A Bit At A Time: Creating Canada's Service Export Economy

At the top of my list are the serious challenges we face in improving productivity growth and closing what the Organization for Economic Cooperation and Development (OECD) has called a serious innovation gap.

Productivity growth is key both to international competitiveness and rising national incomes. While Canada has a high rate of productivity, we have a low rate of productivity growth. Let me put that into perspective.

From 1960 to 1973, productivity growth averaged two per cent per year. At this rate, the standard of living in Canada would double about every 35 years. But since 1973, productivity growth has averaged only three tenths of a percentage point each year, meaning that at this rate, the standard of living would double only every 231 years.

The best way to jump-start productivity growth is through innovation. But here Canada also faces a serious problem. According to the OECD, we suffer from an innovation gap, characterised by:

• low R and D spending as a percentage of GDP, particularly by the private sector;

• weak diffusion and adoption of advanced technologies in all sectors, especially when compared to the U.S.; and

• a big mismatch between the skills needed in the economy and those which are now available resulting in the rather convoluted situation whereby we are importing people that possess high-demand skills, and enduring near double-digit unemployment.

While Canada has always been a great exporter, realising prosperity in the next millennium depends on taking a rising share of the most valuable export product of the future--the global market for innovative skill and intellectual capital.

But look at where we are. Exports are highly concentrated, with 55 per cent coming from the resource and automotive sectors. The top-five exporters in Canada account for 22 per cent of exports; the top-50 exporters account for almost half; and the top 500 account for some 75 per cent. Less than 10 per cent of small and medium-size enterprises take advantage of globalisation at all. So it looks as if our current profile by itself won't give us a particularly influential position in the most important industry of tomorrow.

This may not matter to people who are already well-off. But if we are to leave a better legacy for the next generation, then the enduring questions of unemployment, underemployment, and economic growth all have to be addressed today--through commitments to improving productivity, closing the innovation gap, and securing leadership positions in growth industries.

So what must be done? Where do we go from here? How can Canada be a meaningful player in the integrated global information industry?

I suggest the answer involves a fundamental reconfiguration of the Canadian economy to include a vibrant service sector, focused on exports, enabled primarily by a world-leading telecommunications infrastructure. That, I believe, will enable us to secure our future--if we act now.

Choosing a direction and implementing it are two different things. Implementation means making investments which are, in effect, bets on the future. And in most industries, especially mine, four factors make choosing the right bets increasingly difficult.

First, globalisation has changed the face of international business forever. In the past two decades, international telecommunications traffic has grown five times more than world trade and is now almost a trillion-dollar global industry. And with that comes increased competition--not only in our own market, which we welcome, but in other markets, which we must examine to see if participation there makes any sense.

Compounding that challenge is the fact that global telecom carriers are realigning to take advantage of the new environment. Today the global market is evolving around one of three supercarrier alliances which are changing the economics of the information industry. Not only do alliances offer seamless connectivity with regional or national telephone companies around the world, they also permit the sharing of the growing expense of innovation.

And while Bell and its sister companies in BCE are world-class in ability, we clearly do not match the scale of the global supercarriers. So as our near-term strategy unfolds, it is clear that all players in this fast-changing industry will engage in some form of enhanced relationship with one or more of the super-carriers.

The second factor is expanding competition, a natural offshoot of both rapid global deregulation and accelerating convergence. Total competition isn't news. Rather, it's the "new world" that Bell has been readying itself for ever since I joined the company three years ago. But total competition brings with it new pressures and complexities. Traditional sources of revenue will probably decline as most basic telecommunications services move to commodity-like pricing.

Some of our competitors will invest in the most lucrative parts of the market, but on the whole will simply resell our services, thereby enabling them to channel energies and investments into marketing and selling.

The third force leading to increased uncertainty is the incredibly rapid advance of technology.

The growth of the Internet is perhaps the best manifestation of technological accomplishment, going from virtually nowhere to becoming the hottest competitive battleground in under four years. As more and more people get on the net, a critical mass will be achieved that will deliver a huge amount of value to users just like the proliferation of fax machines did not so long ago.

I predict that most companies will reinvent themselves around the core capabilities that the Internet portends--most important of which is the ability to serve world markets from almost anywhere.

This is having a big effect now. For the first time in history, the volume of data traffic on our North American public switched network exceeds voice traffic. Peak loads on the telephone network used to occur at 10:00 a.m. and 3:00 p.m. every weekday. Now peak load occurs at about 10:30 p.m. every day!

This development has caused most players to abandon any previously held notion of how the Information Highway will evolve. The industry's TV-centric view has been replaced universally by a computer-centric view. But to me, the most important contribution of the Internet is that it has created a set of expectations in the mind of the public as to how information services will be available and delivered in the future--fast, reliable, in real time, and to a demanding standard of quality and sophistication.

That's because the fourth factor--customer ascendancy--has changed almost everything. The customer has displaced the regulator as the arbiter of our industry's future. The creation of the Internet, the reduction of long-distance prices, and the availability of choice has led to an expectation among customers that they will be receiving more and more for less and less.

This is a huge challenge to any industry but it must be met in my industry through innovation and a renewed focus on making services accessible, friendly to use, low-cost, and packed with features that customers want.

