll lines share in the expense incurred by the exchange back of the switchboard so as to in any way affect the rate to be paid by them.
E. A. Prendergast and A. J. McBean, for appellant.
Roger L. Dell and Rolf P. Jacobson, for respondents.
The Northwestern Bell Telephone Company has appealed from a judgment.
This is a proceeding initiated under G.S. 1923 (1 Mason, 1927) §§ 4638, 4641, by eight rural telephone companies, seeking, at the hands of the railroad and warehouse commission, reduced rates on switching charges in relation to their physical, connection with appellant's local exchange in Fergus Falls. Appellant appeared and participated in the proceedings, and the irregularity as to notice, answer, and reply is not now important.
Appellant owns a local exchange in Fergus Falls having about 2,200 local phones, long distance lines, and three rural telephone lines. The rural community is served largely by 17 rural telephone companies, which own 33 rural lines having 465 phones thereon. Appellant's exchange plant has a value of about $169,046. The rural companies own 344 miles of rural pole lines and 593 miles of aerial wire, and their property is given a value of $70,879. The appellant claims that the value of that portion of its exchange properties assigned to rural companies' switching services is $7,926, while the rural companies claim such value is but $2,264. Neither do the parties agree as to the proportion of jointly used property. These rural companies have no switchboard and employ no operators. Each of their telephone circuits is connected at the city limits at Fergus Falls with a circuit from appellant's plant owned by it and through which the rural lines connect with appellant's switchboard. Through the switchboard, connections are made between the lines of the various rural telephone companies and between the rural lines and the city lines. A patron on a rural line may call other patrons on the same line without going through appellant's switchboard; but otherwise he must make connection through the switchboard. The switchboard also furnishes the only way by which telephone users, aside from those on a particular rural line, may reach the patrons on the rural lines. The switching service also gives the rural patrons access to the toll lines and vice versa.
There was a time when the rural companies were required to pay an annual switching charge per phone on their lines of three dollars, but since the war there has been an established annual price or rate of six dollars. This proceeding seeks to have a new rate, claiming the present one to be unreasonable, excessive, and discriminatory. This is met by a claim from the appellant that the reduction in the rate would be confiscatory.
Nine of the 17 rural telephone companies instituted a proceeding for the same purpose in December, 1929, resulting in an order involved in Dayton Rural Tel. Co. v. N.W. Bell Tel. Co. 188 Minn. 547, 248 N.W. 218.
On April 8, 1930, the other eight, the complainants herein, who had not been parties to said other proceeding, instituted this proceeding. Evidence of the parties herein was introduced, and on May 8, 1931, the commission made an order...
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