Industry Committee on Aug. 7th, 2009

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

Thank you.

You've also mentioned—and I appreciate this too—the significant tax advantages that we've put in place as a government, making Canada a very good place to invest. Can you comment on the domestic economy and the state it is in, and what your plans for Canada in the long haul are in relationship to the position the economy is in?

[Mark Henderson]

I can make a general comment about the economy. It's interesting to us that it appears that the recession is such, as we've seen lately in the paper, that it seems to be flattening and we're looking at a period of growth, even if it's going to be long and slow growth.

The wireless industry has been a rather robust industry over the years. I think even in this climate that we've seen over the past few months, people will give up a lot of things before they'll give up their cellphones. They'll stop doing a lot of things. As a result of that—and I think our financial results show this—we have been able to maintain an extremely good financial position in the market. It doesn't mean that we're not cognizant of the fact that we're part of the food chain and we could see an impact from this later on, but obviously it's absolutely paramount and always has been paramount to Ericsson that we have a strong financial position, because it's only through that that we get to be masters of our destiny and take the decisions we need to take and not have others take them for us.

Because it seems like the overall growth in the wireless industry has not decayed even through this recession, when it comes to R and D and future development here in Canada, I would say it remains very robust, static, and we hope for growth.

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

Very quickly, have you taken advantage of any of the SR and ED credits in the past, and if so, how?

[Michel Peladeau]

I'll answer the question.

As Marc mentioned, Canada is very competitive in Ericsson's world. It's a very good country for R & D tax credits and other provincial credits. Ericsson has taken advantage of those credits over the years until last year. It took advantage of all the credits that were available.

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

There's another question that I think really needs to be asked too. If the proposed sale of the assets of Ericsson are blocked by the Government of Canada, what message do you think that would send to the international community regarding Canada's openness to FDI?

[Mark Henderson]

On FDI, I don't think that would be a great message. We think that one of the net benefits to Canada, as I pointed out in my opening, is just that, that it supports a lot of government initiatives to enhance and attract foreign investment. I don't know how it would affect other multinationals, but I think we would be extremely disappointed.

We would be disappointed at the loss of this great competence that we have access to Ottawa and how it's going to be able to enhance our ability to increase our R and D and innovation spent in this country by as much as 50%, and I think we would be very disappointed that we would lose access to a customer base that provides an area of growth for Ericsson not just now but in the future, as we want to bring this new technology to market.

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

Do you want to make a comment on the whole process that took place? Was the bidding process fair and transparent?

[Mark Henderson]

Yes, that was part of my opening remarks. It was a process that was driven to derive value. It was certainly closely monitored in the U.S. and Canada. Obviously, for all parties involved, the process was followed. I think it was deemed by the presiding judges to be fair to all, and we agree with that opinion.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Henderson.

Monsieur Laframboise.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Gentlemen, thank you for appearing before the committee. We need some clarification and I'm going to afford he you the opportunity to give it to us in a moment.

In his presentation, the president and co-chief executive officer of Research in Motion was quite tough. I'm going to quote two sentences: Suffice 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 rendered Nortel's assets in LTE of limited value [...]

We're told this is a process in which the assets go to the highest bidder. The president and co-chief executive officer of Research in Motion tells us that negotiations might have reduced the value. Is that true? How do you see that?

[Richard Corley]

From our perspective, the process was indeed one of the most rigorous and rigorously fair processes we've been involved in with the bankruptcy courts in both the U.S. and Canada. Every effort was made from our perspective to try to maximize the value, and I think that has been reflected in the fact the purchase price went up from an initial price of $650 million to $1.13 billion. Those efforts were very successful.

We have no knowledge of negotiations involving RIM; we were not party to any of those things and therefore have no comment on them. But we can say that from an Ericsson perspective, Ericsson and the other three parties did go through the process, and certainly from Ericsson's perspective, there were no impediments and everything seemed to be done to facilitate the realization of the maximum value of those assets.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

When he tells us that Nortel entered into agreements with Nokia and Ericsson and that he is in negotiations with Nortel, that means that Nortel was probably negotiating with your business, Nokia and RIM. Is that how it happened?

[Paul Schabas, Legal Counsel, Ericsson Canada Inc.]

