GEORGIAN COLLEGE. AUGUST 19, 1985
The planning conference organizers have already demonstrated that the Ontario ministry of transportation and communications is not afraid of taking risks. Otherwise they would never have invited someone from British Columbia to talk to the conference. We westerners never miss an opportunity to tell those in the east what they should be doing!
However, luckily enough the risk is not that high, I am a Torontonian by birth, lived in Ottawa for a number of years if that is considered part of Ontario, and have been out of the province long enough to not really know what the ministry is doing in any case. My observations, therefore, should be reasonably objective.
I was specifically asked to briefly address five topics in the telecommunications field. Given the time available, I can only raise a number of points on each and then open up the topic for discussion.
WHAT KEY ISSUES AND EVENTS DO YOU FORESEE IN THE NEXT FEW YEARS IN TELECOMMUNICATIONS?
Your first question is very wide ranging. To narrow the field quickly I will use the major issues outlined in the McPhail’s examination of Canada’s telecommunications future called, “Telecom 2000”. However, I will add an extra topic they did not address.
The McPhail’s concluded and I concur that the rapidly changing technology will drive the development of telecommunications industry more than any other single factor. This acknowledged rapid change introduces a high level of risk into this industry. With a small local market, making investments in such a field is particularly tricky for Canada.
However, it can be done very successfully. I would point to companies such as Ericsson in Sweden, and moirÃ© in Finland, as examples of companies with worldwide reputations and populations 1/4 that of Canada. Northern Telecom is a good example of a Canadian company that has managed to live with the risk of rapid technological change.
While this risk can be managed and turned into profitable opportunities, it is by and large not a risk for small companies. The Canadian high tech scene is strewn with the bodies of ‘one product’ companies. A good idea is under financed. There is too little money for R&D for follow on products. The original product is poorly marketed. The result is a three year wonder.
I was a federal government appointee to the board of Consolidated Computer. This organization is only too well known to the Ontario government. Leaving aside the capital involvement of the government which I will return to, this was a prime example of a one product company, too small and without the diversification to really survive.
Cantel is not in the manufacturing business, but we hope that we are avoiding the one service approach. We do not define ourselves as being in the cellular mobile telephone business. We even took that term out of our name. We consider that we are in the personal communications business and view cellular only as a place to start.
If we do the right things in establishing ourselves as a marketing organization then we would be just as able to market the services of msat, paging, voice messaging, or other services as we are the traditional cellular product, (can you have a traditional product that is only a couple of years old?).
In terms of dealing with technological risk in Canada, I would suggest that the approach we have fostered with Ericsson and Novatel is worth examining. Here we encouraged a Canadian company to make agreements with a multi national that involved use of the Canadian design to be marketed by the multi national, manufacturing in Canada and the commitment by Ericsson to do research and development in Canada for all its north American cellular requirements.
This is a key issue I rank only slightly behind the technology. It is clearly the weakness of most high tech companies.
In the past, it has also been a problem with government funding which often has been tied to hardware R&D or page even plant capacity but with little emphasis on funding for market surveys or market development. As I will note later, such direct government funding is questionable in any case but particularly when it excludes one of the most important areas for a company.
Canada seems to set up companies that are technology driven rather than market driven. The Telidon debacle is a good example of this.
I have been just as guilty, as I was one of the early proponents of the wired city. This was a good example of a technology for which there was really no market demand and, to a large degree, that demand is still not there.
We must be realistic that marketing from a Canadian base is impeded by our small local market, our high labour cost, and in some parts of the country, our uncertain labour economy, and some suspicion overseas about Canadian firms’ ability to sustain themselves and grow into major corporations. Mitel is a good example of this.
This was not included by the McPhail’s, but is clearly on the critical path. I am amazed at the jittery nature of many Canadian investors. They will take chances on Canadian penny mining stocks with virtually no analysis and yet will analyse to death a potential Canadian high tech investment.
We have recently gone through the experience of trying to place a small amount of Cantel equity with a few private investors beyond the original partners. While I have no doubt this will be done (or the original partners will take up the equity gladly themselves), I was amazed to see the reaction of the investors to every article in the New York Times and the Wall Street Journal.
A few years ago, it seemed easier when I was able to raise $17.5 million to start S.D.L. in Ottawa and the issue was wildly over-subscribed.
I have a concern, which may sound like a comment more suited to an N.D.P. supporter, that much of the capital in this country is being taken up by major mergers and takeovers. While some of the money may filter back down to entrepreneurial activities, much of it is tied up in interest payments for large borrowings to finance such transactions. I have reservations about whether this is in the best long run interest of this country.
I welcome Michael Wilson’s proposal about a $500,000 dollar exemption from capital gains tax, but have already written him noting that this will have less effect on the Canadian economy than it might otherwise have, because it is not restricted to investments in new Canadian corporations.
Again, going back to my consolidated computer experience, my reaction is that direct government investment is not the answer. Government usually makes a poor shareholder. However well meaning the attempt may be, governments just do not make economic decisions when they see a situation going the wrong way. Tax incentives and other approaches are much better.
The model here should be Japan Inc. The Japanese view the role of government as one of promoting rather than regulating industry.
