Peter Marshall <peterm@rwing.uucp> (05/15/91)
[Moderator's Note: We had part one on this last week. Mr. Marshall submitted this in two parts. Here is the concluding section. PAT] Further describing CO switch sales to the BOCs by NT, the CWA report indicates that "Total sales ... to the Bell System shot up from $108 million in 1981 to $1.4 billion by 1985, an annual compounded rate of 90%. In the four years leading up to divestiture, Northern captured 75% of all BOC switch orders and sold switches to all 22 BOCs. Fron that point on its sales to the Bell System are estimated to have exceeded $1 billion each year." Re: NT and US IXCs, this report states Northern Telecom has also benefitted from the other byproduct of divestiture: competition in ... long-distance. As MCI and US Sprint compete ... with AT&T, the other major producer of central office switches, NT has an edge on the switch orders from these two companies. Northern had provided 58 of MCI's 117 switches. The greater the penetration of MCI and Sprint in the long-distance market, the greater will be NT's penetration of specialized switches. Re: the PBX market, the CWA report says "Divestiture again provided the solution to ... penetration and survival in the highly competitive U.S. market. Beginning in 1986 it entered into contracts or joint ventures with all the BOCs to sell, install and maintain NT's PBX equipment in theire region. In most cases the BOCs bought out NT's installed customer base and the assets of its distribution network. The last agreement was reached with NYNEX in 1990." Concluding with a section on "Northern Telecom at a Crossroads," this source indicates that "Like all other manufacturers NT is preparing for equipment and software based on ... ISDN," and that "In 1987 NT began setting up trials of ISDN applications with several BOCs. Today it is conducting major tests with every BOC as well as with GTE, Contel and United Telecom." Yet these observations are qualified by the caveat that ... technological breakthroughs do not come cheaply. Just as revenues have jumped almost 400% over the last ten years, NT's research and development costs have grown ... almost ten times over the same period. During the last four years NT has had to invest an average 12% of ... total annual revenues in R&D, about 70% more than it did a decade ago. NT is counting on demand for ISDN services and for ... fiber transmission to recover its huge investment in R&D and keep in growing in the Canadian and U.S. markets. In 1989, it announced its next generation of switches and transmission products called FiberWorld, based on end-to-end fiber optics and ... SONET. Northern ... is also gambling that the telephone companies will invest in a major way in the new technology and soon. So far it seems to be on target. Finally, the plunge into the new technology is all premised on rosy projections of the demand for new services by telco customers.