Charges of a conspiracy between American Telephone and Telegraph Co. and International Business Machines Corp. in the telephone equipment market during the early 1970s surfaced today in Litton Industries' $600 million antitrust suit against the Bell System.

The allegations surfaced as former AT&T chairman John deButts insisted that he still believes that competition in the telecommunications business is "not in the public interest."

While deButts vigorously defended AT&T policies during the early 1970s, the allegations of a conspiracy between AT&T and IBM raised a new and potentially explosive issue into the national telecommunications debate.

Litton attorneys are hoping to introduce evidence here next week, when deButts' testimony continues, that allegedly shows that a conspiracy existed between the two giant companies. That conspiracy allegedly resulted in an IBM decision not to enter the telephone equipment market.

Attorneys for Litton have asked U.S. District Judge William Conner to permit the use of documents that Litton alleges demonstrate the existence of the conspiracy.

According to statements by Conner in open court, Litton has filed a memorandum with the court that cites meetings between deButts and Frank Cary, a former IBM chairman, in July 1974.

Although Litton left the telephone equipment business in February 1974, before the alleged discussions, attorneys for the California-based firm hope to use the meetings and the alleged conspiracy to prove AT&T's market power in the equipment field -- the crux of their case.

Litton told Conner that the "alleged conspiracy or understanding" is "evidence" of the "intent of AT&T to monopolize the terminal equipment market", Conner said.

Conner also said that Litton charges that IBM's decision not to enter that field came after meetings with AT&T personnel and pressure applied in various ways.

However, Conner has not decided officially whether to permit the documents to be introduced in the case.

AT&T is perhaps the largest purchaser of IBM equipment, and the alleged conspiracy may rest on those sets of business transactions.

IBM marketed telephone switching equipment in Europe in the early 1970s but decided not to do so in the United States.

The potentially explosive revelation ironically comes at a time when both the Justice Department and AT&T say they are on the verge of settling the government's six-year-old antitrust case against the Bell system.

Simultaneously, an 11-year-old Justice Department antitrust case against IBM, which has been in trial for about four years, also may be decided by a federal judge later this year.

On its own, however, the Litton case is a particularly bitter battle, not unlike last year's MCI Communications Corp. antitrust suit against AT&T. In that case, a jury awarded MCI $1.8 billion in damages. Litton is seeking a similar award, also from a jury.

But Bell has charged that Litton's failure in the telephone equipment business was based on the firm's mismanagement and alleged illegal activity.

During opening arguments, AT&T lead attorney Leonard Joseph charged that an internal Litton investigation concluded that the company "screwed up a very promising business by misrepresentations, mismanagement, participating in or condoning illegal activity."

Joseph also charged that Litton employes were "stealing from the company, embezzling large amounts of company cash" and were "doing anything they can to get business, that they are even giving girls to make sales."

The deButts testimony moved slowly today as Litton attorneys read lengthy portions of Federal Communications Commission decisions and AT&T internal documents into the record.