CO129-587-7 Telephone Amendment Ordinance 1940 9-4-1940 - 16-4-1940 — Page 7

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developments if it were in danger of being dispossessed

in a few years. The Hong Kong Company has a 50 year

term. The Telephone and General Trust asked for a

35 year term. The latter term might be susceptible

of slight reduction, but this would depend on the

other conditions in the agreement.

4. The shareholders would require a reasonable

return on capital with the prospects of higher

dividends if increased net profits were made. There

must be an incentive to earn higher profits through

greater efficiency and economy, and it therefore seems

clear that no maximum limit should be placed on

dividends. On the other hand, in view of the

monopoly rights granted to the company, it does not

seem necessary or desirable that the whole of any

increased net profits should be distributed to share-

holders. Apart from the need for building up

reserves there is a good case for devoting part at

least of any increased net profits for the benefit of

government and for telephone subscribers.

5. In the Hong Kong agreement shareholders were

guaranteed a minimum return of 8% per annum.

Presumably if shareholders are to be deprived of the

full benefit of higher profits they should be

compensated by a guarantee that telephone charges

will be maintained at a high enough level to give a

reasonable turn on capital invested.

It may,

however, be doubted whether shareholders need now

be guaranteed so high a dividend as 8 per annum.

6. The subscribers would want to be assured against

exploitation under monopolistic conditions. They

require the telephone service to be cheap as well as

efficient. It seems desirable that rates should be

fixed (and revised from time to time) by agreeman t

between representatives of the company, subscribers

/and