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In re the Western Union Telegraph Co., Concerning Speed of Telegram Service and Revised Tariff Schedules.

 

FEDERAL COMMUNICATIONS COMMISSION

 

12 F.C.C.2d 980

 

RELEASE-NUMBER: FCC 68-493

 

May 1, 1968

 


 

OPINION:

 

    [*980] Mr. RUSSELL W. McFALL, President, the Western Union Telegraph Co., 60 Hudson Street, New York, N.Y. 10013.

 

   DEAR MR. McFALL: This refers to our letter of June 16, 1967, to Western Union concerning the speed of message telegram service and to revised tariff schedules filed April 4, 1968, by the company proposing selective increases in rates for message telegram and other services effective May 5, 1968.

 

   In its letter of June 16, 1967, the Commission requested that Western Union take such measures as may be necessary to improve its domestic message telegram speed of service performance to the level represented by the company's own standards no later than December 31, 1967. Although an encouraging degree of progress appears to have been made, system-wide performance was still well below this goal by that date and has not subsequently shown significant improvement.

 

   The Commission is aware that Western Union has been making a positive effort, with some concrete results, to improve its service. We also recognize that some of the service improvement measures which have been instituted can reasonably be expected to require additional time for full effectuation. We, therefore, expect that Western Union will continue these programs in order to overcome the remaining deficiencies in your public message service as soon as possible. We further expect that service performance within your own standards be fully achieved and maintained at all of your offices no later than October 31, 1968. The bimonthly progress reports to the Commission should be continued.

 

   It is noted that Mr. Chamberlin's letter of February 9, 1968, states in part that: As you know, our efforts are consistently directed toward attaining a 90-percent of better service performance objective at each office. Recognizing, however, that there may be exceptional circumstances which preclude obtaining this objective in a particular method at a particular office during a particular month, we have endeavored to keep each office from falling below the 90-percent level in any method more than twice in any 6-month period. * * *

 

   You are reminded that the directive of June 16, 1967, states quite clearly that the Commission "will expect that performance within your own standards be fully achieved and maintained * * * at all of your office." [Emphasis supplied.] Failure to meet the service objectives for as much as one-third of the time should not be construed as meeting the requirement for full achievement.

 

    [*981] The frequency with which explanations such as "insufficient fore assigned," "excessive absenteeism," "heavy file," and "heavy peak periods" are given by you to account for performance below objectives on the monthly speed of service reports raises a serious question as to whether your staffing policies at certain offices are adequate to cope with normal traffic surges or to cover for more than a minimal amount of absenteeism. We recognize your difficulties in recruiting and holding sufficient operating force to fully meet your needs in certain tight labor market areas. However, substandard performance also occurs with frequency at cities in which you have not claimed a labor shortage. This suggests that your company may be using staffing policies which are in the interest of cost control but which are not realistically compatible with the requirements of the public message volume. We, therefore, expect that immediate attention will be given by you to increased staffing and other appropriate measures as are necessary to assure that performance within your own standards is fully achieved and maintained at all of your offices.

 

   With regard to the aforementioned selective rate increases the Commission has decided not to suspend or investigate them at this time. This action is not to be construed as approval by the Commission or a finding that the increases are justified or that they will be effective in producing increased revenues or earnings to the company. They remain subject to complaint by users as to the validity thereof. Deficiencies in quality and speed of public-message service now being furnished by your company are relevant to a determination as to the propriety of proposed increases in rates for such service. However, in view of the progress which Western Union has made in improving its service, the Commission is not disposed to suspend and investigate the selected increases.

 

   We wish to emphasize that any further proposed increases in rates for such services will be critically reviewed in light of your service performance. In this connection we note that, in your supporting material, your company is assuming that the present 6-percent surcharge on public message telegrams will continue in effect after October 31, 1968, when it is now scheduled to expire. However, it should be understood that any request to extend the effectiveness of such surcharge will also be examined carefully in the context of the quality and speed of service considerations referred to above.

 

   This letter was adopted by the Commission on May 1, 1968.

 

   Commissioner Johnson dissented and issued a statement, attached.

 

   BY DIRECTION OF THE COMMISSION, ROSEL H. HYDE, Chairman.

