893.74/230½

The Secretary of State to the Secretary of the Navy ( Denby )

Sir: I have the honor to enclose herewith a memorandum in which reference is made to negotiations being carried on between the Federal Telegraph Company and the Radio Corporation of America with regard to the concession in China now held by the Federal Telegraph Company and looking toward a contract between the two companies for common action in the development of trans-Pacific radio communications. Mr. Rogers, who prepared the memorandum, has been informally discussing the matter with officers of the Naval Communications Service. I shall be glad to learn your views regarding the various questions raised by the memorandum.

I have [etc.]

Charles E. Hughes
[Page 849]
[Enclosure]

The Technical Expert, American Delegation at the Conference on the Limitation of Armament ( Rogers ) to the Secretary of State 17

I have had several informal conversations with Mr. Schwerin, President of the Federal Telegraph Company, Mr. Young, chairman of the Board of the Radio Corporation, and Mr. Swope, president of the International General Electric Company, regarding trans-Pacific radio and the Federal Company’s concession in China.

For various reasons the Federal Company has thus far been unable to finance its Chinese concession and the necessary complementary stations needed in the United States.

During the recent Washington Conference the Radio Corporation favored the development of radio in China by a cooperative enterprise to be participated in by American, British, Japanese, and French private radio interests.

Officers of the Naval Communications Service and I opposed any such arrangement for several reasons but mainly in the belief that American private and public interests would be best served by keeping Chinese-American radio communication services free from foreign participation whether governmental or private.

The Federal Company appreciates the support given it by the State Department in China and its responsibilities under the existing concession; the Radio Corporation, which at present operates stations at San Francisco and Honolulu, indicates a willingness to meet the wishes of the government.

With a view to making possible the carrying out of the Federal concession, the establishment of American services between China and American territory, and the general development of radio communication in the Pacific area, the Federal Company and the Radio Corporation have been carrying on negotiations.

In substance, according to my understanding, the two companies propose to set up a new company to which the Federal Company will transfer its Chinese concession, its stations now engaged in ship-to-shore operation, and the exclusive right to use its patents and apparatus in the three Pacific coast states, Alaska, the American insular possessions in the Pacific, and in China and to which the Radio Corporation will transfer its present stations near San Francisco and Honolulu, its traffic agreement with Japan, and the exclusive right to use its patents and apparatus in the three Pacific states, Alaska, the American insular possessions in the Pacific, and in China. The Federal Company and the Radio Corporation are [Page 850] to have equal participation in the control of the proposed new company.

A formal agreement has not been drafted, the discussion thus far having been confined to a consideration of principles.

The companies understand that the State Department will not directly or indirectly pass upon the legality of any agreement they may reach and will not pass upon the commercial merits of the enterprise. The companies, however, desire to keep the Department informed of their plans and wish to work them out in such a manner that the Department will continue its diplomatic support and that harmonious relations will exist between the companies and all the interested departments.

The Navy, owning and operating a number of radio stations in the Pacific area, is directly interested in radio developments in the Pacific and is, I believe, desirous of reaching an understanding with American radio companies as to the respective fields of activity and as to the interchange of traffic.

Personally, taking all the circumstances into consideration, I favor the plan being developed by the companies provided certain points are covered and these, I believe, the companies recognize as reasonable.

These points are:—

(1)
There should be no understanding between the companies that will in any way hinder the Federal Company operating radio elsewhere or continuing the manufacture, development, and sale of its particular type of radio apparatus. The Navy has a large investment in this type of apparatus and naturally, in its own interest, in the interest of the merchant marine, and in the interest of the radio art, desires the continued development of all the various types of apparatus. An absorption of the Federal Company by the Radio Corporation would give the Radio Corporation and its associated companies a virtual monopoly in the manufacture of long distance transmitting apparatus.
(2)
That neither the Radio Corporation nor the Federal Company nor the proposed new company has or shall have any understanding with the Commercial Pacific Cable Company or any other cable company for the maintenance of rates or the limitation of services.
(3)
That neither the Radio Corporation nor the Federal Company nor the proposed new company has or will make any agreement with a foreign government or another radio company that will interfere with the determining of trans-Pacific rates of services upon an independent basis.
(4)
That the companies recognize the paramount importance to the United States of the development of adequate, low rate communication services between the United States and its Pacific possessions and between such possessions, and that contemporaneously with the organization of the proposed new company a traffic agreement be entered into between the Navy and the proposed new radio [Page 851] company. There is no immediate or even remote possibility of private enterprise meeting all the government needs for radio communication services in the Pacific, the sooner, therefore, an understanding is reached between the Navy and the American radio companies the better for all concerned.
(5)
My understanding is that Mr. Schwerin will be in charge of the proposed new Pacific radio company. The matter of particular concern to the government is that the proposed new company be sufficiently independent to be able to devote itself unhampered to the development of trans-Pacific communications.

Obviously in the case of a cable most, if not all, of the above points, would be covered by the terms of the landing license.

My recommendations are—

(1)
That a copy of this memorandum be sent to the Secretary of the Navy, with the request that the Navy make any observations it cares to.
(2)
That the Federal Telegraph Company and the Radio Corporation, should they formally ask the attitude of the Department, be advised:
(a)
That the Department declines to pass upon the legality of any agreement they may make or upon its commercial possibilities.
(b)
That the Department would view with favor the establishment of direct radio communication between China and the United States and between China and American territorial possessions in the Pacific free from possibility of foreign control or interference.
(c)
That the Department is most anxious that the Federal concession not be allowed to lapse but be promptly utilized.
(d)
That the Department hopes that trans-Pacific radio communications can be developed fully and unhampered by restrictive contracts with other radio enterprises or with cable companies.
(e)
That the Department hopes that the American commercial radio interests and the Navy can come to a satisfactory understanding regarding division of field and the interchange of traffic.
(f)
That the Department hopes in view of the Navy Department’s interest in the Federal type of apparatus that the Federal Company will independently continue the development, manufacture, and sale of such apparatus.
(g)
That, in the event of the companies making a set-up fair to American and Chinese interests, the Department will continue to give to the Federal Company and to the proposed new company all such proper support as may from time to time be warranted by the circumstances.
(h)
The Department hopes that the various private interests holding concessions in China affecting electrical communications can reach an understanding that will prevent controversies over such concessions, and the Department will use its good offices to help in bringing about such an understanding.

[Page 852]

Prompt decision is necessary in this matter. The French, Japanese, and British radio interests are urging the Radio Corporation to join them in an arrangement for the development of radio in China. The Radio Corporation, while indicating its willingness to work out an arrangement with the Federal Company and to proceed along lines acceptable to the government, has told the foreign companies that it will inform them of its position not later than March 27.

While the Federal Company and the Radio Corporation have sent no communication to the Department, Mr. Schwerin is here feeling out the situation. He inquired my personal views, and in response I have shown him this memorandum. If you indicate your general approval, he informs me that he will take up with the Navy Department the question of an understanding between that Department and the companies and will write you a letter outlining the attitude of the companies and that the attitude will accord with the views expressed in this memorandum.

W[alter] S. R[ogers]

  1. This paper bears the following annotation by the Chief of the Division of Far Eastern Affairs: “I concur. MacM[urray].”