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18. 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 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.
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 and the Submarine Telegraph Company were always at a 40 or 50% discount. The common stock of the United Kingdom Electric Telegraph Company, the newest and smallest of the national concerns, was trading in 1864 at an almost worthless ½d for a nominal £5 share. This rose slowly during the year, as its network was completed, to around £1 10s. 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.
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.
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. 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 part by transferring money without Parliamentary authority from the Post Office Savings Bank to the Post Office Telegraph Department, illegally. The Post Office Telegraphs There was a clear cultural change in the telegraph system in 1870. The companies had a critical balance between what were termed the commercial and engineering functions. The commercial side comprised the retail, operating and accounting functions, the engineering, the technical and maintenance functions; essentially ‘earning’ and ‘spending’, which possessed a carefully managed balance pre-1870.
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, 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.
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.
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.
The 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.
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!
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 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
Telegraph, from the Greek “tele”, distant, and “graphos”, writing
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