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April 23, 1987

PARTNERSHIP WITH MATRA IN CGCT SECURES LONG-TERM FUTURE FOR ERICSSON

By CBR Staff Writer

L M Ericsson AB has taken a big step forward in the public telecommunications switching market by winning the bid with Matra for Compagnie Generale des Constructions Telephoniques, CGCT, French state-owned phone equipment company yesterday. Rivals in the bidding for CGCT insist that an agreement between Matra and Ericsson on the development of a digital pan-European narrowband switching system for cellular radio, signed only last week, was the sweetener that tipped the scales in Ericsson’s favour. The decision to award CGCT to Ericsson and Matra was announced by French minister of state, economy and finance and privatisation M Balladur in Paris yesterday morning. It gains a 16% share of the French public switching market, which observers say is by no means guaranteed given the creation of Alcatel NV and the fact that CGCT has been losing money for several years. But the real significance of the decision is that Ericsson’s link up with Matra gives it the financial resources it needs from a solid company to keep its successful AXE exchange on the right path for second generation sales. But the news is bad for companies such as Plessey in the UK, which must pool resources with other companies to ensure a continued position in public switching in the future: Ericsson looked the most attractive partner for Plessey in this domain.

Pan-European digital cellular

Ericsson is also now guaranteed a postion in the pan-European digital cellular radio market, which is growing faster than the public switching market at roughly 20% per year and will be big business in the future. Complying with CEPT’s decision in March that the standard for the pan-European system should be narrowband, Ericsson/Matra will develop, manufacture a narrowband system in France and Sweden for sale worldwide. Matra has a joint agreement with Nokia of Finland to develop cellular telephones. The French government’s decision concerning CGCT is politic, avoiding the threatened shutouts from the German and US public switching markets that both Siemens and AT&T/Philips, were using to bully their way in. AT&T is the big loser in the decision: it is possible that Siemens will be able to join the Ericsson-Matra party in the future, at least on the celluar side. Siemens signed an agreement with Ericsson in January 1987 to co-produce cellular telephones. The US government is upset by the French decision. It says it may take the issue to court claiming unfair jockeying in the final days of the bid; some observers now expect AT&T to turn its back on Europe, perhaps even disbanding the venture with Philips. CGE incidentally loses the promise of $200m of microwave equipment sales in the US that was included in the AT&T-Philips bid. CGCT is being sold at $82m and the Ericsson-Matra consortium must invest a further $26m in restructuring the company and $33m in adapting the AXE to French standards. Ericsson will get 20% and management control of the company, Matra 49.9% and the remaining 29.9% goes to a French holding group comprising Ericsson France with 19.9%, the Indosuez banking group with 45% and construction firm Bouygues with 35.1%. Matra, with substantial electronics and defence interests, has only recently emerged as a telecommunications player; it is 51%-owned by the French government, whose shares are likely to be sold to the public.

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