The operation of telephone networks requires capital
When the Allmänna Telefonaktiebolaget LM Ericsson was formed through a merger in 1918, two traditions were united - Ericsson's tradition of manufacturing telephones and the Cedergren tradition of operating telephone networks. Operating networks based on concessions was a way of both bringing in subscription fees and securing sales of the telephones, cables and stations the company produced.
In Sweden, Televerket, the state-owned PTT, had taken over all telephone operations, but for a number of countries it appeared attractive to bring in private foreign phone companies and let them take responsibility for the construction of a modern telephone system. These companies brought with them technical expertise and experience, but, in particular, they could put up the major investments required. It takes many years to recoup the costs of the type of infrastructure investments required for a telephone network.
In the 1920s, Ericsson continued to work in the international market, in order to secure concessions in various locations. To begin with, investments were made primarily in Mexico, Argentina, Poland and Finland, which were countries where Ericsson had already been involved in telephone operations companies. The major losses sustained in Russia as a result of the revolution and in other places were hardly an encouragement to enter into the battle to gain new concessions, but intensifying competition meant that Ericsson felt more or less compelled to do so.
The foreign competitors, particularly the American International Telegraph & Telephone Corporation (ITT) and the German company Siemens & Halske, showed a tendency to secure their sales by focusing on their own concessions and expansion operations. Ericsson entered the campaign in countries such as Spain, Italy, Turkey and several Balkan countries.
Especially after becoming sole president in 1925, Karl Fredrik Wincrantz put his weight behind the view that Ericsson must be involved in telephone operations. He had experience as head of AB Stockholmstelefon and he generally took care of negotiations in such matters himself. As transactions tended to become more substantial and more capital-intensive, Ericsson looked towards the international capital market, established contacts with finance groups in the purchasing countries in question and attempted to introduce the Ericsson share to the London stock exchange.
In Ivar Kreuger, Wincrantz found an adviser with knowledge of the international finance world and with major capital resources of his own. He, if anyone, should have had the prerequisites to keep the foreign telephone companies in check and he soon became regarded as a kind of reinsurance when Ericsson's investments began to rocket.
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