British Telecom calls on North America

British Telecom is coming to North America by the back door. The British phone giant bought two Canadian telecommunications companies, Mitel Corporation and CTG Inc. But some analysts wonder whether the British company has the know-how to compete with Northern Telecom and AT&T in the United States. British Telecom paid $320 million (Canadian) for the 51 percent interest Mitel, which is active in the US market, and C$20 million for 100 percent of CTG, which sells phone equipment and switches.

Mitel designs, develops, and manufactures everything from telephone sets and integrated circuits to private branch exchanges (PBXs). These superswitches can handle up to 2,500 lines, and newer models will accommodate even more. The company's greatest success has been in small PBXs -- up to 150 lines -- where it is estimated to have 25 percent of the world market.

When Mitel went public in 1975 it had 30 employees and annual sales of C$30,000. By 1982 it had 5,210 employees and sales of C$255 million. It the hot high-tech stock of the '70s and '80s in Canada. Mitel expanded from its Ottawa base to operate research and manufacturing around the world, but by 1982 Mitel was losing money. The big blow came in 1983 when IBM canceled a deal with Mitel and instead bought 15 percent of Rolm, one of Mitel's competitors.

Mitel stock dropped from C$37 to C$16 in 1983, the biggest fall of any stock that year on the Toronto Stock Exchange. It went as low as C$6 and was languishing around C$7.5 when the British Telecom announcement was made. It has bounced back up to C$10.

The problem with the IBM deal, and with Mitel profits since then, has been SX-2000 switch, the super PBX which was to put the company on an equal footing with the telecommunications giants such as Northern Telecom and AT&T.

``Mitel underestimated the problems in developing software to run the SX-2000,'' said Francis McInerney of Northern Business Information, which analyzes the telecommunications field.

Mitel and British Telecom already had an established relationship. Of the 131 SX-2000 switches sold last year, more than half were in Britain. British Telecom was the first major utility to install the switch in a phone network.

British Telecom saved the day for Mitel, McInerney says. ``There was no question Mitel was doomed, it wouldn't have been around a year from now.'' But the analyst wonders how well BT will do in the big time of the US market: ``British Telecom has no experience in marketing and they have a poor track record at developiong new technology, such as their own System X switch.''

Still, the recently privatized British Telecom has a lot of financial muscle. For the year ended March 31 it had sales of 6.8 billion (about US $8.7 billion), with profits of 581 million ($744 million).