I think it's important to note that once the bankruptcy proceeding began, the matter was supervised by the court and by a monitor appointed by the court, and that it was open to RIM, just as it was open to Nokia and Ericsson, to appear before the court at any time. It was open to any of them to make their own offers, which could have been the stalking horse offer.

At no time did RIM participate in any of the court proceedings. It could have come and objected or made submissions with respect to the appropriateness of the box of apples, to use that analogy. It didn't do so. It has never done that. It has only come here today to complain about the process. It clearly made a choice not to participate and not to seek changes or a different form of auction or an auction for a different basket of apples.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Was it Nortel or the court that chose to go to an auction?

[Paul Schabas]

Well, the court decided on an auction process, and the auction process is determined by who makes the highest bid. But the court also heard submissions on, and made determinations as to, what would be subject to the auction. If RIM didn't like that, or if anybody didn't like what was going to be auctioned, they could have gone to the court and spoken to that issue.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Could Nortel have opposed and used the auction, or was it the court that decided?

[Paul Schabas]

Any of the parties can object. They're represented by counsel and can make submissions on that.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Schabas.

Thank you, Mr. Laframboise.

Mr. Galipeau.

[Royal Galipeau, Conservative, Ottawa—Orléans, ON]

Thank you, Mr. Chairman.

Thank you very much for appearing before us today.

Mr. Henderson, many of the current Nortel employees who would become Ericsson employees if this deal goes through live in Ottawa-Orléans, which is the constituency that I have the honour to represent in this place. Therefore, it's very important for me that we hear how this deal touches the real people, the ordinary men and women who are watching these proceedings, either at home or right here in the gallery. If I were to put myself in the shoes of the many Nortel employees living in Ottawa-Orléans, how would my life change as a result of this deal?

Today you made a very eloquent presentation. I was a bit nervous when I saw the word “intention” in the fourth paragraph on the last page. You say, “Ericsson has every intention to continue its presence in Canada and the proposed investment will help ensure that Canada remains a very important part of Ericsson's global strategy”. I noticed that in response to the questions after that, you were a little firmer on intentions. Is Ericsson prepared to make a commitment to the current Nortel employees who live in Ottawa-Orléans and elsewhere in Canada that Ericsson will seek to maintain their jobs in their current locations?

That's my question for now, Mr. Chairman.

[Mark Henderson]

First of all, in terms of the employees and your constituents, I understand. The employees who will be joining Ericsson will, I think we've said, be certainly offered substantially the same pay and benefits. Of course, after operating in Canada for so many years, we feel that the compensation and benefits within our company are feature-rich and obviously competitive in the industry. I think there will be no question about that.

Our statement earlier, I think, says that this is all about employing those 800 people, that we will employ those 800 people. They will be managed in general by the management that's there today, headed by Richard Lowe. Their activities will remain exactly where their locations are today. I would think, particularly in Ottawa, as I said, there's something around the ecosystem when it comes to an innovation cell, when it comes to universities, when it comes to facilities, when it comes to lifestyle. There are a lot of intrinsic things that make us maintain a facility in a certain place, so I believe that's our commitment.

If you think about the employees across the rest of the country, for the most part, as I said, they're there to support and drive the sales of the existing CDMA business. Then you might think, in the future, if that's maturing, what will happen to these people four or five years down the road? I think it's our commitment to do everything we can to make sure that those jobs are maintained, that growth is here, and that if we bring new technological solutions, who better to sell our technology solutions to this new customer base than the people who have had those deep relationships with those customers for the last so many years? That's our hope.

[The Chair, Conservative, Michael Chong]

Merci.

We now have Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Chair, and thank you again, gentlemen.

One of the things you mentioned during your presentation was that you had $2 billion in research and development over the last decade in Canada and from the SR and ED and the other tax credits. How does that compare to your global operations in terms of percentage?

[Mark Henderson]

We think the investment in innovation in Canada represents around 5% of Ericsson's global R and D spent. When the acquisition goes through, that percentage will go up a little.

[Brian Masse, NDP, Windsor West, ON]

You said earlier it would double.

[Mark Henderson]

I think the global research and development budget for Ericsson is 33 billion Swedish kronor.