|Telegraph: "Era of Wasteful Competition"|
The Telegraph Bubble
Morse, an artist who had visited Europe, assumed that the United States would follow the model of European ownership of telegraph. Morse and his partners had not planned nor were they prepared to build a commercial telegraph service. In addition, access to significant commercial capital was limited. Unable to persuade the USG to purchase his patent rights and operate the telegraph networks, Morse sold patent licenses to anyone willing to invest and "obtained private funds to extend their line to Philadelphia and New York." This ushered in the "Era of Wasteful Competition." A plethora of small companies arose building lines from city to city, sometimes overbuilding networks on the same routes. Investment poured in during a telegraph bubble. Many networks were built. Many networks failed. Many investors lost their investment. James Reid wrote that many of these networks "passed out of existence like smoke." [Reid at 222] [WU Report 1869 at 5 ("As the Government declined to assume the ownership and control of so doubtful an undertaking, the inventor had no recourse but to appeal to the enterprise of the people for the means required for its development. Capitalists, however, were slow to invest in a scheme so novel and precarious, and, as a natural consequence, there was great difficulty in obtaining funds wherewith to build lines.")] [Lindley 1974 at 256 ("The combined hopes of an extensive telegraph system and quick profits proved to be an elusive will-o-the-wisp. The industry experienced unbridled, reckless construction programs in the late forties and early fifties. Competing companies constructed duplicate lines where business for one line barely existed. Numerous companies struggled bitterly for survival. Questionable construction techniques minimized costs but produced inoperable lines which required rebuilding. And instead of the projected dividends companies promised their investors, the outcome of these feverish construction programs, as often as not, was bankruptcy.")] [Lindley 1971 at 4] [Smithsonian Guide 1986 ("This corporate cornucopia developed because the owners of the telegraph patents had been unsuccessful in convincing the United States and other governments of the invention's potential usefulness. In the private sector, the owners had difficulty convincing capitalists of the commercial value of the invention. This led to the owners' willingness to sell licenses to many purchasers who organized separate companies and then built independent telegraph lines in various sections of the country.")] [Field 247 ("The next two decades were a period of rapid, and at times chaotic, growth of the telegraph industry under private ownership.")] [Hochfelder] [Beauchamp at 57 ("An Era of Methodless Enthusiasm in which a veritable plethora of new companies joined the stampede for profits" R.L. Thompson.)]
Excess competition disciplining prices is not a favored market condition for providers. Network economics, however, are characterized by high barriers to entry, high fixed costs, and low incremental costs. It's expensive to enter the market, and the provider in the market that captures the greatest market share will be able to spread its costs among the most customers. The market is also characterized by network effect; the value of the network increase with the increase number of people that can be reached on that network. The larger the network, the greater the value, the more people want to be on that network. Finally, network economics is characterized by scale; the per mile / node cost of building and operating the network goes down as the quantity of line and equipment purchased and installed goes up. Install a few switches and the cost is X; install a lot of switches, and, to put it simple, the network operator gets a volume discount.
Industry leaders at the time thought competition was inefficient and wasteful. Their incentive was to drive towards consolidation. In a time before the Progressive Era had given teeth to anti-trust law, policy was powerless to respond (other then to ponder government ownership of industry)>
Sen. James Rood Doolittle (WI), during the debates over the Post Roads Act, described this period as follows:"From 1844 down to about 1856 there were various competing lines of telegraph built up all over the United States, and as a general thing they were failures upon the hands of those who were operating them. Although they were a great convenience to the country the men who put their money into them and engaged in building them failed. O'Reilly had his great telegraph line; other persons had their telegraph lines; but from 1854 to 1856 the gentlemen who were interested in the lines came to an arrangement by which the lines were consolidated more or less throughout the country: and in 1860, after the lines had become consolidated, this act (trancontinental telegraph) was passed by Congress letting out this matter of telegraphing across the continent to the lowest bidder, and the contract was taken in behalf of this consolidated telegraph company, and the line was built." [Post Roads Act Leg. His. at 3486]
Western Union said of this period:
