WESTERN UNION IS IN TROUBLE
by Captain Electron
A 143 year old company, used to being a monopoly, cannot adapt to a new era unregulated industry
Fifteen years or so ago, prior to the launch of the first Western Union domestic satellite, Western Union (WU) had a loyal and dedicated crew working diligently towards a common goal. I was hired at a west coast office for the firm at a time when 'torn tape? was a labor intensive method of getting a telegram (our principal source of revenue at the time) through our communication chain. For those who were never exposed to the system, reperforated tape (reperf) was quite a sight to see in operation. A typical major office had between 35 and 40 employees who had that special talent to read the 'baudot code' directly off of the tape, logging it 'from' and 'to' and then setting it back into a tape transmitter to await a 'pulse' saying it was time to send it on, relay fashion, to the next office in the line. During the Christmas rush period, the 50 by 90 foot rooms became an absolute madhouse; the 'roar' of those old reperf machines was almost beyond the threshold of (hearing) pain for the employees. Even those of us working in nearby rooms, not connected directly with the message origination and relay, were treated to sound levels that def led comparison. The original reperf machines were 'invented' back in 1947. We were a regulated monopoly, but the public knew we were dependable even if our system(s) were slow.
In 1970, WU completed an agreement to purchase something called 'TWX', a competitive, switched teletype service from AT&T. This was something of a milestone for WU; AT&T and WU had been a single company until 1912 when the federal government brought anti‑trust suits against the firm. One of the outcomes of the federal suit had been divestiture of the WU operations from AT&T. In spite of the divestiture, the two firms had maintained at least a close working relationship through the years and WU received from AT&T things such as preferential rates for local cable pairs running from our office (for example) to the customer office. At one point, the rates were 5O cents per cable mile per month, and this allowed us to install 'time clocks' at most of our customer locations. However, by 1970 the handwriting was clearly on the wall; the long anticipated decline in revenues from telegraphic business activities was at hand and the company faced the real prospect that it would be out of business in less than a decade. The 'telegram' was an antiquated form of communication and WU was wise enough to see this happening. Telex, or switched services, was the wave of the future; we hoped.
By April of 1971, the Western Union shops were handling the repair of the TWX/Telex machines nationwide although AT&T was continuing to carry the actual message traffic on the AT&T plants while WU upgraded its national circuits to allow us to do the same thing. Personally, I was being exposed to the inner workings of the telephone company by being a part of a team working closely with the telephone company during this transition period. With 'bringing home 'of the Telex services, the WU 'monopoly for this form of communications was once again reasonably complete and the firm expected and had a 10% growth in switched (Telex) revenues through the 70s, according to annual WU reports.
Over the years and decades, the driving force behind Western Union had always been the engineering department. The firm had been'first'at so many technical innovations that in spite of our outmoded basic telegraphic services of the late 60's, overall we looked like a very impressivefirm. Hand in hand, management was willing to expect and accept a seven year payback period for expenditures in engineering. In 1973, two events took place which, looking back, were significant milestones not only for WU but for communications in the U.S. overall.
1) Westar 1 was launched; not only was this the first privately owned and operated 'domestic' satellite, it put WU back in the 'telephone transmission business' which we had abandoned back in 1924.
(Editor's note: AT&T had the only real operating 'national telephone 'or voice grade network in the U.S. at the time. WU's circuits were seldom capable of voice grade transmissions although the network size and scope was sizeable. Building an entire national, voice‑grade network on the ground to allow voice grade circuits for customers was clearly out of the question. One satellite however, had the capability of providing an instant national voice grade network)
2) Robert Flannigan became the President of WU, succeeding Russ P. McFall. Flannigan was ostensibly hired because of his Harvard business and accounting background.
The new President wanted to make changes. WU was an'old boy network' type of company with a 'zero‑growth' union always overseeing the operation to keep the 'good old boys' in check The 'wires’ between offices buzzed with rumors and gossip that kept everyone working the same floor at the 'wire centers’ abreast of who was doing what and where. Corruption was on some rare
TO ALL WESTERN UNION EMPLOYEES,
THE PURPOSE OF THIS MAILGRAM MESSAGE IS TO LET YOU KNOW WHY
WESTERN UNION IS IMPLEMENTING THE PROGRAM WE HAVE JUST ANNOUNCED
TO REDUCE THE TELEGRAPH COMPANY'S WORK FORCE.
