Recent record losses have not weakened Northern Telecom Ltd’s drive for European expansion, although its investments are now more selective, the head of its European operations told Reuter in an interview at the company’s Maidenhead, Berkshire base. Going forward now in Europe we are much more selective, Ian Craig, president and chief executive of Northern Telecom Europe Ltd insisted: We were chasing just about every opportunity that was out there – all the opportunities were good. The reality is that in telecommunications today there are so many opportunities brought about by the opening up of markets – the liberalisation that is going on in Europe, the burgeoning market in China, developments in Australia, the drive for new technologies in the cable business, multimedia – there’s an enormous amount of opportunities we wanted to jump into. It was easy to delay the software to go after one more opportunity, he said. But perhaps we were stretching ourselves a little too thin, both in terms of our human resources and our financial resources, Craig reflected. There has been a deal of rumbling over the role of departed chief executive Paul Stern in all this: Stern had a background with the old Burroughs Corp, which acquired a reputation in the 1970s and early 1980s of addressing all its attention to the bottom line at the expense of building for the future, and as soon as Stern departed at the turn of the year, big cracks began to open in the Canadian company’s balance sheet. In July the company announced a second quarter loss of $1,030m after a $69m profit a year ago. The results were dragged down by $940m in charges to cover software changes, a large belated goodwill writedown on its 1991 acquisition of STC Plc from which it inherited and still holds 20% of ICL Plc – and restructuring costs that included the company moving to cut 5,200 jobs out of 60,000 worldwide. And in an indication of neglect of its knitting, it is having to invest some $150m in a crash programme to upgrade software to keep its telephone exchanges competitive. The provision for revamping of the software on the switches was essential to let the company respond more rapidly to the applications its customers were now seeking – It was time to modernise the factory, Craig said. The first release of the new software will go out shortly, with most of it done by the end of next year in a project involving some 1,200 staff. He admitted that the changes should probably have started a year or more ago but despite that, he insisted that the company was not lagging.
Ridiculous prices
As for Europe, European chief Ian Craig said the pressures on gross margins here are just as intense as in North America. In Britain alone there were price pressures due to the devaluation of the pound and the start-up of new service providers such as the Energis Ltd arm of National Grid Co Plc. This in many cases represents the last opportunity for some to enter this marketplace and consequently they are offering what frankly are ridiculous prices. But we’re used to these pressures. We’ve seen it in the US as well. Siemens AG and Alcatel NV still have no big public exchanges in the UK, while L M Ericsson Telefon AB, AT&T Co and Northern Telecom itself are keen to get their slippers under the bed of newcomers in what is about the most open telecommunications market in the world. Northern Telecom works with 25 partners in Europe and the Middle East, and major European alliances include the one with Matra SA’s Matra Communication SA subsidiary, which is active in Groupe Speciale Mobile digital cellular equipment. Craig sees a larger federation of partnerships in Europe in the future. I’d like to see that grow into a footprint in Germany and in Spain so that we have a pronounced footprint in Europe. I think also we are in a good position to be a principal player across North Africa and I would hope our Turkish business can blossom out to offer services to the southern states of Russia. The main thing is that the restructuring is now something we’ve got behind us and the co
mpany essentially is in good shape, Craig said. The $500m goodwill writedown for STC could have been done over years but due to the recession in Europe it was decided to take it now.
