Kansas: "I believe at least 50 to 100 subscribers would have their service discontinued-and it could easily be more. Subscriber loss of 50 percent."

Kentucky: "Both of these exchanges are located in agricultural communities and any increase in rates would be met with serious opposition." Louisiana: "We would have to close up."

Maine: "Public cannot pay that increase. Telephone company would have to go out of business. Would lose most all customers 75 to 90 percent. Would have to go out of business. Public will not be able to pay increase."

Michigan: "Very bad-could cause loss of 100 telephones."

Minnesota: "No question but what they will revolt and scores will take out their telephones."

Missouri: "I would lose at least one-third of my subscribers and all I could do is lock the door. Most of the telephones would have to be taken out, therefore, I would not be able to operate."

Nebraska: "90 percent of subscribers would have telephone removed. It would eliminate our company."

New York: "Any increase in rates at present we feel would tend to increase the number of removals. Furious, with protest meetings at granges, etc., and innumerable protests."

Ohio: "If exemption is repealed our company will be forced to quit. Farmers are in a price squeeze. A telephone being one of the nonessentials will be one of the first to be cut off. Farmers need telephone service worse than city folks." Oklahoma: "The public simply could not pay. Most patrons would discontinue immediately and the remaining few would have to follow. The answer for a small country town is so obvious that I would not even attempt to raise the rates like that. I would close the exchange."

Pennsylvania: "Two-thirds would object very strenuously. One-third would discontinue service."

South Carolina: "I think many would do without their telephones before they would pay the increase."

South Dakota: "Many of my subscribers are farmers and in face of a decrease in farm prices a raise in telephone rates would be very obnoxious and unfair to them."

Tennessee: "Subscribers would be unable to pay increase in rates, which would really result in an abandonment of all small exchanges, which would put all rural people without any telephone service at all."

Texas: "My subscribers are going to raise the roof. In fact about all of my rural resident subscribers have said they will discontinue phones. We would lose 90 to 95 percent of the customers we now have."

Utah: "Inasmuch as this is a farming and ranching community and cattle prices are dropping, we assume at least 25 percent would remove phones."

Vermont: "We would be out of business. If our expenses increased 53 percent and our income dropped 50 percent, we would have to price our service out of the reach of all but a few. Doctors, fire stations, some business people, and some residences, would be our only customers."

Virginia: "Many of our subscribers will not be able to pay the increase."
West Virginia: "They won't pay it."

Wisconsin: "Fifty percent would discontinue their phones immediately. They could not afford it. Service would be disconnected."

It is evident from these comments that increases in telephone rates which would be necessitated by repeal of the exemption would result in substantial customer resistance and mean depriving a large number of rural subscribers of telephone service.

Impact on the telephone companies themselves

A repeal of the operators exemption would be particularly burdensome to the small telephone companies because any wage increase hits the telephone company three times a day. They cannot minimize the costs by cutting down hours. but must continue to operate twenty-four hours a day. Wages already account for from 65 to 80 percent of the operating expenses of small telephone companies, and a repeal of the exemption would greatly increase this percentage.

If the exemption were repealed, it would cost a telephone company $8,760 per year, to operate an exchange, with one operator, on a twenty-four hour basis. In an exchange having 100 subscribers, the cost of operators' wages alone would be $7.30 per month, for each subscriber. In addition there would be costs of maintenance and taxes, insurance, repairs, and many other expenses that are incident to operation. It is evident that the subscribers of telephone exchanges

in these small rural communitites, would not be financially able to pay such costs for telephone service. Only a few business places would be able to continue their telephone service. The result would be that the company would become bankrupt and the subscribers would be deprived of telephone service.

In order that you might understand how many very small exchanges would be affected by this situation, I should like to tell you there are 2,095 manual independent exchanges which have less than 150 telephones. As I have said before, there are 5,500 manual exchanges having less than 750 telephones. Only

a very few of these exchanges could continue to operate manually. They would have four alternatives:

1. Conversion to dial.

2. Abandonment of service.

3. Sale of the exchange to a larger company already converted to dial. 4. Bankruptcy.

The last alternative is very real.

I would not be candid with you if I did not tell you that a very large number of these small manual telephone exchanges have been, and are being, converted to dial, and this process will continue at an accelerated pace. The rate at which it is proceeding is controlled by the ability of the telephone industry to manufacture dial equipment. All the manufacturers of telephone equipment, both independent and Bell, have been operating at capacity since the end of the war. The greater part of this telephone equipment is being used as additions to telephone plants so that persons who do not now have a telephone may be given service.

