British Telecom Industry News

How to Compete in a Fast-Moving Technology World

Technical challenges, the unexpected collapse of some markets and the emergence of an aggressive privatized British Telecom have hit Britain’s top electronics companies hard. Further drastic restructuring may now be necessary to meet the challenges of competing in a fast-moving and cutthroat world market. Graham Seargent reports.


Today’s expected profits announced from Thorn EMI is likely to put the lid on a disastrous week for the image of Britain’s big electronics companies in the City. On Monday, Mr. Peter Laister was summarily removed as chairman and chief executive of Thorn, suggesting that few of the group’s troubles will be swept under the carpet today. On Tuesday, Lord Weinstock’s GEC reported another lack-luster year by its own high standards. Although GEC’s Marconi business did well as a whole, along with the group’s cash mountain, there were losses on computers, setbacks on telecommunications and other more traditional electrical businesses, all contributing to the feeling that the City’s long love affair with the nation’s great electrical combine was cooling rapidly.

Twenty-four hours later STC, transformed into an information technology group since Sir Kenneth Corfield led it away from the close embrace to the American multinational ITT, rushed out a short statement confirming the worst rumors about technical and management problems and warning of an overall loss after retrenchment provisions in the first half of the year.

At the best of times, that package would have knocked hundreds of millions off the share prices of our top electronics companies. The background, however, was already far from buoyant. In the high street, the great boom in home computers came to an end last autumn as the market reached saturation point – at least for the moment.

Founder-managed companies such as Acorn and Sinclair, which had converted British homes to the magic keyboard more enthusiastically than those of any other country, found themselves carrying huge unsold stocks instead of riding on cash-flow to develop the next generation of machines, which now face an uncertain market.

Both had to be rescued, largely on the long-term hope of plugging Eastern Europe into the era of electronic education. The personal computer market as a whole is locked in a tide of competition at a time when the sales curve is not looking so healthy. And that does not help the component manufacturers, particularly the chip-makers, who are being forced beyond the limits of reliable production by the twin forces of competition and rapid technical advance.


At the opposite, professional end of the business, there has already been bad news recently from Plessey, which is making the costly transition to producing System X digital electronic telephone exchanges (after-tax profits down 18 per cent) and from Racal, where the chairman, Sir Ernest Harrison, warned of an impending setback after many years of spectacular profits growth.

The City has its own reasons for receiving these announcements of what may prove temporary problems with an hysterical lack of sympathy. Thorn EMI raised pounds 140 million of new share capital last summer, mainly to finance the purchase of a controlling stake in Inmos.

STC raised pounds 170 million through a rights issue only in February. The stockbrokers who persuaded their clients to stump up this money at prices far higher than today’s values have extremely red faces. The investment managers who bought shares for insurance companies, pension funds and unit trusts have large red items to ruin their portfolio performance. Both have a lot of explaining to do.

Much the same applies to racal which issued so many shares in its takeover bid for Chubb, the security firm in the perceived anticipation of ‘good improvement’ in profit.

To make matters worse, specialist City analysts, who are used to speaking with authority to clients and colleagues in the arcane parlance of electronics, sometimes made spectacularly mistaken and over-optimistic forecasts.

With honorable exceptions, much of the bad news has come as an unexpected shock rather than a confirmation of informed analysis.
Back in the real world, there are a number of common factors linking the problems of outwardly disparate companies.

In particular, groups striving to establish strong positions in exciting new markets, with all the short-term risks attending the development of products at the edge of manufacturing technology, have found that established businesses they might have relied on in the meantime have struck problems of their own – some, but not all, as a result of top management neglect.


Thorn EMI appears to have misread the television market and the US music business as well as encountering problems with Inmos. The Middle East boom in military electronics dried up as well as the oil price tumbled and Opec budgets were tightened.

That has made life harder for GEC and for Racal, which is necessarily making start-up losses on its Vodathone portable telephone project, although that appears to be meeting initial sales targets and could be highly profitable in a few year.

International oversupply of microprocessors and other electronic components has been exacerbated by market demands for ever higher technical performance. That hit STC at a moment when it is in the middle of an extraordinary transformation most notably via its takeover of ICL, from a telephone exchange cable and consumer electricals group into one that spans and exemplifies the convergence of telecommunication, video and data)processing businesses. That combination is widely thought essential to achieve a long-term world position in information technology.

STC has effectively given up continuing interest in the public telephone exchange business. Those who remain, such as Plessey and GEC, are finding that the costs of finally switching production to the new System X digital electronic exchange have been compounded by the new more competitive domestic market environment brought by the together, commercial and privatized British Telecom as buyer and competitor in lucrative ancillary businesses such as private exchange systems.

