The post at the Weather Bureau must have seemed ideal to Fessenden, given that the Bureau’s desire for transmission of weather reports coincided with his goal of providing a practical demonstration of the theoretical and practical flaws in Marconi’s work. Fessenden believed Marconi’s spark method of generating a signal was fundamentally misspecified and that the only way a clear signal could be transmitted and received was through the use of continuous waves. In this, he was to be proven correct. The continuous wave was to be a vital component in the future use of the radio for the transmission of sound. In contrast, the Morse code could only be carried by an intermittent signal. This is not to say that Fessenden foresaw this use. Like the other pioneers, his primary focus was on the replacement of the telegraph and the naval markets that were crying out for wireless information transmission. In order to pursue his hypothesis on continuous waves, Fessenden contacted GE to commission the equipment necessary to conduct practical tests. A generator capable of producing frequencies up to 100,000 cycles was requested. This had never before been achieved and was a monumental task. Despite this, GE agreed to attempt to produce such a prototype. This was eventually achieved, but the task took five arduous years of development.
In the meantime, Fessenden had begun to chafe under the regime at the Weather Bureau. In 1902, he left to strike out on his own, following a disagreement regarding the commercialisation of his work. The Weather Bureau Chief contended that Fessenden had refused to comply with an order preventing him from trying to form his own private wireless company while still employed by the Weather Bureau. Fessenden counter-claimed that the Bureau chief had tried to coerce him into assigning him a half share in his patents, and had threatened to switch to Marconi equipment if Fessenden refused.⁶² Whatever the truth, the upshot was that Fessenden left the Bureau and, assisted by his patent attorney, obtained private funding to incorporate the National Electric Signalling Company (NESCO). His attorney found two backers, Thomas Given and Hay Walker, who were willing to commit funds to support the venture in return for a 55% share in Fessenden’s patents. These two successful businessmen were presumably drawn to the venture by the prospect of rapid profits, fuelled by the optimism of buoyant equity markets. They had no real knowledge of the medium in which they were investing, nor did they provide any management input. Fessenden was left on his own to develop the business, with periodic interventions from his backers.
The ultimate failure of the venture probably stemmed from the lack of clear initial vision about its commercial purpose. Not surprisingly, given Fessenden’s background, the venture concentrated on technical aspects first and commercial ones second. There followed a series of attempts to sell equipment to the US Navy, to establish overland stations and to build stations for transmission over water. None of these was pursued to a successful conclusion. In 1904, GE offered NESCO a contract to build an overland station. Since Given and Hay had already spent over $100,000 (over $6m) with no return, the offer from a large and reputable company must have seemed like a gift from heaven. Fessenden sent back a quotation to GE that was immediately dismissed out of hand. The final price agreed was half what he originally demanded. The real danger in the final contract was not, however, the price, but a failure clause which required repayment if successful transmission was not achieved. The failure clause later came back to haunt NESCO and in June 1906 GE withdrew from the contract. By this time, Given and Hay had invested over $500,000 (over $30m) and still had no return to show for their money. They were becoming increasingly anxious. It was not simply the technical and financial problems that put a drain on resources. Fessenden was also in frequent litigation with one of his competitors, Lee de Forest, who had been infringing his patents. The partners in the venture decided to take a new tack. If they could make their company a potential threat to one of the big existing operators, that operator might react by buying out their business.
The target that they alighted upon was the Bell Company. The threat that NESCO was to present to Bell was in transatlantic communication. To this end, stations were set up at Brant Rock in Massachusetts and Machrihanish on the west coast of Scotland. This was both a technological and financial gamble, since at the time, despite all his efforts, Marconi had met with only limited success. On the financial side Fessenden’s backers were not surprisingly anxious about the prospects of getting their investment back, let alone a meaningful return.
The technical aspects of the operation depended not only upon the theoretical work of Fessenden and the construction of the two sites, but also upon the ability of GE to deliver a high-frequency 100,000-cycle alternator. Within GE, the task had been delegated to a Swedish engineer, Ernst Alexanderson. This was work at the cutting edge of the electrical power industry. It was later to prove a vital component for the radio industry generally and remained of critical importance to GE for many years. Alexanderson’s early models were what one would have expected: expensive, large and fragile. Nevertheless, they worked and therefore allowed Fessenden to continue his work on transmission between the two continents. For some months before the delivery of the alternator, he had shown he could transmit messages of variable quality across the Atlantic. The hope was that with this new equipment a consistent and reliable signal could be produced. Unfortunately, in early December 1906, the Machrihanish station was flattened by one of the fierce ocean storms that periodically sweep over the west coast of Scotland. The fragile finances of NESCO meant that the Scottish station could not be rebuilt, and attention therefore switched from transatlantic signalling to wireless telephony.
