The Telegraph Situation between B & O and W. U. Telegraph companies

[Trade Journal]

Publication: The Electrician & Electrical Engineer

New York, NY, United States
vol. 4, p. 374-376, col. 2,1-2



PUBLIC attention has been again drawn to the situation of the telegraph lines of the country by rumors of a settlement between the Western Union Telegraph Co. and the telegraph organization conducted by the Baltimore and Ohio R. R. Co. The controversy on this subject between Mr. Garrett, of the Baltimore and Ohio, and the representatives of Western Union, Messrs. Field and Green, does not leave a very clear impression as to its actual origin and merits. The first rumors of an arrangement of the existing telegraph competition arose simultaneously with the announcement of the Vanderbilt-Pennsylvania treaty. It was evidently part of their arrangement that the joint influence of the contracting parties was to be exerted in preventing the Baltimore and Ohio R. R. Co. from obtaining a line into and terminal facilities at New York. The New Jersey Central R. R. was the road which the Baltimore and Ohio have intended to use for this purpose. The story at once took the shape that Mr. Jay Gould, as representing the present Western Union management, had obtained a controlling interest in Jersey Central, and was in a position to turn the road over to Baltimore and Ohio in return for their withdrawal as a competitor to the Western Union in the telegraph field. Mr. Cyrus W. Field, an active director of Western Union, and Mr. Robert Garrett, president of the Baltimore and Ohio R. R. Co., were in London, and it became noised about in Wall street that negotiations were being conducted between them, as representatives of their companies, through the mediatorship of Mr. John Pender, M. P., who is in a manner connected with the Western Union company. It was even stated that they had progressed to an agreement by which the Baltimore and Ohio wires were to be leased to the Mutual Union Telegraph Co., an organization owned by Western Union. There is nothing in the existing conditions which rendered this improbable. The general belief, which does not seem far out of the way, is that the Western Union system, both as to extent and capitalization, has reached a point where further severe competition cannot fail to prove disastrous to its earning capacity. The vigorous attempt in which it had just been engaged to cripple one of its small competitors, the Bankers and Merchants' Telegraph Co., also tended to confirm the impression that its controlling influences were disposed to use every exertion to remove the competition of its chief rival. The reported agreement, coupled with further statements that Mr. Garrett was disappointed with his telegraphic experiment, and that there was a deficit to the Baltimore and Ohio R. R. Co. of $50,000 per month from the operation of the wires, was widely circulated and found considerable belief. Mr. Garrett was cabled, and authorized a denial that any such arrangement was contemplated. The circulation of the reports, in spite of more emphatic denials on his part, finally resulted a few weeks ago in the publication by both parties of the cabled correspondence. There are two views to be taken of the matter so far as it has been made public. Mr. Garrett's denials, and those of Mr. Bates, president of the Baltimore and Ohio Telegraph, that they have any intention of entering into a combination of any kind with Western Union, and that they propose to maintain the independent attitude of the Baltimore and Ohio Telegraph, is entitled to more weight than is usually accorded to utterances of this nature. It would, therefore, seem that the matter is the result of a characteristic indiscretion on the part of Mr. Cyrus W. Field. On the other hand, there is still a possibility that while the reports are premature, they represent the first stage of a negotiation by which the competition of the Baltimore and Ohio lines may ultimately be done away with, either by absorption or pooling with Western Union.

It is this possibility which brings the telegraphic question again into prominence as a pressing social problem. To recount the growing importance which the telegraph bears in our national development and existence is not requisite. Considerations of the greatest magnitude demand that electric communication should attain the maximum of speed and efficiency with the minimum of cost to the individual. So far it has been left to private enterprise, which in a measure has met the requirements, but whether it can supply the increased demands of the public under its present organization, is questionable. It is particularly doubtful whether in the matter of cost of the service the needs of the public are sufficiently conserved. They certainly would not be in the absence of competition.

