GSM technology meant the start yet again of a miniaturization process. GSM was much more technologically advanced than NMT, and many claimed it would be impossible to produce a small GSM phone. Motorola, which largely dominated the global market in analog mobile phones, was one manufacturer to come to this conclusion, citing the enormous complexity of the equalizer.

ERA and Nokia saw things differently. In practice, ERA had developed much of the technology in its DMS90 system before the standardization had been implemented.

Even so, developing the GSM system for commercial applications required a major development effort. Uddenfeldt explains: “There were many who had doubts about GSM at Ericsson. Even Åke Lundqvist thought the system was complex. I remember showing him the specification, which filled a complete suitcase. The specs for NMT were only five centimeters thick, Åke pointed out.”

Geopolitical developments at the end of the 1980s also had a favorable impact on the mobile telephone industry. “There was a decline in orders from the military, which released know-how in the field of radio and radar that we could adapt for mobile telephony. And in fixed telephony at Ericsson, we also had AXE expertise that could be transferred to ERA,” says Uddenfeldt.

ACQUISITION OF RADIOSYSTEM

In the world of fixed telephony, time had always been equated with quality: the more time available, the better the systems that could be built. For mobile telephony, on the other hand, it was a question of maintaining the tempo. Sometimes it was better to buy expertise. In 1988 a deal took place that made the headlines because it made the vendors, a few Swedish engineers, wealthy.

This deal involved ERA’s purchase of a company called Radiosystem, which had mainly developed advanced base stations for the NMT system. The company had been founded in 1978 by three engineers who invested SEK 5,000 in equity and mortgaged their own homes to get loans for their operation. Now, ten years later, they were able to sell the company for SEK 465 million.

The price was jacked up after one of Radiosystem’s stakeholders played off ERA against Nokia. Ericsson’s board members were hesitant about the deal, as Björn Svedberg recalled in a interview much later: “We had no money. But of course the board didn’t want to admit that.”

Ulf J. Johansson recalls: “We were criticized as buyers for paying too high a price, but the critics never understood that the deal included a building that Radiosystem had erected in Kista. Its book value was far too low – when it was sold off in 1989 in a package that also included major loss carrybacks, it became instead a very profitable deal. It enabled us to recoup the purchase price.”

Author: Svenolof Karlsson & Anders Lugn

ERA PURCHASES RADIOSYSTEM AB

From the left: Tommy Moberg, Leif Kågström and Torbjörn Jonsson from Radiosystem and Ulf. J. Johansson and Åke Lundqvist from ERA.

© Telefonaktiebolaget LM Ericsson and Centre for Business History

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