Fessenden had been experimenting with using the alternator to produce a continuous signal that could carry the human voice. This had been stimulated almost by accident in September when the Machrihanish station had picked up voice messages from the US station. The transmission had happened by accident but was confirmed as accurate. On Christmas Eve, a demonstration of its sound-carrying capabilities was arranged by Fessenden for members of the industry press and senior industry figures, including Elihu Thomson and Arthur Kennelly of GE and G. W. Pickard of AT&T’s laboratories. The following day another transmission was conducted. Christmas Day 1906 was arguably the date of the first radio broadcast. For the record, it contained a mixture of the eminent scientist singing, playing the violin and speech-making. Not surprisingly, this demonstration attracted substantial publicity and provided hope that the goal of selling the company to AT&T might be realised.
For Fessenden, at last the auguries seemed to have improved. Pickard’s report to AT&T headquarters was positive and emphasised both how commercial quality transmission could be achieved and the potential threats to the existing long-distance telephone system should this unfold. The threat to the long-distance telephone appeared the most potent, given the quality problems being encountered in transmissions over distances greater than 1,500 miles. The focus remained on one-to-one communication. The potential for broadcasting was still not recognised. AT&T had frequently purchased patents in the past, and so the purchase of NESCO would have fitted with the company’s established practice. AT&T followed up the feedback from Pickard with a report from one of the top engineers at Western Electric. The conclusion was the same, that it would make sense to acquire Fessenden’s work and merge it with AT&T’s interests. The suggestion was put by AT&T’s chief engineer to the company’s president.
Unfortunately for Fessenden, both these individuals fell victim to the financial crash of 1907. The new president of AT&T promptly introduced a programme of financial retrenchment. Having expanded rapidly to build up its operations, AT&T had a heavy debt burden, despite its strong cash flow and profit margins. As a consequence, it was dependent on bankers for fundraising. Because of the magnitude of the funds required, it had switched from Kidder to Morgan as its principal financier in the early 1900s. As part of the retrenchment, more than 10,000 employees were laid off. All non-essential research and expenditure was discarded. It was into this category that Fessenden’s work was placed
.
Although Fessenden continued to court AT&T, it was without success. Increasingly the telephone company came to believe that the technology was sufficiently far from commercial development to mean that by the time it might be a threat, the patents would have expired. It would then be possible to obtain the technology at negligible cost. Fessenden’s autocratic and arrogant manner also left something to be desired. One must speculate that AT&T’s Theodore Vail was angered by Fessenden’s offer to sell NESCO to AT&T in 1910, with the accompanying threat that unless it was purchased in a short space of time NESCO would be forced to compete with the giant. The threat would have carried little weight, given the reports from AT&T’s engineers on the current state of radio technology. In this they were correct, but only in the narrow sense of the threat that radio posed to wire-based telephones. They completely missed the possibility of radio as a broadcasting medium.
This proved the final throw of the dice for Fessenden. It was not long before the fragile relationship with his financial backers reached breaking point. The end of his involvement in the development of the radio came with an acrimonious split with NESCO and litigation that put the company into receivership for an extended period. In 1917, the International Radio Telegraph Company purchased the outstanding patents that represented the main assets of the company. In turn these were acquired by Westinghouse in 1920. The patent issue was important because each of the large industrial companies controlled some patents, but none had sufficient control to work without the others.
Lee de Forest
Lee de Forest was, like Fessenden, motivated by Marconi’s apparent early success – and by a desire to seize the mantle of ‘the father of the radio’ (awarded to the Irish-Italian by the public) for himself. De Forest had been inspired by Edison’s success. Furthermore, De Forest had received formal training in related fields at undergraduate level and through his doctoral studies. Throughout this period De Forest had clearly indicated his desire for public acclaim as one of his driving forces. Perhaps only a close second was the desire to capitalise financially from his scientific knowledge. On completing his PhD in 1899, De Forest unsuccessfully sought employment first with Nikola Tesla and then with Marconi. Failing to secure such employment, he concentrated on improving wireless reception. The work he completed on the coherer with a colleague at Western Electric (where he had gained employment at $8 a week) was incremental at best and bore a marked resemblance to that completed by Fessenden and others. This resemblance was later to stimulate litigation from Fessenden as De Forest continued his work with one of Fessenden’s ex-assistants. De Forest lost the suit and was eventually prevented from using the receiver.
De Forest left Western Electric to pursue his work and quickly ran through a series of positions before forming a small company with support from former Yale classmates, named the Wireless Telegraph Company of America. This company tried to use the 1901 America’s Cup yacht race as a publicity mechanism, in much the same way that Marconi had done two years earlier. Thus Marconi was commissioned to cover the race for the Associated Press and De Forest for its principal rival, the Publisher’s Press Association. Unfortunately, since neither Marconi nor De Forest had the capability to select distinct signals, the two sets of equipment interfered with each other.
