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 1855 in having a uniform message tariff and in 1860 merged 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.
Telegraph Company Stock & Share
From ‘The Electrician’
week-ending November 23, 1861
week-ending October 24, 1862
week-ending May 1, 1863
From ‘The Investors’ Manual’
month ending October 15, 1864
month ending October 28, 1865
From ‘The Railway News’
week-ending October 27, 1866
From ‘The Investors’ Manual’
month ending October 26, 1867
month ending October 31, 1868
There was little or no trade in the
Universal Private Telegraph
Only the Electric Telegraph Company was regarded by the markets as a sound investment. In the mature years of the business, during the 1860s before the government appropriation affected the market, its stock was always traded at a premium of 5% or more. In comparison, in the same period, the shares of the British & Irish Magnetic Telegraph Company, the London District Telegraph Company, the Submarine Telegraph Company and the United Kingdom Electric Telegraph Company, were always at a 40 or 50% discount, or worse in the case of the District and United Kingdom concerns.
However in developing their businesses the companies had struggled and then thrived over 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 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.
The amount the Post Office eventually paid the railway companies for telegraph wayleaves was never revealed to Parliament or, therefore, to the public. Quite possibly the total was never calculated.
Given the flam-flam paraded by the Post Office at the parliamentary committee to investigate the terms of the appropriation, one of its members, George Leeman, M P and Lord Mayor of York, chairman of the North Eastern Railway Company, proposed on July 13, 1868 "that the imperfect information before the Committee on the subject of the ultimate cost involved in the purchase of the telegraph companies and other interests, as well as the uncertain amount of revenue to be derived from the working of the telegraphs by the Post Office, does not justify the further prosecution of the Bill, until the information shall have been laid before Parliament". In their eagerness to pursue a populist measure his wholly accurate analysis was rejected by the Committee.Opposition to the Bill also came, surprisingly, from Sir Rowland Hill, architect of the great Post Office reforms of the 1840s, who had introduced the Postage Stamp and the Penny Post. He inspired his younger brother, Arthur Hill, to write a detailed critique in the ‘Edinburgh Review’ of April 1869, effectively reiterating George Leeman’s questions. Hill condemned the vague terms of the purchase, declaring outright that “the mode of compensation is as bad as can be conceived” and that “nothing is accurately defined”.
The proposed revenue figures he thought dubious and unlikely to meet the financial cost of the purchase; “Even if the receipts from telegrams should be so great as after paying working expenses, to cover the annual charge occasioned by the original outlay, that would be no justification of its extravagance.”
Hill condemned the bill in its detail, too; especially the “mischievous” franking privilege granted to all virtually all of the railway companies and the two largest canal companies, allowing them to send free messages throughout the entire system. He also expressed anxiety over the Post Office contriving to mix the expenses of the telegraph with those of the profitable letter service; doubting, as well, their ability to manage construction works economically and effectively.
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, using the ‘European Alphabet’ worked by the Electric, United Kingdom and Submarine companies, re-educating, with some difficulty, operators of the ‘Magnetic Code’ used on the Bell telegraph. 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.
Although R S Culley, the Electric Telegraph Company's chief engineer, continued in post for a few years the technical management of the Post Office Telegraphs soon fell into the hands of W H Preece, a "practical telegraphist", whose contempt for science and scientists became notorious. The ability that Wheatstone, Faraday, Thomson, Airy and the other great physicists had with the Companies to introduce innovative concepts and apparatus was lost; as was British domination of communications technology.
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 great part by transferring money, £812,000 by 1873, without Parliamentary authority from customers’ accounts at the Post Office Savings Bank to the Post Office Telegraph Department, secretly and illegally.
Who got rich from the telegraph?
The following extracts are from the published Estates of several of the principal personalities in the nineteenth century telegraph industry, showing who gained and who lost in the final accounting. This is a random selection:
• Charles Bright, telegraph engineer and cable promoter, £1,274
• Latimer Clark, telegraph engineer, £10,149
• Edwin Clark, engineer, £4,452
• William Fothergill Cooke, telegraph patentee, £16
• Robert Grimston, telegraph company chairman, £112,500
• John Pender, telegraph and cable company chairman, £337,180
• William Thomas Henley, telegraph contractor, £12,750
• William Henry Preece, Post Office telegraph engineer, £32,320
• John Lewis Ricardo, telegraph company chair-man, “under £50,000”
• Cromwell Fleetwood Varley, telegraph electrician and engineer, £42,157
• Charles Vincent Walker, telegraph engineer, £2,467
• Charles Wheatstone, telegraph patentee, c £70,000
The only two Estates that require real notice are those of W F Cooke, at £16 (sic), who introduced the telegraph to Britain, and W H Preece, £32,320, a public servant. The modest amount left by the great cable speculator, Charles Bright, is also of interest.
Post Office Telegraphs
The commercial staff, mainly recruited from the lower middle-class, having some formal education, with a flat hierarchy based, by and large, on performance, that recognised ambition and talent, immediately had a severely reduced status imposed on them.
Effectively the 'commercial' side vanished, subsumed into the historic Post Office culture, with all of its activities relocated within and controlled by the existing postal service, used to receiving, sorting and delivering letters by hand and horse. The Post Office by 1868 was a passive, almost inert, amazingly elaborate bureaucracy, with no sense of public service or fiscal responsibility. The tasks of the commercial component of the telegraph industry were almost entirely dislocated: marketing of the telegraph ceased, progress of staff became based on tenure rather than efficiency, a cumbersome hierarchy was imposed, working conditions were degraded, there was no effective leadership or strategy. Even the publication of profit and loss figures ceased. The company commercial staff, who had enjoyed a "modern" environment and great local autonomy of action, were demoralised by the archaic and bureaucratic management. They left in their hundreds.To replace them, whatever the promises of economies of scale to Parliament, within eight months of the takeover the new telegraph department had to employ twice as many people as the companies had found necessary.
