Equipment

Logically, because the European PTTs have been sole caretakers of the network (except in Great Britain), they also constitute a monopsony for telecommunications equipment. Manufacturers of transmission equipment and switching equipment have historically been intimately linked, therefore, with their national PTTs.^[78] Even the markets for terminal equipment have been subject

[75] Patrick Cogez, "Telecommunications in West Germany," 46.

[76] Ibid., 49.

[77] CEC, Towards a Dynamic European Economy: Green Paper on the Development of the Common Market for Telecommunications Services and Equipment , 83.

[78] Transmission equipment is that which carries the signal between terminals and switches, and includes coaxial and fiber-optic cable, microwave radio, and satellites. Switching equipment makes the electronic connections between terminals and comprises exchanges in central offices. I will call the two together network equipment.

to PTT control.^[79] For instance, the United Kingdom's 1969 Post Office Act gave the British Post Office (BPO) the exclusive right to produce, install, and maintain network equipment. The BPO even had the power to specify which private automated branch exchanges (PABXs)^[80] and modems could be attached to the network, with a monopoly on installation and maintenance.^[81]

Similarly, according to the law chartering the Bundespost, terminal equipment was considered part of the network. Therefore, manufacturers could sell directly to customers only on authorization by the Bundespost. By the early 1980s the Bundespost still retained its monopoly on provision of the first telephone handset (the administration bought the handsets from private makers and resold them) and on all modems.^[82] In France the market for terminal equipment has been open in principle since 1920, though all equipment had to be approved for connection by the PTT. In practice, the customer-premises-equipment (CPE) market was quite open, with a few exceptions. Videotex terminals were supplied solely by the PTT. However, the PTT sold only small PABXs (twenty lines); for anything larger, customers could choose among private suppliers.^[83] Naturally, the requirement of PTT approval was used in each country to favor national manufacturers. It is also worth noting that in the European countries that did not have strong indigenous suppliers of telecoms equipment,^[84] the markets tended to be supplied by multinational corporations, notably ITT, Ericsson (Sweden), and Siemens.

Concerning network equipment, PTT control of the network provided the means to carry out industrial policies regarding the telecoms-manufacturing sector. As with semiconductors and computers state-arranged marriages of telecoms companies have not been unusual. For instance, the British Industrial Restructuring Council

[79] Terminal equipment is that "into which the original signal is introduced and from which a final signal can be received" and is generally placed on the customer's premises. Terminals include telephone handsets, telex and facsimile machines, and teletex terminals. From OECD, Telecommunications , 19.

[80] PABXs are the switchboards used in a large building or company to route calls to and from its many phones and terminals.

[81] Hills, Information Technology , 118–19.

[82] Cogez, "Telecommunications in West Germany," 52.

[83] Ibrahim Warde, "French Telecommunications," 99–100.

[84] Austria, Belgium, Denmark, Finland, Ireland, Norway, Spain. See Michael G. Borrus et al., Telecommunications Development in Comparative Perspective: Appendix , 41.

pressured GEC to take over AEI.^[85] Also, before the 1980s switching-equipment purchases by the BPO were allocated among members of the "ring" of suppliers. The original deal was struck in 1924 with five suppliers. By 1969 the number was down to three (GEC, Plessey, and STC, an ITT subsidiary), and their shares of orders were fixed at 40 percent, 40 percent, and 20 percent, respectively. In 1982 STC was dropped as a supplier of the digital System X exchange.^[86]

A similar process of concentration took place in France. In the mid-1970s three companies supplied the French switching market: CIT-Alcatel (a subsidiary of Compagnie Générale d'Electricité (CGE)), Compagnie Générale de Constructions Téléphoniques (CGCT) (a subsidiary of ITT), and Thomson Telecommunications (formed by the DGT by merging an Ericsson subsidiary with an ITT subsidiary).^[87] All three were nationalized by Mitterrand in 1982. The following year, the government merged the Thomson and CGE telecoms activities into one company, Alcatel, within the CGE group. The DGT opposed this move because it had been pursuing a competitive bidding policy with competition between CGE and Thomson. Alcatel at this point held about 80 percent of the French switch market. The champion grew further in 1986 with the purchase of ITT's European telecommunications businesses.^[88]

