STC PLC

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STC PLC

IB Portland Place
London WIN 3AA United Kingdom
(071) 323-1000
Fax: (081) 565-2381

Public Company
Incorporated: 1910 as Western Electric Company Limited
Employees: 36,393
Sales: £2.61 billion (US$4.21 billion)
Stock Exchange: London

STC, formerly Standard Telephones and Cables, is Britain’s second-largest electronics group, a major manufacturer of computers, telecommunications equipment, and transmission cables, both wire and fiber optic. STC has been a world leader in underwater cable, laying several intercontinental lines. It is working with U.S. and European telecommunications companies on cellular telephones and other advanced technologies. It also has worked on defense projects from World War II to the present.

The company began in 1883 as a tiny branch office of Western Electric, a subsidiary of the U.S. AT&T, set up to market in Britain the recently invented telephone. Telephone use grew rapidly in Britain, as did Western Electric, London, which sold cable, telephones, and switchboards to the companies that were stringing telephone lines throughout Britain. By the mid-1890s, Western’s biggest British customer, National Telephone Company, was considering building its own factories, particularly since Western imported most of its material from factories on the Continent, and National preferred buying from a British factory. In 1898, Western bought the Fowler-Waring Cables Company, near London, which already had a huge order for cable from National. That purchase and U.S. technical expertise kept Western’s orders flowing, although its switchboards were still made in Europe or the United States, and the development of the telephone infrastructure in Britain lagged behind that of the United States, Canada, and New Zealand.

By 1908 the company was producing two kinds of switchboards, one for National and one for the Post Office, the entity that operated the telephone system. By 1909 Western employed about 1,000 people in the United Kingdom. It also made power cables for the London underground system. A great deal of British business went to larger companies, but Western Electric partially made up for this loss with foreign sales, opening offices in Sidney, Johannesburg, and Buenos Aires.

In 1909 T.E. Kingsbury, an Englishman who had run the company since 1883, was removed by U.S. headquarters, and a U.S. manager, G.E. Pingree, was installed in his place. In 1910 the company was incorporated as Western Electric Company Limited, which was firmly controlled by its parent firm in the United States.

World War I was a stimulus to Western sales. Communication with headquarters in the United States was difficult and the company adapted to wartime production on its own. Western developed a 12-line portable switchboard for field use as well as various types of listening devices. Working conditions in its factories were poor and the hours long. In 1918 the company came under the management of the International Western Electric Company and joined the Engineering Employers’ Federation, resulting in a reduction of the workweek from 57 hours to 47 hours.

Western expanded in the postwar years. It fought for several years with its unions over wages, finally locking out Amalgamated Engineering Union members for three months in 1922. Western broke the union and reduced wages. Western won huge contracts from the Post Office to supply cable, and to dig the ducts and manholes through which the cable would go. Telephone technology was developing rapidly, mainly through the efforts of Western Electric’s New York laboratories. The technology was transferred to Britain by bright young engineers sent to the United States to study and work.

Western moved into broadcast technology with the manufacture of inexpensive consumer radios in 1923. Because of the growth of telephone and radio, Western had cash on hand when many other companies were barely hanging on, and was able to acquire new factories relatively cheaply. Partly because of its advanced U.S. technology, the company won contracts in Sweden, France, and Italy. It also increased its influence in Europe by organizing an international committee to increase the European telephone infrastructure.

Western’s parent company concentrated on the U.S. market, where telephones were far more prevalent than in Europe, and had always viewed its overseas operations as too consuming of management’s time. International Telephone and Telegraph Corporation (ITT) bought International Western in 1925 for US$29.3 million, renaming the company Standard Telephone and Cables, Ltd. (STC). Standard was a bigger component in ITT than it had been in Western, and it now worked harder at creating its own technology. It obtained telephone contracts in Egypt and China, and helped build the British end of the first transatlantic two-way radio service. The company won radio contracts throughout the world. Aware of how important it was to remain technologically competitive, the corporation set up two laboratories, one in Britain, one in Paris.

