F.—Ba.

11. It is primarily because they consider the possession of such an alternative route desirable that Her Majesty's Government have decided to support the project, and though it is the case that another route via the Cape would offer greater advantages from a purely strategic point of view, the colonies interested decline to lend any support to a cable by that route, and in a matter in which they are so vitally interested, and in which their co-operation is desired, it is the duty of Her Majesty's Government to respect colonial feeling, the more so as it is the first time in the history of the Empire that two great colonial groups have approached Her Majesty's Government with a view to a joint undertaking for the furtherance of commercial, political, and social relations. 12. It is no doubt expected, both in Australasia and in this country, that the opening of the new cable route will lead to a reduction in the rates for messages, an object of great importance to the trade of this country and of Australasia, and Mr. Chamberlain is unable to admit that there is any obligation on Her Majesty's Government to abstain from taking part in the project on that account, or to choose the alternative route offered by the company, which would involve a heavier liability to Her Majesty's Government and the colonies with no prospect of a reduction of rates. 13. You allege that the British Government has never granted subsidies for the purpose of reducing rates, and that in this instance, especially, it would be unfair to do so. In the paragraph immediately preceding, however, you mention the fact that subsidies for that purpose had been granted by the Australasian Governments, and a reduction of rates was made a condition of the subsidies secured to the Eastern and South African Telegraph Company in respect of the lines down the east coast of Africa by the agreements of 9th and 10th July, 1895, between that company and Her Majesty's Government. Apparently your objection is not to the grant of a subsidy with the object of reducing rates, but to its being granted to aid a project which may to some extent compete with the system of the Eastern Extension Telegraph Company. 14. As already stated, the cheapening of telegraphic, communication is an object of the greatest importance to the public, and at a time when both in this country and the colonies there is a general desire for promoting and extending their mutual commerce, it appears to Mr. Chamberlain that any proposal which, by diminishing the cost of telegraphic communication, tends to facilitate and promote commercial intercourse is primd facie deserving of consideration, even though it may for a time diminish the receipts of the section of the public which is pecuniarily interested in existing cable systems. 15. Your statement that such competition by the State is " opposed to the whole spirit of the International Telegraph Convention " is one which it is impossible to discuss in the absence of any indication of the provisions of the convention upon which it is founded, and Mr. Chamberlain can only state that he is unable to find anything in that instrument to warrant your inference. 16. Your offer on behalf of the company " to establish a Pacific cable on reasonable terms, provided that the cable can be laid vid Honolulu," is not one which Her Majesty's Government can entertain. 17. The object of Her Majesty's Government and the colonies is to secure an alternative route under British control throughout, and the Vancouver-Great Britain section to which you refer only requires the construction by the Canadian Pacific Bail way Company of a short length of land-line, or the use as far as Montreal of the line of the Western Union Company, to insure that. It is, moreover, the desire of the colonies that the new route should be independent, and under the immediate control and direction of the Governments concerned, so that the public interests for the sake of which it is required may be the first object in its administration. This question and that of the feasibility of a cable vid'Fanning Island were exhaustively considered by the Committee, and Her Majesty's Government see no reason to differ from its conclusions. 18. In regard to the concluding portion of your letter, in which you appear to urge that the decision of Her Majesty's Government to support the Pacific-cable scheme will give rise to a claim for compensation on the part of the company which you represent, Mr. Chamberlain is unable to see on what grounds such a claim can be based. He has already shown that where the performance of a public service is in question there is no such general principle of non-competition by the State with private enterprise, as you allege, and in the present instance the primary object is not competition, but the establishment of a new service required in the public interest, traversing a route which is practically not served at present. 19. That the service rendered by the Eastern and Eastern Extension Companies has been generally efficient Mr. Chamberlain gladly acknowledges, and would regret if the accomplishment of the Pacific-cable scheme were to lead to any diminution of that efficiency ; but the fact that the service has been efficiently performed hitherto cannot justify a claim for compensation from Her Majesty's Government in "the event of their establishing an alternative service which may have the incidental effect of reducing to some extent the profits derived from that part of the existing service of the companies which may be said to have been constructed expressly for Australasian traffic. No guarantee, either express or implied, has been given to the companies by Her Majesty's Government, either in respect of the amount of traffic or the amount of profit on that traffic, nor any guarantee against competition; and though it will be the duty of Her Majesty's Government, in so far as they may be responsible for the working of the Pacific cable, to avoid unnecessary injury to the interests of the shareholders in the Eastern Company, their primary duty must be to the interests of the public. 20. As already pointed out, there will be a large development of the traffic between Canada and the United States and Australasia and the East which will naturally fall to the Pacific cable, and, apart from the natural increase in the traffic between the United Kingdom and Australasia, a reasonable lowering of rates will certainly lead to an increased volume of business, and it is from these sources rather than by any diversion of business from the Eastern Extension Company that the new cable will look for employment. There is no intention of working the new cable on other than commercial lines, and at remunerative rates.

28