Industry Committee on Aug. 7th, 2009

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Tay.

Madam Coady will be the last member today.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Thank you very much, Mr. Chair.

Thank you very much for being candid in your remarks and for being here today.

I'm going to make a quick overview. I believe this discussion we're having today is all about people. It's about the current employees, it's about potential future employees, it's about the pensioners and the people who helped Nortel get to where it is today, and it's about the people of Canada and their investments in innovation and future jobs for our country. I'd put that in this context.

I heard you say earlier today that you had a number of meetings--I believe you said 13--with the Conservative government on this very issue. You put forward a plan, and they came back and said basically that the industry is not at risk, that they didn't believe in going forward with you. If they had done that, what do you think the outcome would have been? You obviously went to them with a plan. You obviously had an idea of where you wanted to take this company, and you asked 13 times for assistance. Could you describe what you thought would have happened?

[George Riedel]

Go back to the structural challenges that this business faces. You need scale. It's simple, it's straightforward; you need scale. The solution would require some form of consolidating transaction. Is it an acquisition? Is it a partnership? Is it a merger of some type? You actually need that for this business to survive going forward. If you have to speculate about support in going forward, it would lead to where we are today, meaning safe hands for both people, as you point out, and for customers, partners and creditors, to see a brighter future.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Your plan to government was to do just that, to achieve that scale?

[George Riedel]

We had two different plans. We had an “on our own”, because mergers and acquisitions are never too easy to predict or control. And then, if we could find a partner, what would that look like? So there were two versions of what we were trying to seek.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Do I have more time, Mr. Chair?

Coming to the next set of questions, this is about the patent issue that colleagues have been talking about. Now that we know the patents are not being sold--we understand that they're being licensed--what's going to happen to the IP resulting from the continued development of those patents? And what's going to happen to the employees? I think you've established what's going to happen to the employees, but there will be revenues generated by these licences and we haven't talked about the enhancements to these patents and the go forward from that perspective.

[George Riedel]

Right. The patents have a long life. Unlike some of the businesses, particularly post-filing where there was great pressure, the patents actually have a value that will continue for quite some time. What we're trying to do is develop a fact-based approach to come back to the courts and the monitors and say, here's how we would go forward to monetize and maximize the value of these assets. Therefore, do we keep some? Do we sell all? We don't have that answer yet.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Riedel.

Thank you very much, Madam Coady.

Before we suspend the meeting, I'd like to ask Nortel if they could provide this committee, over the course of the next number of days or the next week, with information on the use of SR and ED tax credits, of the use of EDC bonding facilities, or any other form of financial assistance, not only since 2001 but over the last number of decades, or the last 30 years. If Nortel could provide that to the clerk of this committee, Madame Dumas, she would distribute that to members of this committee. It would be helpful information that would help guide us in our deliberations.

[George Riedel]

Mr. Chairman, we'd be happy to do our best to pull together that information.

[The Chair, Conservative, Michael Chong]

Thank you very much.

I'd like to thank our three witnesses for appearing.

We'll suspend for 15 minutes and reconvene at 10:30.

[The Chair, Conservative, Michael Chong]

Good morning to everyone.

Good morning, everyone. We're here pursuant to Standing Order 108(2) and the motion adopted by the committee on Friday, August 7, 2009, to study the proposed sale of certain Nortel Networks assets.

I'd like to welcome our witnesses. We have two representatives from Research in Motion in front of us today. We have Mr. Mike Lazaridis, who is the president and co-chief executive officer; and Mr. Robert Crow, who is the vice-president of industry, government and university relations.

Welcome to you both.

We'll begin with a 10-minute opening statement.

[Mike Lazaridis, President and Co-Chief Executive Officer, Research in Motion]

Thank you.

Mr. Chair, honourable members, deputy minister, colleagues, and friends, thank you for inviting me to join you today. I am president and co-CEO of Research in Motion Limited. I founded RIM with my friend Doug Fregin while we were still students. This year we are celebrating the 25th anniversary of RIM and the 10th anniversary of our flagship product, BlackBerry.

After 25 years of building a global technology company, I know the wireless telecommunications industry extremely well. This includes the suppliers of wireless network infrastructure. It is not widely known, but in addition to building great smart phones, RIM owns and operates one of the world's largest Internet protocol networks connecting to more than 400 networks globally. As a result, Nortel is well known to me and at one point was even a strategic investor in our company, so I was especially saddened by Nortel's demise. What was once Canada's crown jewel in technology failed as a business and is now being chopped up and sold off like so much cordwood.

As in most failures of large companies, the mistakes that led to Nortel's insolvency were made many years ago. Only recently did the company run out of business momentum, but by the time there was serious talk of saving Nortel last year, it was far too late to save it in its current form. A global financial crisis and its huge debt load were the final straws.

None of this is meant to suggest that Nortel was not then or is not now of value. To be sure, Nortel has a few operating divisions with good business prospects and, more importantly to Canada, a collection of intellectual property and teams of great researchers who produced it. The teams and intellectual property were built up over many years, and much of that occurred right here in the Ottawa area.

