Re: Western Union History

[Other perspectives welcome. public replies please]

I composed the following a few days ago and was going to take it to private email, which bounced. So here it is.

Oslin also repeats the Western Union article-of-faith that the Bell System broke its agreement with W.U. when it began offering TWX service. And he accuses the U.S. govt., probably correctly, of favoritism toward ITT, which had something to do with the merger with Postal.

One could say that Western Union's goose was cooked when they were offered the chance to buy the Bell patents and turned it down. Of course it was a perfectly reasonable decision for them. They were in the long distance communication business, and the early telephone wouldn't transmit very far. And it was fair enough at that stage to say the telephone was a curiosity rather than a useful business machine. Further they had the operational view that people brought them telegrams and their operators transmitted them and they delivered them. It was hard for them to understand that customers might wish to speak directly to each other (in an age when people of good breeding sent handwritten notes to invite their friends to meet with them, and to reply to such invitations).

Their goose was cooked because the telephone was destined to outgrow the telegraph in bandwidth and distance, and would have the advantage of economy of scale.

A second opportunity was lost when the government forced AT&T to divest its controlling interest in W.U. Without that we might have had a coherent national system of voice and record communication, instead of forcing the two so use separate plant facilities and compete with each other. Seems like Postal was the main beneficiary of that action, since it could not have competed effectively with the AT&T-WU combine.

I presume AT&T didn't "really" violate any agreement with W.U. when it introduced TWX. Otherwise W.U. could have sued an won. W.U. could have started a competing service at that time, but they lacked the local loops it would have required, and would have had to put in their own or lease from Bell. Or maybe they considered it and found they couldn't make it pay. (Bell getting local loops for TWX at the marginal cost of loops for telephony; while W.U. would have had to construct them from scratch.)

Following the tenure of Newcomb Carlton, Vail's hand-picked successor at W.U., the company seems to have gone through a long period of lackluster leadership. One who is more interested in business than I could see who were the directors at the time and perhaps what their motives were.

Seems like I read somewhere that W.U. was once offered the opportunity to buy Teletype and turned it down. They didn't want to be in the manufacturing business.

The merger with Postal is portrayed as being both government mandated and as being on terms very costly to W.U. If this is true then it is another instance of the government hobbling a company that was not in very good shape to begin with. W.U. did get some good people out of Postal -- their president W. P. Marshall and engineer Gilbert Vernam are two I can think of.

W.U. got into the microwave business, which provided a lot more bandwidth than they needed. For whatever reason they were not able to sell their excess bandwidth to the TV networks. Maybe they didn't have the capital to serve the places the networks wanted to go; and again AT&T had the economy of scale to their advantage. W.U. could have done what MCI later did, selling bandwidth in competition with AT&T on high-traffic routes. AT&T put MCI through a bruising legal fight on that one, and maybe W.U. didn't have the stomach for it. And then W.U. was a member of the club of common carriers, while MCI was an outsider trying to get in.

The government forced W.U. to divest their cable business.

Then W.U. brought Telex to the U.S. This seems like a major mistake to me. It put them into head-to-head competition with TWX, and AT&T owned all the local loops. They couldn't profit from the ability of Telex to work internationally because they had been divested of their cable business. They had to buy a lot of switching equipment to establish the service, and it was equipment about to be obsoleted by electronic switching. Meanwhile AT&T proceeded to put TWX onto the voice switched network, where it was just a marginal cost.

W.U. operated a lot of local telegraph offices long after they had ceased to pay for themselves. In some cases the FCC required the company to keep the offices open. W.U. should have had a plan to convert them to contract agencies; although the best way to do this would probably involve having the agencies use TWX.

W.U. spent tons of money developing FAX technology. Not much ever came of it. They had their Desk-Fax machines, which relied on the model of using dedicated local loops and having customers send messages to the W.U. office for further transmission rather than direct to their destinations. Today's fax, very successful, makes use of technologies that were not available when W.U. was in the business and of end-to-end connections made possible by the excellence of the telephone system and by the Carterfone regulatory ruling.

W.U. built the Plan 55 message switching system for the Air Force; but then after a few years it was replaced by AUTODIN which W.U. also supplied. I wonder if the lost a lot of money on Plan 55 because of the short life of the system and the amount of equipment that was made surplus. AUTODIN used computer switching technology and I suspect they took a bath on that because computers were generally overpriced and became obsolete in such a short time. And then there's the matter of software always turning out to be a lot more costly than expected.

Then W.U. got into the business of remote data processing, but didn't make a go of it. I don't know what went wrong there; other companies succeeded (G.E. Information Services for one).

They introduced a dialup data service where you could choose the bandwidth at the time you dialed the connection. This seems like a goofy thing to me. Some business machines were only capable of operating at one particular data rate anyway, so the availability of other rates at different prices was not useful. It must have been very costly to provide a switching system that accomodated variable bandwidth selection. (It would be fairly easy to do today now that transmission is digital; but at the time it was not easy.)

They did other goofy things in the consumer area, such as CandyGrams and Gift America. Maybe the failure of those didn't entail much of a writeoff; I don't know. And they tried some rather pitiful service offerings in the voice business.

've always wondered if perhaps W.U. was too New York centric in its management attitudes. I know that AT&T had the practice of bringing in middle managers on temporary duty from the Bell operating companies. Thus they kept headquarters aware of what like was like out in the faraway regions, and took the systemwide perspective back with them when they returned to their home companies. I wonder if W.U. did anything like that with its managers. Also AT&T had the New York Telephone Co. to run the business in the city, whereas W.U. had its corporate headquarters and its major operating activity in the same building in the city where it did most of its business, along with most of its R&D organization. There may have been a tendency to overlook the problems out in the hinterlands in favor of those at 60 Hudson St. That's enuf for now.

jhhaynes at earthlink dot net

[TELECOM Digest Editor's Note: I always thought most of the smaller, less profitable Western Union offices were run as contract agencies; the 'agent' (or person who put up the money to pay the rent on the location, the phone bills and the payroll) was also the person who got the twelve to eighteen percent commission Western Union paid on 'sent paid' and 'received collect' traffic through the office. WUTCO did supply the big, bulky, very noisy, each one weighed a ton teletypewriter machines for the locations, and the telco circuits to operate them. The business was usually marginal enough that the agent would pay his clerks minimum wage and stay financially alive by locating his office around other 24/7 facilities such as bus stations and train depots. _If_ the agency started making any _real_ profit as evidenced by the monthly reports the agent had to submit to the company, then WUTCO would yank the agency back and turn it into a corporate location, although usually retaining the agent and his employees as WUTCO employees instead. I know Greyhound Bus has done that since its beginning: _if_ there is any money to be made, then we will make it; if not, then _you_ run it as an agency location, living off the 12-15 percent commission we agreed to pay you along with whatever sundries and other items you sell there on your own, assuming _we_ approved of that part as well. PAT]
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Jim Haynes
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