|Telegraph :: 1866 :: Post Roads Act|
"the telegraph transports nothing visible and tangible; it carries only ideas, wishes, orders, and intelligence."
[Pendleton, 122 U.S. at 356]
"Federal regulation of interstate electrical communication may be said to date from passage of the Post Roads Act of 1866." [FCC Report 1959 at 11]
"We recognized the fact that we might have made a bad bargain." - Western Union President Joseph Egan, 1949, commenting on Western Unions 1867 acceptance of the Post Roads Act.
It's 1866. The Civil War has come to a close. Western Union had won. It's competition in the South, such as it was, was turned into tree tinsel. The Transcontinental Telegraph Act, which sought to build a coast-to-coast telegraph service in order to help unite a young nation, ended up uniting the telegraph companies under Western Union. Western Union was actively realizing the efficiency of acquiring its compatriots and competitors. There was effectively no competitive telegraph alternative to Western Union, and the transcontinental contract, for the USG. [Post Roads Act Leg. His., Vol. 36, pt 2 at 980 (Sen. Benjamin Brown reporting on the Postal Telgraph resolution: "almost the whole of the telegraph lines are consolidated into ostensibly two giant concerns, the 'Western Union' covering the western lines, the 'American Telegraph Company' covering the eastern. It is said, however, that the large stockholders own into each to such an extent as to make them virtually one, and one that rules despotically, precludes all lateral connections, fixes its own tariff...")] [Post Roads Act Leg. His. at 3484 (Sen. Stewart (NV) "all the telegraph companies of the country have combined, and have formed a most oppressive monopoly.")]
Sen. John Conness (R-CA) articulated the consternation of the supporters of the legislation:"This great means of intercommunication, instantaneous in its character, is provided ; but, unfortunately, by the love of gain established as a principle in the human mind, it consolidates itself and becomes a monopoly." [Post Roads Act Leg. His. at 3483]
Manifest Destiny Sherman's purpose for the Post Roads Act was not articulated in the language of the Act. Instead, the Act stated that it was "An Act to aid in the construction of telegraph lines, and to secure to the Government the use of the same for postal, military, and other purposes." PRA Sec. 1. [PA RR I, 195 U.S. at 562 (The Post Roads Act was enacted "in the interest of commerce and the convenient transmission of intelligence from place to place by the government of the United States and its citizens")]. This purpose statement was much more in line with Manifest Destiny, as well as other statutes such as the Transcontinental Telegraph Act, the War Department during the Civil War, the Pacific Railroads Act, and the Atlantic Cable Act - industrial policies with the goal of getting communications network built. [Joyce at 66 (stating "The purpose of said act was to aid in the construction of telegraph lines, having in view not only present needs, but embodying a great scheme of material progress, and the growing necessities, not only of the public in commercial transactions, but also of the nation in the exercise of its commercial, postal and other governmental afiairs and business." citing Hewett v. Western Un. Teleg. Co., and Dist. Col., 4 Mackey (D. C.), 424, 16 Am. & Eng. Corp. Cas. 276, 2 Cent. Repr. 694, 2 Am. Elec. Cas. 222, 225, 226, per Merrick, J.)] Western Union will take advantage of this variance in wording to transform the Post Roads Act from legislation designed to mitigate Western Union's market power - to a statute that Western Union would champion as a vehicle for constructing telegraph lines.
Harms identified by Congress
- Western Union was a monopoly [Post Roads Act Leg. His. at 3428 (Sen. Brown, describing Western Union as a "vast monopoly" "the evils under which the telegraph system now labors")] [Post Roads Act Leg. His. at 3484 (Sen. Stewart, "all the telegraph companies of the country have combined, and have formed a most oppressive monopoly.")] [Post Roads Act Leg. His. at 3744 (Rep. John Alley (R-MA, Chair Post Office Committee) "that nearly all the telegraph companies of the country have recently been consolidated into one. This company now represents a capital of nearly $41,000,000. It is the most gigantic monopoly in this country if not in the world.")] [Post Roads Act Leg. His. at 3746 (Rep. Washburne, referring to WU as a "stupendous monopoly")]
- Western Union engaged in anticompetitive behavior to drive rivals out of the market. [Post Roads Act Leg. His., Vol. 36, pt. 4 at 3428 (Sen. Sherman, "It has been shown by the experience of tele graph companies that a line established even on the most favorable location, say between Washington and Boston, starting alone, would not be able to compete with these powerful companies, because they can do all the business of telegraphing between these leading points for nothing, and so drive out of existence the rival company…")]
- Western Union "exorbitant" rates [Post Roads Act Leg. His. at 3429 (Sen. Sherman, noting high price of sending a telegraph from D.C. to Ohio)] [Post Roads Act Leg. His. at 979 (Sen. Brown (R-MO), "one established route, controlled by Government and thrown open to the public at minimum rates, would go far to insure reduction in telegraph extortion everywhere")] [Post Roads Act Leg. His. at 3482 (Sen. Conness, "There is no tax so burdensome upon us at the present time as the tax imposed by the tele graph monopoly.")] [Post Roads Act Leg. His. at 3484 (Sen. Stewart, "exorbitant charges")] [Post Roads Act Leg. His. at 3484 (Sen. Williams, "Persons living on the other side of the continent who have occasion to send messages by telegraph know something about the burdens imposed upon the people by the present company. It costs ten dollars in gold to send a telegraphic dispatch of any kind or description from the city of Portland to Washington...")] [Post Roads Act Leg. His. at 3489 (Sen. Lafayette Foster (R-CT Senate President), "It may be desirable to bring about a competition that will relieve the business of the country from the exorbitant charges that are made")] [Post Roads Act Leg. His. at 3744 (Rep. John Alley (R-MA, Chair Post Office Committee) describing WU's "exorbitant rates" for telegraph service)] [Post Roads Act Leg. His. at 3746 (Rep. Washburne, "They are combining, confederating, and consolidating until it seems that they have al most every telegraph line within their clutches; they are taxing the people to a most enormous extent")] [Govt Ownership 1914 at 7 (discussing the Post Roads Act, referring to the telegraph monopoly's "continued enjoyment of exorbitant rates")]
- Western Union rates were not uniform across markets [Post Roads Act Leg. His., Vol. 36, pt. 4 at 3428 (Sen. Brown, observing that European nations had moved toward uniform rates)] [Post Roads Act Leg. His. at 3429 (Sen. Sherman, observing that Switzerland acquired telegraph service and offers service at a uniform rate)] [Post Roads Act Leg. His. at 979 (Sen. Brown, "They could be predicated on the post ofﬁce principle, and have a uniform rate throughout the country and a single price for all instances; the short thus equalizing the long, and the surplus of highly proﬁtable lines enabling an extension of lines on poorer routes, until all parts of the country could be brought into the telegraphic circuit.")]
- Western Union had not extended its network, did not provide universal service [Post Roads Act Leg. His. at 979 (Sen. Brown, "They could be predicated on the post ofﬁce principle, and have a uniform rate throughout the country and a single price for all instances; the short thus equalizing the long, and the surplus of highly proﬁtable lines enabling an extension of lines on poorer routes, until all parts of the country could be brought into the telegraphic circuit.")] [Sen. Conness speaking on capacity of lines to the West] [Post Roads Act Leg. His. at 3484 (Sen. Williams, arguing that current facilities are insufficient)]
- Western Union rates were discriminatory, favoring some customers over others
- Western Union discriminated in favor of some customers: specifically in favor of Associated Press
- Western Union controlled the flow of information. [Post Roads Act Leg. His. at 980 (Western Union "will let no one but the Associated Press, another giant monopoly, send any special dispatch or news to any paper except from Washington and Albany")] [Post Roads Act Leg. His. at 3482 (Sen. Conness, "Not only is it a monopoly in point of the charges that are imposed, but, as we happen to know, it is a monopoly in other respects of far more consequence and importance. They are enabled to control the commercial transactions of both sides of the continent by their control over a single line of telegraph. I know of an instance that came to my knowledge, while we were sitting here during the past winter, of a land case decided in the Supreme Court, in an adjoining chamber in this building; and the decision was no sooner known to be rendered than the telegraph was seized and made use of by men engaged in its ownership to carry out a great speculation on the Pacific coast before the result of that decision should be known.")] [Post Roads Act Leg. His. at 3744 (Rep. John Alley (R-MA, Chair Post Office Committee) "the American people are substantially subjected to its dictum in this regard. We know the power of the telegraph and how influential it may be in affecting the destinies of subordinate interests and the prosperity of the nation.")]
Congress wanted a competitive alternative to Western Union. Sen. John Sherman (R-Ohio), the sponsor of the Act, stated on the Floor of the Senate:"Allow me to remind the Senator that the present monopoly that now controls all the telegraph wires of this great country is in the hands of a single corporation chartered by the State of New York, just like this company; and the only question is, whether we shall leave them in the ascendant, sole possessors of the field, or whether we shall, if we can; create competition." [Post Roads Act Leg. His. at 3077] [Post Roads Act, Legis. His., 39th Cong., 1st Sess., p. 1773 (April 5th, 1866) (Sen. Sherman introducing S. 219, a bill to incorporate the National Telegraph Co.)] [National Telegraph Company, Supplement to the Herald, New York, April 6, 1866 (noting Sen. Sherman's introduction of Bill to incorporate the National Telegraph Co.)]
Sen. Conness from California, expressing frustration at having communications to The West tightly controlled by a single company, stated:"I do not mean to say anything to the contrary of the proposition that a noble man cannot do an ignoble act, and that an ignoble man cannot but by chance do a noble act; and therefore, whether we have one or more lines, if they are in the control of bad men, they will be badly controlled and directed; but, sir, the chances of the public, in all respects, for fair dealing, are increased by the establishment of rival lines." [Post Roads Act Leg. His. at 3482]. See also [Post Roads Act Leg. His. at 3482 (Sen. Conness, "I cannot conceive how a Senator from the Pacific coast, at least, should not be in favor of any and every provision that proposed to encourage the establishment of rival lines.")]
Competition in the market would discipline the prices of Western Union, thereby reducing them. [Post Roads Act Leg. His. at 3429 (Sen. Sherman, "We must first get a rival or private competition with the existing company to reduce prices")] [Post Roads Act Leg. His. at 3484 (Sen. Stewart, "The only way to reduce fares upon railroads is to build more railroads. The only way to reduce the charges of telegraph companies is to build more telegraph lines.")] [Union Pacific, 160 U.S. at 44 ("The object of 'that act was not only to promote and secure the interests of the Government, but to obtain, for the benefit of the people of the entire country, every advantage, in the matter of communication by telegraph, which might come from competition between corporations of different States.")]