Some of the IP is associated with Nortel's legacy businesses and will be of little value over time. However, Nortel's intellectual property and workforce devoted to next-generation wireless research known in the industry as LTE, or long-term evolution, is nothing short of a national treasure that Canada must not lose.

Let me tell you why LTE is so important. LTE is by far the most widely supported architecture for the next generation of wireless networks. LTE will provide faster data speeds and better customer experiences than current networks today. This will enable governments and the private sector to deliver more and better services over wireless networks, including those required in times of national emergency and crisis.

LTE will also be a very big commercial opportunity for the entire industry, including infrastructure suppliers, handset manufacturers, and application developers. Bell, Telus, and Rogers have all announced plans to deploy LTE when it becomes available. So too have Verizon wireless, AT&T, Vodafone, and many others internationally.

There has been a lot of speculation that RIM's primary interest in Nortel's assets is its LTE research workforce and intellectual property. I can confirm that this is true. In fact, we were engaged in intense negotiations with Nortel over a number of months to acquire a number of LTE assets and associated research staff. These discussions started before Nortel filed for bankruptcy protection in January, and it continued with an expanded scope afterwards.

We at RIM want to continue the legacy of Nortel's great LTE research personnel by combining their next-generation wireless work with our own and integrating them with our R and D division. If we are able to do this, the ability to commercialize LTE products in the future will remain in Canada with a Canadian global leader.

As experience shows, in our industry and others the most important research programs are performed in close proximity to headquarters of global leaders, and the overall impact of such research is greatest in countries whose companies retain the rights to commercialize the resulting discoveries. That impact is measured not only in jobs, exports, and earnings, but also in spinoffs, community investments, and philanthropic support of education, health, social services, and the arts.

How our discussions with Nortel failed to produce a good outcome for RIM and for Canada is another sorry story in the debacle that is Nortel. Suffice it to say that Nortel failed to bargain in good faith and failed to honour promises made to RIM on many occasions. Without regard for these promises, Nortel made deals with Nokia Siemens Networks and then with Ericsson that render Nortel's assets in LTE of limited value to RIM or to any other firm.

When we later tried to enter the auction for the entire wireless division in an effort to preserve the value of these assets, Nortel delayed and demanded a condition that would have prevented RIM from offering to acquire the important LTE assets. This condition was irrelevant to the other bidders but not to RIM. I simply could not agree to it.

Those of you who have visited me in Waterloo will remember the model Avro Arrow that always sits on my desk. By sheer coincidence, this year is the 50th anniversary of the cancellation of the Arrow program. Whatever anyone may think, good or bad, about the decision to cancel, one fact is clear. The failure to salvage the valuable intellectual property and to maintain the workforce from the abandoned project was a strategic error. By discarding the intellectual property and dismissing the workforce, Canada threw away a significant beachhead in the future of aviation that could have benefited our citizens for many generations to come.

Fifty years later, we consider the disposition of another beachhead built by Canadian ingenuity. Let us learn from our history and not make the same mistake again.

The current government fully understands what happened. In May 2008, speaking on its behalf, the then minister of industry stated, and I quote:

When it comes to decisions on whether foreign purchases represent a net benefit to Canada, my bottom line is this: Canada must retain jurisdiction and control over technologies that are vital to the future of our industry and the pursuit of our public policy objectives. We will not accept loss of jurisdictional control to another party.

Mr. Chair, in my view, the Nortel transaction as currently structured is not in Canada's best interest, and I believe it is incumbent upon the government to examine it thoroughly with every resource at its disposal, but we also should try to find a solution that can work for the parties and for Canada, because a win-win solution may be possible.

To this end, I believe that the Minister of Industry should initiate a four-way discussion among the government, Nortel, Ericsson, and RIM. Minister Clement's stature is such that he may well be able to fashion, over the next few weeks, an outcome that serves the interests of all parties and of Canadians. Given such an opportunity, I can assure you that RIM would engage with the other parties in a most constructive fashion.

Thank you. I look forward to your questions.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Lazaridis.

We'll have about an hour of questions and comments from members of this committee, beginning with Madam Coady.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Thank you very much. We appreciate your being before this committee today and your intervention in these discussions and the information you're going to provide. We appreciate that and we appreciate RIM's being a Canadian company. It's a leader in the world today. So thank you for that.

I have a number of questions concerning the transactions and what has occurred, for clarity purposes. I'm going to start by asking a simple one. How did you participate in the sale process for Nortel's wireless assets, and did you participate specifically in the stalking horse bid process?

[Mike Lazaridis]

Those are very good questions.

We started working with Nortel earlier than the bankruptcy process. We realized there were some assets there that we were interested in, and we started good faith discussions with them that came very close to completion.

We were surprised by the bankruptcy announcement, but we didn't give up and we continued working with their staff and their senior management, and we expanded the scope of the purchase because it was being offered during the bankruptcy procedure. Again, we thought we came close, and then we realized that there were other parties involved and other assets being sold and that the way those assets were sold critically limited the value of the LTE assets we had been pursuing for months with Nortel executive management.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Going further, can you talk about the stalking horse bid process, how you were or were not involved, specifically?

