Contel Lowers The Boom On IPC Brass; Salomon Left Holding Analog Turret?

Widespread depression in the North American key telephone business hit Contel IPC last week as all but a handful of its top executives were dismissed. The terminations, which came at the hands of Atlanta-based Contel Corp., IPC's parent company, follow two years of decreasing sales and periodic layoffs.

The scant detail of the shakeout released by IPC leaves unresolved the status of its deal with Salomon Brothers Inc. to install between 700 and 1000 analog key telephone positions in early 1991. A spokesman for IPC would neither confirm nor deny that Salomon had sent IPC a letter of intent for the analog phone system. Representatives from Salomon Brothers did not return calls.

Those terminated in the latest IPC purge include Skip Smith, president, Thomas Bradbury, chief operating officer and Eammon Joyce, vice president of management information services, sources say. A spokesman for IPC confirmed that approximately 25 people, including some senior executives, were laid off, but would not release names. Among those spared was Gerald Paris, who succeeds Skip Smith as president of Contel IPC.

Industry sources agree that IPC's travails result both from the post-crash sluggishness of the key telephone industry and IPC's lack of strategic direction in the face of a rapidly changing marketplace. In its pre-crash heyday, IPC had over 1000 employees. Last week's terminations, combined with hiring freezes, attrition and previous layoffs in June and October of 1988, have reduced the head count to less than 750.

Having all but secured one of the largest and most lucrative key telephone contracts in recent memory, the IPC shakeout is all the more puzzling. After issuing a request for proposal earlier this year, Salomon Brothers sent IPC a letter of intent to purchase approximately 900 trading positions, according to industry sources. The Wall Street giant's decision to go with an analog telephone system -- one that won't be installed for at least a year -- has left industry sources baffled.

"I think the people there made a major, major bad decision," says one source. "To buy an analog switch from a crumbling company -- whoever made that decision was an A-1 bonehead."

"It's not clear whether they have that deal," says Thomas Feil, chief executive and founder V Band Corp., of the Salomon/IPC pact. But he adds: "I think Salomon will deeply regret buying an analog system to be installed in late 1990, early 1991."

Salomon is not expected to announce its vendor selection for the contract until February of 1990. Sources close to the bidding war for the installation say the final price offered by Contel was so low that there had to be more than trading floor telephones at issue between Salomon and IPC. "Originally the IPC bid was up around $16 million, and the deal went down at six," a source says.

"The deal was steeped in politics," Feil says.

Once regarded as a technological innovator, much of IPC's engineering expertise was lost either to splinter companies or to personnel departures prompted by Contel's purchase in 1986. As rapidly as IPC rose to the top of the niche market it almost single-handedly created, key telephone upstarts such as V Band, the financial trading systems division of British Telecom Ltd., Wyatt Brothers Ltd., Canadian-based Positron Industries Inc., Hitachi and Turret Equipment Corp. quickly capitalized on opportunities resulting from the market's meteoric growth. Their innovative products, distribution and service methods reduced IPC to just another player in the industry.

The company's woes began with Black Monday and its restraining effect on Wall Street technology expenditures. Problems continued when plans for an interactive data and telephone product fell through in 1988 after IPC failed to procure a partnership and/or acquisition agreement with an established vendor. A round of layoffs ensued.

But the company's disregard for the digital trend of the telephone market may prove to be its fatal flaw. "The public network is going digital at a very rapid rate," says Feil at V Band, a former IPC engineer. "That's being driven by the ubiquity of optical fibers."

"Not having a digital offering was a major reason for their fall," a source says. "BT has one, Wyatts has one, Hitachi has one....Contel didn't put any money into it....they're two years away from a digital switch." Two years ago, the same source says, IPC's worldwide sales were $150 million; this past year the figure was $75 million, 50% from the U.K.

Insiders at IPC saw the writing on the wall when Contel's presence became more visible at IPC's Connecticut headquarters. Paris took over as CFO, and John MacDonald, the executive vice president of technology at Contel, became involved in IPC's development efforts, they say.

MacDonald, who reports to Charles Wohlstetter, Contel's chairman, previously spearheaded the effort to sever Contel's Business Systems subsidiary, sources say. Contel Business Systems was sold to Massachusetts-based Bersys Inc. in January. Paris and MacDonald did not return calls.

The recent terminations came swiftly. Occurring on Nov. 27 and 28, the firings left IPC's Stamford headquarters an "empty shell," according to sources. A company spokesman says IPC would continue to market Tradenet, the company's current analog turret offering. IPC also continues to have a "volume business" in servicing and upgrading systems installed prior to the introduction of the Tradenet system, he says.

"I don't think Contel IPC ever had a strategic plan for the future," says Feil at V Band. "[The current layoffs] are just a manifestation of that."