JANUARY 23, 1964
Bell is Big Business
AN ADDRESS BY
PRESIDENT, THE BELL TELEPHONE COMPANY OF CANADA
The President, Mr. Arthur J. Langley
In 1953, during our fiftieth season, Thomas Eadie, then President of the Bell Telephone Company of Canada, visited us and discussed the new era in the making for telephony. We are most pleased that ten years later, he has returned to join us in listening to his distinguished successor take up the story in our Sixtieth Year. Thirty-six years of service with the Bell were only broken by Marcel Vincent's four years of active service, in both oceans, with the Canadian Navy and from which he emerged with the rank of Lieutenant-Commander. Returning to the scene of his early start, when with his Masters degree in Commerce from the University of Montreal, he began his eventful career, our speaker followed his earlier successes in a wide variety of operating and staff positions, in all areas of the company, and was appointed Vice-President and General Manager of the Eastern Area in 1957. 1961 saw his promotion to Vice-President--Operations Staff, and then to Vice-President--Public Relations in 1962. This past year our guest was appointed the company's Chief Executive Officer. A busy, talented executive with broad interests, he finds himself involved in many and responsible community and welfare areas but perhaps his chief love and greatest fascination continues to be the challenges his chosen field continues to unfold. I am privileged to welcome on your behalf the seventh President of the Bell Telephone Company of Canada--Marcel Vincent.
I would like to take this opportunity to tell you something about the state of the Bell Company and I will let you judge the part it plays in the state of the nation.
I wish to do so because I think we have an important role in the economic and social life of the country. The way we operate as a company is of significant interest, not only to customers and investors, but also to people in business and government and to the public at large. People are more and more interested in our operations as the Company changes--as it must change--in response to new technology and innovation.
You often hear and read that the Bell Telephone is a large enterprise. But how large a Canadian enterprise has it become? Our relationship with Bell System is often mis understood. Where is the link between our Company and the Bell System? Many have a wrong conception of the role of regulation in Our business. How are we regulated? Allow me to talk a bit about these facets of our corporate make-up, and perhaps some others, time permitting.
We are a large corporation. In terms of net assets, the Bell Company, with about two billion dollars, I believe, ranks fourth in Canada, behind Canadian National Rail ways, Ontario Hydro and Canadian Pacific Railway. In the past ten years, the total number of telephones served by us has doubled to more than four million. There is only one reasonable explanation for this--simply, the enormous demand brought about by the exceptional pace of technological development. This demand is becoming more pronounced all the time.
Another indication of our size is that, in recent years, our requirement for new capital has been outstripping that of all other Canadian enterprises. To finance our construc tion programme there have been twelve share issues and eighteen bond issues since the end of the war. In one year alone--the year before last--we raised one hundred and sixty-one million dollars, all of it in Canada. Our 1963 capital expenditures reached a new high of more than two hundred and thirty-four million dollars. Of this amount, we spent 60 per cent for growth and 40 per cent for replacements and modernization.
Our ability to meet the service requirements of our customers for all types of services in the years ahead depends on our ability to prepare today for tomorrow's needs and to adjust rapidly to changing conditions. This requires and will continue to necessitate, large programmes of capital spending. If growth continues at the present pace and general business conditions remain favourable, we anticipate that we will double again in the next ten years and that we will require about 1.5 billion of new capital. We probably will remain the largest user of new capital in this country, with the exception, of course, of the governments.
Operating in Ontario and Quebec and in the North-west Territories and Labrador, we provide about two-thirds of the country's telephone service. By the end of 1964 we will have a relatively small number of telephones working on the old manual type basis. Our programme to replace manual telephone service with automatic dial service has been costing the Company around twenty million dollars a year. The public expects us to complete this programme without undue delay, and we must do so. Similarly, our customers--more especially those adjacent to large metropolitan areas--want the kind of service that allows them to have local calling arrangements over ever wider areas. These projects have called for, and will continue to call for, considerable expenditures. For example, the current project to extend the local calling area in Toronto alone will cost twelve million dollars.
In the years ahead, an increasingly important segment of our modernization expenditures will be needed to replace much of our existing switching equipment. The coming thing is electronic switching. It has some remarkable possibilities. Its vast built-in memory will be capable of storing lists of frequently-called numbers for every customer. To call such a number, it will be necessary only to dial a twodigit code. It will be possible for the electronic control to keep trying a busy number for as long as it takes to get through. When necessary, a telephone user will be able to instruct the electronic system to reroute calls from one location to another--this is just to give you an idea of the kind of services we can look forward to in the not distant future.
The first large-scale electronic switching system in Canada will be installed in Montreal in time for the 1967 World's Fair. You may be interested to know that seventy five per cent of the equipment used in the Montreal installation will be manufactured in Canada. A second electronic switching system will be installed in Toronto in 1968, to be followed by units in other large centres. Beyond the first few installations, the equipment will all be made in Canada.
We are convinced that the demand for a diversification of services will continue and intensify. Therefore our aim must be to provide complete communications service -' transmitting over the regular telephone network virtually every kind of information that can be translated into suitable electrical signals. At the present time, the Bell Company has more than seven hundred items of equipment, or actual services, to offer. It is possible now to transmit handwritten messages, charts and sketches, printed texts and data between machines. The volume of machine-originated and processed information being used to manage business in Canada is surging upwards. Each new technique in turn stimulates further developments, and we must be prepared to handle many new kinds of information as well as a growing volume. Our failure to make the fullest practical use of the telephone network to fulfil this need would be a waste of capital.
It is true that we are a large and fast growing enterprise. But I would stress the point that, in everything we do, we have but one product- Service. We are judged in the first instance on how well we provide it. Our customers are concerned primarily with the often routine, but nevertheless vital, aspects of their communications service. And so are we.