Plessey and GEC were unsurprisingly alarmed at BT’s proposed entry into private exchange manufacturing by taking over the ailing Mitel, based in Canada, but with some British production.

Attempts to diversify from constricted domestic markets by buying into the United States have also come up against a variety of technical, managerial and marketing problems.

Such problems inevitably raise a question over the structure of the heights of the British electronics industry. The ambitious strategies of STC and Racal (more questionably Thorn) clearly reflect a well thought out view of what is necessary to become a big player in international markets that offer tremendous growth potential for those who can stay the course.

Only the GEC, which has counted its coins and eschewed such visions, presently has the muscle to count on the world stage. The second division, with profits (until recently) between pounds 100 million and pounds 200 millions, are giants in domestic terms, but world midgets. They may face a choice between concentrating on smaller, specialized niches, such as Ferranti has developed of late (and which started Racal on its way) or merging into much larger units.

The Clark family at Plessey has for years hovered cannily between these two extremes.

British companies suffer a severe disadvantage compared with their American and Japanese rival because of their small and relatively open domestic market. For them, the EEC, which was intended to redress that imbalance, is no Common Market in most crucial product areas.

Lord Lucas of Chilworth, a junior trade and industry minister, caused some amazement in the House of Lords last month when he suggested that GEC and Plessey should consider merging to compete more effectively in world markets for telecommunications equipment. Yet the second league of British electronics companies now presents a remarkably similar picture to that successfully transformed when Lord Weinstock merged GEC, AEI and English Electric – with Whitehall encouragement.


Again today, British companies sometimes compete more fiercely with each other in world-scale markets than with their foreign rivals. At present, only GEC and British Telecom clearly have the financial strength to orchestrate a fresh re-organization, although the Clarks may still nurture the ambitions thwarted first time round. And BT has at least temporarily been warned off by the reference of its Mitel deal to the Monopolies Commission.

Dominating personalities militate against successful mergers, although Thorn and possibly STC stand out as likely junior partners, Lord Weinstock probably lacks the will or ambition to repeat his earlier role, which was so essential to the success of the three-way GEC merger. It seems unlikely, nonetheless, that the British electronics industry will look the same in 1990. It remains to be seen if it will build a new strength for Britain in some of the world’s most exciting and challenging world markets or the stock market’s recent fears will be fulfilled.

A New Generation of Intelligent Computers

The Alvey Program is spearheading Britain’s drive to develop a new generation of ‘intelligent’ computers. Jane Bird talks to its director and describes an example of the research it encourages.


Brian Oakley has been picking teams ever since his days as a physics undergraduate at Oxford when he directed engineers in student theatricals. It is the skill at casting that he reckons is his greatest asset as director of the Alvey Program, which is intended to keep Britain in the race to build the so-called ‘fifth generation’ of intelligent computers.

‘They could have chosen a director with more technical, expertise. But it’s picking the right people that counts – there are some really unbalanced individuals in artificial intelligence’, he says.

Despite his modesty, Oakley has impeccable credentials in the key fields that Alvey combines – scientific research, industry and government. It was set up over two years ago after a committee headed by John Alvey, BT’s development supreme, recommended that Britain should join the race.

Oakley acquired a taste for pushing research into commercial products while working on micro-waves and computer applications at the Ministry of Defense’s heavily-funded Royal Signals and Radar Establishment. Not surprisingly, civil applications received no encouragement there.

But Oakley pursued his mission to keep scientists and industrialists collaborating, when he became secretary of the Scientific and Engineering Research Council in 1978.

Now, of all his achievements with the Alvey Program – less than half way through its five-year span, and 85% through its pounds 200m budget – it is the newly forged links between industry and academe that he is most proud of.

‘That is our most obvious success, and to a large extent it is irreversible’, he says.

The links are controversial. ‘Some people think I’m stifling the seed corn of new ideas in academe by forcing researchers to concentrate on commercial products’, he admits.

But he argues that teaching gets very arid if not constantly refreshed with a breeze from the outside world. ‘Innovation involves technology, marketing, finance and psychology. It’s very exciting, but often teachers are too remote to put that across.’


Oakley is frank, even stubborn, and not shy of telling fellow committee members what he thinks.

At times he even seems to be deriving some mischievous fun from watching the opposition wriggle. Recently he responded to Japan’s repeated invitations to take a British high-tech delegation to Tokyo.

‘They wanted us to bring our academics, so I took the businessmen instead,’ he says, winking.

But Oakley is a great fan of Japan’s fifth generation computer project with its consensus on technological objectives. It was a compliment to him to be accused of copying the Japanese consensus approach.

