|Telegraph :: 1866 :: Western Union's Gilded Age|
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Western Union emerged from the Civil War as the victor. At the beginning of the Civil War, the Transcontinental Telegraph Act was enacted in order to unite the growing nation providing coast to coast telegraph service; the legislation and funding had the effect of uniting the telegraph companies as Western Union. At the war's outbreak, Northern industry had come to the aid of the Northern government. The Union Army wired the South as it advanced, ceding 15,000 miles of wire to Western Union at the end of the war, and turning Western Union's competitors in the South, such as they were, into tree tinsel. Northern Industry has vast new markets of Southern Reconstruction and Western Manifest Destiny in order to build new national corporations. By 1866, Western Union completed the consolidation of telegraph companies involved in the Six Nations Treaty, involved in the Transcontinental Telegraph, and that had emerged from the ruins of the South. Western Union was now the dominant private commercial communications network. It now had scale, network effect, and financing. [History of the US Telegraph Industry, EH ("Horizontal and system integration had two causes: efficiency and market power. Horizontal integration created economies of scale that could be realized from placing all of the wires between two cities on the same route or all the offices in a city in the same location. This consolidation reduced the cost of maintaining multiple lines. The reduction in competition due to horizontal integration also allowed firms to charge a higher price and earn monopoly profits. The efficiency gain from system integration was better control of messages travelling long distances. With responsibility for the message placed clearly in the hands of one firm, messages were transmitted with more care. System integration also created monopoly power, since to compete with a large incumbent system, a new entrant would have to also create a large infrastructure.")]
In its 1869 Annual Report, Western Union stated"The numerous consolidations of lines throughout the country which have been going on almost uninterruptedly for nearly a score of years, have now resulted in a complete unification of the great majority of the telegraph lines in the United States, and rendered the system the most extensive and efficient in the world." [WU Report 1869 at 8]
Western Union had many weapons in its arsenal for dealing with unwanted competition. It could
- Collude with competitors to divide the market, as seen with the Six Nation Treaty and the Agreement with AT&T
- Deny interconnection to rivals
- Enter into exclusive contracts with ROW such as railroads, denying access to rivals
- Enter into exclusive contracts with interconnected networks, such as transatlantic companies, where both companies agree to use the other exclusively
- Enter into exclusive contracts with content, such as Associated Press which agreed to use no other telegraph service
- Subsidize competitive lines with non-competitive lines, driving down price to point where rival cannot make a profit (See also Rate War with Jay Gould)
- Acquire rival service
In its 1872 Annual Report, assuring investors that WU had nothing to fear from rivals, WU explained how it would lower its rates in competitive markets until rivals were unable to earn a profit:"The scale of rates fixed by competition on the most important routes, and between the principal cities, we have applied recently to the whole country east of the Eocky Mountains, so that the inducement to subscribe capital for the extension of competing lines, in order to secure the benefit of competing rates, no longer exists. At the rates now established it is impossible for any competing com pany to realize profits, and some of them are known to be, and all are believed to be operating at a loss. As a result, the extension of competing lines has ceased, and it is not believed that capital can be found wherewith to in augurate new enterprises in any quarter." [WU Report 1872 at 23]
AT&T will use similar tactics during the telephone era of Dual Service.
"One Service; One System; Western Union"
Western Union acquired:
- Lake Erie Telegraph Company
- Cleveland and Cincinatti line, Cincinatti and St. Louis line, and the Ohio Telegraph Company
- Erie and Michigan Telegraph Company - becomes "Western Union"
- Pittsburg, Cincinnati, and Louisville line. [WU Report 1869 at 7]
- Ohio and Mississippi Telegraph Company [WU Report 1869 at 7]
- Pittsburg, Cincinnati and Louisville lines [WU Report 1869 at 7]
1857: Six Nation Treaty
- Michigan Southern Telegraph Company [WU Report 1869 at 7]
- The New York, Albany, and Buffalo Telegraph Company (Six Nation Treaty Member) in a stock exchange, giving Western Union network connectivity to New York City. [Reid at 320] [WU Report 1869 at 7 (dating transaction on December 1863)] [Schwarzlose 1865 at 7]
- Pacific Telegraph Company
- The Atlantic & Ohio Telegraph Company (Six Nation Treaty Member), giving Western Union access to the Mid Atlantic. [WU Report 1869 at 7 (April 15th)] [Schwarzlose 1865 at 7]
- The Alleghany Company [WU Report 1869 at 7 (August 8th)]
- The Ithaca Company [WU Report 1869 at 7 (August 29th)]
- Insulated Lines Telegraph established. [Reid at 809]
- The US Telegraph Company (February) [WU Report 1869 at 7 (US Telegraph was operating at a loss of $10k per month)]"Early in the present year, the officers of this Company entered into a consultation with the officers of the Western Union Telegraph Company with respect to the greater security and more permanent value of telegraph property, and the methods by which this could be effected. A brief examination satisfied both parties that the enormous cost of separately maintaining and operating the lines of the two companies, the expensive competition for business at the same points, and over similar routes, was steadily consuming an amount which would ultimately equal the largest earning of both. The rapid extension of our own lines over distant territory, and the opening of hundreds of offices, necessarily for the time unproductive, had, for the past six months, absorbed more than our entire revenues, although the general business had largely increased. The consultation, therefore, had, to us, the most positive concent. Nor was it materially less so to those whose larger property and power as a corporation were being injured by the vigorous opposition we had presented to their progress." [Circular to the Stockholders of the US Telegraph Company, The Telegrapher, Vol. II, No. 26 April 16, 1866 p. 93]
