I move the Second Reading of this Bill, which is intended to provide a sum of £250,000 for capital for the telephone system.
Telephone Capital Bill, 1931—Second Stage.
This is the third Telephone Capital Bill since the setting up of the Saorstát. Funds for telephone development as distinct from moneys required for ordinary working and maintenance are provided through Telephone Capital Acts. These Acts authorise the Minister for Finance to issue out of the Central Fund such sum, not to exceed a stipulated amount, as may be required for the development of the telephone system in accordance with estimates which must have the prior sanction of the Department of Finance. The Minister for Finance may, if he thinks fit, raise the necessary capital by means of terminable annuities of a period not exceeding 20 years. Capital funds already provided by the Oireachtas amount to £1,000,000, consisting of £500,000 under the Act of 1924, and £500,000 under the Act of 1927.
The amount asked for in the present Bill is £250,000. There is still unexpended under the provisions of the 1927 Act a sum of £40,000. These amounts taken together will, it is anticipated, suffice to meet our capital requirements for the next four years or thereabouts. The £1,000,000 provided under the previous Acts covered expenditure for development purposes since 1922, and therefore the average annual expenditure was round about £107,000. This rate, however, cannot be regarded as normal, because it covers not only the exceptional extensions rendered necessary by the un-telephoned condition of the country on the establishment of the Saorstát, but provision for growth in congested city areas, work that must be done in bulk well ahead of the actual needs of the moment.
The obsolescent state of the plant taken over was due to circumstances existing in the period preceding its acquisition. In anticipation of the expiration of the licence under which it operated, the National Telephone Company in the latter years of its existence expended the least possible sum on maintenance and renewals and kept its system in working order by many expedients of a temporary kind. When the temporary service was acquired by the Post Office in 1912 the main exchanges as well as the plant were inadequate and inefficient. The outbreak of the Great War brought matters almost to a standstill.
In this country matters were much worse than in Great Britain by reason of the destruction which took place from 1916 to the end of the Civil War. Consequently when the staff of this Department were free to bend their energies towards permanent development and improvement they had to face a situation in which all the important exchanges were obsolete and inefficient, the underground cables and conduits inadequate and the trunk lines defective and insufficient. Little or no development had taken place in the rural areas and many counties were without any service whatever. The situation was taken in hand energetically, and we are satisfied that the service has in general reached a high level of efficiency and that no area of real importance has been left uncovered. The expenditure necessary was in excess of requirements under normal conditions, or which will be required in future. Of the capital funds so far provided £70,000 has been expended on the introduction of automatics; £3,000 on main underground schemes; £418,000 on local underground plant; £80,000 on new exchanges and call offices; £88,000 on overhead trunks and £190,000 on subscribers' lines.
The following comparison of the position in 1922 and now will indicate more clearly what was done. Exchanges in 1922 numbered 194, in 1931, 720; call offices in 1922 were 552, in 1931, 1,257; exchange lines in 1922 were 12,387, in 1931, 19,289; stations in 1922 were 19,101, in 1931, 30,465; kiosks nil in 1922, 14 in 1931. The most important development work carried out has been the conversion of the central area of Dublin from manual to automatic working. 6,381 subscribers are now connected with the new automatic exchanges at Merrion Street and Ship Street. The system is highly efficient and has given satisfaction. In connection with the conversion, underground cables have been laid to provide wires for new subscribers for ten to fifteen years to come. In Limerick a new manual exchange of the most modern type has been installed. Other extensions of an important nature have been carried out all over the country.
As to future development policy, owing to the work already done there is not scope for any immediate large-scale extensions, and therefore capital expenditure will be substantially less than in the past. As to the automatic service, it is the intention that the whole Greater Dublin area shall be brought within the system, but existing manual exchanges will be maintained as long as they are capable of giving efficient service.
