A BRIEF HISTORY OF L M ERICSSONS


By Bob Estreich

Lars Magnus Ericsson began his association with telephones in his youth as an instrument maker. He worked for a firm which made telegraph equipment for Swedish firm Telegrafverket. In 1876 he opened his own company and in 1878 began producing his own telephone equipment . His phones were not technically innovative, as most of the necessary inventions had already been made in the USA. Through the repair work done by his firm for Telegrafverket and the Swedish Railways, though, he was familiar with the telephones of both the Bell group and Siemens Halske. He was able to improve these designs to produce a higher quality instrument. These were used by the new telephone companies such as Rikstelefon to provide a lower cost service than the Bell Group could offer. He had no patent or royalty problems, as Bell had not bothered to patent their invention in Scandinavia. His training as an instrument maker is reflected in the high standard of finish and the ornate design which makes Ericsson phones of this period so attractive to collectors.

With their reputation established, Ericssons became a major supplier of telephone equipment to Scandinavia. Because their factory could not keep up with the demand, work such as joinery and metal-plating was contracted out. Much of their raw materials was imported, so in the following decades Ericssons bought into a number of firms to ensure supplies of essentials like brass, wire, ebonite and magnet steel. It is interesting to note that much of the walnut used for cabinets was imported from the USA.

When Ericsson and his associate H T Cedergren toured the USA in 1885, they found that the US engineers were well ahead in switchboard design but that Ericssons telephones were as good as any available.

As production grew in the late 1890s, and as the Swedish market seemed to be reaching saturation, Ericssons were able to expand into foreign markets through a number of agents. Britain and Russia were early markets. This eventually led to the establishment of factories in these countries . This was partly to improve their chances of gaining local contracts, and partly because the Swedish factory simply couldn't keep up the supply by itself. In Britain, the National Telephone Company had been supplied with Ericsson equipment for some time , and was a major customer. By 1897, Britain was accounting for 28% of LME's sales. Other Nordic countries had become LME customers as well, spurred on by the rapid growth of telephone services in Sweden.

Other countries and colonies were being exposed to LME products through the influence of their parent countries. These included Australia and New Zealand, which by the late 1890s were LME's largest non-European market. With mass-production techniques now firmly established, the phones were losing some of their ornate finish and decoration.

In spite of their successes elsewhere, LME never made significant sales into the USA. The Bell group and local companies like Kellogg and Automatic Electric had this market tied up. Ericssons eventually sold off their US assets. In contrast, sales in Mexico were good. Their influence here led to further development into other South American countries. South Africa and China were also generating significant sales. With his company now multinational, and growing strongly , Lars Ericsson stepped down from the company in 1901.

In a curious oversight, LME had ignored the growth of automatic telephony in the USA. They concentrated instead on squeezing the most sales out of manual exchange designs. By 1910 this weakness was becoming seriously apparent, and the company spent the years up to 1920 correcting the situation. Their first dial phone was produced in 1921, although sales of their early automatic switching systems were slow until the equipment had proved itself on the world's markets. Phones of this period were characterised by a simpler design and finish, and many of the early automatic desk phones in LME's catalogues were simply the proven magneto styles with a dial stuck on the front and appropriate changes to the electronics. A concession to style was in the elaborate decals (transfers) that decorated the cases. These phones are also highly collectable and attractive.

World War 1, the subsequent Depression, and the loss of its Russian assets after the Revolution slowed down the company's development and restricted its sales to many countries such as Australia. The purchase of other related companies put pressure on Ericsson's finances, and control of the company fell into the hands of K F Wincrantz. Wincrantz was partly funded by Ivar Kreuger, an international financier. In 1930 Kreuger gained majority control of the company, and used its assets and name in a series of doubtful international financial dealings that had nothing to do with telephony.

Financially weakened, Ericssons was now being looked at as a take over target by ITT, their main international competitor. In 1931 ITT acquired from Kreuger enough shares to have a majority interest in Ericssons. This news was not made public for some time. There was a Government -imposed limit on foreign shareholdings in Swedish companies, so for the time being the shares were still listed in Kreuger's name. Kreuger in return was to gain shares in ITT. He stood to make a profit of $11 million on the deal.

With Kreuger no longer in control, the company's shaky financial position became quickly evident. Kreuger had been using the company as security for loans, and in spite of his profits, he was unable to repay these loans. LME found that they had invested in some very doubtful share deals, and the probable losses from these were significant. ITT started to examine the deal they had bought into and found that they had been mislead quite seriously about the company's value. They summoned Kreuger to New York for a conference, but Kreuger had a "breakdown". As the word of Kreuger's financial position spread, pressure was put on him by the banking institutions to provide security for his loans. ITT cancelled the deal to purchase the Ericssons shares. Kreuger had to repay the $11 million , which he could not do. Under the increasing pressure, he committed suicide in Paris in 1932. Ericssons, a basically stable and profitable company, was only saved from bankruptcy and closure with assistance from loyal banks and some government backing.

In the 1920s and 1930s, the world telephone markets were being organised and stabilised by many governments. The fragmented town-by-town systems which had grown up over the years, serviced by many small private companies, were integrated and then offered for lease to a single company. Ericssons had some successes in obtaining these leases, and some losses. The successes were vital to the company, as they represented further sales of equipment to the growing networks. The other large telephone companies, of course, had exactly the same goal in mind. Ericssons managed to get almost one third of its sales under the control of its telephone operating companies.

There were a number of negotiations between the major telephone companies aimed at dividing up the world between them, but the sheer size of the ITT empire made it hard to compete with. With its financial problems, Ericssons was forced to reduce its involvement in telephone operating companies and go back to what it did best, manufacturing telephones and switchgear. It could do this easily now, as it had a considerable hidden asset in its overseas manufacturing facilities and its associated supply companies. These had not been involved in the shady financial dealings and were generally in a sound position.

The Beeston factory in Britain became a very useful asset here. It had been a joint venture between LME and the National Telephone Company. The factory built automatic switching equipment for the BPO under license from Strowger, but they also exported a large amount of their product to former colonies like South Africa and Australia. The British government divided their equipment contracts between the competing manufacturers. LME's presence and manufacturing facilities in Britain led to them getting the lion's share of the contracts. Ericssons equipment maintained its reputation for quality.

Sales drives were resumed after the Depression, but the company never achieved the same market penetration that they had enjoyed at the turn of the century. Although they still produced a full range of telephones, switching equipment was now becoming a more important part of their range. With the increasing use of moulded thermoplastic phones (Bakelite etc), the distinctive Ericsson styles soon became subdued. After all, there is only so much you can do with Bakelite.

In spite of this , LME has still managed to retain their position as one of the world's telecommunications leaders. They released one of the world's first handsfree speaker phones in the 1960s. In 1956 they released the Ericofon, which was such a radical departure in phone styling that it has become highly collectable. Their crossbar switching equipment is the mainstay of many telephone administrations around the world. Their influence is still felt strongly in such areas as mobile phones, where their reputation for quality is as strong as ever.

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Click here for the history of Lars Magnus Ericsson

 
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Last revised: February 15, 2001