- The American Telegraph Company (June - Six Nation Treaty Member) [WU Report 1869 at 7] [WU Report 1873 at 20]
- The California State Telegraph Company
[Smithsonian] [Smithsonian Guide 1986] [Beauchamp at 67] [Guide to the Western Union Telegraph Company Records, Smithsonian Online Virtual Archive]
- The Illinois & Mississippi Telegraph Company, the last remaining member of the Six Nation Treaty [WU Report 1869 at 8] [Schwarzlose 1865 at 7]
- The Chicago and Mississippi Telegraph Company. [WU Report 1869 at 8]
- Chicago and Mississippi Telegraph Company. [WU Report 1869 at 8]
- Delaware River Telegraph Company [Telegraph and Telephone Age, Volume 39, Part p. 216 1921]
- Majority share of International Ocean Telegraph Company (undersea cable to Cuba) (1957, WU acquires full company) [WU Report 1873 at 13] [History of Atlantic Cable]
- Pacific and Atlantic Telegraph [WU Report 1873 at 14] ["Last Day of Business," Dubuque Herald, December 28, 1873, p. 4] [Wolff at 195]
- Desert Telegraph Company
- Southern and Pacific Telegraph Company (99 year lease) [Reid at 454]
- Atlantic & Pacific Telegraph Co. (Jay Gould's company)
- American Union Telegraph (Jay Gould's successful takeover of WU)
- Mutual Union Telegraph Company
- Northwestern Telegraph Company
- American Rapid Telegraph Company
- Southern Telegraph Company
- Baltimore & Ohio Telegraph Company
- San Antonio and Arkansas Pass Telegraph (which itself had acquired the Frontier Telegraph Company)
- Empire and Bay State Telegraph Co. [WU v Empire and Bay State Telegraph Company, NY Supreme Court 1940s (99 year lease)]
- South Florida Telegraph (2nd largest telegraph company in Florida) [The Ocala Evening Star from Ocala, Florida · Page 2 October 31, 1902 ("The Western Union Telegraph Chas absorbed the South Florida Telegraph Co ")]
In 1870, the Vanderbilts took financial control of Western Union. In 1881, Jay Gould executed a hostile takeover of Western Union. In 1908, AT&T acquired Western Union but quickly divested it. In 1943, Western Union acquired financially crippled Postal Telegraph. Western Union sold off its TWX service to AT&T in 1970. Western Union reorganized in 1988 selling off international lines and selling teletypewriters to AT&T.
Policy: Choice Between Private Industry or Government Ownership
Western Union was a new creature. A private commercial (serves the public) communications network, with interstate service, with national reach, with market power. By its own words, it had no rival:
WU vs rival companies 1869 WU Rivals Number of miles of line 66,263 6,773 Number of miles of wire 121,595 9,100 Number of stations 4,692 337 Source: WU Report 1869 at 33. Rivals include Frankly Telegraph (acquired by A&P), A&P (Gould), National Telegraph, Mississippi Telegraph"The effect of these rival lines upon the business of this Company has not been seriously felt. While their operation has occasioned reductions in rates between many places, in some cases below a just and remunerative scale, still the number of their offices is so small in comparison to those belonging to this Company that the loss of all the business which they obtain is barely appreciable in our receipts." [WU Report 1869 at 33]
The Constitution and the government of the early nation had no policy for such a creature of industry. Such a policy would have to be invented - concurrent with the invention of commercial communications service itself.
The policy itself was largely in place. The Constitution had identified the value of communications - the transmission of information or intelligence - by including the "post office" and "post roads" in the Constitution. Ben Franklin had molded that communications service with colonialist liberalism - that it was private, secure, non discriminatory, affordable with just and reasonable rates, and served the whole Nation. That policy continued into Manifest Destiny and the tremendous expansion of the Nation, identifying the need for communications across the country with the creation of services like the Pony Express and the evolution of the Post Service to include using steam ships and railroads. The Civil War (was well as the Napoleonic Wars) highlighted the strategic national importance of an efficient communications system.
There were obstacles to those policy objectives. At the time of the Colony and the Constitution, the obstacle was the British King. The King and his agents had used the Postal Service to favor newspapers loyal to the king, and to intercept and read colonialists mail. The Constitution and Benjamin Franklin's post office were a reaction against, or a remedy to the harms of, the King.
Now a new threat to those policy objectives emerged: a private communications corporation. In Congressional and public debates, the harms caused by Western Union - that justified consideration of some new government solution - were:
- Exorbitant rates (monopoly rent). Results in telegraphs being a communications medium of industry but not the general public [Wolff 41] [Field 249 (WU noting "erroneous assertion" that ""the telegraph in the United States remained predominantly an instrument of commercial rather than individual household use.")] [WU Report 1869 at 40 ("our average rates are several times higher than the foreign.")
- High Rates when compared to Europe
- "It may be asserted as an axiom in the telegraph business that where the rates are high a large reduction will cause an immediate increase in the number, without a corresponding increase in the expense. The statistics of all foreign and home telegraphs prove this fact. It is only necessary to refer to those of the Western Union. From 1867 to 1879, the number of messages increased from 5,879,000 to 25,070,000, or four hundred per cent. ; the rates were reduced from $1.04 to forty cents, or sixty per cent. ; the expenses increased from $3,944,000, to $6,160,000, or fifty-five per cent.; while the net profits increased from $2,641,000 to $4,800,000, or nearly one hundred per cent." [Hubbard 1883 p. 525]
- [Parson at 26 ("rates are very high—so high that the telegraph is beyond the reach of the majority even of those who live in the favored localities where the companies condescend to open their ofﬁces. The private telegraph charges of America are more than double the public telegraph rates of Europe.")]