By 1930, the money from U.S. investors that had fueled much of the expansion had dried up, and the company was forced to close the laboratories, fire thousands, and slash the wages of many others. Profits tumbled from £576,224 in 1930 to £36,163 in 1931. During the 1930s technological advances made telephone technology cheaper. As a result of lower rates, the number of telephones in Britain grew from 2 million in 1930 to 3.3 million in 1939. STC also made advances in radio that allowed more distant and clearer transmission and telephone contact with boats at sea. By the late 1930s STC was able to rehire some of the workers laid off in the early 1930s.

The onset of World War II cut off STC from its contacts in New York and associates on the Continent. New factories were built outside of London, where they would have less chance of being bombed. The company grew with extreme rapidity, manufacturing miles of new types of cable, thousands of switchboards, parts for Spitfire and Hurricane airplanes, mine detectors, and gyroscopic gun-sights. Radio and telephone both came of age during the war, and STC built much of the equipment necessary for rapid expansion. STC manufactured many types of communications equipment, including radar, radio, and x-ray guidance. These developments would leave STC in an excellent position for radio-use expansion in the postwar world, led by civil aviation. World War II also enabled STC to develop business contacts throughout the world. The company went from 12,000 employees in 1939 to a peak of 25,000 in 1943, and 16,000 in 1945.

During the first few years after the war, with material restrictions and government controls, STC had little opportunity to take advantage of its wartime advances. Its first major opportunity came at the coronation of Queen Elizabeth II in 1953, which was televised, giving television and STC a huge amount of publicity. Sales in the mid-1950s increased in several areas: the telephone was being purchased as a consumer item, microwave transmission was becoming an important technology, and civil aviation was developing rapidly. At the same time STC was missing opportunities to advance in television and was developing transistorized switchboards only slowly. As the British Empire diminished, STC built overseas factories to keep profits coming in from those markets. STC laid undersea cables between the United Kingdom and Belgium, the United Kingdom and Sweden, and Newfoundland and Novia Scotia in Canada.

However, the company’s net income fell badly in 1956, and the British government reduced spending in 1957, further hurting STC because so much of its income came from sales to the Post Office. The recession of 1958 hurt the company. STC often failed to turn its technological superiority into contracts; the pursuit of profit was not considered gentlemanly by many in the top management. Production managers were looked down upon while engineering managers were exalted. The company did little advertising and wrote few press releases.

In 1959 Harold S. Geneen took over ITT. One of his first moves was to have all of STC’s top management interviewed by psychiatrists and the company’s structure analyzed by outside consultants. A U.S. manager, Rex B. Grey, was brought in to increase profits. Unprofitable branches were sold off, and the company began to plan in five-year units. By the early 1960s, demand for telephones was so great that the Post Office began buying again, providing STC with large contracts. An electro-mechanical division was formed, and STC opened a distribution center. It also opened a new branch in Northern Ireland.

Research and development started to bring positive results. STC provided advanced equipment to the British Broadcasting Corporation and to airplane manufacturers. Because of advances in undersea telephone cable, STC cable and repeaters were used for all of one transatlantic cable and half of another. It once again won contracts all over the world, in radio, microwave transmission, and coaxial cable. The company began to grow again through acquisition, moving into the areas of heating and air conditioning and car rentals, among others, but the economic turndown at the end of the 1960s halted STC’s growth.

Kenneth Corfield took over as managing director in 1970, immediately focusing STC’s energies on the areas in which it had been successful, such as undersea cable. Huge underseacable orders rolled in during the 1970s and 1980s, making STC Britain’s leading exporter of telecommunications equipment. STC manufactured nearly 500 types of cable during this period, including fiber-optic cables. In 1976 the company laid one of the world’s first fiber-optic lines, setting itself up for the 1980s when fiber-optic technology would become an important growth area in telecommunications and STC would install many of the first undersea fiber-optic cables.

