A HISTORY OF ERICSSON IN THE UK
This article, by Peter Young, appeared in issue 37 (2000) of Telecomms Heritage, the journal of the Telecomms Heritage Group.
For the company centenary in the UK in 1998, Ericsson Ltd commissioned THG member Peter Young to research and write its history. Unfortunately the book was never published but we are privileged to be able to print chapter two. This extract is published by permission of the company and covers the early years of the company in Great Britain.
In Britain, as in Sweden, telephone service at the end of the nineteenth century was provided by private companies and a state-owned authority, the latter being less energetic in promoting the new instrument because of the threat to its telegraph revenues. By 1889 most of the private operating companies had merged into the National Telephone Company, the best British customer for Ericsson, which also sold to the General Post Office. The agent who brought in the business was the Glasgow-based Charles Bell, who sold mainly in Britain and Russia and accounted for 7 per cent of Ericssons orders in 1888 and 12 per cent in 1889.
During the 1890s, when there was greater competition in Sweden, Britain became by far the largest export market, the business being entirely in telephones and their parts. In 1897 Britain represented 28 per cent of all L.M. Ericsson (LME) sales and in 1900 50 per cent. There were additional sales to Egypt, under British protection since 1882, and to Empire countries South Africa. Australia and New Zealand, totalling a further 9 per cent.
As a place in which to expand telecommunications interests Britain had much in its favour. It was politically stable and more than one territory. Queen Victoria, who in 1897 celebrated 60 glorious years on the throne, ruled over the largest empire the world had ever known, covering about one-quarter of the worlds land surface and population. Imperialism meant business. In London the High Commissioners for the Dominions and the Crown Agents for the Colonies were customers.
In Britain itself, emerging from the worldwide Great Depression of 1873-96, during which its economy had stagnated into relative decline, the era of free trade under which the nation had prospered for much of the nineteenth century was giving way to a new mood of protectionism. Through tariffs on imports, home industries would have to be protected against foreign, especially German, competition. For overseas companies with an edge in new communications technology the country still offered good prospects. In 1895, for instance, whereas Stockholm, the worlds leading telephone city, had 41 telephones per thousand inhabitants London had only two. As public attitudes changed telephone density would increase. By 1896 the Post Office had substantially completed the national trunk network so there were opportunities for connecting more subscribers. Competitors were alive to the prospects. On 1 January 1898 the chief competitor of LME, Western Electric, the manufacturing arm of Bell, which had hitherto supplied the UK market from Chicago and Antwerp, acquired a cable plant at North Woolwich on the Thames, which it would modernise and expand.
Having severed its connection with the agent Charles Bell, in 1898 LME opened its own sales office in Byron House, Fleet Street, London, managed for the first six months by 27 year old Erik Sandberg, who was later to head the St Petersburg factory. He secured from the National Telephone Company an order for 100,000 telephone sets. Sandberg was succeeded by Peder Hammarskjold, a graduate engineer, in January 1899.
That year local authorities were authorised to establish telephone exchanges, adding to the demand for telephones. As in Russia, local manufacture seemed justified. As a preliminary step Ragnar Edling, who had been assistant to the head of technical production in St Petersburg while the factory there was being built, was despatched to London in the autumn of 1902 to investigate and report. Land had already been acquired at Broad Lane, Tottenham, North London, but the stout wooden fence kept disappearing. More seriously, there was little room for expansion.
Early in 1903 an opportunity arose through the companys largest customer, the National, to which Ericsson was already close, having moved its sales office in London to Temple Chambers, just across Temple Avenue from Nationals head office. That company was sensitive to criticism about its volume of imports and also knew its days as an organisation were numbered. The operating licences granted by the Post Office to private companies in 1881 were to run for a maximum period of 31years, ending on 31 December 1911. Henceforward the Post Office would operate the national system.
To hive off its manufacturing, the National offered premises at Beeston near Nottingham in the East Midlands, a former small Humber and Goddard factory making cycles and lace machinery, as the basis for a new plant to be jointly owned with LME. In 190 the two companies agreed to form a new company, the British L.M. Ericsson Manufacturing Co Ltd, having no connection whatever with any firms trading under a somewhat similar name. Two directors were to come from each company and the share capital of £100,000 was equally owned. The intention was that key positions would alternate between Stockholm and the National, but this did not happen. Peder Hammarskjold, the uncle of Dag Hammarskjold, secretary-general of the United Nations 1953-61, became managing director until his death from typhoid fever in 1909, while G.H.Robertson from the National was chairman until 1912.