- Teledensity: "The chief argument relied upon by the advocates of the postal telegraph system to prove the beneficial results of governmental control is, that it would greatly cheapen the rates ; and in con firmation of this assertion they cite the experience of Belgium, France and Switzerland, which have established a low tariff for transmitting telegrams within their own territories, but a higher one for those passing into neighboring States. These countries are among the most densely populated in Europe, averaging nearly 250 persons to the square mile, while in the United States the average is but 10. They jointly occupy less territory than Texas, while their population is greater than that of the entire continent of North America. A comparison of our telegraphic rates with those of either of the above named countries is there fore unfair...The greatest distance that telegrams can be sent in Belgium is 175 miles, while in America they may be transmitted over 5,000 miles. Would it not be absurd, therefore, to demand that our rates should be the same as those of Belgum?" [WU Report 1869 at 44-45]
- European telegraph is government owned and operates at a loss (is subsidized); American telegraph must cover costs and is taxed, raising the price. [WU Report 1869 at 45]
- [Parson at 26 ("The Western Union has endeavored to overcome the force of this tremendous fact by asserting that the rate is a matter of dis tance and that the distances are greater here, and tables of distances and charges were presented to committees of Congress for the purpose of proving the assertion. Unfortunately for the West ern Union the \/Vashburn Committee consulted geographies and telegraph maps and found that the length of telegraph routes be tween the cities of Europe was strangely miniﬁed in the Western Union statement, while the distances between American cities were mysteriously larger than those set down in maps and geog raphies.")]
- Pursuant to Pacific Telegraph Act and negotiations with railroads, Western Union must provide free service to railroads to gain access to railroad ROW; European telegraph is not under this obligation. [WU Report 1869 at 45]
- Hubbard argued that Western Union rates were exorbitant, particularly when compared to European rates. In Europe rates were lower, leading to greater adoption. Telegraphs were adopted as a means of communications by average people. In the United States, rates were higher, resulting in a lower level of adoption and the service being more a tool of business. The response of Western Union was - as seen in modern debates - teledensity. The teledensity of service in Europe was greater - the length of transmission of a message was shorter - resulting in a reduced cost of service. In the United States, lines of service were longer, teledensity was less - and therefore service is more expensive.
- Wages [Parsons at 30 ("\/Vestern Union afﬁrms that the reason of cheap service over there is to be found in the low wages paid to telegraph operators. President Orton declares: “If we could be provided with operators at the rates paid for such service in Europe, I would undertake to render a better service at half the average rates now existing in Europe. I entertain no doubt of my ability to accomplish that 'result.”4 The committee, however, on the data furnished by the president, found that the average salary of operators',in this coun try could not exceed $333, while in France, by President Orton’s own statistics, it was at least $430, or nearly a hundred dollars more than the Western Union average,5 and yet the French tele 'graph tariff is only one-fourth of ours." Testimony of President Orton, H. Rep. 114, p. 137.)]
- Operating at a loss [Parsons at 32 ("Expelled from this defense of high cost, the company ventures one more plea in the hope of justifying its charges, viz., that Eu rope makes a deﬁcit. This plea also has been investigated, and it was found that France (the country showing the strongest con trast to Western Union charges, and paying the highest wages) was nevertheless realizing a proﬁt on its telegraph business of more than a third of the gross receipts.9")]
- High Prices Reduce Demand [Parsons at 37 ("It follows as a natural consequence from narrow facilities and high charges, that only a very small portion of our people are able to use the telegraph. President Green says that only a mil lion people use the telegraph at all, and that ‘‘46% of the total busi ness is purely speculative—stockjobbing, wheat deals in futures, cotton deals in futures, pool room, etc.;—34;% is legitimate trade; about 12% of the business is press business, and about 876 of it is social.”27")]
- Uniform rates
- [WU Report 1873 at 11 ("The rates previous to July, 1873, were about 23 per cent. higher in the Western, and 40 per cent. higher in the Southern than in the Eastern States. This inequality was the subject of complaint in the West ern and Southern States, and formed one of the strongest arguments in favor of the extension of competing lines and of governmental interference.")]
- Inconsistent rate structure across markets (See Manns Elkins Act, objective of unifying rates across markets through tariffs)
- Universal Service / Digital Divide [Govt Ownership 1914 at 8 ("The telegraph and telephone systems have long been recognized as necessary adjuncts to a complete postal service. As with all other privately controlled public utilities, these faculties have been extended in our country only in proportion as the service to be performed has insured substantial dividends for the stockholders. Under private ownership, therefore, the telegraph and telephone are for the classes. Under Government own ership, through the postal machinery, which is conducted in the interest of the whole people and already reaches every man's door, the benefits of these faculties could be extended to the masses.")] [Govt Ownership 1914 at 10 ("The effect of the application of these two policies to similar public utilities is shown by comparison between the present universal extension of the mail facilities and the limited extension of the telegraph and telephone facilities. The private monopoly has no incentive to extend its facilities to un profitable territory, but the Government must serve all the people. This universal service is accomplished by the equalization of rates.")] [Parson at 25 ("In the ﬁrst place a large part of our people have no telegraphic facilities. A private company selects the -best districts, builds its lines where the trafﬁc will be large, and leaves the more thinly settled portions of the country without any service at all. A public enterprise, on the contrary, does not chieﬂy aim at divi dends, but at efﬁcient service of the public as a whole. The differ ence is strongly illustrated by the contrast between the Western Union and the Postofﬁce; the former has 22,285 ofﬁces, the latter 75,380.0 The policy of the Postofﬁce is the true one. Farmers and ranchmen are a beneﬁt to the whole community.")]