"The effect of the construction and operation of rival lines of telegraph between the same points is to augment the expenses without increasing the business. While, therefore, one line might have been worked successfully, the construction of a second, and sometimes a third, resulted in the operation of all of them at a loss. Practical men saw that there was but one remedy for these difficulties, and that was by a consolidation of all the rival interests into one organization." [WU Report 1869 at 6]
"The operation of these separate and irresponsible lines, during the brief period of their existence, retards the progress of legitimate telegraphy, and impairs the general unity of the system. Any assistance which is given to further such schemes has the direct effect of aiding a class of speculators to fleece a credulous public, by inducing them to invest their money in the construction of lines which never have paid, and never can pay, the expenses of operating them, and which are of no benefit to any persons but those who originate them, and profit by their construction." [WU Report 1869 at 36]
See also [Testimony of Norvin Green May 20, 1890 at 2 ("There is, however, nothing extraordinary in that. The railroads have to do that to keep from going into bankruptcy. Every manufacturing company in the country consults their competitors about maintaining rates and agrees upon them. All the rolling mills have agreed to maintain rates, and so have the carpet and other manufacturers. It is an absolute necessity to prevent destruction from wasteful competition.")] [Hearing to Amend Communications Act of 1934 (statement of Western Union Director of Contract Department Joseph Egan]. AT&T and the Post Office were in agreement that competition was inefficient. [Postmaster Report on Government Ownership of Telegraph 1914 (page 10: "The history of this business clearly establishes the futility of competition as a means of regulating its conduct in the interest of the people.") (page 11: "Competition applied to this public utility has clearly been shown to result in waste and inefficiency due to duplication.")] [Clarence Mackay at 266 (In the 1880s, "The "Mutual Union," the "American Rapid," the "Bankers & Merchants," the "Baltimore & Ohio," the "Southern," the "Board of Trade," the "Pacific Mutual," and the original "Postal" were formed, and all were competing with each other as well as with the Western Union in the most wasteful manner.")].
Sen. James Nye (NV) observed that every one of these acquisitions by Western Union "increases the tax upon every one of us that has to use that telegraph, for this additional purchase is counted in as the cost of the line, and we have to support it with its additional cost." [Post Roads Act Leg. His. at 3486]
This initiated a market cycle demonstrating network economics for commercial providers that would be repeated for both telephone service and Internet service:
- Phase I: Invention and Disruption
- Phase II: Commercialization and hyper-competition
- At this point, telegraph and telephone saw patent monopolies expire. Internet was open source but had to be released from govt AUPs that restricted commercial traffic. USPS has seen market dominance curtailed through legislative action opening the fringe of the market.
- The value of innovative communications technology drives investment into the market.
- Competitors - with a winner-takes-all goal - pursue a strategy of market-share capture by undercutting price and operating at an initial loss.
- Phase III: Consolidation and market-power
- Within a competitive market, network effect gives greater value to networks that can communicate with more stations or end users. Scale drives down the cost of network service, which required high fixed cost investments. Markets eventually tip in favor of the network providers that captured larger market share (a.k.a theory of natural monopoly) - the dominant provider can operate more efficiently and undercut competition - with the winner taking all.
- Having established market dominance, the network provider extracts monopoly rents.
- Having captured a geographic market, a provider can increase revenue by (a) vertical integration (offering additional services) or (b) horizontal acquisition of neighbor markets. Having captured individual markets, corporations expand markets through acquisition of competitors in neighbor markets with which they do not directly compete.
The telegraph "Era of Wasteful Competition" can be compared to the telephone era of "Dual Service" when there were 1000s of independent telephone companies and the Internet era known as "the Internet Bubble" when there were 1000s of dial-up ISPs. Western Union's solution in a period of unregulated industrial growth was simply to acquire or eliminate all of its competitors. AT&T's solution, as articulated by AT&T President Theodore Vail in the early 1900s, was "One System; One Service" - if AT&T could become a government sanctioned monopoly, it could make multiple incompatible and wasteful telephone systems go away; there would be one telephone system in which all telephones could reach and talk to all other telephones. Broadband Internet Service Providers solution to 1000s of dial-up ISPs was the elimination of the underlying common carrier telephone network, setting up the broadband network as an unregulated service that broadband providers did not have to share with competitive internet service providers.