The supporters of the legislation believed that Western Union had received advantages under the Transatlantic Telegraph Act and the Pacific Railroad Act, and that Western Union had been able to negotiate access to public lands and rights of way. Sen. Sherman was also quick to note that Western Union was receiving a $40,000 per year "gratuity" under the Transatlantic Telegraph Act. The supporters objective was to place any potential new entrant into the market on the same footing - a level playing field - as Western Union. [Post Roads Act Leg. His. at 3429 (Sen. Sherman, "There is not a single power conferred by this bill upon the new company that is not already conferred upon the old corporations. Every provision of this bill has been already granted by law to the old existing corporations, and besides that they have $40,000 a year from the Government of the United States as an express monopoly. They have already got from this Government without objection every provision in this bill, and besides that an annuity of $40,000 a year. I hope we shall at least put this new company that proposes to compete with them upon an equal footing with them without an annuity. and that is all this bill does.")] [Post Roads Act Leg. His. at 3481 (Sen. Sherman, "Now, there is not, as I said the other day—and I have looked at the legislation since—a single privilege conferred by this bill that has not been already conferred upon existing telegraph companies; and the purpose is to enable new companies that may be organized by any of the States or by the United States to enter into a fair competition with one existing monopoly which now controls the telegraphing of the United States.")] In 1947, Western Union President Egan testified before Congress, "the Post Roads Act was not passed for the benefit of Western Union. It was passed to its detriment in an effort to aid other telegraph companies to compete with it." [WU History of the Post Roads Act 1947 at 133]
The Post Office wanted to eliminate Western Union as an existential threat. The Post Office recognized that telegraph service was disruptive to its business model and its revenue. The Postal Service provided "universal service" by subsidizing implicitly high cost service areas (rural) with funds from high revenue areas (urban). If telegraph cherry picked the high revenue markets, that would leave the Post Office holding the bag for communications to the high cost areas - unprofitable markets that the private telegraph corporations would not bother to serve. [Govt Ownership 1914 at 7 (Post Office stating "in 1866, Congress, aware of the danger of permitting this service to remain under private control in view of its intimate relation to the postal service, asserted that the facility was within the purview of the constitutional provision for the postal establishment, and enacted legislation looking to the acquisition by the Government of all telegraph lines. ")]
Congress perceived that it had limited remedies at its disposal. It choice was a dichotomy: it could have private industry, unregulated during the gilded age, or it could have a government owned service like the Post Office.
Congress perceived no other remedies. It did not believe that it could believe in rate regulation. [Post Roads Act Leg. His. at 3383 (Sen. Sherman, "If we had the power to say that this old monopoly should not charge more than, say a dollar for every ten words, I should think then there was no necessity for this legislation; but I do not think we can do that.")] [Post Roads Act Leg. His. at 3484 (Sen. Stewart, "It is very clear that there is no power in Congress to reduce their prices.")] [Post Roads Act Leg. His. at 3746 (Rep. Kasson, seeking to amend the Bill to add regulation of tariff of charges) Antitrust regulation was on the far horizon of the Progressive Era. And the notion of a regulated government sanctioned monopoly was 50 years away. Congress' primary way of relating to industry was through government contracts.
Government Telegraph Sen. Benjamin Gratz Brown (R-MO) asked Postmaster General Dennison to report on "the feasibility and usefulness of establishing in connection with the Post Office Department telegraph lines along such of the principal mail routes as may be deemed advisable." [Post Roads Act Leg. His. at 979 (Sen. Brown (R-MO), introducing the resolution for the postmaster report, describing two proposals. First, that the USG buy existing telegraph service. Second, that the USG establish a rival telegraph service, with the post office as an anchor customer, to compete with private telegraph service.)]. The Federal Government's bank account had been maxed out due to the expense of war. Thus, Postmaster General Dennison recommended against the endeavor because of the expense (Postmaster General Dennison resigned in July 1866; The next Postmasters General will advocate for a government owned Postal Telegraph for the next 50 years). [Post Roads Act Leg. His. at 3429 (Sen. Brown (R-MO) quoting Postmaster, "As the result of my investigation, under the resolution of the Senate, I am of the opinion that it will not be wise for the Government to inaugurate the proposed system of telegraphs as a part of the postal service, not only because of its doubtful financial success, but also its questionable feasibility under our political system.")] [Post Roads Act Leg. His. at 3076 (Sen. Sherman, "The objection taken by the Postmaster General in the first proposition, and in which we all concurred, was that the expense would be too great for the United States now, upon present information, to embark in the construction of telegraph lines in the United States.")] See also [Post Roads Act Leg. His. at 980 (Sen Brown (R-MO), detailing the costs per mile of telegraph service)] Sen. Brown who had introduced the resolution calling on the Postmaster to produce the report for the Senate, was displeased with the result and the Postmaster. [Post Roads Act Leg. His. at 3429 (Sen. Brown (R-MO), "I think (the Postmaster) has shown himself in that communication utterly unworthy of the position which he holds as a public officer so far as a comprehension of the necessities of that service goes. I think that he has exerted himself rather to throw before us details antagonistic to the project than to seek out and collate any information that would bear out the enterprise.")]
National Telegraph Company Congress' next option was to bolster up a private commercial alternative to Western Union, the National Telegraph Company. As introduced by Sen. John Sherman of Ohio, the proposed Post Roads Act would have specifically benefited the National Telegraph Company, giving it access to Post Roads and public domain land, lowering the barriers to entry for this new market participant. [Post Roads Act Leg. His. at 1773 (April 5th, 1866) ("Mr. Sherman. I ask leave to introduce a bill... to incorporate the National Telegraph Company.... The purpose of the bill is to organize a company to immediately commence the construction of telegraph lines in the United States on the postal routes of the United States.")] [Post Roads Act Leg. His. at 3075 (Sen. Sherman introducing S. 257, granting rights to the National Telegraph Co.)] [H.R. 575, A Bill To Aid in the Construction of Telegraph Lines, 39th Cong., 1st Sess. (Introduced May 10th, 1866) (the founding investors are "hereby created a body politic and corporate under the name the National Telegraph Company")] [WU History of the Post Roads Act 1947 at 133 ("Originally the post roads bill had been drawn so as to confer rights on one telegraph company only - the National Telegraph Co., a corporation organized under the laws of New York only a few weeks before, which as yet had not commenced to do business")] Sen. Sherman's design seemed to have been to ordain a Congressionally blessed champion that battle Western Union in the market. [Post Roads Act Leg. His. at 3427 (Sen. Sherman: the committee "matter thought it better to take up this company, which showed at least, an inclination to enter into competition with the great and powerful corporations now existing, rather than to adopt any general system which might be superseded hereafter. The purpose of this bill is simply to enable this particular company to engage in this competition, believing that they have now the power and the means to do it.")]
Concerns that the NTC would simply sell its rights to WU were not without precedent. The land-grant railroad and telegraph acts contained obligations that the railroad companies build their own (alternative to WU) telegraph lines, and named specific telegraph companies - like the California State Telegraph Co. and the U.S. Telegraph Company - that could be used to fulfill those obligations. WU simply acquired all of those companies. When Sen. Sherman declared that there was a provision in the bill that prevented such acquisition except by the consent of Congress, Sen. James Nye (NV) replied "Nonsense! Tell me what can not be done by the consent of Congress and I will show you a white blackbird." [Post Roads Act Leg. His. at 3483]
The Hon. James Warren Nye of Nevada. LOC. Public Domain.
Private Competition (Lower Barriers to Market Entry) The original draft received push back from members of Congress. It was argued that if the legislation specifically favored the National Telegraph Co., "the National Telegraph Co. would merely sell out to the existing monopoly." [Post Roads Act Leg. His. at 3484 (Sen. Stewart, "If we grant special privileges to particular companies they will sell out, as they have done before, and become a part of a monopoly.")] [Post Roads Act Leg. His. at 3484 (Sen. Jacob Howard (Michigan) stating "I must confess that the bill looks to me like an undisguised attempt on the part of this new company, that owns not a dollar of corporate property, to acquire important and valuable rights and valuable lands belonging to the United States merely for the purpose of selling out its charter to some other company, and making a large profit out of the operation.")] [Post Roads Act Leg. His. at 3485 (Sen. Williams, "If a corporation was to be organized without any restrictions, the probability is that the present company would purchase that company, purchase out its rights, its privileges, or its charter, and so destroy all competition.")] [WU History of the Post Roads Act 1947 at 133].
Along these lines, Sen. Nye criticized the Bill arguing that any rival that enters the market gets acquired by Western Union, which must capitalize the acquisition, thereby raising the cost and thus price of providing telegraph service. [Post Roads Act Leg. His. at 3481 (Sen. Nye (R-NV): "the real object of the formation of this National Telegraph Company in the State of New York was but to compel the (Western Union) to purchase their franchise and keep them out of this field of competition.")] [Post Roads Act Leg. His. at 3483 (Sen. Nye (R-NV), "I repeat, the experience of the past proves that every corporation that has been organized and gotten up with a view of breaking down this monopoly and combination has but increased the power of this combination and this monopoly.")] [Post Roads Act Leg. His. at 3483 (Sen. Nye (R-NV),"where now are your independent companies? All together; all consolidated ; the United States, and the Union, the Pacific, and all these numberless companies are all one company, with one set of directors; and, sir, make your National Telegraph Company which this bill was intended to brace up, to give it power to walk, and that will be under the same set of directors to-morrow. How? By increasing the stock of the old monopoly to pay for it, and then we shall have to pay an additional price for telegraphing.")]
Senators wanted the benefits of the Act (such as they were) to apply to any potential entrant into the market and not just one company. [Post Roads Act Leg. His. at 3427 (Sen. Grimes moving to amend bill to strike "National" and insert "any", "The purpose of the amendment is to make a general law on the subject of telegraphs, which will allow any company that may be organized under the authority of any State in the Union to establish telegraph lines, instead of confining it to one particular company—to put them all on a par.")] [Post Roads Act Leg. His. at 3428 (Sen. Conness, stating that if the purpose of the bill is to give advantage to telegraph companies, "give them alike to all")] [Post Roads Leg. His. at 3484 (Sen. Stewart, "I say that the privileges that this Government can grant to corporations for the purpose of telegraphing, for the purpose of conveying information, should be as free as the air to competition.")] The Post Roads Act was amended to facilitate access by any telegraph company to post roads, public lands, and navigable waters, thereby lowering barriers to market entry.
Shadow of Government Telegraph Proponents continued to grasp at the idea that telegraph service should be government owned, containing the provision that the federal government could purchase telegraph service five years down the road (with the government's power of eminent domain, the inclusion of this provision in the Post Roads Act seems superfluous - indeed during World War I, Congress had no problem nationalizing telegraph service pursuant to this provision of the Post Roads Act as well as nationalizing telephone service without the authority of this provision). It was a strange historical moment. The Civil War was over. A new vision of "The United States" as a single nation with a strong central government had emerged. Reconstruction had begun. But the credentials of Southern members of Congress would not begin to be recognized until 1868. [The Civil War: The Senate's Story (The Reconstruction Act of 1867: "Admission to representation of the Confederate states under these terms began the next year, with Arkansas leading the way on June 22, 1868" )] The 39th Congress wrote itself a check in 1866 - Post Roads Act Sec. 3 - that the USG could five years down the road purchase telegraph service - that future Congresses with the return of the Southern members of Congress would not possibly cash.
The resulting Post Roads Act was a government contract. [Post Roads Act Leg. His. at 3489 (Sen. Lafayette Foster (R-CT Senate President) "The Senator proposes to make a contract between the General Government and a corporation")] It is a request for telegraph service in exchange for value. The USG was asking for the universal build out telegraph service to the nation, with government priority, and a government rate - in exchange for access to access to ROW, access to public land, and materials. This was taken from the Transcontinental Telegraph Act. [Post Roads Act Leg. His. at 3076 (Sen Sherman: "This provision is copied from the act incorporating the Pacific Telegraph Company, to which the United States now pays a bounty of $40,000 a year.")]
Discounted Rate Any company who agreed to the Post Roads Act would have their rates for telegraph service to the federal government set at a discounted rate by the Postmaster. Congress may not be able to engage in rate regulation - but it could set rates for service to itself. [Post Roads Act Leg. His. at 980 (Sen. Brown (R-MO), discussing the option of government ownership of telegraph, stating "Government would not only save all the present annual cost of telegraphing connected with all its Departments, which amounts to a vast sum in the aggregate, but the great modern method of transmitting intelligence would be brought into harmony with the public interest.")]
