Decision: Geoff Hoon

Defence secretary Geoff Hoon has named an American company as preferred suppliers of the army's new communications system.

Computer Devices Canada, an American-owned company, beat two other consortiums, the French-based Thales group and the US group TDW, to the £1.7 billion contract.

Geoff Hoon, Defence Secretary told the Commons there was only one choice."This is good news for the armed forces and for British industry. CDC offered an impressive solution that fully meets the military requirement in the right timescale and offers best value for money. It was the clear winner," he said.

Hoon said the Ministry of Defence aimed to let a contract in late summer and have the new radios in service early in 2004. The new Bowman radios will be 10 years late and will have costs of £144 million written off.

The government is believed to have chosen CDC because it will set up a factory in South Wales that will create 1500 jobs, boosting an area hit by sackings from the Corus steel company.

The company has also earmarked South Wales for a new Army Communications Technology research and development centre. This will be staffed by around 65 leading scientists. Other regions will benefit as well with sub-contracted expected to create more than 100 jobs in Scotland and a further 300 jobs in south west England. Major UK sub-contractors include Alvis and GKN-Westlands.

The announcement was welcomed by politicians in South Wales. Labour MP for Caerphilly, Wayne David said the announcement was "excellent news" for the area.

"This will make a positive impact on an area which has suffered so badly - both recently from Corus cuts and from previous economic decline," he said.

News of the jobs in Blackwood, Gwent, was also welcomed by local Liberal Democrat Welsh assembly member, Michael German.

"I'm delighted at the news of hundreds of long-term, high quality jobs for one of the hardest-hit areas of Wales," he said.

"The Gwent valleys have suffered enough job shocks this year, with the Corus cuts in Llanwern and Ebbw Vale and other manufacturing losses at Selectronand General Electric. This news shows that investment confidence is still high in Wales as a prime location to do business," added German.

Plaid Cymru's Islwyn assembly member for Islwyn, Brian Hancock also said the announcement was "tremendous news". He added: " I am especially glad to learn that the UK Government recognises both the technological and manufacturing skills of South East Wales, and such a move will encourage other such investors to look to the region as a site for future and further developments."

CDC, which is a subsidiary of General Dynamics, currently supplies radios to the Canadian military using a system called IRIS.

Thales, which owns Racal, announced that 450 jobs would be cut from its factories in Bracknell in Berkshire and Harrow in Middlesex as a result of the decision.

The company issued a statement describing the announcement as "a missed opportunity". "Certainly 3000 jobs would have been sustained, we pledged that 1000 new jobs will have been created and £800m in exports would have been achieved. Obviously this will not now happen," said a spokesman.

Currently the army uses the now hopelessly elderly Clansman radio system which dates from the 1960s. It is now so far behind that soldiers in Bosnia resorted to using their mobile phones - which had digital encryption technology - because the radios were being listened in to by the Serb military.

The long saga has proved an expensive and embarrassing mistake for two successive governments and procurement specialists at the MoD. Specification for the radios changed countless times and millions of pounds in tendering costs have been written off by the government.

Using the new smart procurement procedures the government cut the contract price from £3.9 billion to the current figure and set a two-year deadline for a decision.

The then defence procurement minister Baroness Symons called the bidding process "a watch-word for mistakes".

The new radios will provide secure communications for both voice and data transmissions. An advanced tactical communications system, it will utilise VHF, HF and UHF radio communications as well as advanced fibre optic technology. The specification is designed to allow large quantities of high quality and timely information to be transmitted across several wavebands. It will also use global satellite positioning.

The delays have led to other parts of the UK military ordering separate equipment so when Bowman does arrive, many soldiers will find themselves carrying two radio sets around.

Some military experts also warn that the new system could be obsolete before it reaches the battlefield.

"The challenge for the government is that the army has got to have a workable system for the digital battlefield," said independent defence analyst Paul Beaver.

"All three of the contenders have produced capable products. The difference is that the CDC system is a new generation product and is capable of delivering the system on time. The government and the army will take some comfort from that," he said. "The army needs a system and there is potential for jobs and export."

The decision, Beaver believed, would not be the end of problems for the government.

"This is likely to be the death knell of British radio communications. Racal has years of experience, what skills can steel workers bring and how much is actually going to be made in the UK? The other danger is that rather than getting what the army wants they end up with something the Canadians already have," he said.