THE DETAILS RILL BE COMMUNICATED SEPARATELY, RUT, BRIEFLY, THERE
IS TO BE A VOLUNTARY RETIREMENT INCENTIVE PLAN, FOLLOWED BY A
LAYOFF AFFECTING ALL DEPARTMENTS -- BUT SEARING MOST SIGNIFICANTLY
UPON THE FIELD SERVICE DIVISION AND THE OPERATIONS DEPARTMENT,
WITH REGARD TO THE RETIREMENT INCENTIVE PLAN, LET NE EMPHASIZE
THAT THIS PROGRAM IS ENTIRELY VOLUNTARY. IF YOU ARE ELIGIBLE YOU
MUST MAKE YOUR OWN DECISION. NO ONE IS AUTHORIZED TO INFLUENCE
YOU IN ANY MAY,
THIS WORK FORCE REDUCTION IS OUR RESPONSE TO A LONG-TERM TECHNOLOGICAL
TREND, THE EFFECTS OF WHICH HAVE BEEN MADE WORSE BY SOME OF THE
TARIFFS FILED IN THE WAKE OF THE AT&T DIVESTITURE.
THE LONG-TERM TREND IS THE MOVEMENT AWAY FROM ELECTRO-MECHANICAL
EQUIPMENT, ESPECIALLY IN CUSTOMER TERMINALS.THE TARIFFS ARE THE
ONES FILED BY THE TELEPHONE COMPANIES WHICH RAISE THE COSTS OF
DEDICATED ACCESS LINES AND WHICH DON'T VARY WITH DISTANCE, THUS
CREATING A NEED FOR US TO REDESIGN OUR NETWORK,
THESE TARIFFS ARE SCHEDULED TO TAKE EFFECT IN NOVEMBER, MAKING IT
NECESSARY FOR US TO INITIATE NOW A PROGRAM TO REALIGN OUR COST
STRUCTURE TO HANDLE THE CHANGED TECHNICAL REQUIREMENTS WE'LL RE
FACED WITH BY THE END OF THIS YEAR,
WHILE THIS TREND AWAY FROM THE TECHNOLOGY OF THE PAST IS CAUSING
SOME PAINFUL ADJUSTMENTS, THERE IS ANOTHER SIDE TO THE PICTURE.
WESTERN UNION HAS LED OUR INDUSTRY IN SEIZING THE OPPORTUNITIES
THAT ARE ALSO BEING PRESENTED BY THIS CHANGE. SINCE MY MAILGRAM
MESSAGE LAST DECEMBER, EASYLINK HAS GROWN AT AN ACCELERATED RATE.
BOTH OUR DAILY TRAFFIC VOLUME AND THE NUMBER OF CUSTOMERS HAVE
MORE THAN DOUBLED. AND WE APE NOW PROVIDING MODERN ELECTRONIC
TELEX TERMINALS AND INTRODUCING A NEW SYSTEM OF TELEX ACCESS WHICH
HELPS OUR CUSTOMERS TO AVOID THE EXORBITANT COSTS THAT WILL RE
INCURRED FOR DEDICATED ACCESS LINES.
AND, OF COURSE, WE HAVE BEEN TAKING CONCERTED MARKETING ACTION
TO STRENGTHEN OUR POSITION ACROSS THE BOARD AS YOU ALREADY KNOW
FROM SEEING OUR EASYLINK AND CELLULAR RADIO ADS.
THESE AND OTHER ACTIONS WE ARE TAKING WILL POSITION WESTERN UNION
TO COMPETE EFFECTIVELY IN 1985 AND BEYOND. OF COURSE, WE CAN ONLY
DO THIS WITH THE HELP OF ALL OUR EMPLOYEES, AND, EVEN WHILE TAKING
THESE PAINFUL ACTIONS, I AM ASKING YOU FOR THAT ASSISTANCE.
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
WESTERN UNION 'Mailgram' sent to all employees July 14, 1984 advised of impending plan to cut work force. Text noted "This work force reduction is our response to a long‑term technological trend, the eff ects of which have been made worse by some of the tariffs filed in the wake of the AT&T divestiture". What It meant was that WU had been caught behind In the race to employ more and more modern telecommunications equipment and techniques, even though WU owned their own satellite system network.
occasions overt and the company's policies tried to keep it in line. I recall an installation foreman who was fired while those above him, responsible for his actions, were 'let off the hook' although the evidence suggested the foreman had paid off those above him with tires for their camper trucks and so on.
