The History of the British Post Office

by Joseph Clarence Hemmeon

The number of telegrams for the year ending 31st March, 1887, the year following the sixpenny reduction, was 50,243,639; for the year 1891-92 it had increased to 69,685,480. In 1896-97 the number was 79,423,556 and in 1899-1900 the total was 90,415,123. During the next three years there was a reduction, followed in 1902-03 by an increase to 92,471,000. Since 1902-03 the number has again fallen off, the figures for 1906-07 being only 89,493,000.[821] It is rather difficult to make definite statements about the telegraph finances on account of the lack of uniformity in presenting the accounts since 1870. Under gross revenue is now included the value of services done for other departments, but this was not always the rule. The expenditure of other departments for the telegraph service may or may not be included under ordinary telegraphic expenditure. Net revenue may also be increased or a deficit changed to a surplus by deducting the expenditure for sites, buildings, and extensions from ordinary expenditure. Finally, the interest on capital is not charged on the Telegraph Vote, and so is not included under expenditure. In 1871, 1880, and 1881 there seem to have been surpluses over all expenditure, including interest on capital. Excluding interest from expenditure, the net revenue decreased from £303,457 in 1871 to £59,732 in 1875, when the pensions to officials of the telegraph companies were first charged to the Telegraph Vote. With an increased net revenue of £245,116 in 1876, following the report of the committee of investigation, the department did very well from a financial point of view, until 1884, when the net revenue fell to £51,255, and in 1887 there was a deficit of £84,078, due to the fact that expenses were increasing at a greater rate than receipts. The sixpenny reduction seems to have made but little change in the financial situation, the gross revenue increasing from £1,755,118 in 1884-85 to £1,855,686 in 1886-87, the expenditure for the same years being £1,731,040 and £1,939,734. The net revenue began to recover in 1888-89, and averaged about £150,000 a year during the four years ending March 31, 1892. During the fiscal years 1894 and 1895 there were deficits, then a slight recovery from 1896 to 1900 and a succession of deficits from 1901 to 1905. The interest on stock, £214,500 in 1870, increased steadily to £326,417 in 1880, at which figure it remained until 1889, when a reduction in the rate of interest from 3 per cent to 2-3/4 per cent lowered the amount payable to £299,216. In 1903, there was a further reduction to £278,483.[822]

The financial loss experienced by the Government in operating the telegraphs has naturally produced considerable interest in this phase of the question. Mr. Blackwood, the Financial Secretary of the Post Office, in his evidence before the committee, considered that the financial control and oversight of the department were inadequate and that the department was over-manned. On the other hand, he was of the opinion that many expenses were met by revenue expenditure which should have been charged to capital. Mr. Baines, the Surveyor-General, among other causes of the financial deficiency, called attention to the shorter hours and longer annual leave of the telegraph staff as government employees, the higher standard of efficiency established by the Post Office, and the prevalence of much overtime work as a result of the maintenance by the companies, just before the transfer, of an inadequate staff.[823] The fact that the yearly increase in messages continued to diminish after 1879 is commented on by the Postmaster-General in 1884 as due to the stagnation of trade, the competition of the telephones, and the rapidity of the letter post. Mr. Raikes called attention to the large number of telegrams on the business of the railways which were transmitted for nothing. By an agreement with several of the railway companies to send, as a right instead of a privilege, a fixed number of messages containing a fixed number of words, this increase was checked. In 1892, the following comment is found in the Postmaster-General's Report: "This stagnation of business, viewed in connection with an increased cost in working expenses, is a matter for serious consideration, and necessarily directs attention to that part of the business which is conducted at a loss," the reference being to the increased number of press messages transmitted at a nominal charge. When in 1868 the newspaper proprietors succeeded in obtaining the insertion in the Telegraph Act of special rates for the transmission of press messages, no condition was laid down that copies, in order that they might be sent at the very low charges there enumerated, should be transmitted to the same place as the original telegram. The newspapers combined to receive messages from news associations in identical terms, and, by dividing the cost, obtained a rate equal on the average to 4½ d. per hundred words. Under the arrangements adopted for the transmission of news messages the number of words so sent did not necessitate a corresponding amount of work, but it is an interesting fact that in 1895 the number of words dealt with for the press formed two fifths of the total number. In that year the loss on these telegrams was estimated at about £300,000 a year. The high price paid as purchase money is another of the factors to be considered, only in so far, however, as the Telegraphic Department has failed to meet the interest on the debt so incurred. The telegraph companies were very liberally treated, and in certain cases excessive prices were undoubtedly paid. Probably the most important reason for the financial failure of the telegraphs under government ownership and control has been the influence of forces productive of good in themselves, but quite different from those which had previously been dominant when the telegraphs were under private control and during the early years of government management. The effect of these forces is clearly seen in the reduction of the tariff in 1885, the extension of facilities under inadequate guarantee, and the increase in the pay of the staff.[824] Mr. Buxton is of the opinion that the worst feature of the postal business is the telegraph service. "It has never been profitable and now the telephone system has so largely taken its place that the revenue is falling off," while the "Economist" considers that "it is obvious that both in the Savings Bank and the Telegraph branches reforms are urgently needed in order to place matters on a sound financial basis."[825]