From the financial provision made in this Bill, it is hoped to convert Rathmines and Terenure Exchanges to the automatic system. In the meantime a temporary relief exchange has been opened in Terenure. The Drumcondra Exchange is also congested, but arrangements are being made under which it is hoped to meet all the requirements of that district for telephones within a few months. Projected developments in the provinces includes the provision of additional trunk lines so as to give a "no delay" service to the more important centres. The introduction of small automatic exchanges is contemplated for outlying areas where the cost of manual service is prohibitive. This side of our development is, however, still in the experimental stage, and its practicability is not yet assured.
A statement of the financial results of our telephone undertaking is more strictly applicable to the Estimates, but Deputies may be interested to hear that it is hoped when our commercial accounts for the current financial year are issued it will be shown that the telephone service has now been established on a self-supporting basis.
Since the establishment of the Free State Government substantial sums have been invested in telephone capital, and although there can be no doubt that it is very desirable that we should have an efficient telephone service, it is not clear that the money thus invested has given us the result in efficient service which we might reasonably expect. The increased investment of capital in the service has, of course, increased its liability for interest while, at the same time, its ability to meet these interest charges appears to be declining. Since 1925 it is true that the revenue of the service from rentals has been increasing, but the cost of maintaining it and the other charges against it have also been increasing, with the result that the annual deficit has been, if not actually increased, at least not diminished.
It is, of course, difficult to say what the annual deficit would be if proper bookkeeping methods prevailed in the Post Office. At present the deficit is given as the amount required to meet the interest charges after deductions have been made from the balance in the Revenue Account in respect of pension liabilities and provision for depreciation. Year after year, the Comptroller and Auditor-General has been drawing the attention of the Dáil to the fact that inadequate provision is being made both in respect of pension liabilities and in provision for depreciation. Year after year it has been pointed out that the amount set aside for depreciation has been less than the annual amount expended on renewals, with the result that the balance in the Depreciation Account has been steadily reduced. If it is proposed to invest another £250,000 in the telephone service in addition to the £1,000,000 already invested, I should like to know to what extent that additional capital is required in consequence of the failure of the Post Office authorities to make adequate provision for depreciation in the past.
The accounts show that the amount raised in telephone capital up to 31st March, 1929—these are the last accounts available— was £1,566,858. Of that total, however, £765,358 represents British loans expended on the Irish Free State telephone plant, which the Parliamentary Secretary has told us was in an obsolescent condition when taken over by the Free State Government. Was any attempt made to secure a revaluation of these loans by the Government in consequence of the fact that the British authorities had allowed the plant here to become obsolescent, as the Parliamentary Secretary described it? The interest charges on these British loans expended upon the erection and maintenance of the obsolescent plant represent the total of the annual deficit upon the Post Office service, which, of course, has to be met out of the Central Fund.
In account No. 3 of the commercial accounts of the Department of Posts and Telegraphs the amount set out as the value of the plant, including private wires, is £1,501,973. I should like the Parliamentary Secretary to tell us whether that figure represents anything, except an amount of income on paper. If that figure does, in fact, represent the value of the plant, then the plant taken over from the British Post Office in 1922 must still in the opinion of the Parliamentary Secretary be worth the total amount expended on it originally.
It seems to me that the way in which the telephone service has been administered, and particularly the manner in which its accounts have been prepared and presented to the Dáil, suggests that things are done in the Department concerned in a very slipshod manner. The fact that the taxpayer is asked to provide some £30,000 or £40,000 per year to meet interest charges upon the money already invested in the service should make us very slow to agree to any increase of its capital liability until we are satisfied that there is some real prospect that the efficiency of the service will be increased, so as to ensure that its revenue will meet its outgoings in the year, and meet these outgoings at a proper valuation of them.
It is merely postponing the evil day to endeavour to present favourable figures to the Dáil by the device of making inadequate provision for pension liabilities and depreciation, as the Post Office is doing according to the Comptroller and Auditor-General. We can discuss upon the Estimate for the Department the question of administration, but on this Bill we should have from the Parliamentary Secretary a more adequate explanation as to the policy of the Department, as to the reason why it is not paying at present, and as to the steps which he proposes to take to remove these causes and to ensure that this service will be put, as it can be put and as it was put in one year since the Free State was established, on a paying basis.
