The News Behind The News
March 5, 2000
The Story of Telrad
by Yossi Laster, IASPS Associate Fellow
Haim Biur of "Ha'aretz" reported on February 28 that Telrad, the Israeli telecommunication company which produces telephone exchanges and switching equipment, intends to lay off 300 workers. This follows the layoff of 1,000 workers in 1999. How is it that during a period of technological advances, a company in the "hot" telecommunication sector must fire 1,300 workers over such a short period?
In order to understand the rise and fall of Telrad, we must go back to the late 1980s. Koor, the giant Israeli concern, was then in financial difficulties and reporting heavy losses. Among the many subsidiaries in the concern, there were two points of light: the two companies Telrad and Tadiran Communications, which produced telephone exchanges and switching equipment. Both companies were showing healthy profits.
How were Telrad and Tadiran Communications able to show a profit within the troubled concern? In the late 1980s, Bezek, the Israeli telecommunication monopoly, apparently began large-scale purchases of advanced equipment, principally digital exchanges. Bezek purchased the exchanges exclusively from Telrad and Tadiran Communications and became their largest customer. According to "Globes," between 1993 and 1996, Bezek invested the huge sum of NIS 6 billion in switching and transmission equipment.
On November 3, 1997, "Globes" printed an exclusive story, which revealed that from 1987 to 1997, Telrad and Tadiran Communications coordinated prices between them in order to force Bezek to pay more for the exchanges. Globes published an economic analysis carried out by the Ofek Brokerage Company in November 1997. According to Ofek, Bezek spent about NIS 2 billion too much on its investment in switching equipment.
Needless to say, the extra NIS 2 billion spent in this irresponsible purchase was passed on to Bezek customers while Bezek itself continued to show a profit during the whole period. Apparently, only the embarrassing revelations in "Globes" induced Bezek's Board of Directors to discontinue the purchase of the expensive switching equipment. Since Bezek's purchases were stopped, Telrad has been experiencing financial difficulties. Telrad's financial results are well hidden within Koor's financial reports and it is impossible to know to what extent its sales have declined during recent years. However, the layoff of 1,300 workers within the space of a year reveals a great deal about the rise and fall of Telrad.
There are two lessons to be learned here: first, every party must come to an end and second, at the end of a party one often has a hangover. Telrad profited from Bezek's negligence; in a similar manner, Israel's high standard of living has been financed to a large extent by the American taxpayer rather than the economy's productive capacity. One can only hope that Israel's hangover will not be as bad as Telrad's.
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