Seizing Opportunity: Canada's Chance to Lead out of the Chaos of the Communications Revolution
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The Empire Club of Canada Addresses (Toronto, Canada), 30 May 2002, p. 24-36


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McLennan, John, Speaker
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Speeches
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Canadian telecommunications. How Canada can establish itself as a global leader in the next phase of opportunity and growth in the global information and communications industries. Information-based applications, technologies, services and solutions for export to customers around the globe. Competitive carrier industry as a fundamental building block of a 21st-century economy. Rules of engagement for Canada. Networks. The Canada business community's unwillijngness to invest in research and development with supporting statistics. Canada's ability to innovate and take R&D risks at world-class levels. The increasingly interconnectedness of our world. Rethinking traditional borders and business models. Mobile workers. Creating incentives and and taking initiatives in three related areas, with specifics. The knowledge economy. An example of Canada as world-class. An enormous opportunity for Canada. Going beyond our dreams.
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30 May 2002
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English
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The speeches are free of charge but please note that the Empire Club of Canada retains copyright. Neither the speeches themselves nor any part of their content may be used for any purpose other than personal interest or research without the explicit permission of the Empire Club of Canada.
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Full Text
John McLennan Vice-Chairman and CEO, AT&T Canada
SEIZING OPPORTUNITY: CANADA'S CHANCE TO LEAD OUT OF THE CHAOS OF THE COMMUNICATIONS REVOLUTION
Chairman: Ann Curran
President, The Empire Club of Canada
Head Table Guests

Catherine S. Swift, President, CEO and Chair of the Board, Canadian Federation of Independent Business and Director, The Empire Club of Canada; Huong Trinh, Graduating Student, Parkdale Collegiate Institute; Rev. Dr. John Niles, Victoria Park United Church and Director, The Empire Club of Canada; Gaylen A. Duncan, President and CEO, ITAC (Information Technology Association of Canada); John MacDonald, President, MacDonald Ventures; Purdy Crawford, Chairman, AT&T Canada Corp.; Bart J. Mindszenthy, APR, FCPRS, Partner, Mindszenthy & Roberts Communications Counsel and 2nd Vice-President, The Empire Club of Canada; Peter Bowie, Chief Corporate Officer, Platform Consulting; Fred Sorkin, Chairman and CEO, Hummingbird; and Ted Rogers, President and CEO, Rogers Communications Inc.

May 30, 2002

Introduction by Ann Curran

one of the wonderful things about the Empire Club is that it is Canada's oldest speaking club of record, which means you can read about the significant events, industries and people who have effected change in Canada and abroad over the last 100 years--in effect snap shots of history. Ladies and gentlemen, I don't think there is a better illustration of this than in telecommunications.

In November 1917, Professor Alexander Graham Bell addressed the Empire Club and delightfully described how the telephone was devised in Brantford, Ontario in 1874 but was not made until 1875, when it appeared in Boston, Massachusetts, so that the telephone was conceived in Brantford in 1874, and born in Boston in 1875.

In 1935, Dr. J. Perrine of AT&T spoke about "Voices Across the Sea," the transformation and transmittals of waves. He gave visual demonstrations of sound waves and what was going on inside a telephone.

In 1953, 1964 and 1969 respectfully, Thomas Eadie, Marcel Vincent, and Robert Scrivener, all Presidents of The Bell Telephone Company of Canada, spoke about "Telephony--A New Era in the Making," "Bell is Big Business," and "The Coming Revolution in Telecommunications."

Then in 1996-97 just when the debate on monopolies versus competition galvanized the industry, The Empire Club of Canada hosted a series of addresses on telecommunications entitled "Competition, Who Needs it?" Leaders in all segments of the industry spoke on the issues that faced Canada in a 21st century that would be transformed by telecommunications; topics such as "Competition--Creating A New Balance of Power," "Canada and the Globalization of Communications" and "Successfully Managing a Global Business in Good and Bad Times" were just a few.

Now the telecommunications industry faces a whole new set of challenges as technology has truly changed the way and speed in which people communicate. Canada can be on the forefront or fall to the side lines which leads us to our topic today--"Seizing Opportunity: Canada's Opportunity to Lead Out of the Chaos of the Communications Revolution."