It is the best judgment of those in the telephone industry that it would take 10 or 12 years of full production of telephone equipment before all of these small independent manual exchanges could be converted to dial, their plants would have to be rebuilt, and central office equipment manufactured. Assuming that equipment were available, it would take from 1 to 3 years from the time the orders were placed for dial equipment before the exchange could be converted to dial operation. It must be evident to you that if Congress were to repeal this exemption, with an immediate effective date, literally hundreds of these small exchanges would become bankrupt before they could get equipment to convert their exchange to dial. Most of the subscribers of these small exchanges serving rural people need telephone service much more than urban residents. Because they live in the country they need a telephone to call the fire department, the police department, the doctor, the feed man, the oil truck, the livestock buyer, and their business connections. A telephone is a real necessity to a farmer. Repeal of this exemption would deprive a great many of them of telephone service. Our industry is making an honest effort to solve this situation. The operators in these small exchanges are generally satisfied with their employment and live well compared with other employed people in their communities. Certainly it will be no service to them to have this exemption repealed because the inevitable result will be that they will lose their jobs in the near future, either due to dial conversion or bankruptcy of their company.

The number of operators involved is relatively small. Certainly it is insignificant when compared to the number of telephone subscribers who would be affected by a repeal of the exemption.

Some reasons why the present basis of the switchboard operator exemption should be left unchanged

At a hearing before this Subcommittee earlier in the year, President Beirne of the Communications Workers of America (CWA) recommended that the basis of the switchboard operator exemption be changed from an exchange one to a company one.

The Independent telephone companies of the country are strongly opposed to any such a proposal. Some of the reasons why it should not be considered may be summarily stated as follows:

(1) The principal reason against putting the exemption on a company basis is that it is entirely bereft of logic. The exemption was originally made to help the smaller exchange continue its existence by gearing operators' wages to the economy of the community it serves, where it is common knowledge wages, living costs, and telephone rates are lower than in larger communities. Who can say with logic that because a company has two or more small exchanges with a total of over 750 stations, its ability to pay operators' wages is equal to that of a company having 1 exchange of over 750 stations?

(2) The station exchange basis of providing the exemption is the basis recommended by the greatest number of State regulatory commissions when the exemp

tion was first legislated by Congress in 1939. Those regulatory authorities were and are familiar with the operations of our exchanges, with the local sentiment of subscribers, and with local economic conditions. Their views are entitled to weighty consideration.

(3) The station exchange basis of providing the exemption has received congressional scrutiny twice (1939 and again 1949) and received approval each time. (4) To change from an exchange basis to a company basis would deprive a number of Independent companies of the needed benefit of the exemption merely because they happen to have more than one small exchange.

(5) A company basis would impose a genuine hardship on telephone subscribers because of the need for increasing subscriber rates in an amount sufficient to cushion the impact of increased wage costs. Such rate increases, varying in individual instances, would range from a low of about 10 percent to a high of 100 percent. Hundreds of thousands of subscribers in our opinion would choose to go without telephone service rather than pay the necessary increased charges. It should be remembered that 80 percent of the telephones in the Independent industry are in residences. This class of subscribers has no way of passing increased charges along. Many of such telephone users are known in the industry as marginal subscribers.

(6) Changing the basis of the exemption would also be very harmful to the switchboard operators themselves for the reason that, with telephones removed from residences because of higher subscriber charges, the telephone traffic calling volume would be reduced and the need for switchboard operators correspondingly diminished. The number of operators needed at any exchange always has a relationship to the number of telephones in service and the calling habits of subscribers.

(7) Putting the exemption on a company basis instead of an exchange basis would solve no problem but create many new ones. If a single company exchange in Town A has the benefit of the exemption and there is another exchange in Town B 5 miles away owned by a company which has more than one exchange without the benefit of the exemption, the subscriber rates in the latter would have to be on a substantially higher basis. The reasons for this would be difficult to understand by the people in the latter community and a howl of terrific proportions would immediately develop because of the telephone charge differential, to the very real embarrassment of the company owning the latter exchange. Increasing telephone rates in such a situation would introduce the hazard of loss of subscribers. This in turn would result in impairment of employment opportunities for switchboard operators, while at the same time creating serious financial problems for the company involved.

(8) It may be old-fashioned but it is nonetheless true that wages paid by telephone companies have simply got to be geared to the economy of the particular community in which they are paid and have a relationship to wages paid for comparable skills by other business. If an exchange of Company A which has heretofore had the benefit of the exchange exemption should be obliged to increase its wages beyond the level paid for comparable skills elsewhere in the community, that exchange is going to suffer a serious case of bad public relations with the managements of other enterprise and with subscribers generally.

