Can't catch Nortel in a bottle

Paul Wells on what the government should do about Nortel

Can't catch Nortel in a bottleIt’s at times like this, with the future of Nortel’s coveted wireless technology up for grabs and billions of dollars at stake, that I like to recall the wise counsel of old John C. Lobb. He was a jowly fellow who became the president of Northern Electric, Nortel’s predecessor, in 1971. He picked that dusty old company up by the scruff of its neck and shook it wide awake. Profits tripled in his first year and doubled again in his second. He used to ask employees what the company made. They’d tell him it made telephone switching equipment. He’d bellow, “We don’t make switching, God damn it! We make money.”

I love those great Canadian success stories. John Lobb, incidentally, was a lawyer from Minneapolis who ran Crucible Steel of Pittsburgh before he moved north, and who died in Pennsylvania.

All of which teaches us two lessons that may be appropriate to the current fuss over ownership of Nortel assets.

First, Nortel has flown international flags of convenience many times in its long corporate life. It would be easier to get swept up in the sudden mania for “keeping Nortel Canadian” if the company had been more thoroughly Canadian for more of that time, and if the advantage to Canadians of Canadian ownership were clearer.

Second, it is never wise, when managing in a fast-moving environment, to fixate on the product. Lobb’s lusty joke about money stretched things only a little: Northern Electric’s most important product wasn’t switches in 1971, it was communications expertise. And despite today’s bidding war and the resulting yelps of outrage from Research in Motion CEO Jim Balsillie, who feels he’s been unfairly shut out, the most important asset left at Nortel isn’t its next-generation LTE wireless technology. The most important asset at Nortel is its people. And they can work anywhere.

Yet there’s a clamour for the federal government to Do Something about the Nortel fire sale, and in particular about RIM’s inability to get in on the bidding process alongside Sweden’s Ericsson and other foreign firms. This will probably have some effect. Lord knows the Harper government is attentive to clamours.

There would certainly be precedent. Barely 15 months ago the feds blocked the sale of MacDonald, Dettwiler and Associates’ space division to an American firm. “We need to own our technology and the intellectual property that comes with it,” Jim Prentice, Tony Clement’s predecessor as Industry Minister, said then. “If we do not do this, we will not reap the benefits of our work and our investments.”

Well, surely if reaping the benefits of our work was enough to justify blocking a tech firm’s selloff then, it will be enough now. All the more so since the defenders of a Canadian Rump Nortel have come up with another argument: The government bailed out GM and Chrysler, so why can’t they bail out Nortel too?

Let’s take these arguments in order. First, if you must know, I have a lot of sympathy for the argument that having a branch plant of a foreign-held firm is not as beneficial for a county as having the head office. Evidence suggests this is more than nationalist fantasy. The latest report by the Council of Canadian Academies shows that Canadian-held multinationals, a rare species indeed, perform more R&D in Canada than do Canadian branches of foreign-held multinationals.

But it’s simply not obvious that Nortel’s LTE technology is vital to RIM’s success. Indeed, given RIM’s tardy entry into the bidding war and the extended vacation Balsillie himself took to shop for a hockey team, it doesn’t even appear to have been obvious to RIM. RIM’s direct competitors, Apple, Google, Palm and Microsoft, don’t own their own wireless technology and aren’t in a hurry to get some.

That’s at least partly because the relevant patents won’t be worth much for long. This field changes fast: LTE is the third generation of wireless technology in seven years. While a technology is hot, it’ll be licensed to all comers. And while it’s hot, engineers around the world will be scrambling to come up with the next generation. Rigging the game so RIM gets LTE will give RIM barely any advantage this year, and none at all in three years when the next generation comes on line.

That next generation will come from one place: the minds of smart engineers, prized and prodded while they try to come up with the next game-changing idea. Which brings us to why Nortel isn’t — must not be — like GM. The only argument for saving the car companies was that their employees couldn’t go anywhere else. That’s a risible argument when it comes to telecomms engineers, and not just in the abstract. The economy absorbed previous waves of Nortel layoffs with little trouble. RIM hired them, or they started their own companies. When I visited Sweden in 2004 I visited all sorts of start-up companies. In every case, the founder was an Ericsson engineer who’d been left to his or her own devices when that company laid off thousands in 2000. Policy wonks have spent decades wishing the fisheries and car plants were staffed with superbly adaptable, highly-educated knowledge workers. Then they wouldn’t need bailouts. That’s Nortel.

If Tony Clement determines that RIM was unfairly left out of the Nortel bidding process, he should get it back in. But then its bid should stand or fall on the merits. The best way to ensure competitiveness is to ensure competition.