Blogs & Comment

As Nortel fades, the future of Canada's digital economy

Earlier this week, I attended an invitation-only event in Ottawa, which examined the future of the country’s so-called digital economy. Hosted by Industry Minister Tony Clement, the day-long conference addressed a sweeping range of topics, including among others:

  • Canada’s global competitiveness and productivity, and the role technology plays in improving both, if only small and medium-sized enterprises more readily adopted information and communication technologies (ICT);
  • the importance of research and development inside businesses;
  • strategies for building next-generation broadband networks across the country;
  • notions of net neutrality and open, transparent networks;
  • a drive to digitize all health records;
  • the role legislation to protect consumers online plays in providing them with the confidence to adopt new technologies;
  • and even a call to digitize all of Canada’s archived historical materials and make them accessible to the public.

It was a lot to take in, with the room full of high-powered business people, lawyers and academics, each with their self-interested view to propose. In his closing remarks, Minister Clement acknowledged he had a lot to synthesize.
But the underlying message of the proceedings, which were held under the high, arching ceiling of the Government Conference Centre’s main hall, was clear: the whole of the Canadian economy needs a thriving ICT sector, and the government needs to move quickly in adopting policies, legislation and spending plans that will position the country at the forefront of the continuing technology revolution driven by networks, the Internet, and digital content.
The timing was coincidental, but the symbolism was hard to miss. Just 60 hours before the conference opened, Nortel Networks officially announcedwhat many suspected would be its fate ever since it sought bankruptcy protection in January: the once-grand communications equipment maker now planned to sell itself off in piecesand likely for a sum about US$1.5 billion short of its US$3.6 billion in liabilitiesand would also request that the Toronto Stock Exchange de-list its shares, likely putting its long-suffering investors out of their misery once and for all.
At the beginning of this decade, Nortel was Canada’s eminent technology flagship company, but now it is in tatters. Its stock last traded on Friday, closing at at 18.5. On July 26, 2000, 2,239 trading days earlier, Nortel shares traded as high as $1245 (once adjusted for a 2006 1-for-10 stock consolidation), which gave it a market capitalization of about $385 billion, or about 36.5% of the total TSE 300 Index.
Briefly, a look back at the story in the National Post‘s Financial Post Investing section the next morning (pay close attention to the last three paragraphs):

Analysts rush to ratchet up Nortelshare targets: 50% upside seen

National Post Thu Jul 27 2000 Page: D1 / FRONT Section: Financial Post Investing Byline: Michael Lewis
Better than expected second-quarter results fuelled a rise in NortelNetworks Corp.’s shares yesterday, and had analysts scramblingto upgradetheir outlook for Canada’s most valuablecompany. After Nortelposted a large jump in per-share operating earnings, besting analysts’ consensus forecast by more than 25%, its shares (NT/TSE) rose $2.35 to $123.10. The stock is ahead by more than 68% this year and 286% over the past 12 months. In New York the stock (NT/NYSE) closed at US$87 3/8.
On Tuesday Nortelupped its revenue growth forecast for 2000 and 2001 to more than 40% from a previous maximum of 35%, and a number of analysts followed suit.
Nortelsaid on Tuesday its EPS from operations will grow in the high 30% range and forecast 2001 growth of up to 35% in revenues and earnings per share.
Analysts are bullish on Nortelas a result of its growth prospects, largely based on intense global demand for its fibre-optic products.
And they are willing to look past the fact that Nortel‘s accounting methods disguise underlying net losses, once the cost of acquisitions are included.
A string of multibillion-dollar acquisitions added $1-billion in costs in its latest quarter alone and contributed largely to the firm’s losses, after extraordinary items, of more than US$1.63-billion in the past two full reporting years.
No company ever went under because of accounting methods,” said Tim Burke, a telecommunications analyst with Edward Jones in St Louis. ” The important thing is to look at cash and growth, and Nortelhas both.” (Source:

It’s breathtaking to reflect on the arrogance of that era, and all that has unraveled since.
But I digress. Although the news of Nortel’s liquidation was barely mentioned during the conference the role of Twitter in the Iran’s election demonstrationswas brought up more oftenit nevertheless was an appropriate backdrop to a conference about Canada’s and its businesses’ roles in the global digital economy. Some of the attendees, like Sir Terence Matthews, have taken part in previous forums, task forces, strategic councils, and authored countless papers on the future of technology in Canada. Remember the National Broadband Task Force? That was 2001, in the days when Brian “Captain Canada” Tobin was the federal Liberal Industry Minister, although the process was started by his predecessor, John Manley (who is on Nortel’s board of directors).
Eight years on, Canadians use the Internet and digital media much differently, while their understanding of the complex issues underlying them has grown more nuanced. Debates surrounding issues like net neutrality (or network management), intellectual property rights, digital rights management and online privacy in age of social networking have come a long way.
I will likely write more about the conference (you can watch the archived webcasthere) and the emerging digital strategy, either in further blog posts or in the upcoming issue. But here’s one final thought: it was remarkable how prominent luminaries from the Waterloo, Ont. region were present. RIM co-CEO Mike Lazaridis helped open the conference, while University of Waterloo president David Johnston played a key role, as did Open Text executive chairman and chief strategy officer Tom Jenkins ( whom I profiled in the most recent issue). In fact, Jenkins’ initiatives of the University of Waterloo Stratford Institute, the Canadian Digital Media Network, and the Canada 3.0 Forumon June 8 and 9, clearly helped shape this federal conference, and were mentioned multiple times by Minister Clement and others.
But representatives from Ottawa’s technology companies were not there in forceonly Kirk Mandy, CEO of Zarlink Semiconductor made a comment from the floor. And, of course, not a soul from Nortel was present.
Where will Canadian tech companies be in 2019? One hopes neither on the verge of vanishing, like Nortel is now, or still sitting in conferences, talking about how the government needs to form some kind of strategy for its ICT industry.
Further reading on Nortel:
“Plan Z,” Canadian Businessmagazine, January 27, 2009
“The Good, The Bad and The Ugly: Nortel Networks,” Canadian Businessmagazine, March 30, 2009