I think most people throughout the country will welcome the statement of the Parliamentary Secretary that it is proposed to expend more money in the development of the telephone service. There is no more useful service throughout the country or one from which one gets more value. That is my opinion but I am sorry to say that up to the present it has not been nearly enough spread out through the country in the way that it might possibly have been. I know there are considerable difficulties, financial and otherwise, in the way, but it is good news to hear from the Parliamentary Secretary that the position of the telephones is now approaching solvency. That being so I hope that the Department will do everything that is in their power to extend the telephone service throughout the rural area, even though there may be a small apparent loss at the beginning.
So far as I know at present, the cost of installing a telephone is prohibitive in my district. The rent proposed to be charged in many cases is far too high, even compared with pre-war. In pre-war the rents were fairly high, and we had to give a guarantee. In fact I think it would be good business to be prepared to lose a little at first in an extension of the telephone service. It would be good business for the Post Office to reduce the rents. I know that if the rents were lowered there is quite a large number of people in my area who would instal the telephone; they are constantly speaking to me and saying that the charges are too high entirely. I am perfectly certain that the number of people who would put in a telephone would be enormously increased if the charges were not so prohibitive. I would urge the Parliamentary Secretary to look into this matter. Whatever small loss there might be at first, would be made up by the increase in the number of people who would instal the telephone as a consequence of a reduction in the rent. There should be a reasonable reduction in the present rate. Why the making of such reductions would mean an enormous loss eventually I cannot make out.
I did not quite gather from the Parliamentary Secretary whether he proposes to have automatics in the rural areas. I was not quite clear as to whether he proposes that or not. If automatics could be installed in the rural post offices, that, too, would make the working of the telephone cheaper. Whether he instals automatics or not, I would press on him to do everything he can to reduce the cost. It would pay the Post Office ultimately to lose a little at first by conveniencing the people in the rural areas. I am perfectly positive that in a very short time there would be no loss, but, on the contrary, an immense gain not only to the Post Office, but to the country as a whole.
The Parliamentary Secretary said that the sum of money which he hopes to secure when this Bill becomes law will be expended on the installation of the automatic system in the Dublin suburban district. The only benefit that will accrue to the country district is that some districts which are at present remote or isolated may possibly get the benefit of the automatic system, and that there will be some improvement in the trunk service. I would like to point out that subscribers in rural districts at present get very poor value for the rents they pay for the telephone service. They are charged prohibitive rents, and they have no night service and no Sunday service.
Until such times as the Parliamentary Secretary can see his way to have both a night and a Sunday service included for subscribers in rural areas, I maintain that the telephone service will be a failure. Any development that should take place should be a development along those lines. The people who subscribe in rural areas are entitled to as much consideration as the subscribers in Rathmines or Terenure. In any development that should take place there should be an improvement in the rural services. The Parliamentary Secretary should see that good instruments and good apparatus are installed in every district in which he is installing telephones. At present it is only obsolete instruments, and old instruments discarded from Dublin, that are sent down to the country. The result is that there is a very poor reception. In nine out of ten times I can neither deliver a message nor hear it in my own telephone. Until such time as better instruments are installed and until such time as we, in the rural districts, are given a Sunday and a night service, such as is available at present for the Gárda Stations, the telephone service will not, I am afraid, be popular. I urge upon the Secretary that, side by side with any development, he should see that these improvements are included.
[An Leas-Cheann Comhairle took the Chair.]