Canada has had a sad history of stifling innovative activity. As Ted Rogers would point out, we had to wait years after the United States entry into black and white television, then colour television, then pay TV., and as a result lost the opportunity to become world class entrants in these fields.
In 1973 S.D.L. acquired Ottawa cablevision ltd. With a view to putting the two organizations together to develop wired city concepts in Canada. After some consideration, the C.R.T.C. denied the takeover on the grounds that such a combination of cable and computers was ‘premature’. Over 12 years later, still virtually nothing has happened in this field.
Canada is very prone to what I often call preemptive regulation. Many in government are so influenced by minority pressure groups or are so afraid of making a mistake that they regulate a business out of existence before even it can get started. I watch, for example, with increasing dismay the concern over privacy of the individual and the use of computer data banks. I remember explaining to an international conference that all one had to do was to look at my American Express file to find out almost anything they wanted to about my living habits. However, if anyone asked me whether I would give up my American Express card because of a potential problem with having this data available somewhere, my answer would be clearly ‘no’. There are much better ways of protecting the public without throwing up so many regulations that a business is discouraged from getting off the ground.
I might add that I believe the launch of cellular telephone service in this country is an example of how to go at starting a new business with the right co-operative attitude between the government and industry. However, if I do not get on to the next question, you will have no time for questions.
WHAT RELATIONSHIPS DO YOU SEE BETWEEN DEVELOPMENTS IN TECHNOLOGY THE MARKET PLACE, POLICY AND REGULATION IN THIS FIELD?
I have covered some of these thoughts already but would add that while I am not in favour of massive corporations in Canada for the capital concentration reasons already mentioned, I am a believer in consortia as an approach for effective development of new markets.
This is somewhat coloured by my own recent experience of heading the consortium of first city, Telemedia, Rogers and Ameritech to operate the Cantel cellular radio system.
Again, the consortium approach is one used often in Japan. I can see many advantages for example to a consortium for launching a new product comprised of:
• a marketing company, e.g. Xerox.
• a bank
• an engineering and/or manufacturing company
• an export development company
• the new tech company with the new product.
I also like the idea of universities being partners in this process, just to throw out a topic, we may wish to discuss. While I was chairman of the board of governors at Carleton University, I promoted their staff getting involved in entrepreneurial activities. My reasons were:
• I was concerned about the lack of entrepreneurial thrust in the teaching at Canadian universities.
• I believe there is too little in the way of co-op programs such as that at the university of waterloo.
• I could see the then forthcoming financial crisis in the universities and was concerned that they would lose staff if they could not pay them adequately. Outside consulting work would solve some of this problem.
• I also believe the outside contact with business would help keep the teaching staff in touch with the real world.
WHAT OR WHO WILL BE THE MAJOR FORCES EFFECTING CHANGE?
I will mention only one. This is the necessity of Canada continuing to develop foreign markets. In the telecommunications area. There is an immense demand for approved services in developing countries. In the case of cellular, for example, it will likely make little sense for many developing countries to hardwire when new satellite or cellular techniques are available.
The problem facing Canada will be to turn this demand into ‘affordable demand’.
I emphasize that we tend to think of exports only in terms of products, with the many good graduates being turned out of Canadian universities, we also should be able to export management expertise. For example, it is Cantel’s hope that once we have established our credibility as a personal communications service provider, we should be able to work with manufacturers around the world as part of consortia to set up such systems elsewhere and earn dollars for Canada.
WHAT DIRECTIONS DO YOU SEE COMPANY, GOVERNMENT AND REGULATORY DECISIONS GOING IN?
While I am optimistic on all fronts, I wish I could be as optimistic on this one. I am a believer in ‘content analysis’ as a way of projecting surprise-free scenarios. As you know content analysis suggests that you predict future behaviour on the basis of past behaviour, rather than current plans or election promises.
Canada has had a tradition of tending to over regulate rather than promote its industries.
Canada has also tended to confuse its objectives for industry with the Canadian content regulations for cable television being a prime example.
I caution as well that the federal political organization of Canada has led to a regulatory situation in the telecommunications field that is almost unbelievable. While I realize that this may be a somewhat unpopular topic to raise with a provincial government, I am convinced that there must be only one national policy in telecommunications. It may, as has been suggested, be possible to have a joint regulatory body, but even here I believe this is more likely to be indecisive rather than the present situation which is merely inconsistent.
HOW SHOULD THE ONTARIO GOVERNMENT BE RESPONDING TO THESE ISSUES AND EVENTS?
The Ontario government could undoubtedly be helpful by bringing people together with a common interest with the aim of developing new economic opportunities and export. They could certainly be helpful with idea exchange.
I am really concerned, however, when I see conclusions such as that in the telecom 2000 document which states:
“the above national framework should be accomplished by joint and cooperative federal – provincial regulatory authority created for two purposes:
I) to effect an orderly change in the Canadian telecommuications industry; and,
II) to determine and ensure national Canadian public policy objectives such as; sovereignty, privacy, universal access, regional development goals, and economic opportunities in the high technology sector.”
Nowhere in this, is there mention of creating a successful business which is the only way to achieve the other objectives.
I am convinced that we can do as good a job in the telecommunications industry as the fins, the Swedes, or the South Koreans. Northern telecom has shown that this is possible. Government promotion rather than regulation can help this happen.
Let’s get out and do it.
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