- Control of Information Flow. Discrimination of content delivery, Associate Press. Western Union aligned itself with the Associated Press, only permitted Associated Press news to be transmitted over its wires, and permitted no criticism of the republican party.
- Quality of service; errors in transmission (see liability lawsuits); lack of technological advancement. [WU Report 1869 at 40 (WU noting "erroneous assertion" that "the telegraphic system has made less progress toward perfection, and has been practically of less value to the masses of the people in our country than in any other civilized country on the globe")] [Parsons at 70 ("The Chicago Tribune long ago called attention to the fact that while the Western Union service between the stock exchanges was very prompt and reliable, yet “when we step outside the iso- thermal lines of speculation we ﬁnd a sudden drop in the efﬁciency of the telegraph.”3 ‘ The New York Herald calls the Western Union service “poor and irregular”; the New Orleans City Item says, “the service is slow, bungling and expensive.”4 The Manu facturer sa 's: “The service is bv no means what it ou ht to be. 3 _ , g In a large, percentage of dispatches errors of vexatious and hurt ful character are made. messages sent over its wires by third parties, just as if the post ofﬁce should select information of special interest from the letters that pass through its hands and sell it to pool rooms, theatres, etc. Of the insecurity even of orders sent to the troops in time of war a ﬂagrant instance was referred to by Mr. Albright in the second session of the Forty-third Congress. Important government dis patches ordering certain movements of Union troops were sent by Major-General McDowell to Captain Mills and other officers. Twenty-four hours before the dispatches were delivered to the ad dressees the contents of the messages had been given to the pub lie in a garbled form for the sake of political effect, and the con templated movements of the troops had to be countermanded.24")]
- Preferred service for select uses (ex. stock investors)
- Labor disputes (see World War I threatened strikes)
Photo: Bob Cannon (cc)
The Post Office perpetually lobbied that the telegraph, as well as all transmission of intelligence, be placed under Post Office control. Have initially declared that the telegraph could not succeed, the Post Office regularly expressed concern that telegraph, and then telephone, and then email and the internet, were substitute communications services that would disrupt and displace its service.
The Post Office also argued that telephone service and email be placed under its control. The Post Office argument, that it should control all transmission of intelligence, taken to its completion, would give the Post Office control over all information exchange including radio, newspapers, TV, the Internet.... The Post Office seemed unable to recognize an appropriate boundary between where its jurisdiction ended and where other communications services began. While the Post Office articulated justifications of rate stabilization and uniform rates, at times its arguments appeared to be nothing more than a naked assertion that the Constitution gives it a monopoly and therefore nothing should compete with it; and in these assertion the Post Office is wrong - the Constitution gives Congress authority to set up the Post Office but does not dictate how that is achieved. There is no necessity in the Constitution that this be achieved through a monopoly. Post Office rhetoric on the appropriate policy treatment of private common carriers is anemic - amounting to a claim that it could do it better - with little evidence. The unsuccessful experiment of World War I nationalization of communications services appeared to extinguish these arguments, as did the rise of agency regulation of private common carriage in the form of the Mann Elkins Act and the Communications Act.
The Constitution had not anticipated this problem. Supreme Court Justice Waite wrote in Pensacola, law and policy would have to evolve along with the evolution of technology and industry."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)]
At this time, there were types of creatures: there was private industry or there was government owned and operated services. Those were the two options before Congress as it considered remedies. Congress was persuaded that it lacked the authority for rate regulation or other regulatory oversight. It was choice between government or private.
Western Union was a private corporation. It did not have regulatory oversight. It vigorously resisted the introduction of regulatory oversight. According to WU President William Orton, "the World is Governed too much." An imposition of government authority over private industry was viewed as an offence. [Wolff at 112] At that time, the Courts did not consider Western Union to be a common carrier, because it did not carry goods - and thus could have no bailment relationship for the shipment of those goods. WU resisted the Post Roads Act and the establishment of any beachhead of government oversight.
Washington will struggle for the next 45 years on the appropriate treatment of telegraph, either government or private industry owned. A Third Way, a government regulated common carrier, will not emerge until the height of the Progressive Era, when the pressure for government ownership had grown so hot, that AT&T was willing to invent a new policy creature.
