Industry Committee on Aug. 7th, 2009

[Richard Dicerni]

I'm sorry, I believe the national security regulation is the one that's—

[The Chair, Conservative, Michael Chong]

August 10, okay. And what about the regulations for the new enterprise value? Are those in public comment period as well right now?

[Marie-Josée Thivierge]

Yes, and in fact the regulations were published in the Canada Gazette, Part I on July 11, 2009.

[The Chair, Conservative, Michael Chong]

After the public comment period expires in three days, when will those regulations come into force?

[Marie-Josée Thivierge]

The normal process is that there's a phase of prepublication in part I. We receive submissions from people who have views on the regulations. There could be a follow-on publication again or, alternatively, a final publication. It really depends on what input is received from stakeholders.

[The Chair, Conservative, Michael Chong]

Thank you very much.

We'll go to Mr. Rota.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

Thank you, Mr. Chair.

Thank you for being here this afternoon.

I'm just trying to clarify a few things in my mind. As far as the Investment Canada Act goes, does it have to be a complete sale of a corporation or an entity, or can the value alone of part of that entity trigger the act?

[Marie-Josée Thivierge]

The Investment Canada Act provides that it can be either a whole enterprise that is subject to a transaction, or control over assets of an enterprise. There are a number of provisions detailed in the act and regulations that define what an enterprise is.

The regulations that were made public for public consultations talked to the concept of the enterprise value when a whole enterprise is the subject of a transaction versus when part of an enterprise, such as a substantive asset, is part of a transaction.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

There has been some discussion about book value and actual value of the part of the asset that's being sold or transferred. Can you clarify that? Is there any way of clarifying that?

[Marie-Josée Thivierge]

The Investment Canada Act is very clear about what the value of the assets is and how it needs to be determined for purposes of applying the threshold and determining whether or not a transaction is subject to the act. So it is in regulation. It talks about the asset value in the last audited financial statement of the Canadian enterprise. That's the basis upon which we currently establish whether or not a transaction is subject to the net benefit review under the act.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

If we can make it a little more specific to the situation we have now, I've been looking at what has been suggested and how things have been playing around, and they haven't been overly clear. I'm drawing a picture in my mind and I want to know if this is a plausible outcome.

If you look at Nortel as it stands, it has a number of corporate tax credits and SR and ED tax credits sitting there--real assets--probably worth more than the company is worth if they had a profit. If a company like Nortel were to dispose of some assets so it could build up some capital, start turning a profit, and use those tax credits, it could conceivably start building again and become a viable company.

It has these assets, has leased them out, and has revenue. Under what's happening now, would creditors and pensioners still be on the line or owed the money if that company, like Nortel, were to resurrect and start turning a profit based on the remaining assets within that company?

[Richard Dicerni]

Obviously Nortel would be a much better position to comment on the adequacy of the various scenarios you've laid out.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

But would they be in contravention of the act if they were to come through this and come out on the other side as a viable company?

[Richard Dicerni]

I don't understand how they would be in contravention.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

That's what I was hoping you would say.

[Richard Dicerni]

I'd need to think through the hypothetical scenarios.

I just want to go back to one thing. When they filed--because one sometimes loses some perspective on this--the company said:

This process will allow Nortel to deal decisively with its cost and debt burden, to effectively restructure its operations and to narrow its strategic focus in an effective and timely manner.

That was in January. I just want to put that in context. I think there were some people within the company at that time who quite genuinely were thinking, hoping, and planning to use this period of time to restructure the company and come out at the other end.

[Anthony Rota, Liberal, Nipissing—Timiskaming, ON]

So that process or intent didn't necessarily end as of January or this week, when this announcement was made.

[Richard Dicerni]

This is one part of their operations. They have many other parts. I believe Mr. Riedel testified that the company has not finalized its thinking on what it's going to do with the remaining patents.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Dicerni and Mr. Rota.

Mr. Van Kesteren.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

I thank all of you for appearing before us today.

I have a question and I want to get it out of my mind. I suppose I could ask this to any of the deputy ministers, but is there another example of carriers and equipment conglomerates globally positioned? We had testimony before us today of the attempt by RIM to purchase what I would consider the carrying part of the industry. Are there other examples of that in the world today, where equipment makers like RIM also have that capability?

[Richard Dicerni]

I'll ask my colleague who interfaces with the telecom sector on a regular basis to respond to that.

Within the broad issue of these patents and 4G technology, there are a number of companies out there who are working on patents to develop the 4G generation of handsets and cellphones so that we can all do many more things on our BlackBerrys, cellphones, and so forth. Obviously, Nortel was one. However, as I think one of the Nortel people mentioned this morning, it's one thing to be getting kudos from the industry, but if your customers aren't buying, it's not commercializeable research.

Helen.

[Helen McDonald, Assistant Deputy Minister, Spectrum, Information Technologies and Telecommunications, Department of Industry]

I think you heard this morning about how important the fourth-generation LTE is. About every major player in the telecom equipment or telephone or telecom infrastructure business is trying to work on technology related to LTE. That would include Alcatel-Lucent, Ericsson, Samsung, NEC, Huawei, Qualcomm, and Nokia.There's a variety of six, seven, or eight big players in that space who are trying to build up their intellectual property in this area.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

For my final question, I want you to explain to us how common it is for companies to receive R and D tax credits. One of the arguments we heard this morning was that Nortel has received so much in that direction and has received so many tax credits that we pretty much owe it to ourselves to.... How common is that within companies to receive those credits?

[Richard Dicerni]

The research tax credit is very popular in Canada. There are billions and billions of tax expenditures used by companies that are involved in R and D in this country. Unfortunately, in order to capitalize on a tax credit you have to generate net income, and as the people from Nortel were mentioning this morning, they were having difficulty generating net income that would permit them to capitalize. The R and D tax credit that we have in this country, I think, is a very good one. It's a very generous one and is much used by a number of R and D companies to pursue their strategic goals.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I'm done, Mr. Chair. If it's possible, I'd like to split my time with my colleague.