I said the Bell is a Canadian enterprise. Quite a large number of people still seem to think we are a member of the Bell System of the United States and must therefore be American-dominated. This is not so. In no sense are we a subsidiary of the Bell System. The American Telephone and Telegraph Company, holding Company for the Bell System, owns less than three per cent of our shares--our employees own more than twice as much. We have about 193,000 shareholders, 97 per cent of them living in Canada. We have more Canadian shareholders than any other Company. Taken together, these shareholders own 93 per cent of the Company's Stock.
For the most part we are owned by individual Canadian men and women. They hold about two-thirds of our Stock. Not one single institution--Canadian or otherwise--has as much as four per cent holding in our Company; I might add that non-Canadian investors, including those in the United Kingdom and in the United States, together represent less than three per cent of our shareholders, and they hold only about seven per cent of our shares. The Bell Company's officers and directors together hold less than one-tenth of one per cent of our total number of shares.
Associated with this myth about American control is the false notion that we tend to place almost total reliance on Bell System research and methods. It is true that we have
a Service Agreement and a close working relationship with the Bell System. It shows up in a lot of the things we do, and often in our methods of conducting business. It is important that this should be so. In the first place, it is necessary today to plan communications on at least a continental scale, and this Company, to a large extent, acts as a bridge between the American communications network and the non-Bell networks in Canada. It is also true that our relationship with the Bell System, which includes Bell Laboratories, brings us the advantages of research and development that we would find extremely difficult, if not impossible, to duplicate at this time. But our interest is in no way confined to American research and techniques. We are keenly interested in communications developments in such places as Sweden, Britain, France, Germany, and many other countries. Our people travel in many of these countries exchanging knowledge and information.
More to the point, though, in the communications industry in Canada, we are attaching a new importance to home-based research. Increasingly we are turning to the Northern Electric Company's research and development centre at Ottawa for answers to our problems. Scientists there are concentrating on developing communications equipment suitable for Canadian conditions, and they're doing an outstanding job. They are also making advances in the realm of basic research, which already are proving valuable to the industry. Communications research and development scientists here in Canada are rapidly gaining strength and status. We have a lot to look forward to from them.
At this point I would like to add my few cents' worth on the importance of Government and Business having a clear conception of goals being set in various fields of activity.
In most businesses today, Government is considered to be a fifty per cent partner--especially when it comes to profits. It would seem obvious, therefore, that industrial firms and utilities have a responsibility to ensure that their ability to produce goods and services profitably is not impaired by either their own ignorance of Government objectives, or by Government's misunderstanding of business objectives. Surely it is important that business in general should strive to gain a clear conception of what Government is doing, and why. And it seems equally important that business firms should communicate to Government what they themselves are doing, and why. We cannot take it for granted that miraculous devices for the transmission of knowledge will ensure that the actual process of communicating is successful. In fact, frantic attempts, under time and pressure, to pelt out bits and pieces of knowledge--and the wholesale absorption of incomplete knowledge--far from promoting understanding and cooperation, may easily result in a breakdown of existing mutualities.
Providing essential services as Bell does, we are regulated by Government. This particular relationship deserves, perhaps, a bit of explanation. It is not merely a formality, this regulation. Nor is it a branch of Company Management with responsibilities for our operations. But our regulators -The Board of Transport Commissioners for Canada--share with Company Management a responsibility to ensure that all rates for service are just and reasonable, and that communications services are provided justly and without discrimination. The point is often made that one of the main reasons for regulation is that competition is inhibited in the territories served by utilities. If regulation is a form of substitute for competition, it would seem to follow that the earnings allowed a regulated business, such as Bell Telephone, should be similar to those achieved under similar conditions by non-regulated business.
Obviously, to provide a high standard of service, our Company must have the ability, not only to meet, but to anticipate the public need. This involves necessarily large amounts of capital, as I mentioned earlier. The investment of capital these days gets close scrutiny. The investor is no amateur. He has access to analysis and he is largely influenced by carefully studied prospects for the future. Inasmuch as the Bell Company is concerned with the public interest, Company Management and the regulators have a clear-cut responsibility to see that Bell's earning strength is sufficient to warrant the confidence of investors who are becoming more and more knowledgeable and selective.
Our business does have competitive aspects, and they are increasing all the time. We face competition when we diversify services--which we must do to effectively meet the needs of our customers and remain financially fit. More and more we are having to compete for employees, first-rate management people and new capital. To succeed we must have the assistance of regulation that is forward-looking. But we must at the same time be deeply conscious of the, reality that our own present-day actions, attitudes and plans are what will really determine the future vitality of our Company. Now I am coming to the last and most important point. We realize more and more that, equally as essential as a wide diversification of goods and services, are men and women of commensurate breadth and outlook. The coming years are going to be more demanding and challenging than at any previous time in our history. So we must continue to recruit able people. In recent years we have placed emphasis on acquiring people of high academic achievement. It seems to me that this policy is a good one. We have carried this forward in the form of additional academic work to those who have been with us for some time. In addition to the continuing use of management training seminars, we recently joined with Queen's University in opening a post graduate programme for engineers in the field of communications.
In these ways we expect to man our management group with enough people of high intellectual ability, people who can face increasing technological and management com plexities. This tends to accentuate the development of individuality. At the same time we are going to require ever improving team effort. So these same individuals must have the skills involved in providing cooperative effort throughout the organization. The important thing seems to be for the individual to concentrate on increasing his invisible assets, the capacity to learn and the capacity to cooperate. To the extent that we get understanding and acceptance of these views, to that same extent the business will be in good hands. And, gentlemen, I remain optimistic about the future of our Company.
Thanks of the meeting were expressed by Past President Arthur Inwood.