I want to bear out Deputy O'Dowd's statement. If the difficulties that the Parliamentary Secretary gave us indicate anything, they indicate the great demand that there is all over the country for telephonic development. In some cases there has been as many as twenty times the number of installations that there were a few years ago. As Deputy O'Dowd said, the Parliamentary Secretary's attention has been directed to the suburban development of the telephone service. He has had no regard for the development in the rural parts nor in the improvement of the county exchanges. Repeatedly on the Vote for the Department of Posts and Telegraphs I have complained about the bad service in the rural parts. It is no exaggeration to say that five out of every six calls are unsatisfactory. Not later than last year I had a lengthy correspondence with the Department of Posts and Telegraphs about the Mullingar Exchange and its bad work. The Parliamentary Secretary happened to come down to Westmeath about the time of the close of the correspondence, and about that time we noticed a wonderful development in the telephone. We did not know where we were. I had a letter from his Department saying that the telephone service in Westmeath was the most perfect service in the Saorstát. Unfortunately he stayed with us only for a short time, and we have gone back again to the old bad system of bad calls and bad service.
I know first of all the necessity of linking up the rural areas with the exchanges is altogether wrong. I do not see why the sub-offices that are under the county office for all other services should not be linked up with the principal post office for the telephone service. Although all the sub-offices are governed by a central post office in a particular county, yet in the administration of the telephone service some of these sub-offices are linked up with one county on the one side and another county on the other side. In County Westmeath we have Delvin and Streete sub-offices of Mullingar. In the case of postal and telegram deliveries they are connected with Mullingar. We find that if we want a telephone call from Delvin to Mullingar, a distance of ten miles, the Delvin office has to get in touch with Kells and the call has to be made by way of Dublin to Mullingar.
I know the case of a man who called for Mullingar from Delvin. He was waiting about five or ten minutes. Then he went out, entered his motor car and drove to Collinstown, a distance of seven miles. He had not cancelled his call at Delvin. He called the Mullingar subscriber from Collinstown, got through, and returned by motor car to Delvin. Even when he reached Delvin the original call had not been put through and he cancelled it. That is no exaggeration. The same would apply to a call from the Streete post office. It would really be much cheaper to go by car, but one cannot always afford to get a car to go to another office in order to put a telephone call through. The telephone is supposed to give facilities, but in the rural districts many difficulties have to be met with in the making of calls. In the case of Streete, some miles from Mullingar, a telephone call has to go by way of Longford. The operator has to ring up Longford, about twenty miles away, in order to get to Mullingar. I do not see why, in the administration of the telephone service, the same system in regard to sub-offices and the central office in each county should not apply. There is a complete lack of system.
Deputy O'Dowd referred to bad instruments. In the case of a call from Castlepollard to Trim you cannot use the telephone, no matter how you shout. It is very difficult to get through, and there really is no satisfaction. Business people are more and more using the telephone every day, and the Parliamentary Secretary should divert his attention from Rathmines and Terenure to the rural districts. If the whole matter is investigated, I am sure it will be found that the greatest development is in the rural areas. It is my belief that all the obsolete instruments that were in Dublin have been dumped throughout the country. When I was complaining about the exchanges I was told by the Department about my lack of courtesy with the people in the exchanges. It is an extraordinary thing that when you come to Dublin you are served in a quick way. No matter where you go in Dublin you are through in a couple of minutes. There is no half-hour or twenty minutes delay. Deliberately I say that an ordinary call in a post office in the country, not alone in my county, but in other counties, means usually a twenty minutes wait, even though the distance may be only ten or twelve miles. The people in the exchange may have to manicure their nails, and they will tell you that the number is engaged, and the receiver is hung up. People in business often have very urgent calls to make, and they suffer a great deal through want of a better service. When repeated complaints are made to the Department the people who make them should not be told that they lack courtesy.
Deputy O'Dowd has spoken about automatic telephones being installed in the rural parts. They are really very necessary, but where they cannot be installed we would like at least as good instruments as were here before the automatic telephone came. The instruments that we are using in the country should be more properly placed in the Museum. That is the right place for them. They are apparently the first instruments which came out. In no place else in the world would you see them utilised in the telephone service. The Parliamentary Secretary would be doing a national good if he handed them over to the Museum. If he cannot give us automatic instruments he should at least give us the good instruments that were here before the installation of the automatic telephones.