Morse and Vail hired Amos Kendall, former Postmaster General and member of Andrew Jackson's "Kitchen Cabinet", to manage their new company. Morse and his partners form the Magnetic Telegraph Company. [Smithsonian] [Standage 53][Beauchamp p. 58][Smithsonian Guide 1986] Morse sold licenses to other telegraph companies, with the anticipation that it could all be bought by the USG. [Smithsonian Guide 1986] [USPS 2015 ("The first license agreements contained a provision that the rights to the telegraph were subject to purchase by the U.S. Government until March 3, 1847, after which time "the rights of all those who now engage in the enterprise, will become absolute, and not to be divested without their consent." ("Morse's Magnetic Telegraph," Vermont Family Visitor, August 1, 1845, 27, AAS Historical Periodicals Collection, http://search.ebscohost.com, accessed April 3, 2015.) ")] Magnetic Telegraph Company extends the DC-Baltimore line to Philly, NYC, to Boston. [Smithsonian][Branch p. 22][Smithsonian Guide 1986] [Encyclopaedia Britannica 1889 at 650 ("became the great line of the North")] "The cost of construction, including wire, posts, labor, &c., is about one hundred and fifty dollars per mile." "The average performance of the Morse instruments is to transmit from eight thousand to nine thousand letters per hour. The usual charge of transmission is twenty-five cents for ten words, or less, sent one hundred miles." [Census 1852 107-09] New York & Boston Magnetic Telegraph Co. established [Beauchamp 58]
- >Bored Network Operators would play checkers over telegraph lines, establishing the first electronic games over networks. [Standage 132] [Wheeler 22 ("During the first year of operation… Chess matches with the opponents 40 miles apart were staged to demonstration the potential of the technology." )]
1846: Mexican American War
Canst thou send lightnings, that they may go, and say unto thee, Here we are? - Job 38:35.
Quoted on the cover of the Erie and Michigan Telegraph Company Articles of Incorporation 1846
- 40 miles of U.S. telegraph line. [Wheeler 24]
- Morse' patent is reissued, making corrections. [O'Reilly, 56 U.S. 82]
- April 16th: Morse improves invention and revises patent. Patent is corrected June 13th. [O'Reilly, 56 U.S. 83]
- June Vail and Reid open Philadelphia and WDC line [Electrical World 1903 at 115]
- The war creates demand for news from the conflict, resulting in the creation of Associated Press. Initially AP funded a Pony Express route. [AP History] "The great extent of the telegraph business, and its importance to the community, is shown by a statement of the amount paid for despatches by the associated press of New York, composed of seven principal morning papers – the Courier and Enquirer, Tribune, Herald, Journal of Commerce, Sun, Times, and Express. During the year ending November 1, 1852, these papers paid nearly fifty thousand dollars for despatches, and about fourteen thousand dollars for special and exclusive messages not included in expenses of the association." [Census 1852 110] [New York Natives]
- "The telegraph companies had an anti-monopoly regulation, that one party could not use the wires for more than ten minutes at a time. " [Branch p. 22]
- Royal E House patented his printing telegraph, creating one of several rival telegraph technologies. [Image of House Telegraph]. The House Telegraph rights were held by Judge Samuel Selden. [Smithsonian][Smithsonian Guide 1986] [EHA] [Census 1852 111]
- New York to Buffalo line constructed by the New York, Albany and Buffalo Telegraph company. "The opening of the office here was eventful and exciting day in the city. When the machine was connected and the operator had adjusted his relay, Albany called him up and asked 'Do you hear me?' When Rochester answered 'To be sure I do,' Albany quickly rejoined, 'Ha ha! Dr. Tichnor, give me your hand!' These words communicated to the crowd , were caught up by the excited spectators and passed mouth to mouth, and the telegraph and the mysterious hand-shaking were on every lip." [Cheney, The Early Days of Telegraph, Telegraph Age Jan 1909]
- Washington & New Orleans Co. established. [Beauchamp 58]
- H O'Reilly Contract Co. established. [Beauchamp 58]
- North Western Telegraph Co. established [Beauchamp 58]
- Erie and Michigan Telegraph Company established (Ezra Cornel will invest in it. 1855 becomes Western Union). [Erie and Michigan Telegraph Company Articles of Incorporation 1946]
- Alexander Bain patents electro-chemical telegraph. Sets up 2000 miles of line in New England. [Census 1852 111] 1847: Alexander Bain introduces his patented telegraph service "In 1848 a Scotch scientist, Alexander Bain, received his patents on a telegraph. These were but two of many competing and incompatible technologies that had developed. The result was confusion, inefficiency, and a rash of suits and counter suits." [Smithsonian Guide 1986] [EHA ("In 1852 the Supreme Court declared the Bain telegraph an infringement on Morse’s patent, and Bain lines merged with Morse lines across the country")] [Encyclopaedia Britannica 1889 at ("In 1849 the owners of the Morse patent sued the Bain operators, and a compromise was concluded by which the Morse patents were used over the wires of both companies. ")] [Report of the Executive Committee of the National Telegraph Company, To Subscribers of its Capital Stock, on Little's Automatic System of Fast Telegraphy, Letter from D.H, Craig, p. 8 (1869) ("These two inventors were succeeded by Bain, to whom, in 1846, may be accorded the credit of first conceiving and putting into execution a practical idea in the direction of automatic telegraphy; but, though several fortunes were expended in various attempts, in Europe and America, to reduce his ideas to practical value, his system had to be abandoned as useless, though his plan for recording at the receiving stations upon chemically prepared paper, by the decomposition of an iron stylus, has been extensively used in Europe and America, but is now generally discarded.")] [Reid at 109 ("Bain' s system was stopped because it was a part of Morse's , and patented by him. He used Morse's alphabet; he used Morse's paper; he used Morse's clock.")] Bain Telegraph again becomes of interest in the dispute over the Automatic Telegraph System.