 


 

DISSENTBY: JOHNSON

 

DISSENT:

 

   DISSENTING STATEMENT OF COMMISSIONER NICHOLAS JOHNSON

 

   Western Union Public Telegraph Service and Rates

 

   The telegram service received by the American public, and the rates charged, are a function of Western Union proposals (and performance) and FCC acquiescence. Today, the FCC acquiesces, once again, to a further deterioration of quality of service and an accompanying [*982] increase in rates. Whatever may be the answer to the problems of Western Union, the only thing that has been so adequately tested as to be certain is that this approach only accelerates disaster. I dissent.

 

Deteriorating Service

 

   The usefulness of a publicly available telegraph service is as much a function of quality of service as of rates.

 

   The telegram is a written record, slower and cheaper (usually) than a phone call and faster (usually) and more expensive than a letter.

 

   There are many aspects of service: Conveniently located offices; 24-hour availability; a nationwide telephone number that can be called from anywhere without charge ("inward WATS"); friendly employees; the number of lost, garbled, or mis-delivered messages; and the speed of telephone answering.

 

   The principal measure of quality of service selected by the company, however, is "speed of service." This is measured by the length of time from receipt to delivery of a message (usually 1 to 2 hours for most classes of service). Note that the FCC does not establish standards which it thinks are necessary to serve the public interest; indeed, it does not even challenge the company's standards.

 

   The FCC receives statistics from the company on how it is coming in meeting the company-established standards in the 75 largest telegraph cities.

 

   The company originally proposed to meet its standards on 95 percent of all messages. This was subsequently lowered to 90 percent -- with FCC acquiescence. (Now it would like to lower the standard still further, so that an individual office would only have to meet this 90 percent standard 4 out of every 6 months!)

 

   It now reports, by months, the number of offices which do not meet this 90 percent goal, on its own standards of service, in three categories of delivery service ("telephone," "tie line," and "messenger").

 

   The reports are not encouraging. Taking the past 8 months for which records are available (August 1967 through March 1968), the average number of cities meeting the company goal is less during the 4-month period of December 1967 to March 1968 than it was in August through November of 1967. (By contrast, the last 6 months of 1967 had shown an improvement over the first half of the year.) It is still not uncommon for 20 to 30 percent of the reporting cities to fail to meet their goals for speed of service (goals which, it should be repeated, only require that the elapsed time maximums be met for 90 percent of the messages).

 

   In June 1967, the FCC ordered Western Union to improve its speed of service by December 1967. It did not set public interest standards. It merely asked Western Union to meet the company's own standards.

 

   This Western Union has clearly failed to do.

 

   What sanctions are to be imposed for this rather extraordinary failure? None. The Commission merely grants Western Union's request that it be given another 6 months to try to do better. It is my contention that such a relaxed course serves Western Union's interest no better than the public interest.

 

[*983] Rate Increase

 

   In the past 3 years Western Union has proposed, and the Commission has acceded to, 14 separate rate increases. Today, five more are proposed and accepted. During this time the volume of public message traffic has declined from 83 million telegrams a year to 78 million a year -- no doubt partly because of rising rates and deteriorating service.

 

   Western Union offers three general classes of service: "Public message, "which is telegraphed service to the public; "Telex," which is a switched public system of telegraph terminals; and "private wire," which is service using facilities dedicated to a particular user.

 

   In allowing Western Union to raise its public message rates once again the Commission:

 

   1. Ignores the vast amount of research and analysis that went into the telegraph investigation -- and rejects the April 29, 1966, recommendations it own Telephone and Telegraph Committee embodied in its telegraph report ("Report of the Telephone and Telegraph Committee of the FCC," Apr. 29, 1966);

 

   2. Continues to allow Western Union to impose a perhaps disproportionate share of costs of the modernization of Western Union facilities on the customers of the public message service -- despite the fact that the modernization schedule of Western Union results in the public message service being modernized last;

 

   3. Takes a static, overall rate-of-return approach to the regulation of a company which is an important contributor to the Nation's communications system (so long as "rate of return" is not excessive there is no regulation);

 

   4. Accepts Western Union's assertion that rises in prices will not result in customers choosing alternatives -- despite the overwhelming evidence to the contrary cited in the telegraph report;

 

   5. Declines to examine Western Union's investment practices, long-range growth plans, and future price expectations -- although since 1960: (a) Western Union's capital investment has been growing at twice the percentage rate of the Bell system; (b) large amounts of investment have been directed to services which by Western Union's calculation show low profit return; and (c) Western Union has declared its intention to become the "computer utility" of the United States;

 

   6. Neglects the possibility that Western Union's public message price rises, while providing some short-term revenue benefits, will ultimately result in the loss of unrecoverable customers; and

 

   7. Accepts the gross underutilization of Western Union's telegraph system, with the resulting high unit costs -- underutilization mainly brought about through unimaginative pricing by Western Union. This may be the course of least resistance. It is also the course of least responsibility.