As with any revolution, the chaotic change overtaking the communications industry holds both great risk and great opportunity. Canada has a real opportunity to become an innovative, world-class player in the creation and exploitation of the most valuable currency in the new information economy--intellectual capital.

John McLennan, Vice-Chairman and CEO of AT&T Canada, will explore a new vision for Canadian business and discuss what Canada must do to seize the opportunity and take its place at the forefront of the global race for innovation and economic prosperity. Few people are as well equipped to talk about this as Mr. McLennan with his wealth of experience in hi-tech and telecom Industries in North America.

John has a 30-year background in communications in both start-ups and established companies.

He has 20 years' experience in technology companies and 12 years' experience in telecommunications, not to mention the time spent as a board member and advisor to many high-tech companies in North America.

More specifically, Mr. McLennan joined AT&T Canada as Vice-Chairman and Chief Executive Officer in May, 2000. Prior to his appointment to his current position, Mr. McLennan was President and Founder of his own firm, Jenmark Consulting Inc., specializing in strategy, finance, and management of technology companies in Canada and the U.S., with a primary focus on telecommunications. From 1994 to 1997, Mr. McLennan was President and Chief Executive Officer of Bell Canada and President of Bell Ontario from 1993 to 1994.

From 1990 to 1993, Mr. McLennan served as President and Chief Executive Officer of BCE Mobile Communications Inc. (BCE Mobile), and from April, 1993 to September, 1994 he was Chairman of the Board of BCE Mobile. Prior to assuming his positions at the Bell Canada group of companies, Mr. McLennan served as President and Chief Executive Officer at Cantel AT&T Wireless, Canada's largest wireless services provider. Mr. McLennan was an Executive Vice-President of Mite] Communications Inc. during its first eight years of rapid growth. Mr. McLennan is also a member of the Board of Directors of Hummingbird Communications, Mobile Data Solutions Inc. (MDSI), Leitch Technology and Amdocs Limited. Mr. McLennan is Chancellor of the University College of Cape Breton and graduated from Clarkson University with BS and MS degrees in industrial management. Mr. McLennan has an honorary Doctorate of Science from Clarkson University.

John McLennan

Thank you, ladies and gentlemen. It's a distinct privilege to be addressing this club again.

Today is an auspicious day indeed for my industry, not because I'm here at the Empire Club, but because one of the most important regulatory decisions in the history of

Canadian telecommunications will be announced by the CRTC at 4:00 p.m.

I am sure that the two events are not connected. When I accepted the invitation to speak, we were confident that the CRTC decision would be announced by the end of 2001. Then the date was moved to February. Then to April. Then to May. Then to late May. Then to today. And then to the afternoon of today. I'm certainly very lucky that we didn't perfectly overlap--and I sure hope I'm still feeling this lucky tonight, after I review all the details of the announcement.

It just so happens that I have more than a passing interest in the decision, and could speak about it and what led up to it, although I am choosing not to do so here today. There will be more than enough opportunity to discuss and analyze this specific subject in the days ahead.

What I will say is that the content of the decision is essential to what I am going to talk about, which is about how Canada, with bold vision and initiative, can establish itself as a global leader in the next phase of opportunity and growth in the global information and communications industries.

My message today is consistent with what I've said before--including the last time I spoke here--and it is this: in the truly globalized world where we now live and compete, Canadians can win on the world stage, but we need to make choices about how to lead in creating the future of the information technology industries, instead of following, which is the mode that we're currently in.

These choices will, ultimately, be reflected in the creation, here in Canada, of world-leading development centres for information-based applications, technologies, services and solutions, which will be then exported to customers around the globe.

I am convinced that this remains an enormous opportunity because in a knowledge-driven economy, innovation and risk taking that accelerates business productivity by transforming data into information and knowledge, and deploying it anywhere, anytime, will be well rewarded.

I say that because we are no longer in the "build it and they will come" days of telecommunications infrastructure construction at any cost, driven by success metrics that valued revenues, dollars invested and market share more than cash flow and profitability.