The Western Union Telegraph Co. is of all the corporations of the country the one having the most extended field of operations, and the one with which the greatest proportion of individuals are daily brought in contact. It extends into every state and territory, and has offices in every city or town of any importance. Its development as a system of wires has kept pace with that of the railroads, with which it has been its policy to maintain the closest alliance. The greater proportion of its lines run along the railroad tracks. Under varying conditions the general form of the contracts with the railroad companies is that Western Union shall maintain and operate the telegraph, having exclusive right to commercial messages at all stations, free transportation of men and material for the erection and maintenance of its wires, and room for telegraph offices in all stations. The railroad company, on the other hand, receives the use of such wires as may be necessary in the direct operation of its road and running of trains, together with a certain amount of free telegraphy for the general business of the railroad company. In some instances part of the expense of the telegraph is met by the railroad, but the general features of the agreements are as stated above. To hold this connection with the railroads has been the fixed policy of the Western Union company. The greater proportion of the roads are included in such arrangements.

As a corporation it grew up from a small organization, and by a process of absorbing other companies, and leasing or erecting new lines in connection with the railroads, its system commenced, about the period of the civil war, to assume something like its present extension. From time to time other competing companies were formed, but by various means they were all absorbed, and their lines made part of the Western Union system. About 1878-9 it met the most severe competition that it had experienced up to that time. Mr. Jay Gould had been interested in a company, the Atlantic and Pacific Telegraph, previously absorbed by Western Union under a pooling arrangement. Apparently he had formed his own ideas of the vulnerability of the latter. He therefore became the prime mover in the formation of the American Union Telegraph. This organization was largely modeled upon the Western Union, and endeavored to follow the same tactics. At that time there remained a considerable mileage of poles and wires still owned by various railroad companies, and either operated independently or merely held by Western Union on terminable leases. Wherever it could be done, American Union secured control of these lines, and by the erection of a considerable number of new ones, soon had a system which reached a proportionately greater number of points and covered more territory than any previous competitor of Western Union. The competition between the companies was of course fierce, and resulted in a substantial decrease of rates over all the territory into which it extended. Western Union was at that time under Vanderbilt control. Its total stock amounted to $41,000,000, while its lines consisted of some 85,000 miles of poles and 230,000 miles of wires, with 9,000 offices. The stress of competition upon the company, however, resulted in the retirement of the Vanderbilt interest in the latter part of 1880, and the securing of the control by Mr. Gould. Immediately after, in January, 1881, a consolidation was effected by which the lines of the American Union, as well as the Atlantic and Pacific (which had been maintained as a separate organization, although pooled with Western Union), amounting together to about 100,000 miles of wire, were transferred to Western Union. The bonds and stock of the American Union to the amount of $15,000,000 were converted into Western Union at par. The $14,000,000 of Atlantic and Pacific stock was also exchanged at 60 per cent, of its par for Western Union stock, and $15,000,000 of new stock was distributed to the holders of the then Western Union stock. This increased the capitalization of the company from $41,000,000 to $80,000,000; the mileage of poles to 110,000 miles, and the wire to 325,000. The ground was immediately taken by Mr. Gould that, having virtually secured the entire control of all the wires operated in connection with the railroads, no company could ever successfully compote with Western Union. Rates were at once approximately restored, although in some instances the competitive rate had become such a fixed public institution that no change was made.

The natural result of this stock-watering and consolidation was a new crop of competitors. The principal one was an institution known as the Mutual Union Telegraph, which, organized and constructed with vigor, soon had a passable system to most of the important northern and western points. It, however, labored under the disadvantage of having no connection with the railroads, its lines being almost entirely constructed across country. After a short lived competition it too was absorbed by Western Union, under a guarantee of 6 per cent, interest upon its capitalization of $7,500,000. Two other concerns, the Bankers and Merchants' and the Postal Telegraph companies were also organized and are still in existence, their systems reaching only the large cities north of the Potomac and Ohio rivers. The troubles of the former company are still fresh in the public mind, as well as the characteristic attempt a few weeks ago by the Western Union company to prevent the reorganization of the company and seize its wires. The Postal company presents several new features of construction, the most important being the adoption of a greatly improved form of wire, by the use of which it is expected the process of transmission will be facilitated and the cost reduced. Mr. J. W. Mackay, having entered upon the transatlantic cable enterprise known as the Bennett-Mackay cables, in opposition to the existing cable monopoly to which Western Union acts as a feeder, found it necessary to have control of a telegraph system to all important points connecting with his cables. Some time ago he became heavily interested in the Postal company. The financial organization of the concern was, however, defective, its capitalization having been upon an inflated basis, and its growth has consequently been greatly retarded. It is now undergoing reorganization, the intention being to combine its line with those of the Bankers and Merchants' company under the title of the "United Lines Telegraph." The unsatisfactory state of their business renders it impossible to give the mileage of the two concerns with accuracy. It is, however, somewhat less than that of the Baltimore and Ohio Telegraph.