That is what he is doing.
The scale of charges should also be revised. A lower rate of charges should be put into operation. I do not believe that the charges for trunk calls are properly scaled. Express calls should be much better developed. With this money at his disposal for the further development of the telephone service the Parliamentary Secretary should see that the rural parts should get the sort of service we have indicated here, and there should be better service in the county exchanges. Better instruments and better reception than we have at present should be given, and this would place the service in the rural parts in as good a position as the service in Dublin before the installation of the automatic telephones.
Domhnall O Buachalla
Ba mhaith liom dá n-inncosadh an tAire dhom cad 'na thaobh nach bhfuil seirbhís de ló is d'oíche i gCill Choice i gCill Dara. Tá a leithéid i Magh Nuadhad agus níl Cill Choice ach trí mhíle ó Mhagh Nuadhad. Tá an oiread daoine i gCill Choice is atá i Magh Nuadhad agus ba mhaith liom a fhios a bheith agam cad 'na thaobh nach bhfuil an tseirbhís mar a chéile ins an dá áit.
What is the principle of the Post Office with regard to call offices in villages in rural areas? Is it the principle of the Department that every call office must pay for itself, that if there is not a prospect of that happening at once that the call office will not be erected? I think that has been the principle with regard to certain applications made to them in recent months. I know that in Kilcool, in Wicklow, and again in Brittas, which everyone knows is developing as a seaside resort, the applications were refused on the grounds that they were not going to pay. It is well known that Brittas is going to have a large population in the near future, and one of the things which would assist its development is a call office, because it is a good distance from any town. I do not think there is a good delivery of letters there. The principle with regard to letter distribution is that there are many services which have to be paid for by other areas. Is it the practice of the Department in regard to call offices that unless there is practically a certainty that the full working revenue will be obtained from a call office no call office will be provided? I would like the Parliamentary Secretary to give us some information on that matter, because I do not think it is a wise principle, and certainly it leaves a great many people who desire to avail of the telephone services with a particularly strong grievance.
I look at this as one of the most important Bills that come before the Dáil from year to year. I want to make vocal some of the complaints that I have heard from time to time against the telephone service. Certainly some advance has been made in the establishment of kiosks, but yet the complaint remains that the service is altogether too expensive. What is required in rural areas especially is a more efficient service. It would certainly be a step forward if the Parliamentary Secretary would undertake to improve the services somewhat in the rural areas. In addition to the more immediate wants, necessary from time to time, such as the calling of medical or surgical aid in these rural areas the absence of adequate telephone service is very much felt. The complaint also made by Deputy Kennedy and others is well justified, namely, the dumping into these areas and other important centres of the Free State of secondhand apparatus from Dublin. It is hardly fair to the rest of the country who have to bear their share of the taxation to be dumping these secondhand duds on them. It is causing a great deal of dissatisfaction indeed, and I would suggest that the Parliamentary Secretary find some other dumping ground than the rural areas for this apparatus. The Museum has been suggested by Deputy Kennedy, but I think that even there it would be a little bit too antique for some of the places reserved for antiques.
Possibly the Parliamentary Secretary is not aware of the gravity of those complaints. The telephone service in the rural areas is quite a joke. In Dublin and some cities the service is very efficient, but in the rural areas it is anything but efficient, and some move should be made to provide adequate and efficient services in those areas. I quite understand and appreciate that this means extra expense, but I feel that it is a public utility service and should not be discussed in the light of a profit-making machine. Even at some loss to the State it should provide a decent and adequate service in the rural areas.