However, I'm also fearful that our core facilities--based carriers are reluctant to lead, even when the need to build the bridge to the future--an innovative infrastructure, including a solution for the last mile--has never been greater.

Unless carriers begin by understanding the customers' real network needs, and what they're prepared to pay for, we're in real danger of magnifying the mistakes of the past and letting the real opportunity slip through our collective fingers.

As reported by several industry watchers, consumers and businesses have been amassing technologies that all consume bandwidth. I'm thinking here of CD and DVD burners, servers, cellular phones, PDAs, satellite dishes and new breeds of wireless local networks operating on public standards. Customers want something different to give them fresh competitive advantage.

So an alternate network with far lower capital and operating costs will be necessary to unleash the information industry globally spurring unprecedented demand for next generation electronics and their entire supply chain. But that isn't happening.

Looking back over the last five years, it's hard to believe how wrong everyone was. Oh, carriers built out their traditional networks and many customers did come. But they were coming asking all the while for lower, and lower, and lower prices, essentially collapsing the financial logic that underpinned what was literally billions of dollars of investment.

The consequences are well known: many carriers have fallen and not just undercapitalized new entrants. Even substantial players are struggling, such as WorldCom, Qwest, British Telecom and Deutsche Telekom. The companies that supplied these carriers with hardware have seen their share prices collapse and have endured an operating meltdown, with revenues at one-third of peak levels. Millions of Canadians have also been affected, many through job losses, but most through the slow torment of steadily shrinking RRSP portfolios.

So where does all this leave the customer? In the short term, perhaps a little better off, but in the long term, at considerable risk. Today, the dream of a customer-focused competitive marketplace in telecom is fragile indeed. Rather than realizing the full benefits of competition, the industry in Canada teeters on the brink of becoming a high-priced, risk-averse duopoly (maybe even a monopoly!).

But having a competitive carrier industry is a fundamental building block of a 21st-century economy and is key to what I want to discuss: based on what we've all learned in the last five years, what rules of engagement should Canada choose to build an information industry that is both customer-friendly and financially viable?

It is clear to me today, as it has been throughout my career, that Canadians can compete in the information industry. We can create a nucleus of world-class expertise in this country. We can design products and services that others around the world will want to buy.

There are stellar examples of companies who have done just that. When you think about network infrastructure, Nortel is the name that comes most readily to mind, though there are others--JDS Uniphase, Mitel, and Alcatel, known formerly as Newbridge Networks. These are all global leaders in their competitive space.

Known formerly as Bell Northern Research, Nortel's research arm alone was the nucleus of literally 200 technology start-ups that today are the cornerstones of our country's innovative capability in this space. Without Nortel, there would have been little hope of achieving critical mass. They made Canadians proud. I hope they can do so again, especially by understanding how high-speed networks must be established to meet customer demands at much lower cost.

My call for action is made against a backdrop of concern about the general trends in the Canadian economy. A few weeks ago, Gordon Nixon, CEO of the Royal Bank, sounded the alarm over what he called the hollowing-out of corporate Canada.

He didn't take the easy road and blame this situation on government policy, or foreign competitors, or the fickleness of investors. He said, quite bravely, and in my opinion quite rightly, that one of the causes of this decline lies in the Canadian business community's unwillingness to invest in research and development.

I agree, and that's because, in my opinion, many Canadian CEOs have never had to depend on research and development to achieve success in this country.

Statistics bear out Mr. Nixon's concern. Canada's innovative capacity is less than half of that of the United States, second last in the G-7, and, according to the OECD, 16th in the world. We are last in the G-7 for domestic patent applications. Our venture capital market is only about 40 per cent of the size of that of the U.S., after adjusting for population. And the Americans even have an auxiliary network of government-backed venture capital, through the Small Business Administration, that gives them even further advantage.

These statistics have real quality-of-life implications for Canadians.

I say that because I believe that an important part of Canada's future prosperity will depend on our ability to innovate and take R&D risks at world-class levels.

Our world is becoming increasingly interconnected. This construct requires companies, governments and individuals to rethink the traditional borders and business models that separate each entity.