Corfield eliminated production in microwave, aviation, and other smaller areas in which STC was losing money. STC’s telephone exchanges, another major money maker, steamed ahead technologically, moving toward fully electronic exchanges, bringing in profits and prestige, and winning marketshare from its rivals.

As part of Corfield’s restructuring, parts of the company were reorganized during the 1970s, leading to plant closures and difficult labor relations within some parts of STC. Radio operations were closed. More operations were automated, further clouding the labor-relations picture as some employees lost their jobs to robots and computers. Simultaneously, Corfield began a dialogue between various levels of management and workers, trying to boost morale. Information on contracts won or lost was given to employees as soon as management had it, and company positions on relocations and retraining were spelled out in detail. Working conditions improved because of increased pressure from below and a greater willingness to spend money from above.

With the continuing economic integration of Europe and huge U.S. companies like Western Electric looking for world markets, British companies increased cooperation in designing telecommunications equipment. In July 1979, STC and ITT decided to offer 15% of STC’s ownership to the British public to more firmly establish its identity as a British company. The offering sold out immediately, and share prices climbed rapidly. STC pulled further from its parent company’s orbit in 1981 when the management of ITT’s British Business System Group was transferred to STC. STC became part of a three-company consortium that designed a new digital telephone switching system for the British Post Office. The system, with the new information services it made possible, was introduced just as Britain was shifting from a manufacturing-based to a service-based economy, and proved extremely popular. Partly as a result of this shift, departments were set up within STC to identify new markets and develop new products for them. STC began manufacture of information terminals for retail and banking use, pocket radio-pagers, and electronic security products. STC was working in extremely competitive markets, and speeded up its product-development process.

The company was quick to realize that the profitability of these products would grow far more rapidly than the profitability of installing telephone cable. Thus, STC changed its market. Instead of slowly producing huge, capital-intensive products for large customers like the Post Office, it became more of a consumer-electronics manufacturer, quickly creating products that required light assembly rather than the massive retooling of factories.

ITT sold an additional 10% of its ownership in March 1982, and another 40% that October, making the company predominantly British-owned for the first time in its history, and completely removing a perceived ambiguity over STC’s loyalties that its British competitors had long exploited. It expanded further into the rapidly emerging information industry in 1984 by buying International Computers Ltd. (ICL), Britain’s largest computer company. STC became Britain’s second-largest electronics group, while ITT’s share of the company dropped to 24%. In October 1987 Northern Telecom Ltd., the Canadian telecommunications giant, acquired the remaining ITT stock. STC then bought Northern Telecom’s U.K. telecommunications operations.

STC increased its cooperation with foreign telephone transmission companies in the late 1980s, including a 1989 deal with Société Anonyme Telecommunications, which controls 30% of the French market, to work jointly on research and development and marketing.

In the late 1980s STC continued its expansion into the rapidly growing information field, acquiring 50% of Regnecentralen AS, a Danish computer supplier that it folded into ICL. In 1989 STC bought Computer Consoles Inc., based in Waltham, Massachusetts, for $168 million, and Datachecker Systems, another U.S. company, for $90 million. STC also had stakes in Spanish and Indian computer companies. Nevertheless, 70% of STC’s sales were in Britain in 1988. The company’s yearly profits varied widely in the closing years of the 1980s, partly because of acquisition costs and fluctuations in segments of the computer industry as a whole. STC lost £54 million in 1985 because of its dash for growth through acquisition. It soon recovered, however, under the leadership of Lord Keith of Castleacre, who led a coup against Corfield in 1985. STC reported profits of £230 million by 1988. Lord Keith was replaced by Arthur Walsh in May 1989.

In July 1990, STC sold 80% of ICL to Fujitsu, of Japan, for £750 million. STC used the money to pay debts and to invest in the growing communications-systems market.