At a number of turns it seemed that the arguments in favor of government ownership were riding the tide of the Progressive movement. Yet it failed. The primary argument against government ownership that can be observed in the record: the expense at this point of the government acquiring Western Union. Another factor that could have cut against the argument in favor was the Post Office's own arguments regarding the efficiencies of a Postal take over; in its reports it regularly talked about how many thousands of telegraph offices and telegraph jobs could be eliminated in the merger with the postal system. In times of economic uncertainty as experienced during the turn of the century, no member of Congress was going to vote for the elimination of jobs in their own state. Finally, it can be presumed that Western Union engaged in effective lobbying
A hybrid option between government ownership and private industry emerged. It was suggested not that private telegraph service be purchased by the US Government (something that appeared quite expensive), but simply that the US government introduce a US government funded and subsidized corporate into the market to compete with private industry. This was generally known as "Postal Telegraph" where a corporation would be set up, connecting post offices, providing service through post offices, and competing with Western Union. Between unregulated private industry and the possibility that the government might buy all of Western Union, Western Union hated this hybrid option. Western Union believed it entirely inappropriate for the federal government to set up and fund a corporation to compete with private industry."While I believe that the telegraph can be more satisfactorily and economically conducted under private than public control, and that its assumption by our Government would be a mistake, still what I have so strenuously opposed is not the purchase of existing lines, for the purpose of establishing a national system, as has been done by England and other European countries, but the unjust proposition for the Government to build rival lines and engage in the telegraph business as a competitor. Upon these points I coincide with the views expressed by the Committee on Post-offices and Post-roads, that " two systems of telegraphs, one public and one private, cannot operate side by side with success to either or ivith benefit to the public. The functions of the Govern ment are necessarily exclusive, and whenever it formally undertakes any service as proper to be exercised by it, private parties must be excluded from the performance of the same service."" [WU Report 1869 at 44
In 1881, a company known as the Postal Telegraph Company will be established by MacKay, leveraging the market position of the undersea cables and built with the remnants of some defunct companies. It was a private company that at times financially struggled and finally was acquired by Western Union through an agreement with the US Government.
The Progressive Era begins in 1887 with the passage of the Interstate Commerce Act, creating the Interstate Commerce Commission. A new creature had entered the policy sphere: the expert regulatory agency with oversight authority. In 1888, the Pacific Railway Act was amended giving the ICC authority over telegraph - an authority it largely ignored while it paid attention to railroads. In 1890, Congress passed the Sherman Act, the first federal anti-monopoly law. In YEAR, the Supreme Court reversed itself in Call Publishing, holding that Western Union was in fact a common carrier. In 1910, Congress codified this with the Mann-Elkins Act, placing telegraph under the authority of the Instate Commerce Commission, and requiring uniformed tariffed rates. In 1911, the Supreme Court ruled in favor of the United States Government, and, based on the Sherman Act, broke up Standard Oil. In 1916, Woodrow Wilson was elected as a champion of the Progressive Movement.
At the same time, AT&T perhaps overplayed its hand. In 1909 AT&T acquired Western Union and had control over both the telegraph and the telephone markets. The cauldron of pressure from the Progressive Movement forged a new regulatory creature: the government regulated monopoly.
But its Really a Government Contractor
While the debate framed the question as a choice between government ownership or private corporation, the reality was different. The telegraph service operated more as a government contractor or government agent, than either a fully private corporation or as a government department. Telegraph was from the beginning and until it was disrupted by telephone service highly entangled and dependent upon the government for funding. The US Government initially owned and operated telegraph service, until Democrats gained control of Congress - and Southern Democrats were disinterested in such innovations of the industrial age. With Manifest Destiny, the US Government embarked on a massive land-grant program, giving telegraph and railroads massive value in the form of land in order to build out their infrastructure. The transcontinental acts took the telegraph and railroads west, while the undersea cable acts to the telegraph to foreign lands. The U.S. Navy was at the disposal of telegraph in order to find proper routes. During the Civil War, the telegraph service was part of the War Department and concluded its service receiving significant value in the form of lines from the government - and destruction of its competitors. After the war, the Post Roads Act gave telegraph continued value in the form of access to public land, lowering barriers to entry to right of way, and government contracts. The US Government would be an anchor tenant consumer of telegraph service through out World War I and into World War II. Telegraph service was built with US government funding in response to US government policy objectives.
USG Entanglement with Telegraph Service
💰 🏛 🦅 Date Action Govt Funding Govt Ownership Regulation 1807 First advocacy for USG (optical) telegraph system 🏛️ 1837 Woodbury's Report on a USG (optical) telegraph service anticipates that it would be associated with the Post Office, concludes construction of telegraph would "prove useful for national defense, official government correspondence, and commerce." 🏛️ 1843 Congress funds Morse' experimental telegraph line; operated by the US Post Office until 1847. 💰 🏛️ 1845 Post Office Order No. 11: Rules for telegraph service includes funding, record retention, privacy, interconnection 💰 🏛 🦅 1845 Annual Report Postmaster Cave Johnson: recommends ownership of telegraph service be retained by USG; Morse offers to sell telegraph patent to USG for $100K 🏛 1846 Appropriations Act: Proceeds from telegraph service treated as postage and placed in Treasure for benefit of Post Office; Authorizes Postmaster to lease or sell telegraph line. 💰 🏛 1846 Annual Report Postmaster Cave Johnson again calls for government ownership of telegraph 🏛 1850s USG funds under-ocean cables; claims priority use and free service; deploys US Navy to explore potential telegraph routes 💰 1860 USG funds the construction of the transcontinental telegraph line by Western Union. 