Mr. Scudamore’s Revenue Forecasts
Mr. Scudamore began by assuming that the Post Office would take charge of the telegraphs on July 1, 1869; and that by that time the telegraph companies would have developed a business of 7,500,000 messages a year. On the basis of the traffic of 1866, and under the companies’ charges, 55 per cent. of the business would consist of messages carried 100 miles or less, which would be charged 24 cents each; 30 per cent. would be messages carried from 100 to 200 miles, being charged 36 cents each; 10 per cent. would be messages carried beyond 200 miles, which would be charged 48 cents; and, finally, 5 per cent. would consist of messages to and from Ireland, which would be charged from 72 cents to 96 cents. The adoption of the uniform rate of 24 cents, irrespective of distance, would reduce by 33 per cent. the charge on the messages sent from 100 to 200 miles, and would increase those messages by 90 per cent.; it would reduce by 50 per cent. the charge on the messages carried more than 200 miles, and would increase those messages by 90 per cent.; and, finally, it would increase by 150 per cent. the number of messages between Great Britain and Ireland. The introduction of the uniform 24 cent rate, therefore, would increase the total number of messages from 7,500,000 to 10,612,500. That last number would be further increased by 10 per cent. in consequence of the general increase of facilities, and a material reduction in the charges made for the delivery of messages to points outside of the free delivery areas. Thus the total number of messages that the Post Office telegraphs would carry in the first year would be 11,673,000, or, say, in round numbers, 11,650,000.
Since the average message would be somewhat over 20 words in length, one might count on average receipts per message of 28 cents; so that the 11,650,000 messages in question would bring the Post Office a gross revenue of $3,400,000.
Mr. Scudamore next proceeded to estimate what it would cost to earn the $3,400,000 just mentioned. He began with the total working expenses, in 1866, of the four leading companies, namely $1,650,000. He stated that the companies had said that if permitted to consolidate, they could reduce expenses by $275,000 a year. But if the Post Office were to take over the telegraphs, it would reduce the expenses by more than the last mentioned sum, for it could use the existing Post Office buildings, the existing staff, and so forth. Deducting numerous other items representing expenses that the companies had incurred on account of the operation of foreign cables and the conduct of other forms of business that the Post Office would discontinue, Mr. Scudamore reached the conclusion that the Post Office, in 1866, could have operated at a total cost of $1,325,000 the plants of the four telegraph companies.
Mr. Scudamore added 10 per cent. to the last mentioned sum, in order to cover the cost of maintaining and operating the extensions that the State proposed to make at a cost of $1,000,000. He took 10 per cent. because $1,000,000 was 1/11 or 1/12 of the capital invested in the plants of the telegraph companies. That raised to $1,457,500 Mr. Scudamore’s estimate of the cost of operating the telegraphs on the supposition of a business of 7,500,000 messages.
Mr. Scudamore then allowed 33 per cent. or $437,250, for the assumed increase in the number of messages from 7,500,000 to 11,650,000. He said the Post Office might safely assume that it could increase its business by 55 per cent. at an increase of 33 per cent. in the operating expenses, since the Electric and International Telegraph Company recently had increased its business by 105 per cent. at an increase of 33 per cent. in the operating expenses. Mr. Scudamore’s conclusion was that the Post Office could carry 11,650,000 messages, yielding an income of $3,400,000, at a cost of $1,895,000, thus obtaining a net revenue of $1,505,000.
To that sum must be added the net revenue to be obtained from the carriage of messages for the newspaper press, $60,000; and $225,000 to be obtained from the rental of the State’s cables to the several foreign cable companies. Thus Mr. Scudamore counted on a maximum net revenue of $1,790,000.
By similar reasoning, under the supposition that the total number of messages should not exceed 7,500,000, Mr. Scudamore arrived at a minimum estimated net revenue of $1,015,000. Taking the average of the two foregoing estimates, he said the Government “might with almost entire certainty rely upon a net revenue within a range of from $1,000,000 to $1,800,000, the mean of which was $1,400,000.” That was for the first year; in the subsequent years the net revenue would increase rapidly. He said: “It is the experience of all people who have worked a large business of this kind that the cost does not by any means increase in proportion to the increase of business; you can always do a greater amount of business at a less proportionate cost than you can do a smaller amount.”
Mr. Goschen repeatedly asked Mr. Scudamore whether he would stand by his estimates, and whether he deemed them moderate, adding that the Select Committee was taking the matter almost exclusively on his [Mr. Scudamore’s] evidence. Mr. Goschen always received the strongest assurances that the Committee might rely on the estimates submitted.[58]
Mr. Scudamore’s predictions as to the growth of traffic that might be expected from the great increase in the facilities for telegraphing, and from the reduction of the charges by fully one-half, turned out to be brilliant indeed. They were fully realized. The number of messages increased from about 6,500,000 in 1869, to 9,850,000 in 1870-71, to 19,253,000 in 1874-75, and to 26,547,000 in 1879-1880.[59]