In 1974, Flannigan had introduced something called 'Product Line Management'. PLIVI was apparently intended to cure the'old boy network' syndromeand it introduced a new level of company'efficiency by making each manager‑person responsible for a single type of service offering. The concept was that various 'communication packages! offered by the company, to the public at large or to corporations requiring their own intra and inter corporate communication systems, would be operated as if they were 'stand alone' services. In effect, each different service offering was ‘competing’ in the marketplace with every other service offering, whether the competation was a WU service offering or not. This ‘vertical integration’ did more to set the company up for what was to come than any other single event in the decade. This put considerable strain on the still ‘horizontal’ support engineering, which was supposed to treat each offering and each service as if it was but a small segment in an otherwise complex system. The net result, quite quickly, was that cooperation between ‘product lines’ and departments virtually disappeared.
By 1976, what had been a closely operated company with tremendous feelings of 'kinship' between departments and employees had a new atmosphere. Employees, entire departments were no longer 'communicating'. That same year, an end to another 'era’; the court's 'Carterfone Decision’ forced AT&T to abolish something called facility contracts and in the process substitute something called 'OCC' or other common carrier tariffs.
Editor's Note: Western
Union pioneered the domestic space satellite system in the United States,
and with the limited exception of the government funded domestic systems
in Canada and Russia, in the world. The transition from a 'wireline'
message communications company to a'spaceline' international (common)
carrier has been difficult for the firm. Recently, in an effort to stave
off total financial collapse, WU has agreed to sell off con trol of its
three operating (and a forth waiting to be launched) domestic satellites in
a complex sell/ lease back arrangement with a group willing to gamble on
WU's future. Internally,
Western Union has experienced a devasting round of operating changes which
has left company morale at all time lows and union worker problems at all
time highs. Captain Electron works for Western Union, and is in a
position to assess the effects of both external and internal problems on
the firm for its near and long term surviability. The true identity of the
author of this report is not disclosed because of the certainty that he
would be dismissed from employment at Western Union if he was identified. (Author’s
note—I left WU ten days before this article appeared) The complete failure of Western.Union and the
'auction‑ blocking' of its remaining assets could cause significant
disruptions to satellite traffic now handled by the firm. Captain Electron,
along with many other WU 'observers' both internal and external to the firm
fear that the firm may be very close to that very scenario.
Western Union pioneered the domestic space satellite system in the United States, and with the limited exception of the government funded domestic systems in Canada and Russia, in the world. The transition from a 'wireline' message communications company to a'spaceline' international (common) carrier has been difficult for the firm. Recently, in an effort to stave off total financial collapse, WU has agreed to sell off con trol of its three operating (and a forth waiting to be launched) domestic satellites in a complex sell/ lease back arrangement with a group willing to gamble on WU's future.
Internally, Western Union has experienced a devasting round of operating changes which has left company morale at all time lows and union worker problems at all time highs. Captain Electron works for Western Union, and is in a position to assess the effects of both external and internal problems on the firm for its near and long term surviability. The true identity of the author of this report is not disclosed because of the certainty that he would be dismissed from employment at Western Union if he was identified. (Author’s note—I left WU ten days before this article appeared)
The complete failure of Western.Union and the 'auction‑ blocking' of its remaining assets could cause significant disruptions to satellite traffic now handled by the firm. Captain Electron, along with many other WU 'observers' both internal and external to the firm fear that the firm may be very close to that very scenario.
WU was AT&T's largest customer at the time, even larger than the U.S. Government. This allowed WU to enjoy many special rates. As an ‘OCC’ we became ‘one of the six’ which included ITT, RCA Americom, WUI, TRT and French Telecable. Today there are 27 such OCCs operating and this event has caused many significant changes and not a few hardships to the Western Union operation.
In 1978, the 'squeeze’ was plainly evident. Facility charges from the new OCC tariffs on the large plant being operated by AT&T for the AT&T divested (to WU) TWX system forced WU to begin a series of rate increases, WU was also forced to develop its own 'switching system' for the TWX service. We began by trying to force some older Univac 418 III computers which we had on hand from an older 'Infocom' service offering. WU developed a digital switch which we called 'DES' for Digital Exchange Switch. This was done at 4 major locations (NYK, ATL, CHGO and SFO) aswe could consolidate the analog TWX service at 'local distribution centers’ so that a cable would take the service that all important 'last mile' to the customer.
