36. Having regard to the large sums involved and the intricacy of the accounts on which they are founded, we thought it advisable to enlist the assistance of experts, who are recognised authorities in matters of finance and accountancy, to examine the basis of the proposed fusion. We were fortunate in being able to secure the services of Sir O. E. Niemeyer, G.B.E., K.C.B., and Sir William McLintock, K.B.E., C.V.O., for this purpose. Beam Wireless and Cable Assets of His Majesty's Government in Great Britain. 37. As indicated in paragraph 31, any scheme of complete fusion would entail also a transfer in regard to ownership or management of the Beam Wireless and Cable assets belonging to His Majesty's Government in Great Britain. We were informed that the arrangements contemplated by the Eastern and Marconi Companies included a transfer to them of these assets; and it is possible that unless the Beam installations were transferred to the new Company the merger would not, in fact, take place. Such a transfer would involve for His Majesty's Government in Great Britain a departure from the policy hitherto adopted in regard to the conduct of wireless services. We felt, therefore, that no useful purpose would be served in pursuing the consideration of such an arrangement until we were advised as to the attitude of His Majesty's Government in Great Britain towards it. In this case also His Majesty's Government in Great Britain, while reserving any decision until precise proposals were available, intimated that they did not wish to preclude us from conducting enquiries with a view to ascertaining whether a satisfactory solution could be found. on this basis. Negotiations with the Companies Concerned. 38. We accordingly instituted negotiations with the Companies concerned, and in doing so were careful to emphasise that they were undertaken on the understanding that their object was merely to enable us to formulate recommendations to the Governments concerned, with whom rested the final decision in regard to all the matters involved. It will be appreciated that the conduct of the negotiations was no easy task, and we should like to place on record our appreciation of the work carried out by Sir Otto Niemeyer and Sir William McLintock on our behalf. V.-RECOMMENDATIONS. 39. As the outcome of these negotiations we submit the scheme outlined below for consideration by the Governments concerned, as providing the best solution of the problem referred to us. 40. The objects of this scheme are (a) to secure, as far as is possible, all the advantages to be derived from unification of direction. and operation; (b) at the same time to preserve for the Governments concerned control over any unified undertaking which may be created, so as to safeguard the interests of the public in general and of the cable and wireless users in particular; and (c) to secure these desiderata at the minimum of cost to the Governments concerned. 41. Before setting out onr recommendations in detail, we desire to record that His Majesty's Government in the Union of South Africa has stated that it fully realises the necessity for maintaining adequate means of communication between the various parts of the Empire and with that object participated in this Conference. It was because the Union of South Africa is in an entirely different position from that of Great Britain and the other Dominions, who possess in some instances financial control and in others financial interest either in cables or in wireless or in both that the Union Government made the reservations referred to in paragraph 33 above. 42. We wish also to note that the existing joint-purse arrangements between the Eastern Companies and the Indo-European Telegraph Company and the Indo-European Telegraph Department of the Government of India will not be affected by the acceptance of the recommendations detailed below, although the precise terms of these arrangements may possibly require revision. 43. Our recommendations are accordingly as follows:Recommendation (i).-The Merger Company. The Merger Company to be formed will acquire as from the 1st April, 1928, all the Ordinary Shares of the Eastern, Eastern Extension and Western Telegraph Companies, and all the Ordinary and Preference Shares and Debentures (if any) of the Marconi Wireless Telegraph Company. We consider that, since this merger has been the subject of agreement between the parties concerned and its terms have been publicly announced, it forms the obvious basis for the creation of a company to combine the respective interests of the Cable and Marconi Groups. Bearing in mind that the Cable Group has large investment interests and the Marconi Group manufacturing and other interests, which are not in either case directly concerned with communication services, it has been proposed to and accepted by the parties to the intended merger that there should be formed an entirely separate company on public utility lines to own all the assets and conduct all the business of the Merger, in so far as they relate to Communication Services. We deal with this important aspect under recommendation (ii) below. Recommendation (ii).-The Communications Company. There will also be formed a Communications Company to which the Cable and Marconi Companies will sell as at the 1st April, 1928, all their Communication Assets in exchange for shares. The Communications Company will therefore hold all the Communication Assets of the Cable and Marconi Companies except in so far as these belong to the Subsidiary Companies in which the Cable and Marconi Companies' holding is less than 100 per cent. The Communications Company will acquire the holdings of the Cable and Marconi Companies in those Communications Companies in which the Cable and Marconi Companies' holding is less than 100 per cent. The Communications Company will also acquire the Government Cables and hold the lease of the Post Office Beam Stations. The capital of the Communications Company not to exceed at its inception £30,000,000. By the formation of the Communications Company on the lines indicated above, an arrangement is made to segregate in one Company-the Communications Company-what may be termed the purely "communications" aspect of the undertaking, leaving in the hands of the Merger Company the investments of the Cable Companies and the Marconi interests in non-traffic undertakings and other activities, such as the manufacture of radio apparatus, and the exercise of wireless patent rights, in which the parties to the Merger Company are interested. Further, the proposed capitalisation of the Communications Company will bear a direct relation to the purely "communications" assets and operations of the undertaking. This arrangement will enable a scheme to be drawn up for the equitable apportionment of future profits derived solely from communication operations as between the shareholders of the Company and the cable- and wireless-using public. We deal with this point in greater detail below. Recommendation (iii).