The German telecommunications-equipment industry has not passed through the concentration process visible in France and the United Kingdom; Siemens was already the national champion. Siemens took a 46 percent share of the domestic central-exchange market in 1978, compared with 30 percent for Standard Elektrik Lorenz (SEL) (an ITT subsidiary, later transferred to CGE), 14 percent for DeTeWe, and 10 percent for Telefonbau und Normalzeit.^[89] Siemens has traditionally worked closely with the Bundespost in developing equipment and setting standards.^[90]

As a consequence of PTT equipment-approval requirements and the intimate liaisons of the PTTs with national producers, European

[85] Rob van Tulder and Gerd Junne, European Multinationals in the Telecommunications Industry , 46.

[86] Ibid., 45–46.

[87] OECD, Telecommunications , 54–55; Jeffrey A. Hart, "The Politics of Global Competition in the Telecommunications Industry," 182.

[88] van Tulder and Junne, European Multinationals , 49–50; Hart, "The Politics of Global Competition," 182.

[89] Cogez, "Telecommunications in West Germany," 70.

[90] See, for example, Hart, "The Politics of Global Competition," 187.

telecoms-equipment markets have until recent years been essentially closed to nonnational producers. This restriction applied to non-European firms, like IBM and Northern Telecom (Canada), as well as to powerful European companies that have Europe-wide and worldwide operations, like Ericsson and Philips. For instance, the Bundespost invited Philips to compete in digital exchanges only in 1981. IBM got its first major break in Germany in 1984, when it won the contract to provide the Bundespost with equipment for its videotex system, Bildschirmtext , in competition with Siemens.^[91]

In France the major subsidiaries of foreign companies (belonging to Ericsson and ITT) were both nationalized by 1982, though CGCT (formerly of ITT) was later sold to Ericsson, giving the Swedish firm CGCT's 16 percent share of the French digital-exchange market.^[92]

Foreign-based telecoms gained access to the U.K. public switch market in the early 1980s but in only a limited way. British Telecom (BT) signed an agreement with Mitel for digital-exchange technology in 1981 and bought a single public exchange from IBM in 1982.^[93] BT also announced it would accept tenders for public exchanges from Northern Telecom, Thorn-Ericsson (joint venture), and Pye-TMC (a Philips-AT&T joint venture), with the intention of buying 10 to 20 percent of its digital exchanges from non-British suppliers.^[94] Foreign firms have made the most headway in PABXs. The BPO permitted Ericsson to start selling its PABX in 1969; by 1974 Ericsson had a 20 percent market share. IBM followed, gaining by 1983 a 16 percent market share in PABXs with over 100 lines.^[95] The key in PABXs was that Ericsson and IBM developed the digital technology in advance of U.K. firms. GEC markets PABXs under license with Northern Telecom, and Plessey under license with Rolm.^[96]

The upshot is that each European market for network equipment has traditionally been supplied by an oligopoly dominated by a single domestic maker working closely with the PTT. Import penetration ratios for telecommunications equipment in 1981 were low—2.0

[91] van Tulder and Junne, European Multinationals , 55.

[92] Robert Gallagher, "Suddenly, the Rules Change for Europe's Telecom Business," 114.

[93] Hills, Information Technology , 85.

[94] François Bar, "Telecommunications in the United Kingdom," 82.

[95] Ibid., 87.

[96] Hills, Information Technology , 85, 122.

2.0 percent in France, 4.1 percent in Germany, and 10.4 percent in Britain.^[97] In addition each PTT selected a different network standard, meaning that switches made for one national market must be converted at significant cost to be sold in another. Even the terminal-equipment markets were slanted in favor of domestic suppliers by PTT approval requirements.