Telegraph companies under the Post Roads Act were government contractors, described as "agents" or "agencies" of the USG when transmitting USG messages. Telegraph companies were not obliged to accept the terms of the Post Roads Act. Most did. In order to accept the terms, a telegraph company filed acceptance with the Postmaster. [Sec. 147. Companies Which Have Accepted, Postal Laws and Regulations, p. 78 (1887)] the Postmaster then, pursuant to the terms of the Act, set the rates of telegraph service to the government (the next time Congress enacted communications regulatory authority in 1888, it would give that authority to the Interstate Commerce Commission).
Be it enacted by the Senate and the House of Representatives of the United States of America in Congress assembled, That any telegraph company now organized, or which may hereafter be organized under the laws of any State in this Union, shall have the right to construct, maintain, and operate lines of telegraph through and over any portion of the public domain of the United States, over and along any of the military or post roads of the United States which have been or may hereafter be declared such by act of Congress, and over, under, or across the navigable streams or waters of the United States: Provided, that such lines of telegraph shall be so constructed and maintained as not to obstruct the navigation of those streams and waters, or interfere with the ordinary travel on such military or post roads. And any of such companies shall have the right to take and use from such public lands the necessary stone, timber, and other materials for the posts, piers, stations, and other needful use in the construction, maintenance and operation of said lines of telegraph, and may pre-empt and use such portion of the unoccupied public lands subject to preemptions through which its said lines of telegraph may be located as may be necessary for its stations, not exceeding forty acres for each station; but such stations shall not be within fifteen miles of each other.
Sec. 2. And be it further enacted, that telegraphic communications between the several departments of the Government of the United States and their officers and agents shall, in their transmission over the lines of any of the said companies, have priority over all other business, and shall be set at rates to be annually fixed by the Postmaster General.
Sec. 3. And be it further enacted, That the rights and privileges hereby granted shall not be transferred by any company acting under this Act to any other corporation, association, or person: Provided, however, That the United States may at any time after the expiration of five years from the date of the passage of this Act, for postal, military, or other purposes, purchase all the telegraph lines, property, and effects of any or all of said companies at an appraised value, to be ascertained by five competent disinterested persons, two of whom shall be selected by the Postmaster General of the United States, two by the company interested, and one by the four so previously selected.
Sec. 4. And be it further enacted, that before any telegraph company shall exercise any of the powers or privileges conferred by this Act, such companies shall file their written acceptance with the Post master General of the restrictions and obligations required by this Act.
Approved July 24, 1866. 14 Stat. 221, c. 230
Per Supreme Court:
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Senate Votes Republican Democrat Yeas 16 16 0 Nays 13 9 3 Absent 20 12 6
Perhaps reflecting Senate ambivalence towards the effectiveness of the Bill, on June 29th, the Bill passed the Senate by three votes. More Senators voted "Absent" than in favor of the Bill. The Western vote (in theory the constituency paying the high transcontinental telegraph prices) was split with only 50% of Western Senate votes in favor of the Bill. No Democrat voted in favor of the Bill. Southern Senate seats were "vacant" and not counted; had they been able to vote, it is doubtful the legislation would have passed. Of the members of the Select Committee that considered Sherman's original proposal and voted it approvingly to the floor for a full vote, when the vote for the amended Act came, three voted in favor of the PRA (Sherman, Harris, Brown), one voted absent (Nesmith), and one opposed (Clark). [Post Roads Act Leg. His. at 1843 (committee members)]
By the time the House considered the Bill on July 11th, Rep. John Alley, Chair of the Committee of the Post Office and the supporters of the legislation were gravely concerned that it, if the Bill were amended and had to be sent back to the Senate for reconciliation, it would not pass again. [Post Roads Act Leg. His. at 3744 (Rep. Alley, "This is an important bill to the American people. Inſluences have been brought to bear upon the House and the Senate to defeat it; I may say influences of an extraordinary character. Appeals have been made by those who are opposed to this bill to allow them to amend the bill, and they have expressed a willingness to vote for it iſ allowed to submit the most unimportant amendmenus. It is well understood what their object is. It is, sir, to kill the bill.")] The House vote was Yeas 72; Nays 62; Not Voting 48.
Thirty out of thirty-one New York Members of Congress - the Corporate headquarters of Western Union - voted "Nay" or "absent" - only Rep. Hamilton Ward voted for it as did Sen. Ira Harris (Harris has been on the special select committee with Sen. Sherman which considered the bill. [Lindley 1971 at 56 n. 25]). [Post Roads Act Leg. His. at 3745 (Rep. Hale (D-NY) arguing that the Bill will allow foreign countries to construct wires across US waters)] [Post Roads Act Leg. His. at 3745 (Rep. Hotchkiss (R-NY) rising to oppose the Bill)]
Both Ohio Senators voted for the Act; all Ohio Republican Representatives voted for the Act (one Ohio Democrat voted against the bill and the other did not vote). [Post Roads Act Leg. His. at 3490 (Senate Vote) and 3747 (House Vote)] [Post Roads Act Leg. His. at 3745 (Rep. Finck (D-OH), Post Office Committee) opposing Bill with the mistaken argument that the Bill permits telegraph companies to take private property)]
Rights to Post Roads
The Congressional debate over the Post Roads Act did not significantly directly address what rights Congress could grant with regard to 'Post Roads' although many expressed the view that the Act did not effectively do anything. Sen. Thomas Henricks (D-IN) observed that Congress' authority over post roads was "[s]imply an authority to the Postmaster General to put the mail service upon that line, and beyond that the General Government acquires no control or power over the road." [Post Roads Act Leg. His. at 3488] The Supreme Court avoided answering what rights the PRA in fact bestowed, spending most of its time ruling on what rights the PRA did not confer. [Town of Essex, 239 U.S. para. 19 ("What rights—if any—in respect of them were immediately secured by the telegraph company through acceptance of that act, we need not consider.")] Western Union testified before Congress that the Courts had so interpreted the PRA as to remove any rights that it was believed to have had. [Egan at 132 ("it purported to give Western Union or any company accepting the Post Roads Act the right to use post roads, but when the courts began interpreting that, they whittled away every right that we thought we had obtained.")]
Pursuant to the PRA, the Postmaster General set and published the rate for telegraph service to the government. The government rate was generally considered to be about 40% of the public commercial rate. In 1872, the commercial rate for a 10-word telegram from New York City to Chicago was $1.00. At a distance of approximately 800 miles, that would constitute a distance of four circuits. Therefore, a 10-word telegraph at government rates would be 1 cent per word, times ten words, times four circuits, or $0.40.
The Army had grown accustomed to using the telegraph network to forward weather reports, dropping copies of the weather report at each station. Sometimes the Army would tell the telegraph company how to route the weather report, so that it would get dropped at all the desired stations. Western Union balked at this, claiming that it was not covered or anticipated by the original government rate. In the 1870s it came to a head with Western Union refusing to carry additional government traffic - after hearings the result was that there would be two rates - one for the "signal-service" and another for general government traffic. [House Telegraph Report 1872 at 1 (including letter from WU Orton objecting to rate, "that questions had arisen between the Departments of Government and the telegraph companies, in respect to the obligations imposed by law upon such companies as have filed with the Post master General their written acceptance of the conditions and obligations of the act of Congress approved July 24, 1866, entitled “An act to aid in the construction of telegraph lines, and to secure to the Government the use of the same for postal, military, and other purposes,” and it having been questioned whether such companies were bound by this act to send telegraphic communications at such times and in such manner as had been required by the Chief Signal-Officer of the Army and practiced by the Union Telegraph Company for the last year in transmit ting what are known as weather reports, several sessions of your com mittee were devoted to the examination of these questions.")] [New Orleans Republican. p. 2 (New Orleans, La), 20 July 1871. Chronicling America: Historic American Newspapers. Lib. of Congress. (reporting on Postmaster setting rates for USG telegraphs "One cent per word is named for each circuit of two hundred and fifty miles or less. … The rate for signal service messages and reports is two cents per word for each circuit…")] [Hochfelder, Telegraph in America at 58 (WU refuses to carry Army Signal Corps weather reports based on a rate dispute. "the final 1874 agreement between Western Union and the War Department froze competitors out of handling this business, stifling telegraphic competition and further cementing Western Union's dominance.")]
Generally, the public commercial rate excluded the address and salutation. In 1889, Postmaster General John Wanamaker claimed that while the public rate excluded these words in how it calculated its rate, for the government these words were included. A ten-word telegram could easily become a twenty-word telegram when address and salutation is included... effectively eliminating the government discount. Western Union did not seem so much to deny the accusation as argue that it was the rate agreed to by the previous Postmaster Generals. [Testimony of Norvin Green, June 9, 1890 at 9]
The government rate persisted till after World War II. Western Union sought its repeal as a way of increasing revenue. Western Union got its repeal; it resulted in a decrease, not increase, in revenue.
Rates of pay for communications by telegraph, 1871–72.
POST-OFFICE DEPARTMENT, June 29, 1871.
Whereas by the act of Congress approved July 24, A. D. 1866, entitled “An act to aid in the construction of telegraph lines, and to secure to the Government the use of the same for postal, military, and other purposes,” in section second it is enacted that telegraphic communications between the several departments of the Government of the United States and their officers and agents shall, in their transmission over the lines of said companies, have priority over all other business, and shall be sent at rates to be annually fixed by the Postmaster General: Now, therefore,
In pursuance and by virtue of the authority on me by said act conferred, I, J. A. J. Creswell, Postmaster General of the United States, do hereby fix the rates at which the telegraphic communications aforesaid shall be sent for the year commencing on the 1st day of July, A.D 1871, as follows, namely:
The rate for all telegraphic communications known as the signal-service messages and reports shall be two cents for each word of said reports and messages for each circuit over which it may pass, in accordance with the schedule of circuits and plans of the Chief Signal-Officer of the Army, which are now adopted, or may hereafter be adopted, by him for transmitting these dispatches, or such part thereof as he may designate, in such words or ciphers as may, from time to time, be directed by him. The amount thus estimated is to be taken in full payment for said dispatches, no additional allowance to be made for drops, office messages, or other services or special facilities required by the Chief Signal-Officer for the correct and prompt, transmission of said signal-service messages and reports.
The rate for all telegraphic communications aforesaid other than the said signal service messages and reports shall be as follows, viz: One cent per word for each circuit through which it shall be transmitted, said rate to be computed subject to the following conditions, viz:
A distance of two hundred and fifty miles, as computed by the tables of the Post Office Department, shall be deemed a circuit.
If, on computing circuits, there shall be found one or more circuits and a fraction of a circuit, such fraction shall be deemed a circuit.
If a communication shall be sent a distance less than two hundred and fifty miles, that distance shall be deemed a circuit.
All words of the communication transmitted are to be counted, excepting the date and place at which such communication is filed; no communication to be at a rate less than twenty-five cents.
