The demise of the concession company

New Telephone station. Operating company: Societé Anonyme Turque des Téléphones de Smyrna et ses Environs (SATS)

One of the distinctive traits of a telephone company like Ericsson was to build up an international position through the establishment of concession companies, meaning companies that constructed and operated telephone networks. The importance of this type of operation derived primarily from Ericsson's merger with SAT in 1918. The development of a concession company was extremely expensive, however, and involved considerable risk, since substantial sums needed to be ploughed into fixed assets which, in the event of a war or political changes, could easily be lost. The reason for Ericsson continuing to make such risk-filled investments was that via a telephone operating company of its own, it secured the delivery of its own telephone equipment.

However, as early as during the interwar period, the world trend was toward government or other public authority operation of telephone networks, while foreign entrepreneurs were driven away. The role of the concession companies therefore began to decline for Ericsson as early as during the 1930s. At the beginning of that decade, more than half of the company's foreign sales was accounted for by its own companies, but this proportion declined rapidly in pace with Ericsson's divestment of several of its operating companies. Accordingly, the Finnish company was sold to the Finnish State. Despite the lack of any formal guarantees, Ericsson continued to maintain good relations with its former operating company and, for the time being, Finland was to remain an important Ericsson customer. During the 1930s, Ericsson also sold a Turkish concession company with a network in Smyrna.

During the 1930s, Ericsson's most extensive and profitable telephone operations were located in Poland, with networks in a number of cities, including Warsaw. Following the Second World War, the company negotiated with the new regime in Poland and the network was eventually nationalized in 1947. In Europe, Ericsson now had only one remaining concession company, in Italy, whose Swedish links were also challenged at the end of the War. Following complex and protracted negotiations, the Italian concession company was acquired by a government-owned finance company. Under the terms of the sale, Ericsson secured guarantees that it would deliver 10 percent of the Italian State's purchases of telephone materials in the future, which meant that Italy remained an important Ericsson market.

The trend in Latin America was also to sell Ericsson's operating companies. In Mexico, this process started in 1948 and ten years later Ericsson had severed all ownership ties remaining with the company that operated the whole of the Mexican telephone system and which was now owned by Mexican interests. After the 1950s, Ericsson had just three concession companies remaining; two small ones in Argentina and one in Peru. At this point in time, the role of the concession company was essentially over.

Author: Ulf Olsson

© Telefonaktiebolaget LM Ericsson and Centre for Business History

Contact info/About the site