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FINALE
By 1860 the strength of the Electric Telegraph Company in the British domestic market was unassailable. All of the most profitable inland and offshore circuits were in its hands; it had grown organically, without dividend-diluting mergers; it had steadily introduced cost-saving technology and uniform equipment. It had kept control of all aspects of its business, abandoning those that were unprofitable; extending its reach deep into the Continent of Europe, introducing relatively minor ideas to consistently augment its services and its profits. It had attracted, from Wheatstone onwards, an immense body of scientific and technical talent that gave it incomparable authority in electrical theory and practice. Most of all it had been ruthlessly effective.
The principal competitor, the Magnetic company, had many problems, related to the expensive failure of its underground circuits and its external interests. Its personnel were entrepreneurs and minor technicians. As a result of serial mergers its management was fractured and its equipment lacked standardisation. Its only strength was its connection with the Submarine company’s cables to Europe.
Both had floated domestic subsidiaries with radically new business models: the Electric with private telegraphy, and the Magnetic with district telegraphy. The first had been a runaway success; the latter had struggled from its beginning.
With regard to foreign connections the Electric’s proprietors, although involved in the Atlantic cable kept their distance from the eastern cables, choosing to concentrate on land lines through Europe to India, culminating in the success of the Indo-European company. In concert with this relentless expansion eastwards, the Electric had very nearly replicated its domestic model with its own network of public telegraphs along the railways in British India in 1863; only to be frustrated by government. The Magnetic’s directors, in addition to the American cable, were distracted by their interest in expensive and apparently interminable submarine works in the Mediterranean and Red Sea. The Magnetic was in a weak position.
The two firms co-operated from 1860 in having a uniform message tariff and in merging their news functions. They also started to co-operate in managing the development of the Atlantic Telegraph.
The likelihood was that they would soon merge their interests into a single national provider of electric telegraphy. However the eruption of the United Kingdom company with its cheap tariff into the market in 1861 spoilt this natural evolution. Although the Electric and the Magnetic co-operated in opposition, it was perceived that any merger would only bolster the character of the new concern as the consumers’ friend.
It was not until 1865 that the United Kingdom company admitted defeat over its pricing and agreed to co-operate with the Electric and the Magnetic. A formal merger was discussed but it was too late; the Post Office and the press had loudly campaigned for Government control in the “public interest” and won the day.
After two years of parallel operation, laying circuit extensions to its own premises, the Post Office finally absorbed the business of the telegraph companies on Friday, February 4, 1870.
The companies had struggled and then thrived for twenty years; at the end they were well-rewarded.
The purchase of the domestic public telegraph monopoly for the Post Office under the Telegraph Acts, 1868 and 1869, was finally authorised at £6,750,000. However, by 1876 the Post Office had managed to spend £10,071,536 with another £2,000,000 in claims outstanding.
The paid-up capital of the domestic telegraph companies in 1868 was £2,496,744.
The incredible excess in expenditure had been used to buy-out the interests of the railway companies in the rights-of-way that they had granted the telegraph companies (an interest the Government’s officials in the Post Office failed to recognise) and for large-scale, unplanned extensions.
A standard rate of 1s 0d (later reduced to 6d) for twenty words was immediately introduced by the Government and it had virtually every rural Post Office put in circuit, giving a vast increase in traffic. The long-lines were intended to standardise on American ink-writers; the intermediate lines on single-needle instruments. The hundreds of new local circuits to small urban and rural post offices used the expensive Wheatstone universal telegraph, which the Post Office carefully renamed the “ABC” apparatus; rewriting its purpose.
With hindsight the greatest loss of all was the abandonment of the universal telegraph for domestic circuits when the Post Office acquired the patent.
Wheatstone’s intention to connect houses and business by ‘electric mail’ was lost for a hundred years. The Post Office saw telegraphy merely as an additional source of paper to be delivered by their letter-carriers.
The weight of cheap-rate public traffic, compensatory free-message rights given to railway companies and an absurdly cheap press rate overwhelmed the system and the Post Office Telegraph Department, like those on the Continent on which it was modelled, quickly went into operating loss from which it never recovered. It became a permanent, growing, concealed burden on the public purse. That this state of affairs was tolerated can only be ascribed to the “incentives” provided to those interests able either to criticise (the press) or compete (the railway companies).
The purchase overspend was funded in part by transferring money without Parliamentary authority from the Post Office Savings Bank to the Post Office Telegraph Department, illegally.
The Post Office boasted in 1867 “with entire certainty” that it would be earning £600,000 in net revenue from the telegraphs. By 1875 it had only achieved £36,725. Working expenses were then 96 2/3% of income. The scandal was such that, when the Treasury exposed all of the financial and organisational misdemeanours in 1873, the Postmaster-General, the responsible Cabinet Minister, had to resign from Government, and the civil servant responsible for initiating the appropriation campaign and who came to head the Telegraph Department had to flee to Ottoman Turkey in 1875.
As the economist Stanley Jevons was to say in 1875, “The accounts of the Telegraph Department unfortunately demonstrate what was before to be feared, namely, that a Government department cannot compete in economy with an ordinary commercial firm subject to competition. The work done is indeed great, and fairly accomplished on the whole, and some people regard the achievements of the department as marvellous. They forget, however, that it has been accomplished by the lavish and almost unlimited expenditure of the national money, and that many wonders might be done in the same way.”
One of the first acts of the new Post Office management in 1870 was to suppress press messages relating to a wide-spread strike by disgruntled workers in the telegraph department. Ω
In Memoriam 1846 - 1870 Lords of lightning we, by land or wave
The mystic agent served us as our slave
after Henry Schütz-Wilson
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