JNO. A. J. CRESWELL,
[House Telegraph Report 1872, Signal-Service and Telegraph Companies, May 9, 1872, at 4, 73]
- Department Telegraph Rates; Maximum Rates Prescribed by the Postmaster-General Under the Law of 1866, New York Times, July 3, 1877
- Rates of pay for communications by telegraph., Postmaster June 30, 1881, Appendix 3 in Report to the Secretary of the Interior, United States. Office of the Commissioner of Railroads, U.S. Government Printing Office, 1881 ("The rate tor all telegraphic communications sent otherwise than over circuits estab lished by the Chief Signal Officer of the Army for the transmission of enciphered weather reports shall be as follows, viz : One cent per word for each circuit through which it shall be transmitted ; said rate to be computed subject to the following conditions, viz : A distance of 500 miles, as computed by the topographer of the Post-Office Depart ment, shall be deemed a circuit, and the shortest practicable route of the company transmitting the message shall in the cases be the basis of computation. If in computing circuits there shall be found one or more circuits and a fraction of a circuit, such fraction shall be deemed a circuit. If a communication shall be sent a distance less than 500 miles, that distance shall be deemed a circuit. All words of the communication transmitted are to be counted, excepting the date and place at which such communication is filed. All messages of less than twenty-five words, address and signature inclnded, shall be rated as if containing twenty-five words, and all messages exceeding twenty-five words shall be rated by the exact number of words they contain, address and signa ture inclnded. Each company will be allowed to charge for messages received from another line at the same rates as if received from the government direct for transmission over its own line. Companies forwarding messages to another line will be entitled to compensation at established rates to the terminus of their lines, at the same rates as if for messages transmitted exclusively over their own lines.")
- New Government Telegraph Rates, New York Times, Sept. 5, 1884
- Testimony of Norvin Green, June 9, 1890 at 10 (citing Postmaster General's Order of Oct. 30, 1889 setting rates): For day messages containing not more than ten words, exclusive of place from, date, address, and signature, 10 cents for all distances not exceeding 400 miles, and one - half cent for each word in excess of ten words; all distances being arbitrarily determined by the method hereinafter stated. For distances so determined exceeding 400 miles and not exceeding 1,000 miles, 15 cents for the first ten words counted as above provided, and three - fourths of 1 cent for each word in excess of ten words. For all distances exceeding 1,000 miles there shall be added to the price of the message fixed for distances over 400 and under 1,000 miles the sum of one - half cent for each word counted as above provided. In cases where the price of a message determined as herein provided shall in clude a fraction of a cent such fraction if less than one - half is to be disregarded; if more than one - half it is to be counted as 1 cent. For night messages of not exceeding twenty words, exclusive of place from, date, address, and signature, 15 cents for all distances, and one - half cent for each additional word.
- Would Not Attend to Government Business, The daily times. [volume] (Wilson, N.C.), 12 June 1919. Chronicling America: Historic American Newspapers. Lib. of Congress. ("The government rate is fixed at less than the commercial rates - in fact about 41 per cent of the commercial rates.")
- [Emergency Fleet, 275 U.S. at 417 ("For the fiscal years beginning July 1, 1921 and July 1, 1922, they were fixed for domestic telegrams substantially at 40 percent of the commercial rate, and for cablegrams at 50 percent of the commercial rate.")]
- In 1947, at the time of the Post Roads Act Repeal hearing, WU Pres. Egan testified that the government discount amounted to 20 percent. [Egan at 120]
The Post Roads Act - along with the other legislation enacted with the purpose of the build-out of a nationwide communications network, the Transcontinental Telegraph Act, the War Department during the Civil War, the Pacific Railroads Act, and the Atlantic Cable Act - were the origins of federal communications law. [FCC Report 1959 at 11 ("Federal regulation of interstate electrical communications may be said to date from passage of the Post Roads Act in 1866")] It is industrial policy adopted and implemented by Congress prior to the establishment of independent expert agencies like the Interstate Commerce Commission, the Federal Radio Commission, or the Federal Communications Commission. As an expert agency would do today, Congress and the Courts of that era engaged in the day-to-day operations and oversight of telegraph, enacting several new pieces of legislation with each new Congressional session and hearing a plethora of litigation.
In 1910, the Mann Elkins Act of 1910 placed all telegraph companies under the authority of the Interstate Commerce Commission, but did not alter the Post Roads Act. [See also Emergency Fleet, 275 U.S. at 418, 426 ("The Post Roads Act had been in force, without amendment, more than 55 years." "it clearly was not the intention of Congress, by the Act of 1910, to abrogate or modify the scope or affect the application of the Post Roads Act.")]
In 1934, the Post Roads Act was incorporated, with minimal change, into the first sections of the Communications Act of 1934. Postal service and other agencies authority over telegraph was consolidated in the Federal Communications Commission. Note that while Congress invested significant effort in revising the common carrier obligations first articulated in the Pacific Railroad Act amendment of 1888 and then in again in the Mann-Elkins Act of 1910, creating title II of the Communications Act, Congress put little effort into the Post Roads Act, simply pressing copy and paste of the provisions into the first sections of the new statute.
The Post Roads Act was repealed in 1947. See Four Stages of Western Union :: Bargaining
The Four Stages of Western Union
Western Union was opposed the new law. WU had no interest in making life easier for any potential competitor. The congressional delegation from Western Union... er... New York... voted almost unanimously against the law. Consistent with the rhetoric of Congressional opposition, WU described the National Telegraph Company as essentially a stock scam. WU viewed rival networks with vehement scorn. [WU Report at 1869 at 36] [Post Roads Act Leg. His. at 3744 (Rep. John Alley (R-MA, Chair Post Office Committee) discussing how opposition to the Bill had risen to an "extraordinary character")]
The most vocal opponent to Sen. Sherman and the Bill was Sen. James Nye (R-NV). In 1861, Pres. Lincoln named Nye governor of the new Nevada territory. In 1864, Nye was elected the Republican Senator for the new state. It seems surprising that a representative from a western state should be such an ardent opponent to a legislative proposal designed to break Western Union's high telegraph rates between the coasts. However, prior to his move to Nevada, Nye was was born, raised, educated and lived in New York, the corporate headquarters of Western Union. Nye represented his former state and its interests well. [Post Roads Act Leg. His. at 3485 & 3488 (Sen. Conness (R-CA), critiquing Nye's arguments, stating "The argument of my honorable friend from Nevada sounds to me very much like that of a Senator who was opposed to any competition")]
Nye was a master orator who regularly brought the Senate to laughter with his rhetoric. He dogged Sen. Sherman at every turn of the debate. There were two versions of the bill on the floor: the version submitted to committee which would have benefited the National Telegraph Company and the version reported out of committee which created the Post Roads Act generally benefitting all telegraph companies. Nye took advantage of the two versions, conflated them, and harassed Sherman: [Post Roads Act Leg. His. at 3485 & 3483 (Sen. Conness (R-CA), "The Senator persists in fighting what is not before us, the bill to establish the National Telegraph Company and enfranchise it.")]
Mr. NYE. The title of the bill is “to incorporate the National Telegraph Company.”
Mr. SHERMAN. The Senator has not got the bill at all. He has got some other bill. That is the bill that was sent to us.
Mr. NYE. That is the bill I have.
Mr. SHERMAN. I thought the Senator was talking about something that was not before us. This is “a bill to aid in the construction of telegraph lines''
Mr. NYE. The bill that I have is a bill reported by you from the committee.
Mr. SHERMAN. I did not report any such bill. The title of the bill that I reported is, “A bill to aid in the construction of telegraph lines, and to secure to the Government the use of the same for postal, military, and other purposes.”
Mr. NYE. Look above that. “In the Senate of the United States, June 7, 1866. Mr. Sherman, from the select committee on incorporating a National Telegraph Company, reported the following bill, which was read and passed to a second reading. A bill to aid,”
Mr. SHERMAN. That is true. That The bill sent to the committee was to organize a particular company; but we laid that aside and reported this bill for general purposes.
Mr. NYE. That is what I want to know. Three hundred and fifty-seven is the number of my bill. What is the number of yours?
Mr. SHERMAN. The same.
Mr. NYE. Then I guess I am right about it. It is a child of your begetting, and I am a little surprised that the Senator should disown it.
Mr. SHERMAN. The bill referred to is not the bill that we reported back.
Sen. Sherman patiently waded through Nye's rhetoric and continued to advocate for the bill - agreeing to multiple amendments in order to "perfect" the proposal. Sen. Nye would continue to attack the bill, moving to adjourn the Senate in order to avoid voting on the proposal [Post Roads Act Leg. His. at 3485 & 3488]. Nye also supported amendments to the bill that were proposed (and defeated) by Senator Morgan from New York.[Post Roads Act Leg. His. at 3489 (Nye supported the amendment of Sen. Morgan, to change the Post Roads Act into a government contract for USG telegraph service for which the Postmaster annually solicited bids)]
In 1867, realizing the need to improve its influence in Washington, Western Union established its first D.C. lobbying office and started the publication of the Journal of the Telegraph. Western Union also published pamphlets in response to specific legislative proposals.
Western Union was in no hurry to accept the terms of the Post Roads Act. The leadership of Western Union were loathed to concede any regulatory oversight of their company to the federal government. One year after enactment, in the June of 1867, the Board of Directors authorized acceptance.
Why did Western Union accept an Act which was designed to break its market power, which it had ardently opposed, and which Sen. Sherman stated offered it no benefit? It gave no official reason. It did not even acknowledge that it had done so.
Western Union voted to accept the terms of the Post Roads Act in its June 5th, 1867 Board of Directors meeting."Resolved, that this company does hereby accept the provisions of the act of Congress, entitled ' An Act to aid in the construction of telegraph lines, and to secure to the government the use of the same for postal, military, and other purposes,' approved July 24, 1866, with all the powers, privileges, restrictions, and obligations conferred and required thereby; and that the secretary be, and he is hereby, authorized and directed to file this resolution with the Postmaster-General of the United States, duly attested by the signature of the acting president of the company and the seal of the corporation, in compliance with the fourth section of said act of Congress. Adopted unanimously. HIRAM SIBLEY. Acting President of Western Union Telegraph Company. " [Pensacola, 96 U.S. at 4] [House Telegraph Report 1872 at 81 (acceptance was transmitted to the Postmaster on June 7th, 1867)] [Union Pacific, 160 U.S. at 62]
In its 1869 Annual Report (its first Annual Report), it makes no reference of the Post Roads Act or of accepting its terms - even though it notes the June 1867 Board of Directors Meeting, discusses government proposals to regulate telegraph, and it even references "an Act of Congress" which created the National Telegraph Company. [WU Report 1869 at 23, 36, 40] A reader of the report, seeing Western Union state that advocacy for government regulation of telegraph had been "without success," would have been led to believe that there was no such Bill known as the Post Roads Act. [WU Report 1869 at 40 ("For several years past strenuous efforts have been made by various interested parties to secure (government interference in telegraphing), but thus far without success." Perhaps a clever play on words. The advocacy had been successful, securing the Post Roads Act; however the Post Roads Act had yet to prove a success. Either way, Western Union is placing the Post Roads Act behind a curtain.)]
In 50 years of Supreme Court litigation, during which Western Union aggressively defended its "rights" under the Act (which the Supreme Court largely ruled it did not have), it never offered an explanation as to why it agreed to the Act (and the government discount rate).