Initially only £60.000 share capital was paid up, with the balance being paid in 1906, when the two companies agreed that, with the Post Office take over in 1912, LME should acquire at par the other half of the share capital. Moreover, in the interim the two shareholders would receive only the real net profit after allowing for the depreciation of assets, which was a good deal in the long term for the stronger shareholder.
LME was also able to get its way on another matter of principle, the field of operations. National wanted them to cover the British Empire, including Egypt, a global field open to any British company. LME argued that it had already developed markets in some areas, notably Australia, New Zealand, South Africa and Egypt, and insisted on its right to continue doing so. The upshot was that the British company agreed to limit its operations to Great Britain and Ireland and a number of the British Colonies and Dependencies in which LME did not already have a significant potential market.
When British LME took on the Beeston factory in May 1903 it had 130 employees in some 8,000 square metres. Samples of hand microphones, wooden telephones and bell sets were supplied by Stockholm, stripped down and copied, the assemblers being well provided with files and hammers to encourage the parts to fit. The factory made a small profit in its first year and extra hands were taken on. In December 1903 it was damaged by fire, enabling the new management to expand on the extensive freehold land and modernise with the addition of a power station and the use of production methods and models brought directly from Stockholm by Alfred Larsson. In May 1906 work began on a new joinery shop, for which the £40,000 balance of the authorised share capital was paid up in November, the interim credit being met by a loan from Stockholms Handelsbank against the security of existing buildings and shares. The joinery shop was completed in the spring of 1907, greatly reducing imports of switchboards and telephones; not until 1909 did LME introduce a telephone set with an entirely metal casing.
Imports from the parent company had been running at 60-70 per cent of the volume of local turnover and by 1910 orders on Stockholm accounted for less than 10 per cent of sales. Unfortunately, the expansion at Beeston coincided with a downturn in sales, which reached its lowest point in 1908, largely because the National had little incentive to invest. Under the 1905 agreement with the Post Office it could look forward only to its plant and business being taken over at the end of 1911, with no payment being made for goodwill or profits. British LME was therefore relying more on orders from the Post Office, which would become its largest customer. In 1911, in accordance with the agreement, LME redeemed Nationals half shareholding of £50,000 and, to match the growth of the business, share capital was doubled to £200,000 with the issue of £100,000 worth of preference shares. Some of these were sold to the British general public, as were £32,000 worth of ordinary shares, but the parent company held more than half the total share capital of British LMF. Further working capital was arranged in 1912 with a loan of £50,000 from Stockholms Handelsbank against security from the parent company.
The British company was reorganised in 1912, the principal changes being that A. Rogers-Jenkins, LMEs representative in South Africa, became a director and W.M.Crowe, who had worked in the London sales office from its opening in 1898 and had been appointed managing director in 1909, became chairman. He continued to hold both senior positions until retiring at the age of 75 in 1931. Overall, it was a period of prosperity.
For the Edwardian period, working conditions were good. The average adult wage in the plant was the equivalent of £1.60 when the official subsistence level for a family of five was £1.10 a week. In air-conditioned electrically-lit shops automatic machines driven by belts from electrically powered shafting turned out piece-parts and wound coils. In 1908 a canteen had been built for serving meals to about half of the 550 workers who did not live in the surrounding streets. The canteen manageress also oiled all the noisy overhead shafting. In 1911 a subsidiary company, Auriphone Limited, was established to make hearing aids, the granules in the microphone consisting of birdseed coated with carbon. Another specialist product was parts for the telewriter, a facsimile device. For Scotts second (1910) Antarctic expedition, Beeston-made handsets had mouthpiece and receiver caps that would not embrittle and crack or remove the users skin at subzero temperatures. By 1913, when it was decided to start renting, installing and maintaining switchboards instead of just handing them over to sub-contractors, 900 people were employed. The joiners shop was producing silence cabinets (kiosks) for the Post Office, office furniture and gramophone cabinets. Switchboards were in solid mahogany, highly polished.
Up to 1909 profits had been fairly steady at about £6,000 a year on working capital of £100,000. In 1910 they increased to £17,000 and in 1911 to £26,000. During the Great War the up-to-date precision machine shops produced armaments and different types of communications equipment: portable telephones and switchboards for field use, buzzer units, cavalry sets, Fullerphone scramblers, submarine detection equipment, and most of the microphones used in radio communications by aircraft and spotter-balloons. There was a change too in employment, with many women taking the place of men. Their lower wages added to profits.