CHAPTER XI

THE POST OFFICE AND THE TELEPHONE COMPANIES

The first telephone brought to England by Lord Kelvin in 1876 was a very crude instrument, useful only for experimental purposes and of interest only as a forecast of later development. In the following year two Post Office officials introduced some machines which had been presented to them by the American inventor Bell, and although not very efficient, they were of some commercial use. The Post Office made arrangements with the agents of the inventor for the purpose of supplying its private wire renters with these machines if they should wish to make use of them. With the invention of the microphone in 1878, and its application to the telephone, a thoroughly practical method of transmitting speech was at last introduced. In the same year a company was formed to acquire and work the Bell patents. They endeavoured to come to an agreement with the Post Office by which the latter might obtain telephones at cost price, and would in return facilitate the operations of the company, but the negotiations came to nothing. There was then no suggestion of an exchange system, and the company proposed merely to supply telephones and wires to private individuals. In 1879, the Edison Telephone Company of London was established, an announcement having been made in the autumn of 1878 that it was proposed to establish exchanges. An attempt was made to amend the Telegraph Act so as to confer specifically upon the department monopolistic control over telephonic communication, but the amendment failed to receive the sanction of the House of Commons. The Postmaster-General then filed information against both companies, on the ground that the transmission of messages by telephone was an infringement of the telegraphic monopoly. In the summer of 1880 the two companies amalgamated as the United Telephone Company, and in December judgment was given by the High Court of Justice in favour of the Post Office.[826]

In April of 1881 the Postmaster-General granted the United Telephone Company a licence to establish and operate a telephone system within a five-mile radius in London, the central point to be chosen by the company. On the other hand the company agreed to pay a royalty of 10 per cent of its gross receipts and to accept the judgment of the High Court. Licences were also granted to establish telephone exchanges in the provincial towns within a radius of one or two miles, all the licences to expire in 1911. The Postmaster-General reserved the right to establish exchanges for the department and the option of purchasing the works of the licencees in 1890 or at seven-year intervals from 1890, six months' notice having first been given. The policy of the United Telephone Company was to confine its own operations to London and to allow patent apparatus to be used in other parts of the country by subsidiary companies, leaving them free to negotiate with the Post Office for provincial licences.

The telephone policy of the Post Office from 1880 to 1884 consisted in the granting of licences to the companies in restricted areas, so that the telegraph revenue might suffer from competition as little as possible, and the establishment by the department of exchanges in certain places not as a rule served by the companies. Owing to the refusal of the Government to solicit business, their exchanges did not prove a success. The department itself would probably have preferred to take over the whole telephone business in 1880, but this policy met with no favour from the Lords of the Treasury, who were of the opinion "that the state, as regards all functions which are not by their nature exclusively its own, should at most be ready to supplement, not endeavour to supersede private enterprise, and that a rough but not inaccurate test of the legitimacy of its procedure is not to act in anticipation of possible demands." The operation by the government of the unimportant exchanges possessed by them was sanctioned by their Lordships, "on the understanding that its object is by the establishment of a telephonic system to a limited extent by the Post Office to enable your department to negotiate with the telephone companies in a satisfactory manner for licences." The London and Globe Company was given a licence in 1882 to establish exchanges in London, but they were entirely dependent upon the United Company for instruments, so that there was no real competition. The department proceeded to issue licences for the establishment of competing systems in places where there were already government exchanges. From 1880 to 1884 the Postmaster-General granted twenty-three licences, and some twenty-seven towns, with 1141 subscribers, were served by the department. The policy of the Post Office during these years, as thus outlined, was far from satisfactory to the public, due largely to the desire to protect the telegraph revenue, and the failure to appreciate the possibilities which the new system of communication was capable of offering. The companies, restricted as they were to local areas, could not offer any means for communication between these areas, since special permission had to be obtained for the erection of trunk lines. The Government offered to provide these on condition that a direct payment of £10 a mile per double wire and one half the revenue over that sum should be paid for their use, but this offer the companies naturally refused to consider. The Lancashire and Cheshire Company proposed to fix their trunk-line charges so low as to pay expenses only, but they were informed by the Government that they must charge 10s. a mile annual rental. In addition, they were not allowed to charge less than 1s. at their call offices, the then prevailing fee for a telegram. A few trunk lines, it is true, were constructed by the Government and rented to the companies, but they were quite insufficient to satisfy the demand. In London, the United Telephone Company was not allowed to extend its system beyond the five-mile radius without special permission and the payment of an increased royalty. In addition, the companies had no way-leave powers, but had to depend upon the good will of householders to fly their wires from house-top to house-top, with the result that in London there was a ridiculously large number of exchanges. Finally the companies were restricted to connecting subscribers with the exchange or their place of business, and, although messages could be telephoned for further transmission by the telegraphs, there was not that close connection between the telephonic and telegraphic systems which might eventually have led to the mutual advantage of each. Moreover, in 1882, the Government announced that they would grant no more licences unless the subsidiary companies agreed to sell to them all the instruments they wished, the intention probably being for the Government to supply instruments to companies which would establish exchanges in real competition with the United Telephone Company. Since the subsidiary companies could not supply these instruments without the consent of the parent company, the only result was still further to restrict telephonic development.[827]