(9) It is no solution to the problem presented by a need for higher revenue to say, "Go to your State commissions and get your subscriber rates increased." Some of the reasons this is no solution are referred to in this statement. It is becoming harder to obtain rate increases. Because of inflationary conditions many companies in recent years have already been before regulatory commissions from 2 to 5 times for higher rates. There may be such a thing as the well going dry. It must be remembered that although in individual instances permission to increase rates might be obtained, there is no regulatory commission anywhere with power broad enough to require a telephone subscriber to keep his telephone if the cost is beyond his ability to bear.

(10) To put the exemption on a company basis instead of an exchange basis would introduce complexities and vexation in administration. The Wage-Hour Division has been administering the exemption on an exchange basis since 1939 (500 stations from 1939-50 and 750 stations since 1950). New concepts would have to be provided and become familiar both within Government agency and within the industry if a change were made. This would not be easy.

In conclusion, the United States Independent Telephone Association requests that you do not either repeal or modify the telephone switchboard operator exemption in the Wage-Hour Act.

EXHIBIT "A"

[Compiled from Telephony's Directory for 1943, 1949, and 1955]

78155-56-45

STATEMENT OF ALVIN A. VOGES, SECRETARY-MANAGER AMERICAN VENEER PACKAGE ASSOCIATION, ORLANDO, FLA., RE AMENDMENT OF THE FAIR LABOR STANDARDS ACT My name is Alvin A. Voges; I am employed as secretary-manager of American Veneer Package Association, Inc., with offices at 12251⁄2 North Orange Avenue, Orlando, Fla.

American Veneer Package Association was incorporated in 1938 as a non-profit association of the manufacturers of wood veneer fruit and vegetable packages. As such we represent the majority volume of wood veneer fruit and vegetable baskets, hampers and nail-type crates manufactured in the United States.

I have been in this position since 1951, previous to which, since 1946, I was employed as secretary-manager of a Florida citrus association.

My appearance before you in this hearing is limited to Senate bill No. 1437 introduced by Senators Capehart and Curtis, a bill to amend the Fair Labor Standards Act by clarifying the definition of “employee,” and for other purposes. In the minds of the public there exists a relationship, a relationship that has also been recognized by the courts, between the National Labor Relations Act, the Social Security Act, and the Fair Labor Standards Act.

It is inconceivable that Congress deliberately made different yardsticks by which to measure "employee" in the several acts. It is conceivable and reasonable that the word "employee" have similar interpretation for all three acts.

When enacted neither the National Labor Relations Act nor the Social Security Act nor the Fair Labor Standards Act gave adequate definition of "employee." Apparently, and appropriately so, Congress thought there could not be serious argument concerning the historical employee-employer relationship.

For many generations and through thousands of court decisions, the commonlaw rule of "employee" has become established to the extent that the public in general, the legal fraternity in particular, and the courts could, in a very high percentage of the cases, readily conclude who is and who is not an "employee.” As an example of its widespread understanding, I here give you the reply of learned counsel to one of our members:

"For your information, 'common-law rules' mean simply what you always have considered as the employer-employee relationship. That is the basis for the contracts which you have with people that now serve you as 'independent contractors.' On the other hand, as you well know, those in administrative positions in Washington and other places have a way of making things mean what they want them to mean."

Not many years after enactment of the National Labor Relations Act and the Social Security Act, Congress, to restore order, to stop abuse, to restore the confidence of the people, and in an effort to call a halt to the ever-widening scope of administrative interpretations and broad decisional rulings, enacted amendments to these two laws which, among other things, clarified the meaning of the word "employee."

When the Fair Labor Standards Act became law, the language of it seemed quite simple and readily understandable; and we are quite convinced, the intent of Congress at that time was to effect legislation that continued to consider "employee" in the common-law manner universally traditional.

Probably the very simplicity of the law as originally adopted allowed the whims and fancies of those charged with its administration and the courts to so confuse the language of the law that in one decade it was made into something not recognizable by Congress as its action.

And so amendments to this law were enacted. These amendments, to the extent provided, except for the changes in minimum wage, were for the purpose of spelling out the intent of Congress and in so doing close off the many bypaths of enforcement followed by the administrators of the law.

The amendments, however, failed to clarify the term "employee." Administrators of the act have chosen to ignore what we and the public generally believe was the intent of Congress, and have developed an expandable theory which implies there is no limit at which they will stop in extending the relationship between employee and employer.

The administrators of the act, for reasons best known to themselves, make use of what they call the economic reality theory, and under their interpretation they probably could find that control by a person contracting with an "independent contractor" is such that the "independent contractors" and their employees were employees of the contracting party for the purpose of the act. After they have done this, and made the contracting party like it, the relationship with the "independent contractors" and their employees would be changed