- Lake Erie Telegraph Co. reaches Cleveland [Busch][Beauchamp 58]
- Pittsburgh, Cincinnati & Louisville Co established [Beauchamp 58]
- New Orleans & Ohio Telegraph Co. established; merges with People's Telegraph in 1853 [Lindley 1974 at 256] [Beauchamp 58]
- New York & Erie Telegraph Co. established [Beauchamp 58]
- Maine Telegraph Co. [Beauchamp 58]
- Western Telegraph Company incorporated in Maryland, with license to use Morse telegraph, along lines of B&O. [WU v B&0, p. 572 DMD May 26, 1884]
"The Magnetic Telegraph from Baltimore to Harpers Ferry has been completed, and the first flash from this lightning line, was emitted on Tuesday last. An efficient operator has been procured, and communications are now hourly sent to and from Harpers Ferry. This wonder of the age (the Magnetic Telegraph) is annihilating space, as distance but give enchantment to the [charmed]. In a few months more, and the most remote borders of our Union will be linked together by a chord of iron, and intelligence transmitted so speedily, that the time will scarce enter into the account." - [The Telegraph, Spirit of Jefferson, page 2, Col. 2, Aug. 15, 1848 (part of the Baltimore & Ohio line)]
"The following table exhibits the annual receipts of the 'Magnetic Telegraph Company,' extending from Washington to New York, which was the first organized in this country:
From Jan. 27, 1846
to July 1, 1846:
$4228.77 to July 1, 1847: $32,810.28 to July 1, 1848: $52,252.81 to July 1, 1849: $63,367.62 to July 1, 1850: $61,383.98 to July 1, 1851: $67,737.12 to July 1, 1852: $103,860.84
Total amount received up to July 1852: $385,641.42. In 1852, the telegraph charges from Washington to various cities were as follows: Baltimore, 20 cents; Boston, 75 cents; Buffalo, 90 cents; Chicago, $1.25; Cincinnati, 70 cents; Louisville, 90 cents; Milwaukee, $1.35; Nashville, $1.35; New Orleans, $2.20; New York, 50 cents; Philadelphia, 30 cents; Pittsburg, 45 cents; Portland, Me., 95 cents; St. Louis, $1.20." [Encyclopaedia Britannica 1889 at 650]"
- 2000 miles of U.S. telegraph line [Wheeler 24]
- Western Telegraph Co. established [Beauchamp 58]
- Atlantic & Ohio Telegraph Co. established [Beauchamp 58]
- Ohio & Mississippi Telegraph Co. established. [Beauchamp 58] [Encyclopaedia Britannica 1889 at 651 ("In 1855 the rival lines in the West had all be consolidated into one company, which was named the Ohio and Mississippi Printing Telegraph Company. The word 'printing' was added on account of the company's using the House instrument. TThis company was incorporated in 1851 by the State of New York, with a capital of $360,000, of which about $75,000 was paid. At that time this company was only one of some twenty or thirty that were struggling for existence")]
- New Brunswick Electric Telegraph Co. [Beauchamp 58]
- Henry O'Rielly organizes the "People's Telegraph Co." (Louisville and New Orleans). [Villanova University Library, Lane Exhibit, Telegraph (with copy of organization of People's Telegraph Co.)]