💰 1861 Civil War: North took control of all telegraph service in the United States, placing them under the control of the War Department. The General Superintendent of Western Union acted simultaneously as the Military Superintendent of all military lines. The North would build 15,000 miles of telegraph line during the war, much of which it gave to Western Union. The South took control of telegraph lines and placed them under control of the Southern Post Master General 💰 🏛️ 1862 USG funds the construction of the transcontinental railroad and telegraph lines. Multiple railroad / telegraph authorizations enacted over next decades. 💰 1866 Senate asks Postmaster to report on advisability of government owned and operated telegraph service; Postmaster General reports and recommends against it. [Field 248] [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (One report concerning postal telegraph; three legislative proposals concerning postal telegraph)] 🏛️ 1866 The Post Roads Act gives telegraph service value in the form of public land and ROW access, contains clause that USG has right to nationalize telegraph service, is administered by the Post Office. Establishes govt rate for telegraph service that continues until 1947 💰 🏛 1867 "Nearly every" Postmaster General from the Civil War till World War I calls for government ownership and control of telegraph and telephone service. [Govt Ownership 1914 at 36] [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (one legislative proposal concerning postal telegraph)] 🏛 1868 Hubbard lobbies Congress to establish a postal telegraph company, critical of Western Union's exorbitant rates (William Orton leads WU's efforts to defeat Hubbard) [Wolff p. 41] Report to Congress regarding Postal Telegraph [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (one report, one legislative proposal concerning postal telegraph)] 🏛 1869 (1) Bill proposed by Sen. C.C. Washburn for "construction by Government of a line of telegraph, with four wires, from Washington to New York, to be operated, as far as practicable, by the employes of the post-office" (2) Bill for creation of US Post Telegraph Company, authorizing G.G. Hubbard to construct lines on post roads between post offices, and for post offices to provide telegraph service to public. (3) Bill authorizing James F. Hall to construct line between Boston and DC which the government shall purchase within three years. These Bills were not reported favorably out of committee. [WU Report 1869 at 42-43] [Beauchamp p. 65]. 🏛 1869 Pres. Grant endorsed recommendation of Postmaster General to place telegraph under government control [Govt Ownership 1914 at 20] [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (two reports, four legislative proposals in 1869)] 🏛 1870 Mr. C. C. Washburn, Chair Select Committee on Postal Telegraph, Postal Telegraph in the United States, HR 2365, July 5, 1870 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (eight reports, thirteen legislative proposals, concerning Postal Telegraph in 1870)] 🏛 1871 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (three reports, three legislative proposals, concerning Postal Telegraph in 1871)] 🏛 1872 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (fourteen reports, two legislative proposals, concerning Postal Telegraph in 1872)] 🏛 1873 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (two reports, five legislative proposals, concerning Postal Telegraph in 1873)] 🏛 1874 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (three reports, one legislative proposal, concerning Postal Telegraph in 1874)] 🏛 1875 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (two reports, three legislative proposals, concerning Postal Telegraph in 1875)] 🏛 1878 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (one legislative proposal concerning Postal Telegraph in 1878)] 🏛 1879 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (one report concerning Postal Telegraph in 1879)] 🏛 1880 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (two legislative proposals concerning Postal Telegraph in 1880)] 🏛 1881 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (one report, seven legislative proposals, concerning Postal Telegraph in 1881)] 🏛 1882 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (one legislative proposal concerning Postal Telegraph in 1882)] 🏛 1883 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (one report, three legislative proposals, concerning Postal Telegraph in 1883)] 🏛 1883 Gardiner G. Hubbard, Government Control of the Telegraph, The North American Review, Vol. 137, No. 325 (Dec., 1883), pp. 521-535 (Hubbard was Alexander Graham Bell's partner) 🏛 1884 Report of the Senate Committee of Post Offices and Post Roads on Postal Telegraph, May 27 (with testimony from Hubbard, Green) [Senate Postal Telegraph Report 1884] [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (four reports, five legislative proposals, concerning Postal Telegraph in 1884)] 🏛 1885 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (five legislative proposals concerning Postal Telegraph in 1885)] 🏛 1886 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (six legislative proposals concerning Postal Telegraph in 1886)] 🏛 1887 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (four legislative proposals concerning Postal Telegraph in 1887)] 🏛 1888 [Supplemental Statement of Norvin Green, June 9, 1890 at 33 Appendix A (four reports, fourteen legislative proposals, concerning Postal Telegraph in 1888)] 🏛 1888 USG funding railroad and telegraph lines amended to include non discrimination and interconnection obligations. Authority given to ICC to enforce. 💰 🦅 1890 Hearings of the House Committee on the Post-Office and Post Roads, on Postmaster General Wanamaker's bill for a "limited postal telegraph system." (Testimony of Postmaster general Wanamaker, February 11 [For a Postal Telegraph.; Postmaster General Wanamaker's Bill Before Committee. NY Times Feb. 12, 1890 (Noting that Green and Chandler were invited but did not appear)]) [Testimony of WU Pres. Norvin Green: February 28; March 1; May 20; and June 9th (two legislative proposals concerning postal telegraph)] 🏛 1893 Pimrose v. Western Union, 154 U. S. 1 (telegraph service is not common carriage) 🦅 1901 Illinois Supreme Court breaks up Associated Press (Western Union's coconspirator) 🦅 1901 Western Union Tel. Co. v. Call Publishing Co., 181 U.S. 92 (1901), reversing previous holding, telegraph service is common carriage 🦅 1910 Mann-Elkins Act places Telegraph under jurisdiction of Interstate Commerce Commission< 🦅 1912 Britain nationalizes its telephone service. By 1913, most nations had nationalized their telephone service. 🏛 1913 AT&T Agrees to Kingsbury Accord; Agrees that telephone and telegraph shall be govt regulated monopolies. 🦅 1914 Report of Postmaster General Burleson: Government Ownership of Electronic Means of Communications 1914 🏛 1915 The Postalization of the Telephone: Hearing on H.R. 20471 Before the House Committee on the Post Office and Post Roads, 63d Cong., 3d Sess. (1915) 🏛 1918 WWI Telegraph and telephone are nationalized and placed under authority of Post Office 🏛 1934 FCC established; jurisdiction over telegraph transfered from ICC and Post Office to FCC 🦅
