No. Telecom bags bulk of Ameritech $1B order

Electronic News, Nov 18, 1991 by Andrew Collier

CHICAGO -- Ameritech awarded the bulk of a $1.05 billion switching contract to Northern Telecom, while Siemens Stromberg-Carlson came in second and AT&T ended up with just a small slice of the order. Both Northern and Siemens claimed the order as their largest ever in the U.S.

Northern Telecom will upgrade 4.5 million lines, in a contract which one industry source said was worth $600 million to $700 million, while Siemens will install 1.8 million lines. Although Ameritech didn't reveal the total number of lines involved, Northern Telecom said it was between 6 million and 7 million, which sources said would leave AT&T with an estimated 200,000 lines.

The five Ameritech Bell companies plan to install 276 digital switches and upgrade other existing switches to bring digital services to 80 percent of their 16.4 million customer lines by 1996.

The Ameritech contract is one of three that have been up for grabs over the past several months. AT&T last month was said to have been the major winner of the bulk of a contract to replace 300 switches at Bellsouth, which also approved Siemens Stromberg-Carlson as its third vendor behind AT&T and Northern.

Still to come is a large switch order to be placed shortly by Bell Atlantic. The Bell company will replace 100 to 130 of its 260 analog switches and will buy software and hardware for Signaling System 7, ISDN, and Advanced Intelligent Network services.

Following the Ameritech contract awards, analysts have been scratching their heads trying figure out why AT&T fared so poorly. AT&T referred questions to its Chicago office, where a representative wouldn't confirm the estimates of its share of the contract.

Generally, analysts said, the RBOCs have granted Northern Telecom and third party suppliers like Siemens and Ericson a greater chunk of the U.S. switch market, in part to reduce AT&T's position. "The RBOCs now want to have strong first and second tier suppliers, and a third tier with 10 or 15 percent of the market. That doesn't mean AT&T is out of the networks," said Steve Sazzegari, an analyst with Dataquest.

The price of the order, $175 per line compared with an average of $250, is very competitive, according to Mike Arellano, an analyst with Northern Business Information in New York. He said "$175 is low if there is a lot of software thrown in," he said.

In addition, technology may have played a role. One Ameritech executive reportedly told analysts the Bell company would have granted AT&T a larger share if the contract had called for more features and a heavier emphasis on data transmission. Northern relies on a centralized processor in its switch architecture that could become bogged down if too many features are added. AT&T, on the other hand, delegates features to application processors separate from the main CPU, which provide plenty of room for expansion. Ameritech thus apparently felt that the contract didn't justify the cost of the AT&T architecture.

ISDN did play a role in the choice of vendors, but it's not clear how feature-rich the ISDN switches will be. Ameritech said the new digital and upgraded switches will provide both digital Centrex and ISDN services. Anton Hasholzner, president and chief executive officer of Siemens Stromberg-Carlson, said the ISDN capabilities of the company's EWSD switch were a key factor in Siemens' obtaining its share of the bid. "Siemens, is one of the pioneers in ISDN development," he said.

An executive with one of the winning vendors who asked for anonymity believes Ameritech is reluctant to give AT&T a substantial order because the gradual deregulation of the industry will eventually allow AT&T to compete with the RBOCs. For example, the FCC has asked for comment on a proposal to allow common carriers to provide access to long distance services from within the local access and transport area (LATA), something AT&T is now prevented from doing.