Nowhere is this change more apparent than in the information technology space. In this new world, the last mile has become a data link, rather than a voice link, to the network.

Mobile workers have high-speed access to their companies' internal networks using public infrastructure and cheap standards-based technology. Virtual conferences are held that provide a highly interactive, content-rich experience for many browsers and telephones in the world. Companies collaborate with suppliers, customers and trading partners to create customized products and services at lightning speed. Expensive data-transfer technologies are being replaced by off-the-shelf, cheap standards-based solutions, allowing low-cost supply chain optimization to be realized.

So, in this new world, information flows freely to the right place, in the right format, to the right user at a relatively low cost under the control of the customer. These networks of companies will continue to create incredible amounts of value, as transactions become efficient and the best ideas and designs emerge quickly.

Companies, industries and governments that do not embrace this change in thinking will increasingly become marginalized. Endorsing and acting on this new network construct will help to ensure long-term value creation and success for those who participate.

Even industries where information was not considered a big source of advantage, such as our automotive sector, have realized that knowledge mobilized is advantage multiplied. Knowledge, rather than plastic or steel, will be the biggest source of the new value they build into the cars and trucks that Canadians and world customers will buy. While the success of any single industry alone will not, all by itself, reverse the decline that has beset Canada, making a commitment to our information industries is one of the places where our chances of winning are very, very good.

So I propose, that as part of an overall strategy, we create incentives and take initiatives in three related areas that will put our information and technology sector onto a path toward global leadership.

First, everything begins by having a vibrant and competitive telecom industry. This may sound like a "showstopper" and self-serving given the generally negative trend of both analysts and investors on the sector and our unwillingness to consider leapfrogging existing infrastructure with networks that are right for customers, but it is a crucial building block to achieve this opportunity.

The knowledge economy is the connected economy. Knowledge--the fuel of prosperity--will circulate on digital channels, as efficiently and at as low a cost as possible.

Since 1992, when the CRTC first introduced competition in telecom, huge amounts of money have been invested to create facilities-based competitors to take on the incumbents. That may have been a bold and original strategy at its time, but it isn't right for Canada's future. Today, the amount of capital needed to mount a full-scale assault on entrenched incumbents using their current network design approach would be impossible to obtain on commercial terms.

In our submissions to price-cap hearings last fall, we proposed a hybrid model--one where competitors would own duplicate facilities in some markets and share them in others. The logic of minimizing redundant and hence idle infrastructure, while preserving the benefits of competition, is very appealing. It moves the industry to where

it must be in order for competition to survive with high utilization rates, capital efficiency, growth, profitability and positive cash flows.

The real point, however, is that continuing to conceive of competition as being based on facilities, not ideas, doesn't make sense in a world where returns will increasingly flow to intellectual capital, not physical assets.

Second, we have to build the right facilities to serve what customers need and want. This means relying on a strategic build out so as to ensure that we have the most sophisticated information infrastructure available, with minimal redundancy. And it means moving to next generation technologies that have lower capital and maintenance costs.

This latter point speaks directly to the opportunity of solving the last-mile problem. Many companies, institutions and municipalities are working to address it themselves, using off-the-shelf standards-based technologies because they are concerned that the current service providers are not moving aggressively enough to provide solutions that are good enough, fairly priced, and available wherever needed.

In reality, building out leading-edge capacity doesn't have to be done using conventional terrestrial means. It can be done via cable, or satellite, or wireless, or through some combination thereof.. Canada has excellent companies in all these fields and their expertise should be brought to bear on what is a vital imperative-building the foundation of an innovation pipeline that takes us to the future on our own terms.

Having that kind of confidence means that as a country we can finally move beyond the obsession with domestic ownership and control that are genuine impediments to progress.

As someone who has watched the information industry evolve around the world, I can say with confidence that nationality in infrastructure doesn't matter anymore.

Who owns the infrastructure is not strategic. What is strategic is having the most advanced network in the world that can serve as platforms of growth for Canada. Pragmatically, this means dropping any restrictions on foreign investment of communications infrastructure. They aren't helping what is already a difficult and demanding challenge. In fact, they're very much in the way!

