Major order to Saudi Arabia

The signing of the contract for the telephone expansion project of the kingdom of Saudi Arabia. Left to right: W Dekker from Philips, Saudi Arabian representative, Björn Svedberg, Ericsson. Svedberg is signing the contract.

When a two-person delegation from Ericsson visited Saudi Arabia in 1961, the objective was to study the feasibility of constructing an automatic telephone system in the country. At the time, there were only a few manual telephones.

Ericsson was very familiar with the region. The company was established in Lebanon, where there was an office in Beirut. In addition, Egypt and Tunisia had chosen Ericsson as a supplier of telephone stations. Ericsson was reluctant to continue working with the Saudi PTT, however, since the operator, which had been working with the Japanese PTT, had not prepared a proper request for tender. The Saudis were simply not prepared to place an order.

- The country was also much too difficult to work in. At that time, they hardly allowed westerners in, recalls Olof Höstbeck, the sales manager for the Middle East, who was one of those who visited Saudi Arabia in 1961.

The Saudis reviewed the conditions for the project once more, however, and after some hesitation, Ericsson decided to submit an offer. Two reasons for this decision were that the country had become more open to westerners and that the economy was improving.

In competition with Siemens and other suppliers, Ericsson won the order, which was received in May 1964. The crossbar switching system was to be delivered, and the order included a network and telephones. A local company would be responsible for all installation work. Over subsequent years, however, the order grew as a result of a number of add-on orders.

In the mid-1970s, Saudi Arabia, whose oil income had risen sharply, began a heavy investment program in infrastructure in which telecommunications were given priority. In view of previous assignments, Ericsson should have had an advantage. However, this gigantic order, which would span a five year period and involved increasing the capacity of the telephone network by 200 percent, was awarded to the Dutch company Philips in 1976 without a formal bidding procedure. The reason was that the Saudis had good contacts with the European company.

- Philips worked for several months calculating the cost of the project. We don't know what figure they finally arrived at, but rumors said that it was extremely high. There were probably many sub-contractors that tried to charge as much as possible, says Olof Höstbeck.

The Saudi officials now realized that a procurement procedure was necessary, and Ericsson was among the companies that were invited to submit bids in June 1977. The request for tender specified that the system to be installed should be computer-controlled and that existing stations should be converted to the new technology. Philips needed Ericsson's expertise on both of these counts and decided to join with Ericsson in submitting a bid. In addition, the two companies enlisted telecom operator Bell Canada, which would take responsibility for operation and maintenance of the system.

The Saudis wanted the bids as early as September 1977. Time was short, but Ericsson-Philips completed their bid on time. When it was completed, the bid required 42 binders.

Competitors for the assignment included the American company AT&T and Ericsson's long-time rival ITT. The competitors lost out, however. Ericsson-Philips were considered to have the best bid and were awarded the contract, which was signed in January 1978.

Not only the size of the order was exceptional. Equally remarkable was the fact that Ericsson had committed to delivering what was then a totally unproven AXE system. In addition, the new system would be installed at the same time as the telephone network was being significantly expanded. This was undeniably a challenge.

Author: Mats Wickman


Minicall produced for the Royal Ministry of Post, Telephone and Telegraph.

© Telefonaktiebolaget LM Ericsson and Centre for Business History

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