 

   It is obvious that a wide variety of investment and pricing alternatives exist, within the constraint of an overall rate of return, and it is not necessarily the case that any one of those alternatives best serves the public interest. The Commission has here decided to not substitute [*984] its judgment for that of Western Union in making pricing decisions. Indeed, it is not even apparent that it wishes to review the company's judgment. It is my view that circumstances warrant a much closer examination and evaluation than the Commission now appears willing to give to the operations of Western Union.

 

   The telegraph report, issued by the Commission's Telephone and Telegraph Committee, offers some indication as to what the Commission should be examining before it decides to interpose no objection to this price rise.

 

   The report notes: "Thus, it appears that the continually increased price of the public message service was the single most important cause of the decline (in usage) that occurred in the major part of the postwar period." (92.)

 

   And the report recommends: "Should Western Union propose to increase rates during the interim period (of plant modernization), we suggest that the company be required to demonstrate that such increases will be more productive of increased revenues and earnings than a program of stabilized rates * * * or promotional rates. * * * In contrast to a policy of price increases, a strong argument can be made in favor of lower message prices during the interim period, as the basis for stimulating usage and increasing revenues, thus alleviating the cost pressures associated with the modernization program." (316.)

 

   The report warns: "If the telegraph company and the Commission are content to embrace conventional ratemaking, and fix rate levels merely by equating total revenue requirements with total expenses plus an allowable return, on the implicit assumption that the demand for the individual record services is 'price-inelastic,' then the stage is set for repetition of the past message telegraph experience (decline in usage, revenues, and earnings) on a much broader scale. By taking existing earnings levels for the message telegraph service as a justification for a further increase in rates, traffic will continue to divert, revenues will decline, earnings will worsen, and a round of price increases will be triggered." (313-314.)

 

   Of course, Western Union does not agree with this analysis of their proposed price increase. But in an era of rapidly declining costs of communication and rapidly changing technology, the Commission ought to carefully examine any price increases proposed by companies it regulates. The recommendations of the Telephone and Telegraph Committee made 2 years ago were the result of a long inquiry and were presumably carefully considered. They have been borne out by subsequent events -- including the very proposal now before us.

 

   It seems to me incumbent upon the Commission to follow the results of its own policy judgments until it believes new information and analysis warrant change. In this case, the Commission caves in to Western Union without explanation, and without an analysis to suggest that its prior conclusions were incorrect. Either the Commission should deny the rate increase here proposed, or require Western Union to make the specific factual showings regarding the effects of alternative pricing policies, and the basic investment and financial objectives which the company plans to pursue now and in the future.

 

    [*985] Conclusion

 

   One would think we had by now satisfactorily proved the hypothesis that increased prices and deteriorating service will produce decreased volume and revenues; and that if this is taken as evidence of need for further rate increases and expense cutting the spiral can be made self-perpetuating. It seems clear that this policy, today continued by Western Union and this Commission, can lead nowhere but to the ultimate demise of the public telegraph service.

 

   I do not discount the possibility that the telegram, like the passenger ship and the carrier pigeon, has outlived its economic usefulness. But, if that be the case, a firing squad might be more humane than long, lingering starvation. If this Commission believes that it is appropriate for Western Union to provide telegraph service at ever-increasing rates and of ever-decreasing quality (as its decisions, including this one, seem to indicate) perhaps it should accelerate the process and order Western Union out of the business as completely and promptly as possible.

 

   There are a number of alternatives. Public telegraph service might be acquired from Western Union by ATT, ITT, some other common carrier, or interested company. The service might be provided by the Post Office Department, as in other countries. New technology (such as long distance facsimile) may offer an equivalent service to replace the telegram. Perhaps flagging demand would warrant dropping the service entirely.

 

   But I have not yet reached this stage. I believe Western Union should operate the service. And I believe that the public interest, and the pride of American business, demands that it operate a service of ever-decreasing cost and ever-increasing quality. In an age of electronic miracles, in a Nation with the greatest managerial talent and techniques on earth, I will not accept the whining, unimaginative, unchallenged alibi that such is "impossible."

 


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