At an early date the Belgium Government concluded that the first three of the four factors just enumerated were beyond the control of the State, and therefore permanent. It resolved, therefore, to attempt to neutralize them by developing the inland traffic to such proportions that it should become a source of profit, that traffic having been, up to that time, a source of loss. Accordingly, on January 1st, 1863, the Government lowered the charge on inland messages from 30 cents for 20 words, addresses included, to 20 cents. As that reduction did not prove sufficiently effective, the charge on inland messages was reduced, on December 1st, 1865, to 10 cents for 20 words. Under that reduction the loss incurred upon the inland messages rose from an annual average of $13,800 in 1863 to 1865, to an annual average of $59,500 in 1866 to 1869; and the average annual return upon the capital invested fell to 2.8 per cent. This evidence was before Mr. Scudamore when he argued from the experience of Belgium in favor of a uniform rate, irrespective of distance, of 24 cents for 20 words, not counting the addresses. Mr. Scudamore shared the opinion of the Belgium Government that the rate of 10 cents would so stimulate the traffic as to become very profitable. As a matter of fact, things went from bad to worse in Belgium, and for many years the Belgian State telegraphs failed to earn operating expenses.[9]
By way of explanation it should be added that the so-called transit messages and foreign messages were profitable for two reasons. In the first place, the Belgian Government kept high the rates on those messages. In the second place, those messages are carried much more cheaply than inland messages. The transit messages, say from Germany to England, have only to be retransmitted; they are not received across the counter, nor are they delivered across the counter and by messenger. The foreign messages are burdened with only one of the two foregoing relatively costly operations. In 1866 the Belgian Government stated that, if the cost to the Telegraph Department of a given number of words transmitted as a message in transit be represented by two, the corresponding cost of the same number of words received and transmitted as a foreign message would be represented by three, while the cost of the same number of words received and transmitted as an inland message would be represented by five.
Swiss Experience
The Swiss State telegraphs, the experience of which Mr. Scudamore also cited in support of his Report, were opened in 1852; and in the period from 1854 to 1866 they earned, on an average, 18 per cent. upon their cost. Throughout that period the average receipts per inland messages were 21 cents, and the average receipts per foreign message were 39 cents. In the year 1865 the average receipts per message were 21 cents for inland messages, and 30 cents for foreign and transit messages, which constituted 39 per cent. of the traffic. In the following year, 1866, the average receipts upon the inland traffic remained unchanged; while those upon the foreign and transit traffic, 43 per cent. of the total traffic, fell to 20 cents. This reduction of 33 per cent. in the average receipts upon the foreign and transit traffic, caused a decline of 45 per cent. in the total net receipts, and reduced the earnings upon the capital from 15.2 per cent. in 1865, to 7.5 per cent. in 1866.
Thus far the receipts from the inland messages had not covered the operating expenses incurred on account of those messages. The profits, which had been very large, had come from the foreign messages and messages in transit.[10] The Government, alarmed at the decline in profits resulting from the fall in the average receipts per message in the foreign and transit traffic, resolved upon a special effort to stimulate the growth of the inland traffic. Accordingly, on January 1st, 1868, it lowered the rates on inland messages of 20 words, address counted, from 20 cents to 10 cents. The inland traffic immediately doubled; but the cost of handling it more than doubled. The increase in the traffic necessitated the stringing of additional wires, and the employment of more instruments, linemen, telegraphers and office clerks. At the same time the Government was obliged to concede all round increases of wages and salaries, in consequence of the general increase in the cost of living which accompanied the world-wide revival of trade ushered in by the discovery of gold in California and Australia, the introduction of steamships upon the high seas, and the building of railways in all parts of the world.
The inland messages increased by leaps and bounds from 397,289 in 1867 to 2,118,373 in 1876; and still the receipts from them did not cover the operating expenses. In 1874 and 1875, for example, those expenses averaged 14 cents per message. Accordingly, in 1877, the Government adopted a new scale of charges on inland messages, to wit: an initial charge of 6 cents per message, to which was added 0.5 cent for every word transmitted. The Government assumed that the average length of the inland messages would be 14 words; and that the average receipts per message would be 13 cents. It hoped soon to reduce the average cost per message below 13 cents, and hoped thus to make the inland traffic remunerative. But those expectations never were realized; and to this day the inland messages have been carried at a loss.[11]
French Experience
In 1861, the French State telegraphs reduced the rate for messages of 20 words, counting the address, to 20 cents for intradepartmental[12] messages, and to 40 cents for interdepartmental messages. In 1866 the average receipts per message were: 38 cents on the inland traffic; $1.38 on the foreign traffic; and 55.8 cents on the traffic as a whole. With these average receipts per message, the earnings were $1,541,519; while the operating expenses were $1,796,692. In other words, the State telegraphs lost $255,173 on the working, besides failing to earn any interest on the capital invested in them, $4,760,000.
In making the foregoing statement, no allowance is made for the value of the messages sent “on public service,” messages for which the State would have been obliged to pay, had the telegraphs been owned or operated by companies. No such allowance can be made, because the several official French statements submitted by Mr. Scudamore as to the number of messages sent “on public service” applied to the years 1865 and 1867, years for which the operating expenses were not given. Furthermore, the messages sent on public service in 1865 and 1867 were so numerous as to indicate so loose a construction of the term “on public service” as to make the returns worthless for the purpose of determining the commercial value of the saving resulting to the State from the public ownership of the telegraphs. For 1865, the number of messages “on public service” was returned as 568,647, the equivalent of 23 per cent. of the number of messages sent by the public. For 1867, the number was returned as 168,999, the equivalent of 5.94 per cent. of the messages sent by the public. That those figures represented an unreasonable resource to the telegraph for the transaction of the State’s business, is proved by the fact that in the United Kingdom, in the period 1871 to 1890, the value of the messages sent “on public service” was equivalent to less than 2 per cent. of the sums paid by the public for the transmission of telegraphic messages. On the basis of any reasonable use of the telegraphs “on public service,” the financial results of the French State telegraphs would not have been altered materially. The deficit, in 1866, on account of operating expenses, $255,173, was sufficient to permit of the sending of 457,300 messages “on public service,” the equivalent of 16 per cent. of the messages sent by the public. It would be unreasonable to assume that the State could have need of such recourse to the telegraphs.
Summary of Foreign Experience