The final phase--the one that offers the greatest opportunity to Canada--is creating world-leading technologies, applications, solutions and services that are delivered to the global customers.

Imagine what this country could look like if we had 50 more companies like Cognos, or Hummingbird, or Platform Computing, or CGI, or my own company. For AT&T Canada, participating in the innovation economy was too important strategically to ignore, so we acquired and merged Montage and DMC to give us a world-class capability to manage and distribute knowledge. We have more than 500 engineers here in Canada developing applications and services for our business customers, all of which are exportable.

For those of you who may doubt that Canada is able to participate at this level, let me give you an example of how world-class this country really is. Some years ago, I was involved in a decision in which Ericsson, the Scandinavian hardware and services company, was considering whether to locate an R&D operation in Canada (after we had asked them, of course!).

After some arm twisting, it eventually committed some 50 software development jobs in the Montreal area. Now that number has grown to nearly 1,800 with no arm twisting at all because it found Montreal was the best place on earth to develop wireless/cellular technologies, which it turned around and sold to the world. We can lead and we must lead.

Reaching the future on our own terms also certainly means relying on global players to do their share here in Canada, along with our Canadian champions. I would begin by asking those global companies that have a stake in Canada already to raise their position. Could EDS or IBM double up on their innovation investments here? And why not seek and earn more global product mandates, all serviced from Canada?

1'd also go after new ones who aren't investing as much as they could. Here I'm thinking of enterprises like Microsoft or Oracle or SAP and others who could be doing much more in the way of R&D activity in this country.

That's just the beginning. What about the hundreds of mid-size companies in North America that are interested in making the jump to the next level? Imagine what they could do in this country if we ensured they had the best conditions in the world to make that leap forward?

This really is an enormous opportunity for Canada. Think about it for a moment more. Imagine our country with 50 or more companies of the likes of RIM, Open Text or PMC Sierra.

I believe we can do it, but only if we begin by getting our foundation conditions right. Intuitively, I believe, unfortunately, that we as a nation are slipping in this area. The number of top-tier, globally competitive players in the information industries that count on Canada for a crucial part of their intellectual capital stock is diminishing. Fixing this and putting us on a path toward global leadership is an urgent national priority.

The role of the federal government in all of this is certainly important. It is the facilitator. The broker. The architect. It's up to private enterprises to put up the money and take the operating and market risks. But companies must do so in a climate and context where the nature of their risk is recognized.

So I applaud Minister Rock's initiative to emphasize innovation. I encourage him to move this to the next level with the help of people in the industry to create a vision and strategy to make it happen. I also challenge Canada's CEOs to make the effort and understand how investment in focused Research and Development for their company can dramatically improve competitiveness and productivity. And, by the way, I believe the most skilled and cost-effective work force to do this resides right here in Canada.

With the courage to compete, Canada can make the leap into the future from being primarily a consumer of others' ideas to selling Canadian ideas rooted firmly in innovation. That's where the future is, and that's where we should be aiming.

Instinctively, we are a nation of builders. From Macdonald and Cartier, who had dreams of a nation bigger than what they themselves could see or even imagine, Canadians have gone beyond their dreams in the past. We can, and must do so again.

Thank you very much.

The appreciation of the meeting was expressed by Bart J. Mindszenthy, APR, FCPRS, Partner, Mindszenthy & Roberts Communications Counsel and 2nd Vice-President, The Empire Club of Canada.

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Seizing Opportunity: Canada's Chance to Lead out of the Chaos of the Communications Revolution


Canadian telecommunications. How Canada can establish itself as a global leader in the next phase of opportunity and growth in the global information and communications industries. Information-based applications, technologies, services and solutions for export to customers around the globe. Competitive carrier industry as a fundamental building block of a 21st-century economy. Rules of engagement for Canada. Networks. The Canada business community's unwillijngness to invest in research and development with supporting statistics. Canada's ability to innovate and take R&D risks at world-class levels. The increasingly interconnectedness of our world. Rethinking traditional borders and business models. Mobile workers. Creating incentives and and taking initiatives in three related areas, with specifics. The knowledge economy. An example of Canada as world-class. An enormous opportunity for Canada. Going beyond our dreams.