Hughes Takes Big Leap Into Cellular Field : Telecommunications: BellSouth contract expands its moves into commercial ventures in the face of diminishing spending by the Pentagon.

Hughes Aircraft Co., further moving away from its reliance on the shrinking defense market, said Monday that it won a five-year contract to provide a cellular telephone networking system to BellSouth Corp.

Under the award, Hughes will put its equipment in 54 Southeastern U.S. markets--including Orlando, Fla.; Nashville, and New Orleans--to handle mobile communications services offered by BellSouth Cellular Corp., a division of the Atlanta-based telephone company.

The contract marks Hughes’ first major U.S. sale of its cellular network equipment and dovetails smaller contracts that Hughes has won in Russian and China, said Jack Shaw, chairman of Hughes Network Systems, the Germantown, Md.-based unit of Hughes that won the award.

The BellSouth project thus gives Hughes a solid entry into the domestic cellular market, which is dominated by such telecommunications giants as American Telephone & Telegraph Co., Canada’s Northern Telecom Ltd. and Sweden’s L.M. Ericsson.

BellSouth’s award “is a good recommendation that it (Hughes’ network) is a viable, competitive system,” said Sharon Armbrust, an analyst at the research firm Paul Kagan Associates in Carmel, Calif.

Officials of Hughes Network Systems and BellSouth would neither confirm nor deny that the contract is valued at nearly $400 million, as reported in the Wall Street Journal.

Hughes Network Systems spokeswoman Judy Blake said the contract will not affect Hughes’ Southern California employment. Any hiring spurred by the award would probably occur in Germantown or among contractors that install the system in the various Southeastern cities, she said.

The award also expands Hughes’ commercial effort at a time when its defense operations face limited growth prospects because of slumping Defense Department spending. Hughes still receives about 68% of its $8 billion in annual revenue from the Pentagon and other federal agencies.

Hughes is already a major builder of commercial satellites and a provider of satellite-based transmission services for broadcasters and other commercial clients. It has also put a priority on selling equipment to the cellular market, particularly now that providers of cellular services are converting their systems to more advanced, digital-based formats.

Indeed, BellSouth said it chose Hughes’ cellular network--which uses switching equipment made by Alcatel of Germany--because it can handle transmissions in the traditional sound wave analog formats that are prevalent today and in the newer digital formats.