Joshua Wolff acknowledges some debate as to the reasoning. [Wolff at 111 n. 112 ("Various claims made by critics and managers in later Congressional testimony on this point are probably incorrect.")] Wolff suggests that Western Union accepted the terms of the Post Roads Act in 1867 in order to facilitate access to land under federal control. The South during Reconstruction was under federal military occupation and the West was largely owned by the Federal government. [Wolff at 110-11 ("the law gave the telegraph company free access to rights-of-way - on both roads and railroads - in territory under federal control, which in 1867 included both the Southern military districts and much of the West." "[T]he law gave the telegraph company free access to rights-of-way - on both roads and railroads - in territory under federal control, which in 1867 included both the Southern military districts and much of the West.")] This is consistent with Sen. Sherman's statements that the only thing the Act did was confer the right to access public land. [Post Roads Act Leg. His. at 3076 (the Act "simply confers the right... to cross the public domain; and, whenever stations are necessary, to preempt a quarter section of land, giving them no further privilege.")] [Compare WU History of the Post Roads Act 1947 at 133 (WU Pres. Egan: "In 1861, 5 years before the passage of the Post Roads Act, Western Union already reached the coast. It did not need the Post Roads Act to cross State lines or navigable streams. It was already there.") (Egan overstated WU rights pursuant to the Pacific Telegraph Act and the Pacific Railway Act; those Acts gave WU specific rights to build the transcontinental telegraph and to build telegraph along railroad ROW; The Post Roads Act gave a telegraph company the right to construct lines over any public land and was therefore far more expansive.)] .
Wolff based his conclusion on a letter by Western Union Vice President Norvin Green, who advocated for acceptance of the Post Roads Act. [Wolff at 111 n. 112 ("Norvin Green advocated for accepting the act in July 1866 and reported the reason for Western Union's acceptance in July 1867 - this is almost certainly the correct account. Norvin Green to George Douglas, 5 July 1867, George Douglas Papers.")] Green had been President of Southwestern Telegraph, acquired by American Telegraph which was in turn acquired by Western Union. It can be assumed he had a good understanding of the politics of Reconstruction in the South. In 1878, Green was promoted to Western Union President - also suggesting the company had come to appreciate his wisdom. Publicly, Green would maintain WU's orthodoxy that the Post Roads Act offered no benefit. [Green at 427 ("The provisions of this act have as yet been of very little benefit to the telegraph companies")]
What do we make of Western Union's silence? It is a rather resounding silence. It's possible Western Union remained conflicted over ceding any ground to federal regulatory oversight. It's also possible that Western Union was holding its hand close. The Post Roads Act was designed as a tool to promote competition against Western Union - Western Union wanted to use the Post Roads Act as a tool to expand its service into new territories and thwart competition. Western Union's 1869 Annual Report set's forth its business strategy clearly:"As the telegraph is already essential to the proper conduct of the varied business which constitutes inter-state commerce, it follows necessarily that its extension into new territory, and the in crease of facilities in that now occupied, must keep pace with the growing demands of this rapidly increasing traffic...The extension of railroads in the United States during the past three years has been at the rate of more than two thousand miles per annum... The construction of new lines must necessarily go on so long as the Company aims to control the telegraph business of the country; for if we fail to supply telegraphic facilities as they are demanded they will be furnished by others, and this might result in the creation of a system ultimately rivalling our own." [WU Report 1869 at 46-48 (justifying to stockholders why profits were being aggressively reinvested in the company as opposed to issuing dividends)] [See also WU Report 1873 at 21 ("No public business of equal importance is so sensitive to competition as that of the telegraph, and with no other can competition be inaugurated by the outlay relatively of so small an amount of capital.")]
It seems likely that Western Union did not want potential competitors to know its Southern and Western strategy, and did not want competitors to understand the benefits of the Post Roads Act.
Reconstruction and 1876: Crash Course US History #22
After accepting the terms of the Post Roads Act, Western Union became its champion. Reading Western Union's arguments in the judiciary, one would be forgiven for coming to the conclusion that the Post Roads Act had been written specifically for the benefit of Western Union. The way in which Western Union adeptly used the Act to advance its business plan, it would appear it was Western Union, not Western Union's opponents, whose hand drafted the legislation.
Western Union turned the Post Roads Act into a Zombie and took control of it. As originally drafted, the Act specifically benefited the 'National Telegraph Company.' With specific endorsement from Congress, the National Telegraph Company would have attracted capital investment. With the Congressional endorsement, capital investments, and facilitated access to rights of way, the National Telegraph Company would have been well positioned to be Congress' champion to compete with Western Union.
In Congress, however, the Post Roads Act morphed from a statute that specifically favored the 'National Telegraph Company' to a general authority that benefitted any company including the National Telegraph Company.
...including Western Union. The company whose market power the Act was designed to break. The Act declared that telegraph companies had "the right to construct, maintain, and operate lines of telegraph." Instead of breaking Western Union's market power, Western Union could use this authority to build networks on public land in the South and in the West and facilitated Western Unions access to post roads and railroads. But, more importantly, in the same way that the Post Roads Act was originally designed as Congressional endorsement of the 'National Telegraph Company,' now the Act read as if it were endorsement of 'Western Union,' bestowing some 'right' on Western Union as if Western Union's existence was now derived from Congressional authority. Western Union became the 'Champion' that the Act was designed to create.
Western Union took its new gift from Congress and turned it against local authorities. Repeatedly Western Union would argue, "Western Union is franchised by Congress pursuant to the Post Roads Act, therefore..." Therefore, states have no authority over Western Union, Western Union can enter private land without permission and without paying for it, Western Union can enter public land without paying for it, Western Union does not have to pay taxes, Western Union does not have to abide by local safety codes...
There was not a word in the Post Roads Act that supported these claims. Western Union lost on every one of these claims before the Supreme Court (to the point where the Supreme Court became incredulous with the audacity of some of Western Union's arguments). But Western Union persisted. And it persisted because it worked. It was Reconstruction. The political philosophy of a strong central government had won the war. The extent of the strength of that central government was still being hammered out. In the mean time, Western Union had in its hand an authorization by that strong central government that said it had a "right" to build telegraph networks - and based on that "right" local authorities needed to clear the way. Western Union relentlessly pursued this strategy before local governments and the courts.
An ironic legacy of the Post Roads Act is that legislation designed to mitigate the market power of Western Union in the end benefited mostly Western Union and allowed it to consolidate its market power. The Post Roads Act as a remedy did not just fail; it backfired.
Western Union drank its own kool-aid. It went from believing that the Post Roads Act was a loathsome expansion of federal authority, to believing that the Post Roads Act was a divine touch giving it supreme authority. In 1947, Western Union testified before Congress at its surprise when the Supreme Court "improperly nullified" its rights under the Act. Without the ability to ride rough-shod over local authorities, the Post Roads Act was just a "bad bargain."
Its 1947. World War II had ended. Western Union had lost. The high demand for telegrams that took place during the war was diminishing and being disrupted by telephone service. Western Union was watching its telegraph revenue flow down the drain. And as any economist will tell you, the appropriate response to diminished revenue from diminished demand for your service is to raise prices. Western Union wanted out of the Post Roads Act and its USG set discounted-rate for telegraph service to the government.
Western Union presented Congress with a revisionist history of the Post Roads Act. The rhetorical trick was to frame the Post Roads Act a "bad bargain" imposed on Western Union by Congress in order to replace a "bad bargain" created by Congress. The Transcontiental Telegraph Act, Western Union claimed, which paid for the first telegraph line to California, was awarded to Western Union at the highest permitted bid: $40,000 (the maximum bidding price) per year for ten years in guaranteed government business over the line. In 1947, Western Union President Joseph Egan testified before Congress that the Post Roads Act was passed in"an effort to aid other telegraph companies to compete with (Western Union), and thereby give the Government relief from its contract of 1861. This contract had been made for 10 years and since it had fixed the maximum rates there was no possibility of regulating the rates below that maximum. The Act of 1860 might, of course, have provided for lower maximum rates, or for a sliding scale, or for the reservation of power in Congress to regulate rates; but the important thing in 1860 was to make sure that a line should be built, and built by private enterprise. This contract was very profitable to the company and it was to secure some relief from this contract that the Post Roads Act was introduced."
[WU History of the Post Roads Act 1947 at 133] See also [Egan at 132 (WU President Egan, in 1947, stating "Western Union had made a contract with the Government to handle Government business at certain rates, and as I recall the history, the Post Roads Act was passed largely to get away from that contract.")] [Field at 248]
Just as Congress had sought relief from a "bad bargain," Western Union was now petitioning Congress for relief from a "bad bargain" that provided Western Union "no benefit." Western Union detailed its accounts, describing how it was losing money based on the discounted rate for telegraph service, arguing that if it could just charge full price to the government, it would be able to recover revenue and balance its books. Western Union described it as a tax [Egan at 115 ("The effect of this tax was slow strangulation")] and that Western Union was the last industry that still bared the burden of the land-grant obligations. [WU History of the Post Roads Act 1947 at 135].
Whole bunch of problems: First, while Congress may not have been thrilled with the terms of the Transcontinental Telegraph Act, it was also a drop in the bucket in the massive land-grant programs. It was short live and it was already surpassed by the Pacific Railroads Acts. Yeah, Sen. Sherman described the Transcontinental Telegraph Act as a nice "gratuity" that Western Union received - but that was largely the extent of it. [Post Roads Act Leg. His. at 3428 (Sen. Sherman: describing WU as "a company now receiving a gratuity from Congress on a line from here to San Francisco.")]
Nothing about the Post Roads Act undid the Transcontinental Telegraph Act. The US Government would still be bound by the deal, $40,000 of business per year, until the end of the term of the Act in 1871 (which was not that far down the road at this point).
Congress' problem was that Western Union had established itself as a monopoly, was charging monopoly rents, and was discriminating - controlling the flow of information over the lines. But it would have been bad form in 1947 to concede that what the Post Roads Act was really about was mitigating Western Union's abuse of monopoly power.
"Bad bargain" or not, no one forced Western Union to agree to the Post Roads Act. Western Union hesitantly agreed to the Post Roads Act because it fit within its business strategy of market expansion. It benefited from the Post Roads Act.
But according to Western Union President Egan, Western Union, this early titan of American industry, had made a mistake. It had overestimated the benefits from the Act. From Western Union's perspective, when the Court "improperly nullified" the benefits articulated in the Act (like accessing private property without permission and without compensation), WU was "left with no visible benefit from acceptance of the Act." [WU History of the Post Roads Act 1947 at 134 ("why Western Union subsequently accepted the act. The answer is simply that we overestimated the benefits which seemed present in the act. Furthermore, since other telegraph companies were accepting the act, competitive reasons made it advisable that we do likewise.")] [WU History of the Post Roads Act 1947 at 134 (opining on the PARR 1904 Court decision rejecting WU's claims of rights)] [Egan at 132 ("it purported to give Western Union or any company accepting the Post Roads Act the right to use post roads, but when the courts began interpreting that, they whittled away every right that we thought we had obtained.")]
In 1947, virtually no member of Congress could remember why the Post Roads Act was on the books (Congress asked and Western Union willingly provided a documented revisionist history). It was a remedy to excessive market power by a communications provider - a remedy that did not work, was no longer needed, and had been replaced by more effective remedies such as the Sherman Act and the Communications Act. The Country was looking forward. Western Union had served the country well during the War. Congress granted Western Union its request. [Post Roads Act Hearing 1947] [Western Union Bill is Signed, New York Times July 17, 1947 p. 22]
But, of course, it was a mistake. Western Union's attempt to shore up its finances by significantly increasing prices to its anchor customer failed. Western Union's saw a spike in revenue leading up to repeal that peaked in April 1947. The repeal was signed into law July 16, 1947 - and by that time Western Union was experiencing a decline in revenue that it would not recover from for about 10 years, by which time Western Union had diversified away from its telegraph business. [Total Operating Revenue, Western Union, FRED Economic Data]. At the height of WWII, Western Union handled 236 million messages in 1945. In 1947, that number had fallen to 213 million - still robust given that war time traffic was diminishing. However, after repeal, telegraph traffic was in a free fall: 1948: 191 million; 1949: 175 million; 1957: 143 million. [Historical Stats, Census, Colonial to 1857, Communications at 484].
