Industry Committee on Aug. 7th, 2009

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Henderson, for those remarks.

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

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

Thank you, Mr. Chair.

Thank you, Mr. Henderson, and thank you all for coming this afternoon.

The CDMA architecture is an architecture that is, let's say, in its dying days or is losing popularity; it's being replaced. What are your plans for the technology and how do you plan to use it? How do you see it being used over the next number of years as it phases out of use, basically?

[Mark Henderson]

Thank you for that question.

To back up a bit on global standards—and I think we heard a bit of that today—the mobile telephony world has basically been split into a global standard, which much of Europe and Asia have been on, but North America has continued down the road of having two main standards: one CDMA and one GSM.

As it becomes apparent that the CDMA technology is mature and will slowly be phased out, from our perspective and what we've seen from the past when other technologies are weaned out of the market--and we've had examples in the past of another technology that used to be here in Canada called TDMA--even though the technology is being overlaid with a more advanced platform, that existing technology continues to operate in the market for quite a few years and is basically sunsetted out of things. The idea here is that because the CDMA customer base is so attractive and is large in North America, that presents an opportunity for growth to Ericsson if we continue to support these networks as they're growing and, hopefully, bring new technological solutions to that customer base when those solutions are required.

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

So as the CDMA architecture or technology fades or goes, the jobs and servicing of that technology will remain in Canada.

[Mark Henderson]

The service jobs--the 800 employees, as defined in the auction process--are really one of the key values of what we are taking on. They are absolutely essential to retaining the viability of that technology out in those markets.

In the past with Ericsson, it has been the case that when technology was sunsetted, because you had that competence in the company, you started to disperse jobs into new lines of technology so those jobs were maintained and grown.

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

Very good. Thank you.

On the other hand, there are Nortel's LTE assets and the technology involved, and you're licensing it. I'd like you to elaborate a little on that, because there have been some questions this morning about licensing it when Nortel is the owner. You're basically leasing the technology from Nortel, and we're not sure about the future of that company. So how do you rationalize leasing from a company that you're not sure is going to be there much longer, and what happens when that company is dispersed or disappears?

[Mark Henderson]

It's a complicated area, the way this has all been defined and how, through this stalking horse process, the assets, patents, and employees have been framed very tightly in a box. A good analogy is that it's a box of apples. You go into the store and say you have an interest in those apples because you need to make some pies. You say you'd also like to buy some pears. They say, “No, today we're only selling apples. Tomorrow you can buy pears.” When you ask if you can buy the farm as well, they say, “No, the farm stays here.”

So on the use of the technology, the patents are basically perpetual. Because this is a new innovation, the technology will live for years and years to come. The patents are licensed, so the ownership is retained by Nortel. As we heard today, I don't think they've gone through the process of deciding how those patents will be owned in the future--who will own the farm. But that is the benefit of licensing them--perpetual use of that technology. Because it's licensed on a non-exclusive basis, other companies are free to make those same agreements.

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

That's interesting.

As far as employees go, you have an existing employee base in Montreal.

[Mark Henderson]

Yes.

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

You don't have a large employee base here in Ottawa. Will you maintain both centres and retain the same number of employees, or will you be looking at merging them at some point and having one large centre where all the research is done?

[Mark Henderson]

Today we have two research and development facilities. One is in Vancouver, with about 200 people, and that deals with primarily IP and router-based technology. In Montreal we have 1,500 employees running a number of multimedia and network-based programs.

There are good reasons why those facilities are there. One's in Montreal because of the longevity of the facility there. It's one of our crown jewels in Ericsson's global development strategy. We have a very tight affiliation with a number of universities in Montreal, including McGill and École Polytechnique, and universities in Ontario and Vancouver. We draw competence from this university system.

The types of development being done in Montreal are quite different from the competence we're getting in Ottawa. Of course, that competence in Ottawa has also been built up from an ecosystem of educational platforms. Our statement has been that we will not integrate these research and development hubs. They will run as separate entities, and there's a reason for them to be in those areas.

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

So you see them both growing separately, and the existing jobs basically remaining in place.

