Nortel struggles a 'big blow' to research in Canada

The decision by telecom equipment maker Nortel Networksto seek bankruptcy protection on Wednesday will be a blow to innovation in Canada, according to those who follow research and development spending.

Even as the company's stock price and sales took a beating, Nortel could always hang its hat on innovation: from 2000 to 2007, analyst Research Infosource listed Nortel as the No. 1 corporate spender on R&D in Canada.

In 2007, Nortel spent $1.85 billion on research and development. By comparison, the next two companies on the list, BCE Inc. and Magna International Inc., spent $1.25 billion and $725 million, respectively. Private sector spending throughout the country was $16.16 billion in 2007, rising to $16.36 billion last year.

Nortel's spending on innovation has been in steady decline as the company slashed jobs and restructured after the burst of the dot-com bubble in 2001. However, the company's latest move could be a bigger blow, says Research Infosource president Jeffrey Crelinsten, particularly if the company decides to sell off its assets to a competitor like Cisco or China-based Huawei Technologies.

"I'm worried that if they sell to one of these companies, we as a country will lose that research capability," said Crelinsten.

While Waterloo, Ont.-based BlackBerry maker Research in Motion Limited has taken over as the new technology darling in Canada, its contribution to research and development is still relatively small, says Crelinsten. RIM spent $254 million in 2007, according to Research Infosource.

The potential loss or sale of parts of Nortel is a "big blow" to research and development in Canada,agrees former Nortel senior manager Sorin Cohn, one that other businesses can't quickly replace.

"Even if all of the current and former technical people started new companies, it takes time for them to appear, and even then, the sum total of their R&D work would not equal what Nortel did," said Cohn, who now works for Ottawa-based OrbitIQ, a company that provides business solutions for technology start-ups.

That's because Nortel in the 1980s and 1990s was a unique place in Canada's history, he said.

"It was a laboratory of ideas," said Cohn. "The legacy of Nortel was great, because for a time, it gathered and nurtured innovation and development in this country, bringing in people from around the world."

From a researcher's point of view, it was an ideal creative environment, he said.

"It was an environment that allowed people to flourish, and whatever we conceived of as important, it was possible to work on," he said.

Though Nortel is most known for its communications infrastructure, Cohn particularly remembers working on the Orbiter cell phone in 1999, a "smartphone" before high-end wireless devices were called smartphones. Though it was demonstrated at telecommunications conferences, it never went to market.

Relying on one R&D giant a bad strategy, former Nortel manager says

In the company's heyday, Nortel's spending on innovation dwarfed the contributions of other companies and institutions in the country. In 2000, Nortel spent $5.95 billion on R&D; the next closest company, Pratt and Whitney, spent $331 million, according to Research Infosource.

Cohn said Canada will likely never see such a wide disparity in research spending in Canada, and to his mind, that's a good thing.

"When you rely on one giant, it's bad, because when it falls, it takes everything with it," he said. "I'd rather have five or six large companies leading the way."

But Nortel's culture of research and development had a downside as well, according to Shyam Pillalamarri, who joined Nortel in 1999 after the company acquired Shasta Networks, where he worked in software development.

"Spending on research is not neccessarily easy, but the really hard part is to spend in a responsible manner," said Pillalamarri, who left the company in 2002 to co-found California-based Azul Systems, which works to make large-scale Java-based applications run more smoothly.

"It's not so much how much you spend, but how much you can afford to spend," he said.

Nortel currently maintains two main centres for R&D, one in Ottawa focused on advanced networking, end-user applications and hardware and software platforms, and another similarly broad centre in Beijing, China.

It has many other research centres throughout the world, but only two other specialty sites in Canada: one in Belleville, Ont., focused on voice-over-internet technologies for businesses, and another in Calgary working with Code Division Multiple Access cellphone technology.

Research and development spending is important because it is often seen as a bellwether of an economy's future productivity, as innovations can potentially improve competitiveness.

According to a Statistics Canada report released in December, Canada's businesses and public institutions expect to spend slightly more than $29 billion on research and development applications for 2008, with the private sector accounting for $16.36 billion.

That's a 0.7 per cent increase compared to spending in 2007. The private sector actually plans to spend $20 million more, an increase that translates into a 1.2 per cent improvement compared to business expenditures on R&D in 2007.