Re: Demise of Western Union [Telecom]

On 2008-08-20, hancock4@xxxxxxxxxxxx <hancock4@xxxxxxxxxxxx> wrote:
On Aug 19, 5:09 pm, Jim Haynes <hay...@xxxxxxxxxxxxxxxxxxxxxxx> wrote:
Does anyone know of an article that explains why [old] Western Union went
down like the Titanic?

No, and I've searched for such articles.

I guess by now there is more mileage to be gained in writing about
why the dot com companies went down the drain, and W.U. is ancient
history.

The only published resource I can suggest is the book "The Story of
Telecommunications" by Oslin. Oslin was a long time public relations
official of WU and wrote a book about the company. The book is
somewhat pro-WU and anti-AT&T.

Yes, it's a must-have book, even though the first section is very rough
going and the last section is just a mess. But the middle section,
roughly the lifetime of W.U., is great. He does speak rather well of
AT&T in the years under Vail when it had control of W.U.

It is not an easy question. Way back in the 1950s WU recognized that
the plain telegram was obsolete and had no future, and the future was
in bulk business communciations. WU sought and obtained major
contracts for data transmision of government and private sector
organizations, including the use of sophisticated switching computers
(supplied by others, like Univac).

Based on overall readings and discussions in this newsgroup (I think
you've contributed quite a bit), I would suggest:

1) Long history of adverse FCC rulings, such as forcing WU to absorb
Postal Telegraph and deny it proper share of overseas revenues.

Yes, it does seem to have been government policy to keep W.U. with exactly
one foot in the grave at all times. Maybe there was a miscalculation
that allowed the whole body to fall in.

2) Allowing AT&T to be in the telegraph business, such as with TWX.
WU eventually got it, but it was too late.

I have some interesting documents concerning presentations by W.U. and
AT&T to a government committee back in the 1950s. W.U. makes the point
that AT&T is cream-skimming the telegraph business. But they make a
really lame argument that there should be only one voice transmission
company and one record transmission company. There's no way W.U. could
ever had met the demand that something like DataPhone service supplied.
And it's nonsense to think that the wires care what kind of traffic is
traversing them.

I don't know if either AT&T or WU realized, at the time WU acquired
TWX, that the best days of TWX were already over. TWX was a person-to-
person messaging system, and the future was person-to-computer
messaging.

Back in the Vail years at AT&T, when AT&T was forced to give up control
over W.U., one could argue that the nation lost the last opportunity to
have a coherent, integrated voice and record wire communication system.

3) Overly aggressive unions that pushed up wages beyond what was
affordable for the company.

And perhaps also kept the company from closing a lot of offices that
should have been converted to agencies. Of course the best way to
convert offices to agencies would have been for the agencies to use
TWX.

4) MCI forcing AT&T to cease its special discounted rates to WU.
Because WU and AT&T were once united, they retained a special
relationship for decades. (One could charge telegrams to their home
phone, for instance, and AT&T gave WU discounts on private line
services.) When MCI came along and found out about this, they
demanded the same treatment for their interconnection to the Bell
System. Rather than discount to MCI, the Bell System raised WU's
rates. I think that was wrong; MCI wanted to be a direct competitor
to AT&T while WU was not*.

It's interesting to speculate what could have happened if W.U. had used
its own microwave network in the way MCI did, if W.U. had been aggressive
like MCI was.

Also it seems that W.U. was never able to sell its microwave services to
the TV networks, which must have been a real money-maker for AT&T.

5) Lack of ownership/access to the "last mile" between the telegraph
CO and a business customer. Connecting a business was expensive since
they relied on Bell System loops.

Yes, one could say W.U.'s goose was cooked way back in the 1870s when
W.U. refused the offer to acquire all the Bell patents. After that it
was downhill all the way.

6) Long history of mostly poor WU mgmt.

And it seems like there is such a thing as corporate senility, where
a company might as well die and be replaced by others.

7) Technologically obsolete. Despite WU's efforts to get into
microwave and other broadband in the 1950s, the bulk of its network
remained classic 5-bit 50 baud Teletype. For business data
transmissions, AT&T offered more expensive but much faster voice
lines.

8) Financial mishigosh in its last years.

Yeah. I just wish somebody in the business press had written about
which chickens came home to roost, and what each one entailed. For
instance, they had Plan 55 for the Air Force, which was obsoleted by
AUTODIN, and I wonder if they had a profit on Plan 55 or a loss because
of its short service life. Same for AUTODIN - perhaps all that computer
hardware became obsolete long before it was amortized. They put in
TELEX in competition with TWX, and I wonder if all that investment was
amortized quickly enough.

It seems as if AT&T financed its expansion by selling stock, until
the government forced it to rely more on borrowing money; and I
don't recall W.U. issuing and selling more stock to pay for these
big investments.

9) I'm only speculating here, but I suspect WU didn't have the best
sales approach, as compared to IBM and AT&T. My very limited exposure
to WU facilities of the 1970s was that they seemed rather unpleasant
and out of date, almost a throwback**. That is not very attractive to
business people seeking a modern high speed data switching and
transmission carrier.


* MCI wanted the benefits of "regulation" when it suited them, such as
forcing the Bell System to serve them, and the benefits of "free
market" when it suited them, such as serving only high profit
corridors "cream skimming", and leaving low profit or loss corridors
to AT&T. AT&T was ordered to charge uniform rates nationwide,
averaging high cost and low cost areas together. So AT&T would have
to maintain very high cost lines in the mountains, MCI didn't have
that burden.

** A visit to a US Steel office gave a similar impression, and they
found themselves in similar straits.


***** Moderator's Note *****

If I had to pick a single reason for WU's demise, it would be that
Western Union considered itself a "service" company which took in
pieces of paper at one locatoin and delivered pieces of paper at
another, with everything in between being a "closed system".

There was a point where they tried to turn themselves into a tele-
computing company, but for some reason they didn't make it. Probably
this would have required a big infusion of new capital and they
couldn't swing it, what with being government regulated on one hand
and an ancient corporation with a lot of corporate baggage on the other.

AT&T agressively promoted fax transmission as a competitor to WU: it
allowed WU's customers to copy pieces of paper from place to place
without paying a middleman. The rest is history.

There is a technology factor here, however. W.U. spent a lot of money on
FAX, but never was able to use it as much of a money maker. I remember in
1964 there was some company attempting to compete with W.U. by setting
up agents all over the country with fax machines and modems on the AT&T
network. The fax technology at the time was awful, used wet electrolytic
paper for recording and a clumsy method of scanning. Fax really took off
when the Japanese machines came along a few years later, and when you
no longer had to rent the modem from AT&T.

--

jhhaynes at earthlink dot net

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