In April of 1881 the Postmaster-General granted the United Telephone Company a licence to establish and operate a telephone system within a five-mile radius in London, the central point to be chosen by the company. On the other hand the company agreed to pay a royalty of 10 per cent of its gross receipts and to accept the judgment of the High Court. Licences were also granted to establish telephone exchanges in the provincial towns within a radius of one or two miles, all the licences to expire in 1911. The Postmaster-General reserved the right to establish exchanges for the department and the option of purchasing the works of the licencees in 1890 or at seven-year intervals from 1890, six months' notice having first been given. The policy of the United Telephone Company was to confine its own operations to London and to allow patent apparatus to be used in other parts of the country by subsidiary companies, leaving them free to negotiate with the Post Office for provincial licences. The telephone policy of the Post Office from 1880 to 1884 consisted in the granting of licences to the companies in restricted areas, so that the telegraph revenue might suffer from competition as little as possible, and the establishment by the department of exchanges in certain places not as a rule served by the companies. Owing to the refusal of the Government to solicit business, their exchanges did not prove a success. The department itself would probably have preferred to take over the whole telephone business in 1880, but this policy met with no favour from the Lords of the Treasury, who were of the opinion "that the state, as regards all functions which are not by their nature exclusively its own, should at most be ready to supplement, not endeavour to supersede private enterprise, and that a rough but not inaccurate test of the legitimacy of its procedure is not to act in anticipation of possible demands." The operation by the government of the unimportant exchanges possessed by them was sanctioned by their Lordships, "on the understanding that its object is by the establishment of a telephonic system to a limited extent by the Post Office to enable your department to negotiate with the telephone companies in a satisfactory manner for licences." The London and Globe Company was given a licence in 1882 to establish exchanges in London, but they were entirely dependent upon the United Company for instruments, so that there was no real competition. The department proceeded to issue licences for the establishment of competing systems in places where there were already government exchanges. From 1880 to 1884 the Postmaster-General granted twenty-three licences, and some twenty-seven towns, with 1141 subscribers, were served by the department. The policy of the Post Office during these years, as thus outlined, was far from satisfactory to the public, due largely to the desire to protect the