- Selden and Hiram Sibley established the New York State Printing Telegraph Company, which competed against the New York, Albany, and Buffalo Telegraph Company. [Smithsonian][Smithsonian Guide 1986]
- Illinois & Mississippi Telegraph Co established. Will become part of the Six Nation Treaty. [Beauchamp 58]
- Erie & Michigan Telegraph Co. established [Beauchamp 58]
- New York & New England Telegraph Co. [Beauchamp 58]
- First telegraph treaty linking Prussia and Austria. [ITU2015 p. 15]
- California admitted into the Union - increasing demand for communications with The West
- Early 1850: Thomas Eckert learns the telegraph and builds the first telegraph line on the Fort Wayne railroad. [Bates at 113] In 1852, becomes head of the Chicago Branch of the Union Telegraph Line. [California Digital Library]
- 12,000 miles of U.S. telegraph line [Morse Timeline LOC] [Wheeler 24]
- "As New York newspapers had combined (in the first Associated Press) to receive European news from ships some hours before the vessels reached harbor, so the Pittsburgh press quickly learned cooperation in the use of the telegraph. An agent in Philadelphia gathered the eastern news and despatched it to one office (the Commercial Journal), where it became the common property of the associated papers. This arrangement served until the "big" story of 1850 was "scooped" by one paper. Professor John W. Webster of the Medical College at Cambridge had been in debt to Dr. George Parkman of the preparatory school; and it seemed that, most unacademically, Professor Webster had dissected his colleague and disposed of some of the pieces in the college furnace. Was Webster the victim of a diabolical conspiracy? Or what was Harvard, the Unitarian heresy, the younger generation, coming to? Interest was nationally intense; and the Pittsburgh newspapers printed full accounts (received by mail) of each day's testimony at the trial. At the unexpectedly speedy conviction, the eastern agent despatched a full column to the Pittsburgh papers by telegraph. (There was another newsworthy event the same day; Senator John C. Calhoun died. That news was despatched in seventeen words.) The Commercial Journal published an extra edition while the other papers were yet uninformed of the story. The league of Pittsburgh papers split up; and the O'Rielly telegraph lines entered the breach as a news-gathering agency. This arrangement was maintained until the Associated Press expanded from its seaboard origins into a national agency." [Branch at 27]
- At the beginning of 1851, there were over 50 telegraph companies in business. [WU Report 1869 at 5 ("the great number of separate lines in operation prevented that unity and despatch in conducting business so essential to its success, and the public failed to secure everywhere the benefits of direct and reliable communication.")] [Smithsonian] [Smithsonian Guide 1986] [Alven] [EHA ("75 companies with 21,147 miles of wire")]
- April 1: Judge Samuel Selden and Hiram Sibley formed the New York and Mississippi Valley Printing Telegraph Company (NY&MI) (aka Western Union) with the goal of acquiring and uniting otherwise non-interconnected rival telegraph companies. Sibley proceeded to acquire companies westard. The company started by utilizing patent licenses of the House telegraph system. [WU Report 1869 at 6] [WU History] [Smithsonian] [Smithsonian Guide 1986 (After struggling to compete against New York, Albany, and Buffalo Telegraph Company, "Selden suggested that instead of creating a new line, the two should try to acquire all the companies west of Buffalo and unite them into a single unified system.")] [Lindley 1974 at 255] It had capital stock valued at $360,000. [WU Report 1869at 18] What would become Western Union gained access to railroad ROW by, in part, agreeing to give priority service to railroad messages. [Beauchamp at 65]
- Dispatching trains by telegraph started
- Paul Julius Reuter establishes the Reuter's Telegram Company in London, providing the innovative wire news service over telegraph [Encyclopedia Britannica] [ITU2015 p. 11]
- Telegraph lines cover 16,735 miles. With some routes having multiple lines, there are 23,281 miles of line in service. [Census 1852 113] [Wheeler 24 (24,000 miles telegraph line)]
- Erie Telegraph Company becomes the New York and Western Union Telegraph Company. [Reid at 293][Cornell Uni ("Cornell had bought back one of his bankrupt companies and renamed it the New York & Western Union Telegraph Company.")] [WU Report 1869 at 6 ("but during the autumn of that year (1851) a few of the more important companies were united under one management, and with beneficial results to the system and to public convenience. The consolidation of these companies was a step in the right direction, as it increased their facilities while it lessened their expenses.")