[Mike Lazaridis]

Sure.

The best way to think about the stalking horse process is that it's a baseline created by the first bidder, and then other bidders have to build on top of that without changing it. And that's the critical piece: without changing it.

Unfortunately, the stalking horse bid was structured in such a way that it critically reduced the value of the LTE assets to us and to other companies. When we realized that had happened and decided to enter the bidding process, the same process caused a standstill, so that if you entered the bidding process by signing the NDA, you had to enter a standstill and could not bid on more than one asset at a time. Of course, the whole value to us was the LTE assets, including the workforce, the research technology, and the patents. If we had signed that agreement, we would not have been able to purchase both at the same time.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

I'm going to ask you to suppose you had been successful through that process. What value do you think you would have brought to Canada, to the employees of Nortel, to the pensioners, to everyone, including RIM, if you had been successful in the process?

[Mike Lazaridis]

I'm a great believer in high technology and I'm a great believer in science and research and development. For those of us who are really involved in science and research and development and who understand its true potential, we realize there are these seeds that need to be nurtured before they can be planted. That's one of the reasons I've been so passionate over the last decade about investments in science and technology.

If someone were to ask me, why did you invest in quantum computing, why did you invest in theoretical physics, why did you donate a quarter of a billion of your own funds to these pursuits to help Canada and Canadian academics and institutions; and can you give us concrete examples of how that's going to help, that would be very difficult for me to answer—although in the last nine years or nearly a decade that we've been doing this there have been some glimmers of where that technology's going to benefit us and the world. But what's key is the researchers, what's key is the people, because they're the ones who understand the value of the technology; they catch a glimpse of the vision of where this is going to take us, where it's going to lead them and their company and their country. It's very, very important for us to get a sense of that and to participate in it.

So the people are absolutely important. The work they've done is absolutely important, and the way they've protected that work is absolutely important. As for where that will lead us, I could speculate, but what I can tell you is that the whole world is switching to LTE. It will be the most standardized global wireless infrastructure ever created. And the investments will be huge, and so will the opportunities. We just want to make sure that before we give up that technology to another country, to another industry, we analyze this transaction thoroughly to make sure it's in the best interests of our industry and country.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

You've asked publicly that this be reviewed under the Investment Canada Act. We talked to Nortel this morning, who said they didn't think they met the thresholds required under the Investment Canada Act. Can you talk about why you think it's so important to review it under that?

[Mike Lazaridis]

Much of that is actually explained in detail in my brief. I'm not an expert on the act. What I can tell you, though, is that the transaction is a very large one. I can tell you that the players who participated in the process thought it was a very important one, and they bet large amounts of money on it. That should be enough for us to sit down and think about it.

I would also state that if you look at how prevalent BlackBerry and wireless communications are among current governments, law enforcement, and the military around the world—there are over a million BlackBerrys being used by that sector alone—you will start to get a sense of how reliant our countries, our governments, law enforcement, and the military will be on this technology in the future.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Lazaridis.

Thank you, Madam Coady.

Monsieur Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chairman.

Thanks to you as well for being here. First, I must tell you that we of the Bloc Québécois are open to discussing the Ericsson-Nortel transaction and even another transaction concerning you which might have been conducted. We want to ensure that this kind of transaction has positive impact in Quebec. We want Quebec to come out of this without a loss or to benefit by it. Ericsson and Nortel currently have operations in Quebec and we hope they will stay there.

Do you have any investments in Quebec, whether it be your headquarters or a research centre? You could also talk about your investments across Canada to inform the committee. What operations are you carrying on in Canada, more particularly in Quebec?

[Mike Lazaridis]

Thank you very much for that question.

We don't currently have offices in Quebec. We do support university research there.

What I can tell you is that as RIM started to grow very, very quickly, we were surprised that we outgrew the ability of our local population and institutions to supply us with high-quality personnel. We started to grow, and you could see how our offices grew into Toronto and into Ottawa, and our offices will continue to grow as we seek personnel. So it's very possible that we will have offices in areas of great technology, and certainly Quebec has a great history and tradition in technology.

What I think is very, very important that we understand is that being a leader in a technology, especially at the R and D stage, being involved in a global standard, has allowed Nortel to have a seat at the table of the standards body and in the standards process. That is very, very critical, because they have shaped the technology; they have contributed to and helped shape the technology we're all going to rely on in the future. I think it's critically important that Canada continues to have that position and to have that seat at the table. It's not just one company and one city, but this is important for all of Canada, because the whole world will be going to the 4G technology; and when it does, the last thing I want is to be excluded from the seat at the table.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

In the Ericsson-Nortel transaction, Ericsson is committing to retaining 2,500 Nortel jobs in Canada, including in Quebec. We know your intentions regarding the price you would have been prepared to pay, but if you had acquired Nortel, what would your commitment have been with regard to the number of jobs to be retained in Canada and Quebec, since Nortel has employees in Quebec as well?