[Mark Henderson]

That's correct.

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

Very good.

[The Chair, Conservative, Michael Chong]

Please be brief.

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

I'll stop here because my question is a long one.

[The Chair, Conservative, Michael Chong]

Okay. Thank you very much, Mr. Rota and Mr. Henderson.

Monsieur Bouchard.

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

Thank you, Mr. Chairman.

Thank you very much for being here to testify before the committee this afternoon.

We of the Bloc Québécois are in principle in favour of the transaction, but we want to ensure that it is fair with regard to Quebec jobs. We also want the transaction to be in the best interests of the Quebec population.

Earlier my colleague asked you a question concerning the research centres. He told you that Nortel has a research centre in Ottawa and one in Montreal. You also have your headquarters in Montreal.

Could the acquisition of Nortel put a brake on the development of your research centre in Montreal and your North American headquarters?

[Mark Henderson]

The quick answer to that is no. As a matter of fact, we feel that this will actually enhance our base in Montreal.

I think I need to say a few words about Ericsson globally. It's a very old company, developed in 1876. You can tie a lot of parallels between Nortel and Ericsson from that perspective. The company has been in Russia since the time of the czar, in China since the turn of the century, and in many countries for many decades.

The one fact about Ericsson is that it has never, ever left a market. We operate in 170 countries today and we are the world's leading telecommunications provider. Even in the worst times in telecom--and I'm thinking about the earlier part of this decade when a lot of the equipment vendors, including Ericsson, were cutting their staff by almost 50%--the research and development centre in Montreal was maintained as it was, static, and even growing with assignments because of the competence and the products that we develop in Montreal and the importance of the ecosystem we have here in North America.

I think this acquisition and the fact that we basically will be increasing our R and D spending in Canada by up to 50% make this an even more important facility for Ericsson, part of Ericsson's global strategy for development, and should, I would say confidently, allow us to bring more assignments into Montreal.

Thank you for your comments about its importance in Quebec.

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

When a business the size of yours acquires another business, Mr. Henderson, there's always a rationalization or consolidation plan. That's what I saw when Rio Tinto bought Alcan. At its Montreal headquarters, it removed one level of responsibility. I believe 400 management positions were eliminated.

You have no doubt thought about that and you no doubt have a plan. I'd like to have some information on that rationalization or consolidation plan that might be developed once the transaction is completed.

[Mark Henderson]

Thank you. I understood that comment from earlier today as well.

I think one of the things we have to keep in mind with the auction process--the assets, personnel, and technology that Ericsson is picking up--is that these assets are a result of years of deep restructuring inside Nortel. These kinds of reductions and streamlining have been done, as we know, year over year. It's our opinion that these resources and these jobs are critical. They are the cream of the crop. They are absolutely essential to maintaining and growing the business that we're taking on and to integrating into the other business of Ericsson. I think we've stated publicly that this is not about layoffs; this is about employing those 800 people in Canada and making sure we're focused on growth.

We're obviously very interested in the business. We're paying a lot for the business. After all, in the end it is a business, but we will maintain these jobs.

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

If I understand correctly, you don't have a plan for consolidation, rationalization or job cuts. Instead you seem to have a plan to increase staff. You talked about adding 800 jobs to what there already is in Canada. Is that correct? Based on your estimates, where will those 800 additional jobs be established?

[Mark Henderson]

I think we've talked about where the jobs are, but I know that approximately 550 of these are in Ottawa, 46 in Toronto, another 50 in Calgary--I'm sorry, I'm adding these up quickly--and about 60 in Montreal. So they are spread across the country in a number of regions.

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

There are 400 employees in Ottawa. You are adding another 100 or so and you'll be distributing others to various locations, for a total of 800.

[Mark Henderson]

Yes, the total number of employees is calculated at approximately 800. Of those 800, as I said, about 500 are in Ottawa. They're supporting the LTE development activity in Ottawa, some of the CDMA activity in Ottawa, and the rest across the cities are supporting primarily the CDMA business, the ongoing legacy business of CDMA across the country. That's why they're in those cities.