- New York, Albany, and Buffalo Telegraph Co. established [Beauchamp at 58] New York and Western Union Telegraph Company leases lines to the New York, Albany, and Buffalo Telegraph company for two years. The lease was not successful and at the end of two years the New York and Western Union Telegraph Company "gradually vanished away." [Reid at 293]
- Associated Press pays $15,000 for dispatches. [Encyclopaedia Britannica 1889 at 560]
James Gamble, picture, 1869, UC Libraries, Public Domain
- California State Telegraph Company established, pursuant to an exclusive franchise with California which gave the state 3% of revenue (while the authorization was "exclusive" for the line, the authorization also contained language "nothing in the Act should be so construed as to prevent the construction of a telegraph line between the Atlantic and Pacific." [History Pacific Telegraph]). In 1853, opens line between San Francisco (Telegraph Hill), San Jose, Stockton, Sacramento and Marysville. Rates were $0.75 for ten words between San Francisco and San Jose, and $2 between San Francisco and other stations. [Bates, Telegraph in California] [Telegraph Hill, Office of Historic Preservation] [Gamble, California Telegraph]
- James Gamble is hired by the company. In 1848, he was telegrapher and manager with the Illinois and Mississippi Telegraph Company. In the 1850s he moved to California as a miner. In San Francisco he meets the California State Telegraph Company's Superintendent W.M. Ransom, who hires him and makes him part of the crew constructing the first line. See Gamble, California Telegraph for an account of constructing the first line. In 1861, he will take charge of the Overland Telegraph Company to built the Transcontinental Telegraph Line from California to Salt Lake City - and thereafter California State Telegraph Company will merge with Western Union. In 1867, he is named General Superintendant of the Pacific Division of Western Union. [Bates, Telegraph in California]
- James Gamble, Wiring a Continent, The Californian 1881, republished on Telegraph History. [Gamble]
- James Gamble, When the Telegraph Came to California, The Californian, 1881 republished on Telegraph History [Gamble, California Telegraph]"The telegraph at that time was a source of great curiosity to almost every person along the route, particularly to the native population, who looked upon the construction of the line with the greatest wonder. Many of them in ignorance of its real purpose and not understanding the use of the poles erected along the road at regular intervals, strung with wire with a cross arm on each pole, conceived the idea and expressed it as their belief that the Yankees were fencing in the country with crosses to keep the devil out. " - James Gamble, California Telegraph
- California State Telegraph Company acquires many of the California start-up telegraph companies. In 1860, it enters into an agreement with Western Union to build the Transcontinental Telegraph, and creates the Overland Telegraph Company for that purpose. In 1866, Western Union would acquire a controlling interest in California State Telegraph Company.
- 1852: Alta Telegraph Company builds line between Nevada City and Sacramento. Alta gets into a legal dispute with California State Telegraph Company and loses. [California State Telegraph Company v. Alta Telegraph Company, 22 Cal 398 (1863)] Alta soon merged with the California State Telegraph Company. [Bates, Telegraph in California]
- 1858: Pacific Atlantic Company formed, builds line from San Jose to Los Angeles, would merge into California State Telegraph Company. [Bates, Telegraph in California]
- 1859: Placerville Humboldt Company builds line in California to Carson City and Ft. Churchill. Placerville was reportedly allied with the American Telegraph Company, who would have partnered to provide service from Washington D.C. to Los Angeles. [History Pacific Telegraph] Merges into California State Telegraph Company. [Bates, Telegraph in California] [History Pacific Telegraph]
- June 27: President Franklin Pierce approved plans for the new House Chamber, including the first House telegraph office, to be located near the House Post Office [House History]
- Telegraph line erected between Nevada and Auburn, CA, connecting mining camps.[Bates, Telegraph in California]
- O'Reilly v. Morse, 56 U.S. 15 How. 62 (1853) (Morse's "two patents of 1848, being good with the exception of the eighth claim, are substantially infringed upon by O'Reilly's telegraph, which uses the same means both upon the main line, and upon the local circuits." The eighth claim involved "marking or printing intelligible characters, signs, or letters at a distance")
- Mossoff, Adam, O'Reilly v. Morse (August 18, 2014). George Mason Law & Economics Research Paper No. 14-22.
- People's Telegraph Company merges with the New Orleans and Ohio Company - becomes New Orleans & Ohio Telegraph, under Norvin Green's leadership [Lindley 1974 at 256 ("Acknowledging the futility of. continued competition, officials of the two companies merged their enterprises in May 1853.")]