If this was not bad enough, a third operator had entered the fray with the sole intent of disrupting the signals of the two companies. This third entrant was the American Wireless Telephone and Telegraph Company, an entity whose principal objective was to sell stock to the public.⁶³ This company had bought old wireless patents originally taken out by Professor Dolbear and used the excitement surrounding Marconi to raise $5m ($345m). The result of the competing broadcasters was a debacle that did little to reassure the industrial community of the prospects for the new medium. It did not dampen public enthusiasm, although Marconi felt compelled to return to Britain for a new public relations effort which would renew his leadership in the public eye. For De Forest, the most pressing need was to increase the capital in his company for both personal and professional reasons. The history of these radio companies becomes somewhat complicated as various shell companies were injected into other companies and then recapitalised. Some of the history is set out below, but it is sufficient to note here that American Wireless and the majority of its subsidiaries ended up being bought by the De Forest companies, which in turn eventually ended up within United Wireless.
Stock funding, De Forest style
The De Forest Wireless Telegraph Company had been formed in 1902 with a share capitalisation of roughly £3m ($200m). This sizeable sum was sufficient to fund initial operations, but the real expansion came with a partnership between De Forest and Abraham White. De Forest had been unable to raise further capital, despite the positive news-flow from Marconi’s transatlantic publicity. White understood that public fascination more than compensated for professional scepticism and later in 1902 changed the company’s name to the American De Forest Wireless Telegraph Company. Initially the capital was raised to $5m and in 1904 it was tripled to $15m (nearly $1bn today). From the very outset it appeared that the principals were well aware that the business would be sustained by the sale of shares rather than the generation of revenue.
It was vital, therefore, that the company stayed at the forefront of the public’s mind. This was to be achieved by specific demonstrations to the public rather than by fundamental, research-driven advances. A frequently quoted note from De Forest’s diaries sums up rather forcefully part of the purpose:
“Soon, we believe, the suckers will begin to bite. Fine fishing weather, now that the oil-fields have played out. ‘Wireless’ is the bait to use at present. May we stock our string before the wind veers and the sucker shoals are swept out to sea.”⁶⁴
In order to whet the appetite of these ‘suckers’, White ensured that demonstrations were made wherever potential investors could be found. Since New York was vital, a penthouse laboratory was built in Manhattan, and with stock sales expected in Georgia a station was built in Atlanta.
Perhaps the most inspired publicity stunt came by combining the wireless with the automobile in 1903, when a car carrying a wireless station was parked in Wall Street. The list of publicity-generating events goes on, but particular use was made of press releases. The technique was to issue a press release or pass information to the press and, when it was reported (typically without any attempt at authentication), the company would then incorporate it into its advertisements for the sale of stock. Such episodes included a claim that the company had absorbed American Marconi and another that it had been appointed official supplier to the US Navy.⁶⁵ If this was not powerful enough propaganda, reference to the success of the Bell Companies after initial disbelief was always available to help counter any scepticism.
Yet De Forest was not simply a manipulator. Although the genuine element of his research tended to come a distant second to the stock market operations, De Forest did build wireless systems. In the early years the majority of his work could at best be described as incremental and at worst as simply plagiarism. His approach was to investigate carefully whether there were any potential prior claims for patented work. If there were, he would copy and improve it. This was a path that inevitably led to litigation, but in the intervening period his company made large sales at low costs. In part, the large sales were stimulated by the fact that revenue was not the prime consideration for the company and as a consequence the prices that were charged could never lead to meaningful profits.
Using a combination of high press visibility and low-cost sales, De Forest was able to successfully paint a picture of his company as the market leader in America. In this he was assisted by the US Navy, which was perfectly willing to ignore patent infringement, and by the increasingly strident noises coming from Fessenden. De Forest was winning business from the Navy by underbidding NESCO by roughly 80%, which may explain why they were perfectly happy to ignore the patent infringement. Despite repeated ju
dgements in Fessenden’s favour, it was not until 1906 that De Forest was eventually prevented from selling more infringing equipment. Indeed, sufficiently serious was the case that in order to avoid a warrant for his arrest issued in New York in April 1906, he was forced to leave the country. He remained in Canada until his stock market partner, Abraham White, could raise a $5,000 bond, whereupon he returned to find himself forced out of the company that bore his name. Anticipating the difficulties that the company was to face, White had formed a new company, United Wireless Telegraph, into which the assets of the previous company had been injected. The American De Forest Wireless Company was therefore left effectively as a shell, but one which bore the liabilities of Fessenden’s litigation. De Forest recognised the dangers of holding stock in this company and handed back his shares to avoid personal liability from its creditors. His next step was to seek employment from Fessenden, an offer that was not surprisingly refused. Thus spurned, he formed the De Forest Radio Telephone Company and shortly afterwards the Radio Telephone Company.
So far as the United Wireless Company was concerned, it was effectively business as usual. Shares continued to be sold to the public and the company continued to grow its sales, albeit at an unprofitable rate subsidised by the cash raised from the repeated share sales. This mode of operation could only continue for so long as the public was willing to subscribe for shares without regard to the profitability of the company. Under investigation by the US government, and pressure from Marconi for patent infringement, it capitulated and sold itself to Marconi. Excerpts from a series of articles published in 1907 provide a fascinating insight into the practices of the time.
Engines That Move Markets (2nd Ed) Page 33