HUNGARY ACQUIRES ADVANCED COMMUNICATIONS TECHNOLOGY FROM SWEDEN

Created: 9/1/1968

OCR scan of the original document, errors are possible

Intelligence Memorandum

Hungary Acquires

Advanced Communications Technology from Sweden

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CENTRAL INTELLIGENCE AGENCY Directorate of Intelligence8

INTELLIGENCE MEMORANDUM

ry Acgu;re_s_ Advancedc:itio:ia Techr.ology

from Sweden

An agreement recently signed by Hungary and two Western firmsajor breakthrough in the long-continued efforts of the Communist countries of Eastern Europe to acquire advanced communications technology from the Free World. This agreement was signed early8 between BUDAVOX (the Hungarian foreign trading company for telecommunications) and two Free World firmsL.M. Ericsson of Sweden and Societe Anonyms de Telecommunications (SAT) of Prance. Under Its terms, Hungary will acquire from Ericsson the know-how and manufacturing rights for production of crossbar telephone exchanges, telephone multiplexing systems upnd ancillaryequipment; SAT will provide Hungary with coaxial cable and related components compatible with the Ericsson systems. The agreement is valued at US S4 million.

The Swedish-Hungarian agreement implies major technological gains for all the Communist countries

Croeabar exchanges are those exchangee thatadvanced switching and control systems which permit faat, automatic, and economical telephone call completions. Multiplexing equipment provides for the vimultaneouo transmission of telephone oonvereationa Of Other information signals oner the same circuit.

Note: Thio memorandum Was produced solely bit CJA.

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of Eastern Europe, including Che USSR. Hungary will be able to produce, for the first timeand supply to other Communist countriestelephone multiplexing systems with capacities greatorhannels; the productionhannel systems willevenfold improvement over the capacity of systems currently being produced.

The doal has considerable potential significance for the USSR, where modorn communications equipment is in short supply. As* tho primary recipient of Hungarian telecommunications equipment, tho USSR will be able to ease domestic shortages withdisruption to its own production programs.

High-capacity telephone carrier systems are currently embargoed under COCOM controls over trade with Communist countries. The Hungarian agroomont with Ericsson thus breaches for the first time barriers erected by COCOM to prevent modern Free World communications toohnology from reaching the Communist countries. Sweden inarticipating country in COCOM. The establishment cf commercial relations between BUDAVOX and Ericsson via the new agreement couldehicle for theof even more strategic communications such as pulse code modulation (PCM) systems. Because of their freedom from noise and distortion, PCM systems have special value for military applications.

OECRi'.T

Introduction

earlyUDAVOX. Ericsson Company of Swedenof Franco to acquire communicationsmore advanced than that nowthe USSR or in Eastern Europe. Theat S4 million, is reportedly theagreement entered into by thetelecommunications industry since the end

of World War II. Under the agreement, Hungary will acquire manufacturing know-how and licensing rights to produce crossbar telephone exchanges, telephone multiplexing systoms forhannels, and ancillary transmission equipment from Ericsson. SAT will provide Hungary with coaxial cable and relatod components for the Ericsson telephone transmission systems. will begin, apparently at the Beloiannisz plant in Budapast. In addition,

Hungary acquired export rights for the equipment to be produced under license.

Breach of Froo World Trade Controls

This agreement marks the first time that any Communist country has acquired the rights to produce under license and export high-capacity telephone carrier systems currently embargoed by COCOM. Sweden isember of COCOM but, in past years, has refrained from exporting tocountries goods considered strategic by COCOM nations. Moreover, Ericsson's present willingness to sell telecommunications manufacturing know-how to Hungary could be followed by similar arrangements with other Communist countries. Ericssonrowth In sales to Communist countries averagingercent annually over the nextears, indicating that it plans to become increasingly active in the marketing of equipment in Eastern Europe.

The Swedish-Hungarian transaction is likely to result in stepped-up deliveries of moderndial telephone exchanges and high-capacity telephone multiplexing equipment to the USSR, possibly beginning Hungary already deliversoercent of its total exports of telecommunications equipment to the USSR. Current exports from Hungary to tho USSR cf telephone

exchanges, multiplexing equipment, and microwave radio-relay systems are running at the rateillionillion annually. The longer range effect of this transaction couldtrengthening of Hungary's roleajor supplier of modern telecommunications equipment throughout Eastern Europe and to Cuba and Communist China. Hungary already exercises some exclusive rights within CEMAeveloper, producer, and supplier of microwave radio-relay systems to Eastern European Communist countries.

Solution to Communist Technological Problems in Communications

4. The Swedish-Hungarian agreement implies major technological gains for all the Communist countries of Eastern Europe, including the USSR. These countries, despite several years of intensive development, do not now produce large-capacity (greaterines) crossbar dial telephone exchanges-hannel capacitysystems. ew medium-capacity crossbar exchange, ATS-K, ines, was only) developed through the concerted effort of the USSR (Central Scientific Research institute for Communications,zechoslovakia nd East Germany (Arnstad VEB Femmeldewerk) and may now be produced in small quantities. Smaller capacity crossbar telephone exchanges have been in production in the USSR onlylthough they have been in common use throughout the non-Communist world for moreecade. The acquisition of production technologyhannel equipment willevenfold increase over the capacity of multiplexing systems now produced in Communist countries. Earlier efforts by the USSR and Hungary to acquire Western production equipment and technology for high-capacity systems from Free World countries participating in the COCOM embargo have been unsuccessful.

Significance for Soviet Requirements

*i. The USSR has pressing requirements fortelephonic equipment. There aretelephone subscribers in the USSR forillionthat is, the USSR has the lowest telephone density of any major industrialized country6 telephonesersons compared

with more thanelephonesersons in the us) and lags behind mostthe Eastern European countries as well. But the rapid pace ofand the growing demands of industry andare generating urgent demands for all types of telephonic equipment, particularly in the major urban centers. The number of telephones in Moscow, for example, is planned to double during thefive-year plan period,, and is supposed to grow fourfold Soviet plannersintend to satisfy much of their telephonic requirements through imports. In particular, imports from Hungary (after production under the Ericsson license has started) will enable the USSR to modernize its obsolescent telephone system with up-to-date Western technology. This can be done with minimum expenditure of funds from Soviet hardreserves andostly diversion of technical resources and manpower from other priority research and production programs.

Long-Term Strategic Significance

fi. The acquisition of high-capacitysystems from Hungary will benefit the Soviet military establishment in two ways: at leastubstantial share of new high-quality circuits on existing upgraded common carrier facilities undoubtedly will be given over to the exclusive use of military and other defense-support authorities; and Soviet military authorities will be enabled to build new long-haul strategic circuits that are buried, secure, and reliable.

7. in addition, the close commercialbetween Ericsson and BUDAVOX could lead to further gains for Communist countries in theof Free World communications technology at the highest state-of-the-art, such as PCMequipment. PCM equipment has special value for military communications systems because of its freedom from noise and distortion. Both Hungary and the USSR have active PCM development programs, but neither hasroduction prototype. has recently tried unsuccessfully to purchase PCM technology from Italy; Soviet efforts toCM system from Japan have also been unsuccessful. Ericsson is active in the development of both PCM systems and the very new systems for electronic switching, and it is not prevented by international commitments from selling the essential technology

to BUDAVOX.

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