If he could have his time again, Oakley would spend it cracking the complexities of how humans speak and understand language. He is fascinated by the challenges that elude us, despite our ability to build voracious number-crunching computers.

‘Speech recognition and language translation are tasks which we have always underestimated. In the early 1950s people thought all we had to do was load the rules of grammar and some vocabulary into a computer and out would come automatic translation.

‘It’s been a terrible disappointment – but the discovery of the extraordinary complexity of language has spurred on research into lots of technologies.’

Oakley is a hard taskmaster – short notice meetings have to be squeezed in over breakfast. Says a rueful colleague, ‘the trouble is that, in the nicest possible way, he expects all of us to be as dedicated.’

He has had some flak. The most widespread criticism is that he has starved small firms and individual British innovators by allocating 75% of the funding to the industry giants – GEC, STC, Plessey and Ferranti.

But Oakley argues that these are the companies with the staff and laboratories to accommodate research. So far he has approved 102 joint projects involving 60 firms, 40 universities and 15 polytechnics.

The Alvey directorate is a slimeline affair which Oakley keeps deliberately at minimum staffing on the basis that fewer people can keep in touch better with what each is doing.

Already 58, his leadership of a ‘son-of-Alvey’ program is unlikely.

But a successor who so skilfully combines the qualities of diplomat and shrewd high-tech missionary will be hard to find.

Researchers Criticize Britain’s Lack of Funding

Britain’s top independently owned research centers have joined in criticism of the UK’s poor financial commitment to research. The centers, which research for industrial clients, are worried because an increasing number of projects handled by the 45 centers is being paid for by overseas clients.


The centers are surprised that the British commitment to research is diminishing even though foreign companies and governments have confidence in British scientists.

The centers’ objections to this subtle brain drain are at first sight novel. In essence, however, they support the points that have been made to the Government in the last 18 months by the House of Lords, the National Economic Development Office and even the Government’s own industrial advisers. All such criticisms have fallen on deaf ears.

The new approach, in the form of a national campaign funded by a one-year budget of pounds 100,000 from the technology research centers, was launched last week at the Confederation of British Industry. The campaign, called Innovation for Industry, is, say organizers, ‘to utilize Britain’s research and development resources (R & D) in government, universities, industry, the City and in the independent R & D sector in partnership to help provide a solution to the country’s long-term economic problems’.

What those long-term problems could be is anyone’s guess but information technology trade deficit of more than pounds 2,000 million and rising, has given most British industrial advisers a scare. Britain’s skills shortages in computers, electronics and telecommunications is also increasing. If the skills of these independent centers are being tapped by foreign industrial competitors, the skills shortage is even worse than estimated.

Dr. Alan Rudge, the chairman of the new campaign said at its launch that if Britain neglected research and development, it would become an assembler of other nations’ technology, ‘a debtor nation, licensing second-hand technology from abroad’. Dr. Rudge added: ‘Already Britain has lost its lead in the machine-tool, shipbuilding, locomotive, domestic electrical, motorcycle, office-equipment and other industries including, more recently, high-tech ceramics’.


The 45 technology centers employ about 10,000 people and contribute pounds 200 million to the UK economy in pursuing their independent research.

Even academia, normally less responsive to the immediate needs of industrialists has not been slow in highlighting Britain’s deficiencies in research in comparison with many of its industrial competitors, the most notable being Japan and the United States.

The campaign launch coincided with a conference in Edinburgh at which 550 delegates were able to hear what progress had been made by the project teams involved in the Alvey advanced computer programs.

The Alvey project began two years ago after John Alvey, British Telecom’s technical director, advised the Government to approve such research. They have, not surprisingly, had financial problems.

These Alvey projects, the delegates to Edinburgh were to hear, were making progress in microchip design, software, man-machine interfaces and other complex computer problems.

Yet it came as a surprise even to an audience of academics and industrialists that the projects, the flagships of British high-risk research, were having funding troubles.

Two years ago the Government approved, at least in theory, the allocation of pounds 200 million to the pounds 350 million five-year research program. The rest would come from industry and the research teams would comprise the talent of academia and industry. Partnerships between the two groups would marry the best theoretical brains with those of the most experienced practitioners.

That was the theory. But some of the recent projects have not been given approval and have been delayed by cash-flow difficulties. Such an admission is staggering because speed is a primary part of this research equation.

The Pacific-basin scientists are researching at a frenzied pace to ensure that they lead. They want to be the first to produce a self-think computer system which can respond to human touch and speech and be able to give high-speed answers in graphics, text and speech. These scientists are committed – as are their industry and their governments – to ensuring that they do not rely on secondhand technology from abroad.

Britain must adopt the same stance now – or it will be too late.