Thomas Edison is hired as a telegraph operator at the age of 15 (telegraph operators had gone off to fight the Civil War, creating a demand for operators)
1863 Western Union stock valued at $7,950,700. [WU Report 1869at 18]
1864: Morse patent expires
- Western Union stock (May 1864) valued at $20,133,800. [WU Report 1869at 18]
- US Telegraph Company is formed from the consolidation of multiple telegraph companies. [Smithsonian][Smithsonian Guide 1986] [WU Report 1869 at 7 (dating establishment in 1863)]
- Russia Telegraph Bill signed
- Sept 26. National Telegraph Union begins publication of The Telegrapher. [The Telegrapher Vol. 1-3]
1865 WU Stock first traded on the NY Stock Exchange. [Wolff at 173]
1866 :: Post Roads Act
- Western Union introduces stock ticker [WU History] WU Price ten word telegraph from coast to coast: $10 gold [Post Roads Act Leg. His. at 3487 (Sen. Williams)] WU stock value $41,000,000. [Encyclopaedia Britannica 1889 at 652]
- Cyprus Field (and Morse) successfully link North America and Britain by telegraph cable
- The Telegrapher article describing the "Atlantic and Pacific Telegraph Co." as a "New Company." [A New Company, The Telegrapher, Vol. II, No. 26 April 16, 1866 p. 94][See also Atlantic and Pacific Telegraph Company, The Telegrapher, Vol. III, No. 51 May 1, 1867 p. 191 ("This company have completed their organization")]
- Delaware River Telegraph Company Established [Henry Edward Wallace, Philadelphia Reports Vol 11 p. 329 1881]
- Pacific and Atlantic Telegraph Company established. [Reid at 444]
- Central Union Telegraph established [SI Western Union Records]
In 1867, Western Union and the Associated Press came to an agreement which strengthened their respective holds on their markets.
- AP agreed to only use Western Union lines - not any competitors,and gave up its own telegraph interests
- AP received a preferential rate over rival or independent news sources
- AP would not "encourage or support any opposition or competing telegraph company."
- AP newspapers would only use AP; new newspapers could only join with the approval of existing newspapers.
- To criticize AP would be to risk access to the news content, and to Western Union. You could not criticize Western Union and you could not criticize AP.
- Non-AP news organizations could not gain access to the telegraph lines and therefore could not succeed.
- Western Union, after supporting the Republicans during the civil war and receiving 15,000 miles of telegraph line after the war, was decisively pro-republican.
In the disputed election of 1876, Western Union and Associated Press are accused of influencing the outcome of the Presidential Election. Associated Press ran numerous articles in favor of Republican Rutherford Hays and critical of democrat Samuel Tilden. Western Union gave the New York Times telegrams from the Democratic Party showing that there was uncertainty whether the democrats or the republicans had won the electoral college votes from Florida, Louisiana, and South Carolina. Republicans quickly took advantage of the telegraph services of pro-republic Western Union. " During the long controversy in Congress over who actually won the districts in the disputed election of 1876, Western Union secretly siphoned to AP's general agent Henry Nash Smith the telegraph correspondence of key Democrats during the struggle. Smith, in turn, relayed this intelligence to the Hayes camp with instructions on how to proceed. On top of that, AP constantly published propaganda supporting the Republican side of the story. Meanwhile, Western Union insisted that it kept "all messages whatsoever . . . strictly private and confidential." " [Ars Technica] [Ezra Klein, When Control Crushes Innovation, Washington Post , Dec. 5, 2010] In 1877, the Progressives in Congress would subpoena from WU all of the telegraph traffic ofr republicans involved in the 1876 disputed election; Western Union would object.
- Western Union owners name William Orton President of Western Union, passing over Thomas Eckert. Orton suspends dividends to reinvest in the company; creates an R&D office of electrician. Will hire Edison. [Michael Wolff at 42]
- June 5th: WU Board of Directors votes to accept provisions of Post Roads Act.
- "But in 1867 and 1868 several new companies were organized, and the work of constructing competing lines was pushed with much earnestness during the next three years. Parties willing to subscribe liberally to the capital stock of these companies were readily found, some influenced by the promise of ten per cent. annual dividends on the par of shares, for which they were asked to pay but forty per cent., and that in quarterly instalments, and others by the argument that, at the reduced rates 'promised, a handsome profit would result from the saving on their own messages, even if no dividends were paid on the capital... The effect of this competition upon the Western Union Company's business may be readily seen by an inspection of the results of 1870, as compared with 1869. For the latter year the gross receipts were about $7,300,000, and the net profits $2,750,000, while for 1870, although the gross re ceipts were nearly the same, the profits were less than the previous year by more than $500,000, and it was not until 1872 that our profits exceeded those of 1869, and then by only $40,000." [WU Report 1873 at 22].
- Franklin Telegraph acquires Insulated Lines Telegraph. [Franklin Tel. Co. v. Harrison, 145 U.S. 459 (May 16, 1892)]
- Great Western Telegraph Co. established. [Great Western Telegraph Co. v. Gray, Supreme Court Ill. 1987] [The Great Western Telegraph Co. Litigation, The National Corporation Reporter, 1890 (describing company as "defunct")]
"The territory now occupied by the lines of this company embraces almost the entire civilized portion of the continent of North America... The consolidations which have resulted in the Western Union system mark a new and important era in the progress of the telegraph in this country. By them the means of communication at all points have been greatly increased, while between all the large cities and many of the less important a system of direct circuits has been established, which affords facilities for rapid and reliable communication at all times. Instead of several repetitions of messages between the great commercial centres of the country, as formerly, transmission is now in most cases direct and instantaneous; and the operation of our system over the vast territory covered by our lines is fast assuming the certainty and uniformity of mechanism. Not only, however, have the public gained in time and in greatly increased facilities by these consolidations, but they have received also the benefit of large reductions in the rates for both public and private despatches." [WU Report 1869 at 9] [Compare Theodore Vail's "One Service" promise to have all phones interconnect]
Gilded Age Politics:Crash Course US History #26
June 10th, 1871 "New York City--The Morse celebration at the Academy of Music, June 10th--Professor Morse manipulating his signature to the message telegraphed by Miss Sadie E. Cornwell" Source: Library of Congress. Frank Leslie Newspaper. Believed Public Domain.