Other Beneficiaries[Sec. 147. Companies Which Have Accepted, Postal Laws and Regulations, p. 78 (1887)]
National Telegraph Company (1866)
Sen. John Sherman, Republic Ohio. His brothers included General William Tecumseh Sherman; Charles Taylor Sherman - a member of the the Board of Directors of the National Telegraph Company and a federal judge in Ohio, and Hoyt Sherman - an Iowa banker. Neither John Sherman's nor Charles Sherman's wikipedia pages, on April 30th, 2020, mentioned the Post Roads Act or the National Telegraph Company.
That National Telegraph Company and the Post Roads Act were born together in the Spring of 1866. [Post Roads Act Leg. His. at 1773 (April 5th, 1866) ("Mr. Sherman. I ask leave to introduce a bill... to incorporate the National Telegraph Company.... The purpose of the bill is to organize a company to immediately commence the construction of telegraph lines in the United States on the postal routes of the United States.")] [H.R. 575, A Bill To Aid in the Construction of Telegraph Lines, 39th Cong., 1st Sess. (Introduced May 10th, 1866) (the founding investors are "hereby created a body politic and corporate under the name the National Telegraph Company")] [Post Roads Act Leg. His. at 3075 (June 11th, 1866)(Sen. Sherman stating NTC had been established in NY on April 16, 1866)] [WU Report 1869 at 36 (NTC "which claims to have organized three years ago under an Act of Congress")] [WU History of the Post Roads Act 1947 at 133 ("Originally the post roads bill had been drawn so as to confer rights on one telegraph company only - the National Telegraph Co., a corporation organized under the laws of New York only a few weeks before, which as yet had not commenced to do business" )]
Sen. Sherman may have had a financial interest in the NTC. The House Bill introduced in May listed the potential incorporators, including Charles T. Sherman, who apparently was Sen. Sherman's brother (a fact Sen. Sherman did not disclose during Senate debates although he did list other backers of the company). [H.R. 575, A Bill To Aid in the Construction of Telegraph Lines, 39th Cong., 1st Sess. (Introduced May 10th, 1866) (listing incorporators as Henry O'Reilly, Ben Holladay, Benjamin E. Smith, Charles T. Sherman, Edwin Crane, George B. Senter, Robert Squires, Charles W. Noble, John Coon, Jonathan S. Buell, Rush R. Sloan, George B. Walter, Ell N. Keyes, Theodore F. Hall)] [Honsowetz at 84 ("John Sherman, whose brother was a director of the National Telegraph Company, expressed interest in investing in the National Telegraph Company")] [Wolff at 110 ("It is conceivable that Sherman had a financial interest in the National Telegraph Company as well - the incorporators included his brother and several of his Ohio associates.")] [Papers of Jay Cooke, Correspondence from John Sherman, U. S. Senate Chamber, regarding the selling of stock in the National Telegraph Company. See letter dated 16 July, 1866] See also [John Sherman papers, Library of Congress (Wolff records that there was a letter from Charles Sherman to John Sherman dated June 7, 1866 concerning the finances of the NTC, and that Sherman received updates from the incorporators of the NTC. Wolff at 110)] There was also a strong connection between NTC and Ohio. Both Ohio Senators voted for the Act; all Ohio Republican Representatives voted for the Act (one Ohio Democrat voted against the bill and the other did not vote).
- President: George B. Senter, Mayor Cleveland, OH 1859-60. (BoD) Senter apparently died in 1870. [Case Western Reserve]
- Vice President: Robert Squires, Vice President (BoD) 
- Treasurer: Frederick Prentice, of New York City (BoD)  
- Secretary: George B. Walter, Secretary.(BoD) 
- Ell N. Keyes, General Superintendent, (BoD)
- Edward W. Serrell, Engineer (BoD) 
- Henry O'Reilly
- Ben Holladay (BoD)  
- Benjamin E. Smith (BoD) 
- Charles T. Sherman (BoD) , Ohio University, Ohio Bar, Ohio District Court Judge, Brother of Sen. John Sherman, with whom he had a law practice
- Edwin Crane
- Charles W. Noble (BoD) 
- John Coon (BoD) Chairman, Ohio Republican Party 
- Jonathan S. Buell (BoD) 
- Rush R. Sloan
- Theodore F. Hall
- William Cumback, (BoD) 
- John Jaycox (BoD) 
- Jacob Gould (BoD) 
- Isaiah Blood (BoD) 
- George S Frost (BoD) 
- Thomas Ewing (BoD) 
- Willis Phelphs (BoD) 
- Erastus Corning (BoD)  [Irene D. Neu, Erastus Corning: Merchant and Financier, 1794–1872, p. 188 (2018) ("Corning held shares in Western Union and the National Telegraph Company...")]
- Harv M Thompson (BoD) 
- Theodore Hall (BoD) 
- Daniel Edwards 
 [Report of the Executive Committee of the National Telegraph Company (1869);  [Advertisement, The New Orleans crescent, April 30, 1868, p. 1]  [Prospectus of the National Telegraph Co., The Hickman courier. (Hickman, Ky.), p. 2, 15 Aug. 1868. Chronicling America: Historic American Newspapers. Lib. of Congress.]  [Rapid Telegraphy, Scientific America April 2, 1870 p. 222]  [Post Roads Act Leg. His. at 3482 (Sen. Sherman listing names of investors)]
The National Telegraph Company was the second company to accept the terms of the Post Roads Act. Its acceptance is recorded by the Post Office on July 30, 1866. The first company was The American Submarine Telegraph Company whose acceptance was recorded on July 24th - the day that the law was signed by the President. [Sec. 147. Companies Which Have Accepted, Postal Laws and Regulations, p. 78 (1887)]
While Western Union may have been curiously silent about its acceptance of the Post Roads Act, the National Telegraph Company was curiously outspoken about the legislation, suggesting in advertising that the version of the legislation enacted was Sen. Sherman's original draft, specifically endorsing the National Telegraph Co. The following advertisement appeared on page 1 of the New Orleans Crescent in 1868:
National Telegraph Company
A new enterprise, to be known as the National Telegraph Company, has been organized, with valuable franchises conferred by a recent act of Congress, for the purpose of establishing TRUST LINES OF TELEGRAPH on all the principal railroads and mail routes in the United States. The Stock is to be issued upon the same principle as that of the Merchant's Union Express Company, which recently commenced operations. The design is to interest the entire business community in the enterprise. This is done, not so much to dispose of the Stock as it is to secure the business of the country through which the lines pass.
The Capital is to be $10,000,000 in 100,000 Shares, of par value of $100 per share but the actual amount to be paid in cash is $35 per share. And this amount is to be paid as follows: One per cent of the par at time of subscribing, and no more, until the entire capital has been subscribed, and then on calls to be made by the Board of Directors; instalments not to exceed five per cent per month. When thirty-five per cent of the par value of the shares has been paid, certificates of stock will be issued. This will give the Company a paid up cash capital of $3,500,000 which will be sufficient to duplicate lines to all, or nearly all, the paying points reached by the present monopoly.
The present Telegraph Companies of the country have been consolidated into one huge monopoly, and are now earning ever six millions of dollars per year, or over one hundred per cent of the actual cost of their lines, their present capital saving been watered over one thousand per cent.
The National Telegraph Company have a recognition from the United States Government of the importance of their enterprise, with a grant of the most valuable franchises ever conferred upon a Telegraph Company. No competing lines have ever had the right now granted by Congress to this Company to conduct and operate lines over every Railroad and Mail Route in the United States. The position of this Company differs from that of any company ever before organized. The question of Right of Way is forever settled.
The Stockholders of this Company cannot be sold out or transferred to any other Company. The Act of Congress under which this Company has been organized prohibits a transfer of the franchises granted.
Calls-How to be made
One per cent of the Stock will be required on subscribing, and subsequent calls, not to exceed five per cent per month, will be made by the Board of Directors, from time to time, as may be necessary, to supply funds to construct and equip the lines; but no calls will be made after the one per cent is paid until the entire Capital Stock shall have been subscribed.
Actual Capital Required
The Company confidently believe that thirty-five per cent of the Capital Stockj will construct and fully equip 25,000 Miles of Wire which will connect all the commercial centers and important places in the United States, This opinion rests upon the most reliable estimates and responsible offers to construct and equip the lines.
The National Telegraph Company is organized under the laws of the State of New York, and franchises conferred by an act of Congress, approved July 24, 1866.
President – George B. Senter, of Cleveland, OH
Vice-President – Robert Squires, of New York City
Treasurer-Frederick Prentice, of New York City
Secretary – George B. Walter, of New York City
Company's Offices No. 54 and 65 Broadway, New York
[Advertisement, The New Orleans Crescent, April 30, 1868, p. 1] See also [Prospectus of the National Telegraph Co., The Hickman courier. (Hickman, Ky.), p. 2, 15 Aug. 1868. Chronicling America: Historic American Newspapers. Lib. of Congress. ("Franchises conferred by the National Telegraph Law passed by Congress at its recent session, and approved July 24, 1866") ] [Prospectus of the National Telegraph Co., The Hickman Courier, Vol II, No. 39, p. 2, Sept. 19, 1868 (this version publishes that actual text of the Post Roads Act)] [Prospectus of the National Telegraph Company, The Hickman Courier, Vol. II, No. 29, July 11, 1868]
Commenting on rival companies (with notable disdain), Western Union spoke of the National Telegraph Company as follows:"The origin of nearly all the competing lines is the same. They are the offspring of a class of speculators whose only object is to make money by their construction, and who have no interest in their future operation. In order to give an air of respectability to their schemes they generally secure the names of some prominent men to act as directors, and extensively advertise them in their prospectuses....Agents are employed to go from town to town to solicit subscriptions. The first instalment is generally a small one, just enough to pay the canvassers their commissions. Land lords are induced to take stock for hotel bills, and by every means the bubble is floated... (The National Telegraph Company), which claims to have organized three years ago under an Act of Congress, and has filled the country with runners begging for subscriptions to its stock, has never set a pole." [WU Report 1869 at 36]
[See also The National Telegraph Company, Journal of the Telegraph, p. 60 (Feb. 1, 1870) (James Reid, Editor) ("For several years, at somewhat remote intervals, a Telegraph Company, bearing the above title, has made itself known through the press, but so apologetically and so apparently without purpose, as to avert criticism, and to be forgotten as soon as the modest notice of its existence was read.") (Journal of the Telegraph was a Western Union sponsored publication.)] [Harlow at 323 ("An Illinois editor breathlessly announced that the National's stock ten million dollars was all subscribed for, that already 6,000 miles of line had been built and that it would cut rates to one-tenth of the present scale. The Telegrapher jeeringly begged to be informed as to the location of the 6,000 miles of line.")] [Post Roads Act Leg. His. at 3482 (Sen. Nye (R-NV): "The National Telegraph Company that ask to do this have not a rod of telegraph any where, and they never will have one.")] [Post Roads Act Leg. His. at 3484 (Sen. Jacob Howard (Michigan) stating "I must confess that the bill looks to me like an undisguised attempt on the part of this new company, that owns not a dollar of corporate property, to acquire important and valuable rights and valuable lands belonging to the United States merely for the purpose of selling out its charter to some other company, and making a large profit out of the operation.")]