It is somewhat difficult to understand Deputy Lemass's criticism of the financial side of the telephone undertaking, because I pointed out in my opening statement that the telephone undertaking is now on a paying basis and that in accordance with the estimated commercial accounts for the end of this financial year we will break even on the telephone account. As indicated by the balance shown in the commercial accounts of the telephone side the position has improved from year to year. The Deputy is probably aware that at the end of the financial year 1924-5 the telephone undertaking had almost reached the stage of paying for itself. The adverse balance at the end of that year was £3,348, but the scale of charges was considerably reduced at the end of the financial year with the result that the adverse balance at the end of the next financial year was considerably increased, amounting in 1925-26 to £33,976 and a still further increase in the following year to £44,191. There was a further adverse balance of £49,255, in 1927-28, incidentally the year when I took over charge of the political end of the post office administration. From that stage the adverse balance showed a steady decline. At the end of the next year it was £34,719, and the following year £16,055. That was the year 1929-30.
I think that is a matter for satisfaction. The Deputy referred to the fact that the expenditure has increased. The expenditure has increased. The tendency of the expenditure on a growing undertaking of that kind is to increase, but co-incident with the increase in expenditure there has been an increase in revenue and a decrease in the adverse balance. We do not object to the expenditure increasing provided there is, at the same time, an increase of revenue, and that has taken place. It is interesting to note, as indicated in the advance figures of our commercial accounts, that the expenditure during the past year has actually decreased from £382,732 to £378,000. So, from every point of view, I think the financial position of the telephone undertaking is satisfactory. Not only is the balance satisfactory, but it is shown after full allowance is made for interest on outstanding liabilities. In a commercial undertaking profit as a rule is not shown until the interest on capital is provided for. An ordinary commercial undertaking can be shown to be on a paying basis but not on the basis of paying a dividend. Our accounts are shown first on the basis of paying a dividend and then breaking even. That is, I think, a very satisfactory position.
The Deputy referred to the statement of the Auditor-General on the matter of depreciation. My answer to the Auditor-General's remarks and to the remarks of the Deputy is that considerable allocation has been made from year to year from the Revenue Account to the Depreciation Account, but that allocation has not been sufficient to meet the amount expended on renewals. The reason for that is fairly obvious. When we took over the undertaking, as I indicated in my opening statement, it was in an obsolescent condition. Considerable expenditure of capital was necessary, and an undue amount had to be taken out of the Depreciation Account for renewals. The amount in some cases exceeded the actual sum that was put to the Depreciation Account each year. If the Deputy will look at the Capital Account for 1929, he will see that the amount spent on renewals in that year is less than the amount credited to the Depreciation Account, with the result that the Depreciation Account shows an increased balance. The balance brought forward to the Depreciation Account in accordance with the Telephone Capital Account, 1929, was £91,740. There was transferred from the net revenue £62,980. The amount spent on renewals was £49,000. That is a smaller amount than the amount transferred from net revenue, with the result that there is an increased balance shown in the Depreciation Account.
May I point out that in the same period the prime cost of the plant increased considerably, with the result, as the Comptroller and Auditor-General pointed out, that the proportion which the balance in the Depreciation Account bore to the prime cost decreased from 6.8 per cent. to 6.5 per cent.?
That is so, but that prime cost is calculated on the plant, and the plant is almost new in condition. So that the depreciation is very small. If the renewals continue, as we hope they will, to be less than the amount transferred to the Depreciation Account the Depreciation Account will grow.
It has not started to do so yet.
It has started to do so. I think the Deputy made some comment on the value of the plant taken over from the British. As far as I could gather, his remarks were that the plant was not worth the outstanding liability. That is not so. The condition of the plant was very poor indeed. The actual value of the plant, after making all allowances for depreciation, was only £558,944. I think the Deputy will agree that that was not a very excessive capital liability, even for the obsolescent plant we took over, while the capital liability was only £340,000.
Will the Parliamentary Secretary reconcile his figures with the figures given in Account C—Commercial Accounts—where the value of the plant is shown to be £765,358?
