BUSINESS

A German standoff

JOHN DeMONT July 18 1988
BUSINESS

A German standoff

JOHN DeMONT July 18 1988

A German standoff

BUSINESS

It is a battle of electronics giants: Canadian multinational Northern Telecom Ltd. against mighty Siemens AG of West Germany. To the victor goes an immediate $200-million contract to supply advanced telecommunications switches to the Bundespost, the West German communications authority. Winning the Bundespost contract will ultimately be worth nearly $1 billion. Private and state telephone companies in Australia, South Africa and Italy are ready to install their own so-called packet-switching networks. And they are waiting to do business with whichever company meets the Bundespost’s exacting standards. In fact, some analysts say that whoever wins the German contract will have a major edge in the huge global packetswitching market, which is expected to grow by 40 per cent annually.

Toronto-based Northern Telecom already controls 24.5 per cent of the world’s market for packet switches, a technological innovation that dramatically increases the capability of existing telephone lines to carry communications signals. And Northern

Telecom caught the German company olf guard in 1980 when it won the right to supply the Bundespost with the first phase of its switching network. Now, Northern Telecom is ready to begin the second phase. But Siemens is ready as well. It is a fa-

vorite of the West German government and is also the state-owned Bundespost’s traditional supplier.

That situation presents political difficulties for the Bundespost, which must choose a supplier quickly if it wants to improve Germany’s alreadycrowded communication system. The issue is also complicated by the fact that Siemens has already invested $33 million to modernize its facilities in Bad Hersfeld to ensure prompt de-

livery of its switching system to the Bundespost. Bad Hersfeld is in the electoral district of Hessen, which is represented in the West German parliament by Bundespost minister Christian Schwarz-Schilling. At the same time, the Bundespost is also under pressure to send a clear signal that West Germany’s technology markets are open to outside competition. Said John McFarlane, Northern Telecom’s marketing manager for Germany: “The Bundespost makes fair decisions, and I expect it to make a fair and economical decision this time.”

Northern Telecom officials say they are confident that their firm can more than meet the Bundespost’s demands with the DPN-100, a newly developed packet switch. Even so, Canada’s communications minister, Flora MacDonald, has met with her West German counterpart, Schwarz-Schilling, twice since last October and she has raised concerns about the Bundespost’s procurement policies. Northern Telecom may need that sort of help from Ottawa to counteract the political pressures it faces in West Germany and to take the billion-dollar prize.

PEGGY TRAUTMAN

-JOHN DeMONT with PEGGY TRAUTMAN in

As Canada's Northern Telecom battles for a lucrative German contract, local political interests could kill the deal