Sen. Nye attacked the National Telegraph Company as a ploy on the part of its founding investors to force Western Union to acquire the NTC and thereby make a profit. [Post Roads Act Leg. His. at 3481 (Sen. Nye (R-NV): "the real object of the formation of this National Telegraph Company in the State of New York was but to compel the (Western Union) to purchase their franchise and keep them out of this field of competition.")] [Post Roads Act Leg. His. at 3481 (Sen. Nye (R-NV): "I think the object of all this is to give this National Telegraph Company the right to sell out, and to compel the existing monopoly to become more monopolizing in its influences...")] [Post Roads Act Leg. His. at 3484 (Sen. Jacob Howard (Michigan) stating "I must confess that the bill looks to me like an undisguised attempt on the part of this new company, that owns not a dollar of corporate property, to acquire important and valuable rights and valuable lands belonging to the United States merely for the purpose of selling out its charter to some other company, and making a large profit out of the operation.")]
As originally drafted, the Post Roads Act ordained the NTC as the Congressional Champion given the quest of bringing competition to the marketplace. Sen. Sherman testified that the Senate committee"thought it better to take up this company (The National Telegraph Co.), which showed at least, an inclination to enter into competition with the great and powerful corporations now existing, rather than to adopt any general system which might be superseded hereafter. The purpose of this bill is simply to enable this particular company to engage in this competition, believing that they have now the power and the means to do it." [Post Roads Act Leg. His. at 3427-28]
Congressional blessing would help the National Telegraph Company solicit capital investment. [Post Roads Act Leg. His at 3428 (Sen. Conness (D-CA): "though they may not have any immediate benefit to their company from the passage of this bill, they expect a great indirect benefit by reason of the credit that it will give their company. In other words, it is proposed by the passage of this bill for this particular company, to enhance the value of their stock in the market.")] [Post Roads Act Leg. His at 3481 (Sen. Nye, "the Supreme Court of this nation have held over and over again that a corporation created in one State has a right by the comity of States to perform its functions in other States. It was so decided in the celebrated coal cases of Pennsylvania and Maryland. There is no necessity for the legislation here proposed in that respect but to give additional sanctity to it by giving it the indorsement of Congress...")]. When the Post Roads Act was amended, changing it from specifically ordaining the NTC to a general authorization for any telegraph company, NTC lost that advantage. [Postal Telegraph Facilities, Report of the Postmaster General, Sept. 25, 1800 p. 148 (Testimony of J.C. Reiff, Before the Senate Committee on Railroads, Feb. 1-3, 1879, "An act to aid in the construction of telegraph lines, etc., was originally intended to cover a special charter to the National Telegraph Company, but upon the eve of its passage by the Senate, it was converted into a general law; hence, as the special advantages and rights to be conferred by the act were of general application so far as telegraph companies were concerned, the incentive to investment in the National Telegraph Company was taken away.")] But, as noted, that did not stop NTC from portraying itself as having received special blessing from Congress.
1869, NTC acquires rights to use the Little Automatic Telegraph and produced a glowing report which it circulated widely.
of the Executive Committee
National Telegraph Company
to the Subscribers of its Capital Stock
Little's Automatic Telegraph System
The National Telegraph Company having secured the exclusive right or license to use an entirely new system of telegraphing in the United States, patented in November last by George Little, Esq., of Rutherford Park, New Jersey, and known as "The Little Automatic System," and having all their capital stock of Ten Millions of Dollars ($10,000,000) subscribed, are now in a position that will fully justify its Board of Directors in the construction of lines of telegraph that will connect this great Metropolis of New York City with all the large commercial cities and important places that are paying business points for telegraph connections throughout the United States… to make the matter decidedly sure, or to show and provide to the subscribers of its stock and the people of the country the overwhelming advantages of this new fast system over the old one, the National Telegraph Company, before commencing general construction of lines all over the country, have commenced constructing a line connecting this city with Washington, for the purpose of demonstrating the advantages of this new system as compared with the present or Morse System.....
[Report of the Executive Committee of the National Telegraph Company, To Subscribers of its Capital Stock, on Little's Automatic System of Fast Telegraphy, p. 3 (1869)] [The National Telegraph Company, Journal of the Telegraph, p. 60 (Feb. 1, 1870) (James Reid, Editor) ("The process proposed to be employed in working the lines of the National Telegraph Co., should these lines ever be built... was exhibited to us in 1847 by Alexander Bain, the inventor of what is known as the 'Bain System.'"")] [Route Through City of the National Telegraph Co., Evening Star, Jan. 11, 1870] [Rapid Telegraphy, Scientific America April 2, 1870 p. 222 ("A new telegraph line is now being constructed between New York and Washington, forming a small section of wires that are intended to ramify in all directions through the country...")]
The NYC-to-DC line, placed into operation in 1870, performed poorly. By 1871, NTC had sold the line and its rights to the Little Automatic Telegraph to the Automatic Telegraph Company - - which took it to Edison to improve and then sold the line to Jay Gould's Atlantic and Pacific Telegraph - which was then acquired by Western Union (fulfilling the prediction of Sen. Nye that any telegraph company created pursuant to the PRA would simply be acquired by WU) [Taltavall at 488 ("One line from NYC to WDC was constructed in 1870. It had trouble with prolonged currents. The wire itself broken frequently and there was no redundancy in the network. The company did not have commercial success. ")] [George Bartlett Prescott, Electricity and the Electric Telegraph, Volume 2, at 724 (1892) (The invention was used on a New York to DC line. "It was soon discovered, however, that the transmission at high speeds was very materially retarded by the effects of induction, which caused the dots and dashes to run into each other and become indistinct and illegible. The perforating apparatus was also found to be totally inadequate to the requirements of an efficient service")] See also [WU Report 1869 at 37 (discussing general limitations of automatic telegraph systems, stating "messages cannot be sent by this system at a faster rate of speed than by the ordinary Morse apparatus, except over comparatively short distances; that it cannot be used upon a wire strung upon poles with other wires; nor will it work during a magnetic storm, except by the employment of a double line.")] [Automatic Telegraphy, Journal of the Telegraph, Vol. III, No. 24, p. 1, Nov. 15, 1870 ("a wire has recently been put up between New York and Washington for the purpose of testing the value of the apparatus. The same difficulty, however, appears to be encountered by this as with all previous attempts to utlize automatic telegraphy - too much time and expense are required to prepare dispatches for transmission.") (The Journal of the Telegraph was a WU affiliated publication)]
In 1875, NTC was still engaged in soliciting investments. Whatever was left of NTC approached Jay Gould, who was busy acquiring any asset he could use against Western Union, in an attempt to be acquired; Gould was not interested. [The Telegraph Profits, Daily Alta California, Volume 27, Number 9324, 14 October 1875 ("The National Telegraph Company proposes to duplicate the Western Union wires at a cost of $9,000,000 which would enable them to reduce the rates of despatches to a very small figure, and still make a profitable investment of their money.") ] [National Telegraph Co, The Arizona sentinel. July 10, 1875 (NTC filed for incorporation in San Francisco)] [Santa Cruz Weekly Sentinel Santa Cruz, California 17 Jul 1875, Sat Page 2 ("If this company mean business, sharp competition will grow up in telegraphy; but it may be that it is only a scheme to bleed the Western Union Company.")] [The National Telegraph Company, The Cincinnati daily star., Vol. 8, No. 47, p. 1 August 24, 1875 (NTC "will propose an amalgamation with the Atlantic and Pacific and Franklin Telegraph Companies, whereby those companies will be enabled to thoroughly compete with the Western Union.")] [Telegraph Companies, Yankton daily press and Dakotaian., Vol. 1, No. 111, September 01, 1875, p. 1 ("Some months ago (NTC) made a proposition and (A&P) expressed a desire to purchase the latter's line, but nothing more has been heard from him since.")]
The Post Roads Act does not reference telephone companies [PA RR, 195 U.S. at 551 ("this court having limited the application of the act of July 24, 1866, to telegraph companies proper.")] The Post Roads Act was enacted in 1866; Bell first patented the telephone in 1876. [Southern Bell, 174 U.S. at 775 ("Congress in 1866 knew only of the invention then and now popularly called the telegraph.")] The first of Post Roads Act case that contains a reference to telephone companies is St Louis v. Western Union,148 U.S. 92 (1893). In 1899, the Court considered directly the question of whether the Post Roads Act covered telephone companies, and concluded that it does not. [Southern Bell, 174 U.S. at 777-78 (noting that Congress was not aware of the telephone invention at the time of enactment of the Post Roads Act)] The Court opined that if Congress wanted the legacy communications legislation to cover the new communications medium, Congress was at liberty to amend the legislation to achieve that end. [Southern Bell, 174 U.S. at 777 ("If, Congress desires to extend the provisions of the act of 1866 to companies engaged in the business of electrically transmitting articulate speech ... let it do so in plain words.")]
But Congress may have had little incentive to do so. First, the Post Roads Act was a government contract for communications service; government work was done by telegraph, not telephone. [Southern Bell, 174 U.S. at 776] . Second, telegraph service provided interstate communications; telephone service well into the 20th Century provided local service, generally outside the jurisdiction of Congress. Finally, Western Union, Sen. Sherman, and the Supreme Court may have been right; the Post Roads Act really provided no significant benefit. [WU History of the Post Roads Act 1947 at 135 (observing that AT&T which lacked the benefits of the Post Roads Act had little difficulty growing its network)]
There is also the fact that while the Court in Southern Bell concluded that telephone did not equal telegraph, every other forum for every other purpose that considered the question did conclude that telephone equalled telegraph. [Southern Bell, 174 U.S. at 733 (noting but distinguishing precedent that concluded telephone equalled telegraph)] [Joyce at 70 (a treatise on electric law written before Southern Bell, stating that courts had held "that a telephone company might avail itself of the privileges conferred on telegraph companies by said Post Roads Act.")] Compare The Wisconsin Teleph. Co. v. Oshkosh, 62 Wis. 32, I Am. Elec. Cas. 687, 690, per Cassody, J. (citingPensacola concerning the evolution of the law to cover unanticipated inventions at enactment, stating “Of course no one supposes that the legislature intended to refer specifically to telephones many years before they were invented, but it is highly probable that they would, and it seems to me clear that they eventually did, use language embracing future discoveries as to the use of electricity for the purpose of carry ing intelligence.”)
Nevertheless, according to Southern Bell, the Bell companies could not take advantage of the Post Roads Act by merit of the fact that they were named "telephone and telegraph" companies. In 1879, AT&T and Western Union settled a patent dispute and divided the market; AT&T provided telephone service and Western Union provided telegraph service. Regardless of having both services in many Bell telephone company's names, they in fact provided only telephone service. [Southern Bell, 174 U.S. at 773 (finding that Southern Bell was in the business of providing telephone service, noting the 1879 agreement between Western Union and Bell Telephone)]
It is true, however, that telephone and telegraph companies used the same poles and ROW. Telegraph and then telephone service were revolutionizing industry, the economy, media, and society. People were demanding these services; the local governments' incentive was to facilitate the build out of the information superhighway, not impede it. The states, for there part, amended statutes to include telephone companies. [PA RR, 195 U.S. at 551 (citing "New Orleans, M. T.R.R. Co. v. S. A.T. Co., 53 Ala. 211; Colorado: Union Pac. R. Co. v. Colo. Postal Tel. Cable Co., 69 P. 564; Georgia: S.F. W. Ry. Co. v. Postal Tel. Co., 38 S.E. 353; Idaho: Postal Tel. Co. v. O. St. Line Ry. Co., 104 F. 623; Illinois: St. L. C.R.R. Co. v. Postal Tel. Co., 173 Ill. 508; Kentucky: Postal Tel. Co. v. Mobile O.R. Co., 54 S.W. 727; Louisiana: Postal Tel. Co. v. M., L. T.R.R. S.S. Co., 21 So. 183; Mississippi: Mobile O.R. Co. v. Postal Tel. Co., 26 So. 370; North Carolina: Phillips v. Postal Tel. Co., 41 S.E. 1022; Tennessee: Mobile O. Ry. Co. v. Postal Tel. Co., 41 L.R.A. 403; Texas: T. N.O. Ry. Co. v. Postal Tel. Co., 52 S.W. 108; Virginia: Postal Tel. Co. v. Farmville P.R. Co., 32 S.E. 468; Utah: Postal Tel. Co. v. Oregon Short Line, 65 P. 735; Ohio: R.S. §§ 3454 et seq.")] [Southern Bell, 174 U.S. at 764 (citing The Code of Virginia adopted in 1887, § 1287, giving telephone and telegraph companies right to construct lines along roads)]
When telegraph service first sought to install poles on roads and right of ways, the service was novel and the negotiation with local governments new. By the time telephone service came along as the younger sibling, electronic wire communications was well established and in high demand, and the speed bumps of negotiating with local authorities had been pounded down - at least to an extent. Telephone may not have equaled telegraph under the Post Roads Act, but it did for just about every other purpose, and thus the telephone followed easily in the wake of the telegraph.
