The National Security Agency, determined to combat electronic spying by the Soviet Union and other nations, plans to equip federal agencies and private contractors with as many as 500,000 telephones that are secure against eavesdropping.
The U.S. government now has about 1,000 such telephones, which scramble phone signals into electronic noise that is meaningless to a listener unless it is decoded at the other end of the conversation.
Reagan administration officials say there is little doubt that the Soviets and others routinely intercept U.S. telephone conversations, which are transmitted by both microwave and satellites.
"It's the simplest of technologies to intercept telephone communications," an NSA spokesman said. "The trouble is the private sector has not worried about it. This is the first time there's a major effort to extend secure telephones to the private sector."
President Reagan recently signed a national security directive to launch the effort, and production of the phones is expected to begin within two years. The phones will be used by senior officials at such agencies as the State and Defense departments and the CIA, as well as by military contractors and other companies that deal with classified information.
The NSA recently sent a questionnaire to 2,000 companies to determine their level of interest in such equipment, which may be used increasingly to protect financial and technical information as well as military secrets.
"The U.S. government has initiated an effort to develop a low-cost, user-friendly secure telephone instrument," the letter says, adding that such phones will be made available to companies "who have a need to protect their communications."
The NSA has been working with five contractors -- AT&T, ITT, RCA, GTE and Motorola -- and plans to select two to refine the phone technology. Secure phones now cost more than $30,000 apiece and weigh about 70 pounds, but the NSA hopes to develop smaller models that would cost about $2,000 each.
Rep. Glenn English (D-Okla.), chairman of the House Government Operations subcommittee on government information, justice and agriculture, has asked the General Accounting Office to determine whether plans to secure information from telephones, computers and word processors may be too costly. English told the GAO, "The national security bureaucracy has a tendency to require a degree of protection for classified information that may be excessive."
"If it's not needed, it's going to be real expensive to do it," an aide to English said of the phone plan. "If it's just a status symbol for a bureaucrat to have a secure phone on his desk, it's not worth it at $25,000 a crack."