AT&T; Wins in Technology but Loses in Politics

What’s the most important and hopeful conclusion you can draw from the fact that France last week chose to award a major stake in its telephone market to the Swedish telecommunications firm L. M. Ericsson rather than give the job to American Telephone & Telegraph?

That, in significant measure, the congressional shouting and professorial lecturing about America’s fading technological edge and industrial competitiveness is not only tiresome, but inaccurate. AT&T; had the best technology and was winning the competition in France until the whole business got ground up in European politics and the American firm was left with the short end of the stick.

That’s frustrating, of course, but the lesson to take from the defeat is that in the important field of international telecommunications systems--a $13-billion global market that will surely be one of the fastest-growing industries of the next century--U.S. business can win on its technological and economic merits. Which means that in telecommunications, as opposed to older industries such as autos and steel, the United States doesn’t have to close its market to protect weak companies.

U.S. Has Strong Hand

It can work to open the markets of other countries, confident that if U.S. suppliers can get in there, they can sell.

And Washington has a strong hand to play because the vast, deregulated U.S. telephone business is the world’s biggest and most open market for telephone equipment. All the major foreign suppliers--Northern Telecom of Canada, Siemens of West Germany, NEC of Japan, Alcatel of France, Plessey of Britain and Ericsson of Sweden--compete for business here against AT&T;, GTE, United Telecommunications and scores of smaller firms. The best trade strategy of all, therefore, for world technological progress as well as the U.S. balance of payments, would be to tell the foreign firms that if their home markets don’t open up to U.S. competition they won’t be allowed to play here.

That’s easier said than done, of course. But perhaps a start was made in the French competition, which ended in a governmental shoving match. The story began more than two years ago, when France announced that it would open its state-owned telephone system to foreign suppliers. It did so out of enlightened self-interest. With telecommunications technology changing so rapidly, a country that restricts itself to dealing with its own nationals risks falling behind.

So the French government offered for sale a company called CGCT (Compagnie Generale des Constructions Telephoniques), which supplies 16% of the equipment purchased by the phone ministry--a piece of business worth $100 million at present. The winning bid was to be decided on technology, not money: which company could deliver the most advanced telephone switching system.

W. German Objections

AT&T;, in a joint venture with Philips of Holland, which it uses for business in Europe, entered a bid. So did Siemens of West Germany. And the competition proceeded routinely until last fall.

But then the West German government, prompted by Siemens, objected to France’s increasingly apparent decision to choose AT&T.; Keep it in Europe, said the Germans--going as high as Chancellor Helmut Kohl, who lobbied French Prime Minister Jacques Chirac.

Why did Germany--France’s largest trading partner--bring such pressure? Partly because AT&T; was winning and partly because market allocation by politics, as opposed to competition, is the way a lot of the world works. The Germans, for example, made much of the fact that the French company Alcatel got a slice of the German market last year when it acquired a German phone supplier. Therefore, argued Siemens, it should get a corresponding slice of the French market.

AT&T; saw politics queering its deal and was furious. It complained to Treasury Secretary James A. Baker III and to then-Federal Communications Commission Chairman Mark S. Fowler, who immediately launched an implicitly threatening inquiry into how much business Siemens and Alcatel were doing in the United States. Commerce Secretary Malcolm Baldrige told the Germans to back off.

But the French were anxious about being caught between the Germans and the Americans. So when Ericsson presented itself as a compromise candidate, the French government eagerly took the easy way out.

Both AT&T; and the U.S. government are howling about the decision--not so much because they think it can be reversed but to put other countries on notice. AT&T; already is gearing up for other battles--big jobs coming up in Spain and elsewhere in Europe, in Japan and China and elsewhere in Asia.

Is AT&T; likely to be any more successful in those markets?

Well, you never know. The Japanese long-distance company Kokusai Denshin Denwa, under pressure to admit foreign suppliers on a new transpacific cable, began serious discussions just the other day with a potential partner: American Telephone & Telegraph.