Reporting of performance to the public by way of Parliament became driven by political need rather than public responsibility, where previously the directors and shareholders had demanded accurate information. Emphasis was given only to ill-considered achievements and to justification of unproductive activity. Only increases in revenue were reported, no effort was made to calculate, let alone reveal, the costs related to this revenue, or to determine the benefits (if any) of the massive expenditure that took place post-1870. The companies' experienced accounting function was entirely eliminated, that responsibility passing to the existing Post Office bookkeepers who had never seen any need to publish profit and loss figures, or for that matter to publish any reconciliation of its books for public consumption. This negative bureaucratic regime was continued post-1870 in the Telegraph Department.
All that remained of the pre-1870 telegraph industry was the engineering function which speedily took the lead role in the Post Office Telegraph organisation. The engineers became a self-justifying entity. In addition to the anticipated works of connecting urban and rural post offices to the existing telegraph network and the rationalisation of the four networks into one, there was a frenzy of refurbishment and reconstruction of circuits that had previously functioned quite adequately. Almost at whim, overhead lines were replaced with underground cables; then cables were substituted with poles. Even with the merging of competing circuits additional strategic long lines were proposed as necessities, and many trunk circuits were doubled and quadrupled without examination of cost-benefit.
Despite, or because of, their structural dominance the engineers in the Post Office Telegraphs lapsed into technical conservatism. The long age of technical and scientific superiority that had existed prior to 1870 was superseded by inertia and a failure to modernise. Little or no attempt was made to advance instrument and circuit performance over the subsequent thirty years; co-operation with the scientific community became entirely neglected. Such advances as were introduced came through international pressure and not through internal developments.
Without "commercial" leadership the engineers assumed control at the "instrument". Post Office clerk operators, unlike their company predecessors, were expected to diagnose, adjust and fix their instruments, without any additional pay. This distracted clerks from their outward facing commercial role, reducing efficiency and performance, in as much as any measurement was taken of this vital function. Whilst company clerks were trained within their retail offices the Post Office imposed an elaborate, distant system of schools, isolating the telegraphic "scholars" from the public.Elaborate forms were designed, and processes imposed to justify the bureaucracy rather than to assist the public, the hierarchy was extended and based on long-service rather than merit. New Controllers, Deputy Controllers, Assistant Controllers, Superintendents and Supervisors were appointed to oversee the work of the clerks.
Whereas the telegraph companies were consistently overwhelmed with applicants for clerkships and messenger positions from men and women the reputation of the Post Office was such that by 1871 it was reduced to offering a £1 bounty to existing postal employees and their families to recruit for vacancies, a week’s wages.
The Post Office before absorbing the telegraphs did not employ women in any numbers, apart from a few self-managing rural post mistresses. Initially, not knowing how to cope with a mass of skilled, well-educated female employees, it retained the model used by the companies, and their number expanded. Their presence was resented by the postal officials and the other male postal employees, the latter drawn almost entirely from the ill-educated faction of society. The women undertook similar work for less pay but, initially, had far higher working conditions. The position of female labour in the Telegraph Department was rapidly eroded and the valuable capital that middle-class women brought to the companies' customer-facing operations was lost in the Post Office. Women were confined to the back office, and their working conditions (like those of the male clerks) were reduced. The roles and terms offered ceased to be attractive to ambitious and educated women.
Post Office publicised only a few limited “headline” improvements: in
particular the shilling, and later the six-penny, cheap rate, without
revealing that it failed even to cover expenses of transmission;
and the manifold number of new telegraph stations opened, again without
any reference to their subsequent usage by the public. Between 1870 and
1895 it did not even report the miles of telegraph line it possessed,
let alone any increase or decrease.
Regarding their relations with the public, there was almost immediately a policy of disinformation by the Post Office in regard to the achievements of the companies. One statement is typical, published in January 1871; "Total Number of Instruments in Use and Spare before the Transfer 1,869". The telegraph companies alone, exclusive of the railways, possessed 2,155 public offices in 1868. So, according to the bureaucrats of the Post Office 286 stations were without instruments!It had started even earlier, on November 19, 1870 the principal of the Post Office Telegraphs wrote to Gardiner G Hubbard in Boston, an advocate of state ownership, that the telegraph companies had “about 1,900 instruments” in 1869, which he had increased to 3,300. In truth the Electric company alone possessed 7,245 telegraph instruments in 1868! He also claimed in a report to Parliament that London had “only” 95 public telegraph stations in 1869, when there were nearly double that number, 180. The proclaimed technical achievements verged on fraudulent.
The Post Office boasted in 1867 “with entire certainty” that
it would be earning £600,000 in net annual revenue from the telegraphs.
By 1875 it had only achieved £36,725. Working expenses alone were 96
2/3% of income, without allowing for the interest costs on the original
purchase money, just as George Leeman and Arthur Hill has predicted in
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
of lightning we, by land or wave
after Henry Schütz-Wilson
Telegraph, from the Greek “tele”, distant, and “graphos”, writing
|© Copyright - Steven Roberts 2012|