Telegraphs = Posts (Congressional authority over telegraph service and ability to enact Post Roads Act)
Telegraphs = Rail roads (judicial interpretation of common carrier obligations)
Telephone = Telegraph (ROW access, right to incorporate, liability, non descrimination and subsidies)
Legacy of the Post Roads Act
What is the Legacy of the Post Roads Act?
Did the Post Roads Act lower the barriers to market entry and result in competition? Nope. I mean, not really.
Jay Gould took advantage of the act to decrease the cost of market entry. But this did not result in the hoped for competition. Jay Gould was known as a "railroad robber baron." [Britannica] He was engaged in a hostile take over of Western Union - and using the Atlantic and Pacific Telegraph Co. and Edison's telegraph inventions - in 1881 he succeeded. So yeah, the Post Roads Act may have made it easier for Gould - but further market consolidation was probably not what Congress intended. [Field at 248 ("The Act did nothing to restrict Western Union's growing monopoly power.")]
The Postal Telegraph Company did enter the market in 1881. But the Postal Telegraph Company never posed a serious threat to Western Union's market dominance. Postal Telegraph would descend into financial turbulence and ultimately be acquired by Western Union in 1943.
As interpreted, the Post Roads Act prohibited exclusive access to ROW. Historically, Western Union negotiated exclusive contracts with railroads in order to lock out competition. The Post Roads Act was designed in part to break that lock-out. Western Union took advantage of the Post Roads Act to prevent Florida from establishing an exclusive franchise and locking Western Union out of the market. The United States Government then sued Western Union and Union Pacific to annul their exclusive contract. However, in the end, with Western Unions growing network effect, value, and superior service, its hard to imagine any local authority being able to exclude Western Union from their market and their constituents. Western Union telegraph was now critical infrastructure that businesses and news media demanded.
To Sen. Sherman, the purpose of the bill was specifically to establish the National Telegraph Company as a champion to take on Western Union. The supporters of the proposal in committee"thought it better to take up this company (The National Telegraph Co.), which showed at least, an inclination to enter into competition with the great and powerful corporations now existing, rather than to adopt any general system which might be superseded hereafter. The purpose of this bill is simply to enable this particular company to engage in this competition, believing that they have now the power and the means to do it." [Post Roads Act Leg. His. at 3428]
Sen. Sherman had designed the bill to establish the National Telegraph Co., and insure that it had the same rights that other telegraph companies had already acquired under the Transcontinental Telegraph Act and the railroad acts; to Sen. Sherman, the purpose of the Act was not to create new rights, but to ensure his National Telegraph Co. was on a level playing field. As amended, the National Telegraph Co. received exactly the same benefits as before - it simply was not the sole beneficiary (the National Telegraph Co. for all practical purposes failed to effectively take advantage of the benefit of the Act and become a viable telegraph company). [Post Roads Act Leg. His. at 3076 ("no right is conferred by this bill that does not already exist in the present companies" - Sen. Sherman thereby making the argument that therefore the National Telegraph Company would not be a take-over target simply to get these rights)] [WU History of the Post Roads Act 1947 at 134 ("Sen. Sherman who introduced the legislation ""Now, there is not, as I said the other day — and I have looked at the legislation since - a single privilege conferred by this bill that has not already been conferred upon existing telegraph companies.")]
Congressional opponents of the Bill portrayed it as achieving nothing. Sen. James Nye of Nevada supported the goal of the legislation of mitigating the market power of Western Union, but said of this Bill, "It is legislating at a shadow and for a shadow, and the result will be nothing." [Post Roads Act Leg. His. at 3483] [Post Roads Act Leg. His. at 3489 (Sen. Thomas Hendricks (D-IN) "there is a good deal of force in the argument of the Senator from Nevada [Mr. NYE] that this bill will finally not accomplish much.")] Western Union, in 1947, declared that, in hind-sight, it received no benefit from the law. [Egan at 118 ("It enjoys no benefits whatsoever as a result of this obligation ")] [WU History of the Post Roads Act 1947 at 135 ("In 1919, when the Interstate Commerce Commission undertook the valuation of Western Union property, diligent search was made to locate any benefits which the petitioner received under the act of 1866, without success.")] Western Union noted that the failure of a "comparable wire-communications company," AT&T, to benefit from the Post Roads Act put AT&T at no disadvantage. [WU History of the Post Roads Act 1947 at 135] [See Telephone] Ironically, the last amendment offered, which required the Postmaster General to put the government telegraph contract out for annual bid, was rejected because putting a contract out for competitive bid in a market that lacked competition was futile. To this Sen. Nye exclaimed "[t]his whole thing beautifully exemplifies the farcical character of the bill." According to Sen. Nye, there was not then any company that could compete with Western Union, and the Bill would would not result in a "single foot of telegraph line by any [new] company." [Post Roads Act Leg. His. at 3489]
The Post Roads Act did result in epic litigation - just like any good piece of communications legislation. [WU History of the Post Roads Act 1947 at 134 ("The congressional discussions show plainly that even the most ardent proponents of the measure had no idea whatever that Congress was granting, or that it had any constitutional power to grant, any rights of property, except in the public domain and with respect to property of the Government. On the contrary, it was plainly stated by Senator Sherman that no rights were granted except such as already had been conferred on existing telegraph companies and no one has ever suggested that existing telegraph companies had theretofore received from Congress any rights which they could enforce against private owners of land.")] When challenged on whether Congress in fact has the authority to grant telegraph companies the right to build telegraph networks over post roads, Sen. Sherman responded "that's for the courts to work out." [Post Roads Act Leg. His. at 3076 ("For myself, I have no doubt that the Government of the United States have a right to erect wires, or authorize them to be erected by a company, over and through the post roads in different States... At any rate it is a right that, if disputed in any State, or by any person, may be made the subject of litigation, and may properly be left for judicial tribunals.")] [WU History of the Post Roads Act 1947 at 134 ("it seems strange today that there should, almost from the beginning, have been a sharp difference of opinion between Federal judges, including members of the Supreme Court, as to what Congress intended to do in the first section of the act by purporting to grant to all telegraph companies accepting its provisions “the right" to construct, maintain, and operate lines of telegraph on post roads.")] Congress was authorized to operate the post office; Congress was authorized to regulate interstate commerce; Congress was not authorized to give a telegraph company the right to take private property for free or to ignore state law. Telegraph companies would have to negotiate with private land owners - and comply with local laws - just like they had before the Post Roads Act.
What did we learn from 50 years of Post Roads Act litigation? Not a lot. A least, not in terms of the Post Roads Act. Few of the outcomes of these cases where the Post Roads Act was raised by the litigants were determined by the Post Roads Act itself. Instead, these cases were determined primarily by the Commerce Clause - with the court exploring a novel clash - post Civil War - between federal and state authority. These courts explored the boundary where the authority of the federal government ends and the authority of the states begins. [PA RR I, 195 U.S. at 565 ("the distinction which was necessary to make was between intra- and interstate commerce, and to determine what rights as to the latter were conferred by the act of 1866")].
This was the birth of public communications policy. It was a time before an independent expert agency. Congress and the Courts addressed oversight of industry on a day to day basis. The Post Roads Act cases brought a case before the Supreme Court on average once every two years - and this was over a law which did little more than give the telegraph service access to ROW. That does not include the litigations that were resolved in the lower courts. That does not include the litigations that involved the questions of common carriage or the rights of telegraph companies under other legislation such as the Pacific Railway Act. Congress, for its part, enacted at least eighteen new telegraph related statutes over 30 years. The justification for assigning telegraph (and telephone) oversight to an executive agency, getting it off the desk of Congress and the courts, was being well established.
The Post Roads Act was the birth of communications policy. It identified the harms of high rates, discriminatory service, and a lack of universal service. The implementation of this policy was to promote competition by lowering barriers to market entry, increase competition, and break market power. It was the first time that the federal government enacted legislation designed to restrain and regulate private communications service. [Post Roads Act Leg. His. at 3488 (Sen. Hendricks, "This session of Congress has been characterized to some extent by the number of propositions for the exercise of extraordinary powers heretofore conceded to belong to the States, for the establishment of railroad companies and propositions to author ize, companies to construct railroads through the States, to make canals, to establish a sys tem of land speculation ; and now the propo sition is that Congress shall undertake to con trol the telegraph system through the States.")] While the legislation failed to achieve its policy objectives, the Supreme Court, in reviewing the application of the legislation, will for the first time hand down decisions that themselves restrain private communications service. The Court said no, telegraph could not take land for free; no, telegraph could not take land even with compensation (no power of eminent domain); no, telegraph could not avoid paying fees and taxes on land it lawfully occupied; no, telegraph could not avoid paying for police and government services; and no, telegraph could not ignore local zoning and safety regulation.
In 1934, the Post Roads Act is codified as Sec. 1 of the Communications Act
Law and policy evolve. The communications policy of the United States had been designed to deal with the problem of British discrimination and surveillance. The Constitution along with the First and Fourth Amendment articulated communications policy as against the Sovereign. Here now a new communications medium emerged and a new threat emerged. In the first Supreme Court case to consider the Internet, ACLU v. Reno, the Court articulated the principle that innovative communications should not be shoe-horned into legacy communications policy, but each new communications medium should be considered based on its unique characteristics. In 1877, in the first Supreme Court case to consider the Post Roads Act, the Court - as if anticipating the great court dissent of Justice Brandeis (who was in law school at this time observing this transformation) - reflected on the challenges of innovation and the necessity of the evolution of the law:"The powers thus granted are not confined to the instrumentalities of commerce, or the postal service known or in use when the Constitution was adopted, but they keep pace with the progress of the country, and adapt themselves to the new developments of time and circumstances. They extend from the horse with its rider to the stage-coach, from the sailing-vessel to the steamboat, from the coach and the steamboat to the railroad, and from the railroad to the telegraph, as these new agencies are successively brought into use to meet the demands of increasing population and wealth. They were intended for the government of the business to which they relate, at all times and under all circumstances."
- Pensacola Telegraph, 96 US at 9 (Chief Justice Waite).
SCRAP: There are two other points of historical context. First, up to this point, Western Union had never been told "no." Western Union had not experienced regulatory oversight. Western Union had only been told that a grateful nation appreciated Western Union's service - and could Western Union please build more lines.