The latter organization is at this moment the only serious competitor of the Western Union. The ownership of the telegraph lines built by the Baltimore and Ohio Railroad Co. along its road had always been retained by the railroad company itself. They had been operated in connection with the American Union so long as it continued a competitor of Western Union. When the consolidation of American Union with the latter company took place the railroad company resumed control of its wires, and soon after resolved upon extending its operations to a field outside of its railway lines, and building its telegraph lines to all important points, independent of the great telegraph organization. The Baltimore and Ohio Telegraph Co. was accordingly instituted as a separate corporation, the control of course being vested in the railroad company. Its lines already extended, with the ramifications of the Baltimore and Ohio railroad, to Cincinnati, Chicago and St. Louis. Extensions have been built to New York, Boston and other points, and different lines acquired when practicable. Among the latter class are the telegraph line along the West Shore and Nickel Plate roads, forming a second line between New York and Chicago. At the present time it has offices at almost every important centre in the eastern and middle states, and in the western states east of the Mississippi, with the exception of St. Paul, while a line via Texas gives it a connection with New Orleans. It has in round figures about 7,000 miles of poles and 50,000 miles of wire, which, in the absence of explicit reports, may be taken to have cost, according to the best attainable information, something less than $5,000,000. This capital has been furnished by the railroad company, and is represented by stock of the telegraph company held by it. The expressed intention of the management has been to extend it to all the remaining important centres of the country. So far as possible it is operated in unison with the Postal and Bankers and Merchants' companies, the three organizations affording each other all possible facilities in reaching points not common to their systems. Indeed, an arrangement was entered into over a year ago by which the three systems were to be pooled as to earnings, and divide the work of extension so that it might be prosecuted more rapidly. This agreement, however, fell to pieces from the inability of the Postal and Bankers' companies, owing to their financial difficulties, to carry out the latter portion of it.

Within these geographical limits the cutting of rates has become severe. The policy adopted by the Western Union is to use the Mutual Union Co., which is owned by it, and which has offices in all the chief cities affected by competition, to meet the cuts made by Baltimore and Ohio. The object of this is to prevent their own company from making too bad a showing. Thus the Baltimore and Ohio rates from New York to Boston, Chicago and St. Louis for messages of ten words are 10, 15 and 20 cents respectively. The Mutual Union rates are the same, but the Western Union rates are maintained at 25 cents to Boston and 50 cents to Chicago and St. Louis. The Baltimore and Ohio rates to Philadelphia, Baltimore and Washington are uniform with that to Boston. Rates to intermediate competitive points have been reduced to the same or proportionate rates. In this way a number of the centres of the country are provided with competitive telegraphy at low rates. The effect upon Western Union's earnings is marked. The assertions made by Western Union officials that the business of Baltimore and Ohio is conducted at a monthly loss of $50,000 cannot be accepted. It has been denied by the officials of Baltimore and Ohio under oath, and the truth apparently is that the latter, if not profitable, incurs but small loss. The reason assigned by Western Union for maintaining rates is that the service which their most perfect organization performs commands the higher rate. It must be owned, however, that the service of Baltimore and Ohio is approaching, if it has not attained, an efficiency approximating that of Western Union. It is by reason of insufficient organization that the low rates made by the Postal and Bankers and Merchants' companies do not appreciably affect the situation.

To non-competitive points, however, no measurable reductions have been made. Southern points, for instance, between Washington and New Orleans, are now altogether dependent upon Western Union service, an organization known as the Southern Telegraph Co., which extended to the leading cities as far as Atlanta, and which had been controlled by Bankers and Merchants', having passed on the collapse of that concern to Western Union. Competition fails to reach over 25 per cent, of the entire telegraph business of the country, which includes a large proportion of the smaller offices. The present 110,000 miles of poles and 4