- International Telegraph Union established. [Birth of the ITU] USA joins in 1908. [ITU]
- Morse patent appears to have expired. [Decision of Philip F. Thomas, Commissioner of Patents: On the Application of Samuel F.B. Morse, for an Extension of His Patent for a New and Useful Improvement in Electro-magnetic Telegraphs. Patented Apr. 11, 1846. Patent Extended for Seven Years Apr. 11, 1860 (extending patent to 1867)] [Post Roads Act Leg. His. at 980]
- Britian places private telegraph service under the control of the Postal Office. [Telegraph Act of 1868] [Standage 172] [Govt Ownership 1914 at 7] [The Telegraph Act of 1870 UK]
- Southern and Atlantic Telegraph Company established [Reid at 451]
- Thomas Edison given contract to build stock tickers for Western Union [Wolff 49] Edison leaves WU to become independent inventor.
- Elisha Gray establishes Gray & Barton, forerunner of Western Electric, with investment from Stager.
- Dec. 22: Sen. C.C. Washburn argued for government ownership of telegraph companies following European model.[Beauchamp p. 65]
- Western Union Stock: $40,568,300. [WU Report 1869at 19]. Gross receipts: $7.3m; Profit $2.750m. [WU Report 1873 at 22]
1870: Vanderbilt takes control of Western Union
- Vanderbilts takes financial control of Western Union. [Wolff at 175] [The Session of Congress and the Telegraph, The Telegrapher, Vol. VII, No. 15, Dec. 3, 1870 p. 116 (first noting the "Vanderbilt Management" of WU)] [Speculation and Advance in Western Union Telegraph Co. Stock, The Telegrapher, Vol VII, No. 28, March 4, 1871, p. 219 ("As our readers are aware, the controlling influence in that Company was quietly bought up by what is known in Wall street as the New York Central or Vanderbilt clique, during the past year.")]
- Postal Telegraph in the United States, To Accompany HR No. 2365, Report, Select Committee on Postal Telegraph, July 5, 1870
- Edison returns to WU and works on inventions like stock ticker.
- Gross receipts: $~7.3m; Profit $~2.2m. [WU Report 1873 at 23]
1871: Morse Signs Off
June 10th, 1871: A day of celebration of Samuel Morse. Statue of Morse is unveiled in Central Park. Morse sends his final message: "Greeting and thanks to the Telegraph fraternity throughout the world. Glory to God in the Highest, on Earth Peace, Goodwill to men." Keyed by an operator. Morse keys his signature "S… F.-. B-… M-- o.. r. .. s… e." The audience included William Orton, Cyrus Field, Jefferson Davis, and Annie Ellsworth. [Casale]
Apr. 2 1872: Samuel Morse dies. New York Times Obituary: "Although the practical working of it had been demonstrated on a small scale, the invention seemed altogether too chimerical to be likely ever to prove of any worth. Again and again he was pronounced a visionary, and his scheme stigmatized as ridiculous." [Standage 41]
- JB Stearns of Franklin Telegraph Company invents duplex telegraph, receives $250,000 from Western Union. [Coon 20] [Smithsonian Institution Archive] [WU Report 1873 at 16 (discussing use of the invention)]
- Western Union introduced money transfers [WU History] [WU Report 1873 at 9]
- Barton and Gray is reorganized as Western Electric ($150,000 capital). Produces Morse equipment and Gray's telegraph printer. [Iardella 28] The company has strong investments from and ties to Western Union, and supported Western Union's challenge to the Bell's Patents. Western Electric manufactured telephones for both Bell telephone and Western Union. 1875: Gray sells his share of Western Electric to focus on inventing, competing with Bell to invent the telephone.
- July: "the Company operated 62,032 miles of line, 187,190 miles of wire, and 5,237 offices." "[WU Report 1873 at 5-6] Profit $2.8m. [WU Report 1873 at 23]
1873 :: Long Depression 1873-1896
- City and Suburban Telegraph Company established.
- Pacific Telegraph Company buys patent for sending four simultaneous messages along same wire for $750,000. [Wolff 44]
- USG builds, and the USPS Department of Telegraph operates, a federal government telegraph network in D.C. between federal buildings. Federal Appropriations Act: Appropriating funding for the construction of telegraph lines between the Capitol and various Departments in Washington. [Postal Law 1886 Sec. 137]
- Western Union
- Western Union becomes a majority shareholder of International Ocean Telegraph Company. [Smithsonian] [Smithsonian Guide 1986]
- Western Union has 90% market share telegraph business; 150,000 miles wire. [Wolff at 41]
- As of July. WU Capital Stock: $41,073,410. 65,757 miles of line, 154,471 miles of wire, and 5,740 offices. 9,190 staff. 14,456,832 transmitted. "The average toll collected upon each message for the last year was 61 cents, the average cost of transmission 42 cents, and the average profit per message 19 cents." [WU Report 1873 at 5-6]