—Terms of Transfer of the Government's Cable and Beam Assets. The Communications Company to take over as from the 1st April, 1928, the Pacific Cable Board's Cables, the West Indian Cable and Wireless System worked by the Pacific Cable Board, the Imperial Atlantic Cables and the lease of the Post Office Beam services (including provision for the transfer to the Company of existing staffs) on terms to be arranged. The Beam Services to be leased for 25 years at a rental of— revenue; (c) a payment of £60,000 to be paid in such manner as may be agreed. The Communications Company to undertake to meet the annual service of the outstanding debt on the Pacific Cable Board as on the 1st April, 1928, and to pay in addition a capital sum of £517,000 for the Pacific Cables together with [18006] interest at 5 per cent. as from the 1st April, 1928; to pay £300,000 for the West Indian Cable and £450,000 for the Imperial Cables. The rental payable by the Communications Company and the service of the Pacific Cable Board debt will be guaranteed by the Merger Company. Recommendation (iv).-Direction and Management of the Undertakings concerned. The Board of Directors of the Merger Company, the Communications Company, the Cable and Marconi Companies will be identical. Two of the Directors, one of whom shall be Chairman of the Communications Company, to be persons approved by His Majesty's Government on the suggestion of the Cable Companies. If the Boards of the various Companies involved were not identical, there would be a risk of separate, and possibly conflicting, policies being pursued by the different entities in the undertaking. This would be bound to militate against efficiency; and unity of direction, which is one of the main objects of the scheme, would not in fact be secured. At the outset the number of Directors will, in consequence of the amalgamation, be large. It has however been proposed to and accepted by the Companies, that as and when opportunities offer this number will be reduced to a smaller figure, say twelve, including of course the two Directors approved by His Majesty's Government. Recommendation (v).-Revenues of the Communications Company. A standard net revenue of £1,865,000 (exclusive of nontelegraphic investment revenue) from the Communications Company services to be fixed to the purposes of the Company: all net revenue from Communications Service in excess of that sum to go as to 50 per cent. to the Company, and as to 50 per cent. to reduction of rates or such other purpose as the Advisory Committee (see recommendation vi) may approve. If additional capital expenditure is incurred by the Communications Company in relation to traffic, there shall be added to the above initial standard revenue an appropriate charge for interest at such rate as may later be agreed. It is obviously desirable that, as a corollary to handing over to private enterprise the conduct of public services, there should be an effective method for ensuring that the users of this service shall not be exploited for the benefit of the shareholders in the private undertaking. Some check ought, therefore, to be placed on the profits which may be earned by the Communications Company. With this object in view, a standard net revenue, representing approximately 6 per cent. on the capital of that portion of the undertaking which is solely engaged in the conduct of communications is, therefore, fixed as the normal amount which the Company may appropriate without question to its own purposes. Any excess over this amount should obviously be devoted, in part at least, to the benefit of the users of the service. If the whole of this excess were attributed to the users, there would be little incentive to the Company to improve and develop its services beyond the point where the standard net revenue was earned, and stagnation at this point might be expected to result. Such a state of affairs would not inure to the advantage of either the Company, the users of the service or the public generally. It is for this reason that a proportion of any excess revenue above the standard is allotted to the Company. Recommendation (vi).-Control by the Governments concerned. The Communications Company to consult, in regard to questions of policy, including any alteration of rates, an Advisory Committee, which we suggest should include representatives of the Governments participating in this Conference, to whom representatives of other parts of the Empire may be added as required from time to time with the approval of the Governments concerned. No increase of rates prevailing at the date of the formation of the Communications Company to be made except with the assent of the Advisory Committee. As the undertaking is one which closely concerns the several parts of the Empire, it is essential that they should have a voice in the direction of the policy of the undertaking; and having regard to the responsibilities of the Governments concerned, as trustees for the Public, it is essential that they should be in a position to exercise an additional measure of control over policy to that secured by approval of the nomination of certain members of the Board of the undertaking. The Imperial Advisory Committee should have access to all information in the hands of the Communications Company which is necessary to enable it to carry out its duties. Such information would, of course, be treated as strictly confidential. As has been indicated above, the main concern of the Governments is to secure an efficient and cheap service. For this reason the Imperial Advisory Committee should, we suggest, be given absolute powers in regard to any proposed increase to existing rates, and the allocation of the funds which become available for rate reduction, &c., in accordance with recommendation (v) above. But there are also other questions, such as the institution of new services, the discontinuance of any services which become commercially unprofitable, and the general distribution of traffic between alternative routes. For example, in regard to the question last mentioned, it will be desirable that a reasonable proportion of the total cable traffic between Great Britain and Australia and New Zealand should continue to pass over the route by way of Canada, which does not touch foreign territory at any point. It is not possible to prescribe in advance for all such contingencies. They can only be judged in the light of the circumstances obtaining at the time. For this reason it should be provided that in all such |