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 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. cities to handle mobile-communications services offered by BellSouth Cellular Corp., a unit of the Atlanta-based telephone company.

The contract marked 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, a 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 telecommunication giants as American Telephone & Telegraph Co., Canada’s Northern Telecom Ltd. and Sweden’s L.M. Ericsson.

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 likely would 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 government.

Hughes already is a major builder of commercial satellites, and a provider of satellite-based transmission services. Hughes also has put a priority on selling equipment to the cellular market, particularly now that cellular providers 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.

After Hughes’ award was announced, stocks of several other providers of cellular equipment fell sharply, including San Diego-based Qualcomm Inc., which plunged $4.50 a share to $51.50 on the NASDAQ market.

But Qualcomm President Irwin Jacobs said his company did not bid for the contract won by Hughes, but rather is offering one of the new digital formats that would operate on the Hughes-built network. Investors apparently misinterpreted the Hughes award to mean Qualcomm would no longer be able to sell its format to BellSouth, he said.