Return to peace meant a reduction in the working week, from 51 to 47 hours, and looking for new work: car magnetos, starter/dynamos, radio cabinets, a range of crystal and valve wireless sets, headphones and loudspeakers. The company became a minor founder member of the British Broadcasting Company of 1922. Auriphone hearing aids never found a large enough market and production ceased. The successful product was mining telephone equipment, flameproof and intrinsically safe. Annual profits averaged a little over £40,000 1919-23, but allowing for inflation their value was less than the 1911 figure from a factory half as big again and with twice the share capital. The Ericsson Review, a monthly house magazine launched in 1919, ran for about three years but was axed for economy.
In 1918 the new Bolshevik government in Russia had nationalised the large St Petersburg and, Moscow plants without compensation, and by 1922 the Beeston plant was the largest manufacturing unit in the Ericsson Group, employing some 2,000 people. Its business extended to Great Britain, Ireland, certain parts of the British colonies and trust territories, the most important being the Union of South Africa. Overseas business was again important because the Empire would be following Post Office practice at a time when it was making a crucial decision on the preferred type of automatic exchange system that would become the standard for decades to come.
Most Post Office exchanges were manual, many of them obsolete or inadequate. The few automatic exchanges were experimental, on trial at various dates since the 1912 take-over of the National. With the telephone network starting to grow again, a decision on an automatic system was urgent. Although the capital cost was higher than for a manual system, the space and operating, especially labour, costs were lower. Indeed, it was possible that gaining too many subscribers on a manual system could bankrupt it. The longer a decision was postponed the worse the situation would become, especially in London.
Two American automatie systems were the contenders: step-by-step developed by the Automatic Electric Company; and rotary from Western Electric. At first rotary was favoured technically but Western Electric made a fatal political error in proposing to manufacture in its Antwerp factory, which had been occupied for all but a few weeks of the 1914-18 war by the enemy. At a time of rising unemployment there was strong feeling too that as a government department the Post Office should be creating jobs and not handing them to the isolationist US, which had tumed its back politically on Europe but was ready to profit economically, as it had done during the war.
A technical development of step-by-step, the addition of a director, gave practically the same numbering and trunking flexibility as the panel system. Moreover, step-by-step was simpler, cheaper and familiar to Post Office engineering staff. Prior to the adoption of the director system, it had been ascertained that arrangements could be made for spreading the work among the regular exchange contractors of the Post Office at an early date. The important question of supply was thus greatly eased, as existing British factories became at once available for production purposes. The necessity for placing even the initial orders abroad was avoided, and the Post Office was able to enlist the co-operation of the skilled engineering staffs of all the contractors who had been producers of step-by-step equipment.
One standard system used nationally was to the advantage of the Post Office and the British-based manufacturers, initially four: Automatic Telephone, General Electric, Siemens Brothers, and Western Electric, the US parent of which held overseas marketing rights in step-by-step. The parties signed a formal five-year agreement in 1923. British LME was thus excluded from steady business with the countrys major customer at an assured profit margin. True it was established as a major local manufacturer but from 1923 its parent, a late contender in the automatic exchange market, was committed to a system based on a mechanically operated 500-switch developed in co-operation with its own national administration Telegrafverket.
Fully aware of the impact it would have on its business, British LME made strenuous efforts to be included in the agreement. Demonstrating its commitment to the British economy, with other companies in the industry, it was a founder member in 1924 of the Telephone Development Association, a pressure group encouraging through various media use of the telephone as an everyday necessity. So important was it to the company that the first representative was W.M.Crowe, the chairman and managing director. For the company, after the end of the post-war boom, it was a piece of Keynesian economics. Greater use of the telephone should lead to public investment in the service, providing employment in and beyond the telephone industry. From 1928 the works manager A.F.Wood, who was the son-in-law of the companys first chairman, G.H.Robertson, served on the council of the Association, being joined in 1936 by T.Kirkham. the managing director.
Yo add conviction to its politicking and raise money to invest in the necessary manufacturing equipment, in 1925 the share capital of the company was increased from £200.000 to £500, 000, its parent still holding the majority. In 1926, the year that Lars Magnus Ericsson died at 81, the company changed its name to Ericsson Telephones Ltd and in the following year signed the new five-year agreement, under which from 1928 each manufacturer would have a 20 per cent share of Post Office exchange orders. Thirty years after opening its small sales office in London Ericsson joined the British telecommunications establishment as an equal partner.
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