"But the oft-quoted remark of Mr. Stephenson, that where consolidation is possible there competition is impossible, was never more truly illustrated than by the telegraph. Again and again competing lines have been constructed, only to be bought by the Western Union. Between 1872 and 1879, the rates between Washington and Boston were reduced by competition four times and raised three times. [Hubbard 1883 p. 526] "Another serious evil which the system had to contend with was the existence of competing lines upon the more important routes. The effect of the construction and operation of rival lines of telegraph be tween the same points is to augment the expenses without increasing the business. While, therefore, one line might have been worked successfully, the construction of a second, and sometimes a third, resulted in the operation of all of them at a loss. Practical men saw that there was but one remedy for these difficulties, and that was by a consolidation of all the rival in terests into one organization." [WU Report 1869 at 6] "Superficial, sudden, unsifted, too fast for the truth, must be all telegraphic intelligence. Does it not render the popular mind too fast for the truth? Ten days bring us the mails from Europe. What need is there for the scraps of news in ten minutes? How trivial and paltry is the telegraphic column?" - New York Times, Aug. 19, 1858 [LaFrance]
1854 Era of Consolidation
- Morse patent rights extended for seven years. [Patent Commissioner's extension of Morse's telegraph patent, 19 June 1854, Bound volume---28 March-11 August 1854] [Morse Timeline LOC] [In the matter of Samuel F.B. Morse, for an Extension for Seven Years of Letters Patent Granted to Him June 20th, 1840, Reissued January 15th, 1846, and Again Reissued June 13th, 1848, for the Electro-Magnetic Recording Telegraph (1854) (copy available at Internet Archive)]
- NY&MI acquired the Lake Erie Telegraph Company, along with the rights to use the Morse patent. Also acquired control of the Cleveland and Cincinatti line, Cincinatti and St. Louis line, and the Ohio Telegraph Company. [WU Report 1869 at 6][Smithsonian] [Smithsonian Guide 1986]
- Atlantic and Pacific Telegraph Company incorporated in Maine. Jay Gould will leverage this company in a hostile takeover of Western Union. [NYT Mach 31, 1954 NYT Timemachine ]
- Texas and Red River Telegraph Company established [Bishop] [Burns]
- "Jan. 1, 1854. Police in London England telegraph to the next train station in Paddington information about a suspected murder who had boarded a train – at the time it was one of the few train lines with a telegraph running station to station. Suspect was apprehended at the next station." [McMullan]
- French and British governments build telegraph lines in order to communicate with military forces engaged in the Crimean War. [Morse Timeline LOC]
- Merger of House, Morse Wade, and Speed Lines? ""lines were 'short, disconnected and poorly-built;' companies acted without concert, 'and without responsibility beyond their respective limits,' stockholders were poorly paid. The company expressed hope that consolidation would end 'confusion heretofore prevailing in telegraph business….' And create harmony." [Lindley 1971 at 16 (quoting Jeptha Homer Wade papers)]
1855: Western Union
- 1855: Sibley NY&MI acquired Erie and Michigan Telegraph Company from Cornell "thus assuring dominance by the NYMVPTC in the Midwest" in 1856, NY&MI is renamed Western Union at the insistence of Cornell "indicating the union of the Western lines into one compact system.". [WU Report 1869 at 7] [Smithsonian Guide 1986] [Cornell Uni ("The merged company was named The Western Union Telegraph Company at Cornell's insistence.")] [Ezra Cornell Pocket Diary, 1856. Autograph manuscript.] [Smithsonian Guide 1986] [Smithsonian] [Brooks at 62] [WU History]
- American Telegraph Company, established in 1855, having acquired multiple lines through the South [Wolff 320]
- Prof. William Thomson, FRS, On the Theory of Electric Telegraph, Proceedings of the Royal Society of London, Vol. 7 (1854 - 1855), pp. 382-399
- Texas and New Orleans Telegraph Company established [Bishop] Will merge with Texas and Red River Telegraph to become Southwestern Telegraph. [Burns]
- Northern California Telegraph Company established, providing service from Marysville to Eureka. [Bates, Telegraph in California]
1857 Treaty of Six Nations and the North American Telegraph Association
1853: North American Telegraph Association formed [Lindley 1974 at 258 (association formed to address "harmonize methods of doing telegraph business" particularly network reliability and outage issues and notifications)]