By 1980, the chickens had come home to roost. The money the company was Saving by reducing the facility charges was being spent just as fast, or faster, by the 'PLM' or product line management program. In particular, engineering was in a new state of disarray. Local, resident engineers who had spent years or decades developing certain expertise with specific systems were now either split into several different 'PLM' disciplines, or perhaps worse yet, assigned fulltime to a particular PLM program and then required to justify their time with that group when it was obvious they didn't need fulltime to keep a project operating properly. At this point something else was happening in marketing and sales growth; the 10 to 15% growth per year was slowing down. Additionally, 'Private line' innovation had stopped at the engineering level and Western Union was actually losing customers to other, perhaps more innovative technology.
Into this situation, the Westar satellite(s) should have come along like a shining knight to rescue the company. Unfortunately, there were major problems with the Westar voice connections, largely (it would turn out) due to the technical incompetence of a company which had spent more than 50 years transmitting data and no voice.
President Flannigan's response to this stagnation in revenue growth was to go on a corporate buying binge. The philosophy seemed to be "diversify' and "if the existing services cannot grow and make money, buy some complimentary services that can grow and make money". On the surface it was not a bad plan. The buying binge ballooned the corporate debt/equity ratio, in the wrong direction. Twenty four different companies were brought under the corporate WU logo inthat period. Unfortunately, not all of them were winnersand many had a difficult time integrating into the WU operations. WU was into real estate (usually safe if done wisely), cellular radio, manufacturing, stock quotation services as well as 'Airfone' (telephones on airplanes) and 'Metrofone' (discount long distance telephone service). Each company plus each product line within the original 'Telegraph Company' was guided by its own 'PLM' and all supposedly drew upon common resources which were becoming increasingly underfinanced and overtaxed.
By 1983, it was apparent there were numerous things which were not being reported accurately nor completely in the firm's internal "WU News7. An example. For years the Siemens Company (of West Germany) had been designing a switching 'machine' to take care of WU's complex data switching needs. Af first it was called 'Com plant' and they developed a prototype in the New York office which unfortunately did not satisfy the PLMs that it would handle their particular needs, nor justify additional funding. WU poured $150M and 12 years into this complex piece of equipment; and failed. In those 12 years the entire communications industry had passed by this particular type of switching system in favor of something newer and better called 'packet switching'. Packet switching sends data a line at a time, and is usually configured to verify each line before another line is sent.
Packet switching, as a design problem, was (also) given to Siemens and they developed a successful machine called the 'EDX' (electronic data exchange). They designed the 'EDX' system around a digital computer called the PDP‑11. Packet mode allowed a dial‑up connection to replace the last 'costly mile’? local cable pair plus handle speed and code conversion between any of the known (teletype) formats. This was extremely important since there were many 'standards' in use at various customer locations and for one (teletype) machine to be able to converse with any other (teletype) machine was a major problem. WU installed a central'node computer' at Bridgeton, Missouri and connected it to 22 different regional network concentration facilities. Each of these was capable of handling data speeds of 50 kilobauds or as slow as 50 baud. The Western Union PILM called this system 'Easylink'.
Meanwhile, the 'DES' engineering group headquartered in Mahwah, New Jerseywas beginning to see a 'threat' to their job& To protect themselves, the DES 'PLM' ordered a new type of service, also dial‑up based, to save those Telex facilities. Telex had been integrated into the DES program with the changeoverf rom the old style electromechanical switches over an 8 year period.
WESTERN UNION text to all employees, dated November 28,1984 warned that salaries would be cut by 10% and noted "We have extreme difficulty in meeting payroll expenses for the week ending December 14th. The company is now losing money at the rate of $7 million per month".
The new service was called 'Economy Telex' and the corporate identity of TWX was changed to 'Telex 2'. With the changeover and the newly developed system, the sales force for the service began 'gutting' the dedicated Telex customer base. These were the most loyal customers WU had at the time, having put up with years of corporate neglect and rate increase after rate increase because they liked what the service was and did for them. The'new plan' was to convert these firms over to the new 'economy telex' service.