Take depreciation from that. There is a net amount shown which I think will closely correspond with my figure. I think the financial side is satisfactory. I think we in the Department have reason to feel pleased that the undertaking is at last on a sound financial basis, paying for itself, and the people who are using the telephone are not being subsidised by the taxpayer. The person who has a telephone is paying the full value for the service which he gets.
Most of the other comments were really more applicable to the administration of the Department, and should be raised on the Estimates. Deputy Wolfe commented on what he called excessive charges which we are making for our service. Charges were reduced in 1924, and our charges do not compare unfavourably with the charges in other countries. I could give comparative figures for Great Britain and America. I think the comparative figures in 1921 will not show the charges made here in an unfavourable light. I must say, however, that our charges in rural areas as compared with the charges in rural areas in other countries are not favourable to this country. There is a reason for that. I would mention Sweden, and the rural parts, perhaps, of America and Canada. The reason is that in those countries the system adopted and accepted by the people is what is known as the party-line system. I think if the people in this country would accept the party-line system and make use of it, we could give the telephone installation at a much lower rate of charge. We have issued circulars throughout our post offices showing the rate of charge for party-lines. I think that Deputy Wolfe has a party-line, and that he can express satisfaction at the service which he gets on that line.
The present charge for party-lines is enormously increased. It is six or eight times what it was.
The cost of the party-line has not increased in recent years. There seems to be objection to the use of the party-line system in this country. One of the reasons possibly is that in the party-line system all the subscribers can listen to the conversation of the person using the line. We are supposed to have a little more curiosity as to our neighbours' affairs in this country than is the case in other countries, with the result that people will not instal the party-line. If they did, we could give them cheap telephonic accommodation.
The other comments made were concerned chiefly with the condition of the telephone service in the rural areas. I recognise that the service which we render in the rural areas is not as good as the service which we render in the cities. Some of the plant in use in the rural areas is not of the most modern type. The tendency has been to instal the more modern plant in the cities. We have given the least modern plant to the rural areas, and we have made use of lines which were not as modern as we would like them to be. The alternative would be to have no service at all. In the initial stages we endeavoured to give a service wherever it could possibly be justified financially. In endeavouring to do that, we made use of plant which was not the dearest available plant. If we were to make use of the dearest available plant, the charges would be correspondingly higher. Our policy is gradually to improve the quality of the apparatus. We are gradually superseding the older type of plant by newer and more modern plant in the rural areas. One of the reasons that this capital sum is required is to replace some of the existing obsolete plant in the rural areas by modern and up-to-date plant. Our efforts in that direction will naturally be somewhat slow. But that is our general tendency. We are definitely improving the plant in the rural areas.
Deputy Moore raised a question as to the system on which we base our calculations in deciding whether or not we shall establish a call office in a particular place or not. Our general requirement is that the estimated revenue from the call office, including a considerable proportion of the amount paid for trunk charges, shall be sufficient to repay the annual charges incurred by the establishment of that call office. The actual charges will be based on the capital expenditure, plus the operating cost. There is a regular accounting formula for basing the annual charges on the actual cost. On the opposite side of the balance-sheet is shown the estimated revenue from the call office. Our staff has become experienced in the estimating of possible revenue and, where the estimated revenue does not equal the estimated annual expenditure, we are prohibited from establishing call offices. The call office is expected to be on a paying basis. While, generally speaking, the call offices must be on a paying basis, it may be taken that the rural fringe of our telephone service is the least paying section and, possibly, the nonpaying section of our undertaking.
We are giving special attention to this question of rural telephone development and we are considering, as indicated in my opening statement, the possibility of establishing automatic rural exchanges. We have not yet brought our experiment to a conclusion. We are experimenting and we believe that we have nearly arrived at a position where we can say that small automatic telephone exchanges will work satisfactorily in rural areas. If our experience in that respect proves satisfactory, we hope to be able to instal exchanges in places where they cannot at present be installed because of the operating costs and we hope to be able to give in those places a day and night service, thereby meeting the objection raised by Deputy Dr. O'Dowd.