Norvin Green, having learned his lesson from the "wasteful competition" between People's Telegraph and New Orleans & Ohio Telegraph, and who was feeling threatened by Western Union, sought an agreement where the companies would divide the market and agree not to build in each other's territories and not to complete. [Linley 1974 at 259] "In 1857 the six largest telegraph companies entered into a cartel called the "Treaty of Six Nations." ... This set of principles evolved during negotiations, so that by the time the agreement was completed, the signatories divided the country into six sections and assigned monopoly control of each section to one form. Some of the smaller competitors objected and began to undertake the construction of competitive lines. Negotiations to satisfy these firms were concluded in 1859 (under the auspices of the North American Telegraph Association), which essentially resulted in their buyout by or merger with the six major firms. Thus, only 15 years after the first telegraph line had entered service, the consolidation of the industry from lively competition to a cartel of a few small firms was complete." [Nonnenmacher] See also [Thompson, Wiring the Continent, at 361 ("In short, the new alliance aimed at nothing less than a monopoly of the nation's telegraph business by the signatures of the six-party contract")] [Nairn at Chap. 3 ("The financial pressures these produced brought about a 'pooling' arrangement, designed to exclude new competition, and a price-setting and volume-allocation cartel involving the six largest telegraph companies.")] Treaty of Six Nations was between:
- American Telegraph Company (covering the Atlantic and some Gulf states) (acquired by WU 1866)
- New York, Albany and Buffalo Telegraph Company (New York) (acquired by WU 1864)
- Atlantic & Ohio Telegraph Company (Pennsylvania) (acquired by WU 1864)
- Western Union Telegraph Company (covering states North of the Ohio River and parts of Iowa, Kansas, Missouri, and Minnesota)
- New Orleans & Ohio Telegraph Lessees (covering the southern Mississippi Valley and the Southwest)
- Illinois & Mississippi Telegraph Company (covering sections of Missouri, Iowa, and Illinois) (acquired by WU 1867)
[Beauchamp p. 64] [Smithsonian Guide 1986] [History Pacific Telegraph ("Eastward of the Mississippi the land is gridironed with telegraphs, they are all in the hands and under the control of only eight companies. These companies are mammoth concerns that lay large dividends, serve the public well, and make the public pay roundly for being served. A league binds all the companies into one grand confederation, known as the 'North American Telegraph Association,' of which Amos Kendall is President, which determines the tariff of rates, legislates on all questions of conflicting interests, and - so said Mr. Burnett of Kentucky over and over again in Congress - arranges to crush out lines that may be built to compete with any of those already in existence.")] [Nonnenmacher (Map of Treaty of Six Nations)]
The members of the North American Telegraph Association would collude in 1860 to ensure that Western Union was the sole bidder for the USG's Transcontinental Telegraph contract, and that it could bid for the maximum allowed rate. Another 'Nation', the Pacific telegraph companies, would in effect join the association.
- Charles A. Tinker, telegraph-operator in Perkin, Illinois (who would be a cipher operator in the War Department during the civil war) explains how the telegraph works to Abraham Lincoln. [Bates 4]
- Ezra Cornell acquires 488 shares of Michigan Southern Telegraph Company, which he sells to Western Union for stock. [Reid at 470] [WU Report 1869 at 7]
- Pensacola Telegraph Company established. 1862 lines destroyed by retreating Confederates. 1865 company reconstituted. Involved in an unsuccessful lawsuit to exclude WU from Florida. [Pensacola Telegraph, 96 US 1] [From Pensacola to Fort Pickens, NYTimes July 11, 1961 p. 2 ("The Pensacola Telegraph Company have put up the posts between Farnesworth and the State line, and in few a days the wires will be stretched -- making a direct line to Montgomery -- and having a line from Barrancas to Pensacola, news will travel with the lightning's speed between the army and Richmond.")] By 1888, Pensacola Telegraph will have 81 wire miles in service compared to Western Union's 812. [Statement Showing the Assessment of Railroad and Telegraph Property for the Year 1888, Florida Senate Archive]
- Norvin Green's New Orleans & Ohio Telegraph reorganized. SouthWestern Telegraph Company emerged with Green as president. [Lindley 1974 at 257] [Civil War Governors of Kentucky] Will be acquired by southern rival American Telegraph Company and then acquired by Western Union. Its President Norvin Green will become President of Western Union in 1878. [Supplemental Statement of Norvin Green, June 9, 1890 at 3 ("Amongst its largest stockholders were Professor Morse, Amos Kendall, and the Hon. James Guthrie")] Southwestern Telegraph hires Edward Rosewater as a telegraph operator.
- Western Telegraph Company of Maryland leases its lines to the American Telegraph Company. [WU v B&O, p. 573 May 26, 1884]
- 50,000 miles of U.S. telegraph line [Wheeler 24]
- Morse patent extended for seven years. 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
1861: Civil War
- New York, Albany and Buffalo Telegraph Company moves into 145 Broadway along with the American Telegraph Company. [Reid at 318]