Well, that was the straw that broke the WU corporate back. Profits slid when the Easylink PLM and the DES PLM both put into operation dial based switched systems which competed with one another. President Flannigan reacted to the head to head internal competition by offering ‘early‑out‑ bonuses’ as a tactic to persuade older, senior employees to get off the corporate payroll. Engineers with decades of broad experience with WU systems either left the company early or made themselves available to the competition. Remember, we were in the midst of a communications revolution at the time and new 'nationwide communication companies’ were springing up weekly. There was a high demand for engineers just at a time when WU was creating massive internal problems which made engineers unhappy.
With internal operations going from bad to worse, there came the now famous August 1984 meeting of the WU Board of Directors. There, Flannigan was offered a'golden parachute' opportunity he did not pass up. Corporate raider Roland T. Berner, who's Pratt and Witney Aircraft already held 14% of WU's traded stock, became the new President of Western Union.
UNITED TELEGRAPH WORKERS memo to all WU amployees dated December 5,1984 noted "The corporation's financial crisis is, by their own admission, not as a result of collective bargaining agreements but rather a result of mismanagement".
Everyone took a 10% wage cut in January of 1985. In the midst of this, new management for the primary trade union covering WU employees had negotiated'new promises'that we all hoped might get WU back on its feet. The company briefly opened its corporate books to a union consultant in that'negotiation period'. His $30,000 a month fee, to the union, apparently did help the Union to better'understand'the plight of the company. However, in retrospect as soon as the pay cut was approved by the union, the'spirit of cooperation' seemed to dissipate and things quickly returned to normal. Normal in that period was 'fear' on the part of the employees and'panid on the part of management.
The antagonism between the two sides reached afever pitch and in July of 1985, the union 'struck' Western Union. Primary issues included additional 'givebacks! the company was requesting plus new work rules pegged to cost of jobs. The strike lasted ten days and came to a stop when the union realized that 1 employee out of 5 was crossing the picket lines. Because of 'scabbing' the union was virtually guaranteed ~hat the strike would not work IrYsettling the strike on August 7, 1985, the union gave the company everything they wanted in their'10% giveback message' of the previous December.
Perhaps unrelated, perhaps not, there was at least one good move in the midst of all of thiscommotion. New president Berner elected to scrap the'PLM'program. This was the internal management program created by Flannigan which divided the company up into individual product‑by~ prod uct'f ief doms' with the product line manager responsible for the success (or failure) of his service offering. Currently, we have Western Union people talking internally to Western Union people, for the first time in perhaps a decade. That is not all bad.
There is now talk of retiring the (very) old Univac 418 computers an d folding the DES program into another existing program called WUTCONET. Airfone has quietly slipped out of sight, sold at a substantial loss from its original acquisition price. A similar fate awaited cellular radio projects plus the E.F. Johnson Company, which had been brought into the WU family as a manufacturing arm some years prior(*). The metrofone program had stopped on its own when only eight of the Northern Telecom DMS250 telephone switches were installed. WU has stopped offering Metrofone to new customers although it is still possible to buy it if you live in an'equal access area'. Metrofone is now renamed WU Long Distance Service (WULDS) and it is offered primarily to US Tel, Allnet and ITT which use it for their 'overflow/extra capacity’ needs during especially busy calling periods.
Western Union, never a true corporate giant in communications, made a bold move into the world of ultra‑modern telecommunications with the decision to build and launch the first domestic satellite system. Westar 1 (and 2) blazed a trail through the heavens which more than a dozen firms worldwide would follow in the ensuing two decades. Much of the planning for the Westar system envisioned premise to premise direct voice and high speed data interconnection.
SECOND UTW communication to WU member employees noted "(the Western Union) financial crisis surfacing after several banks cancelled a one hundred million dollar credit line (effective November 29,1984)".
Certainly at some point, as WU struggled to make a quantum leap from 1920's wireline technology to 1970's spaceage technology, there was the belief that the Westar system would position WU as 'the growth communications company for the balance of this century. Why this did not happen, and why the satellite system essentially failed Western Union will be the subject of a later report and analysis.
(* E.F. Johnson Company has been plagued with problems since aproximately 1974 when the FCC initiated new CB radio rules and the firm, already reeling from the impact of off‑shore CB product, found itself with millions of dollars in CB product Inventory and no purchasers. Johnson has been a minor supplier of VHF and UHF AM and FM twoway radio transceivers for nearly three decades, but suffered against the likes of Motorola, General Electric and RCA because they all had extensive field‑service dealers while Johnson was left to create a new field sales division without the benefit of adequately trained installation and maintenance personnel.)