The sum total of all of these factors has resulted in a sea of broken assumptions and a revolutionary change in thinking about how companies, including Bell, do business. In an environment where there are no guarantees, each company has to step up and make its bet. Our bet is that the telecommunications and application-software industry has tremendous potential to serve global markets, and create jobs here at home.

For Bell, this means winning the battle for the future not only about getting the costs right. We have put the job of creating a perpetuating cycle of innovation at the top of our management agenda, along with improving efficiency, productivity, and shortening the product-development cycle.

To that end, Bell will be announcing in a few weeks time the creation of a new software-based service-development organisation, which will be one of the largest R and D shops in Canada. We will share more details on this initiative soon.

One reason for taking this step is not only to tackle head-on the innovation gap that Bell faces, but to take aim at the innovation gap which threatens Canada's prosperity. We hope and expect that this new organisation will have the same catalytic job and company-creating effect in Canada, as the formation of Hewlett-Packard did in Silicon Valley four decades ago.

This is a bold ambition, perhaps, but one that I believe is entirely within reach. But nothing less than a bold commitment to earning leadership will succeed, because winning the battle for prosperity in the next-generation economy is going to be a formidable challenge. Winning will be reflected in how well companies and countries attract, retain, and engage intellectual capital, which is and will continue to be the most important source of innovation.

We plan to be in on the ground floor to ensure that a distinctly Canadian voice helps guide the evolution of the global digital economy. The prize is an opportunity to serve customers, reward both shareholders and employees, and improve Canada's standard of living.

The digital economy is based on the increasingly efficient movement of information. And while a lot is happening today, much more is needed if Canada is to become a leader in the digital economy and an exporter of services. The government of Canada has set out a vision for telecommunications based on two clear goals which are shared fully by Bell:

• one, that Canadians must receive world-class telecommunications services at competitive prices from a strong domestic industry;

• and two, that Canada strengthens its position in the development and provision of such services globally.

To help achieve this vision, Bell's efforts and those of our partners in the Stentor alliance, are focused around three strategic initiatives.

First, we must create the world's first National Area Network--a coast-to-coast, high bandwidth capacity, all-digital, wireline and wireless infrastructure offering access to all Canadians. A National Area Network will let every Canadian compete for prosperity, from Timmins to Kelowna to Repentigny to Baddeck. In a digital economy, every Canadian and every part of Canada can have the same starting place.

The second strategy involves making Canada into a living laboratory--a world-leading incubator of communications solutions for the world, all enabled by the digital economy. We would furnish the means whereby innovative companies from around the globe could create and test advanced business and consumer services right here. This means re-conceptualising our networks to being more like computer operating systems, rather than pipelines moving bits of information.

The third strategy calls for creating new applications, solutions and services for domestic and global markets. I believe this would help smaller and medium-size businesses by boosting their productivity and return on investment. Larger companies are already benefiting from new solutions and steadily improving operating costs. Governments could benefit from the ability to deliver services, strengthen education, and improve the cost and efficiency of health care in new and innovative ways.

These strategies condense into one powerful idea: we must focus on the creation of an enabled environment right here in Canada to create, attract, and keep the next-generation companies that seek to serve world markets. Only then can we move from selling traditional services in traditional ways to selling new services in new ways. This is the real promise of the digital economy.

But the question remains: "Who will do it?"

Global telephone companies and domestic cable companies certainly have a role. After all, the Canadian market is too attractive for them to ignore.

But creating the digital economy and closing the innovation gap that Canada faces won't be achieved through price wars, cream-skimming, reselling, or through any of the idealised market structures that dominate the language of discussion today.

It will only be built through a competitive spirit that is reflected in actions, initiative, and investment in innovation. It will be less about choosing the right industries than choosing the right conditions where next-generation industries can flourish.

Because in a digital economy, the computer bit knows no flag. Innovative individuals and companies will locate to the best, most hospitable environment in the world. This means that all of us--governments, business, and Bell--are engaged in a competitive struggle to ensure that the architects of the companies of the future choose Canada.

The stakes are clear--Canada cannot become a branch plant in the most important industry of tomorrow. That's why Bell will continue to seek the same rules for all competitors in all telecommunications-related markets, and continue to rely on the free market as the best way to let customers decide which services should thrive and which should not.

My challenge to the international supercarriers is to come and invest in Canada. If we invite the world here to compete, everyone on the same terms, following the same rules, Canada can't lose. This is a vision worth fighting for.

Thus we are waiting for the decision of the CRTC on local competition policy and a host of other critical issues with keen anticipation. Regardless of the outcome, we intend to fight for our customers' business because that is the only way forward to achieve success.

Let's Build the Future In Canada

Ladies and gentlemen, the new world is a world of information and the digital economy will become a fact. The only question that remains is: "Where first?"

I think the answer should be, "Right here," because Canada has a proud heritage, beginning with Alexander Graham Bell, that today gives us a chance to shape and lead this new world economy for some time to come.

That's the reason why getting our rules right, our targets clear, and old paradigms behind us is so important. We must move now.

Thank you very much.

The appreciation of the meeting was expressed by Douglas Todgham, Vice-President, The Canadian Institute for Advanced Research and Third Vice-President, The Empire Club of Canada.

At the top of my list are the serious challenges we face in improving productivity growth and closing what the Organization for Economic Cooperation and Development (OECD) has called a serious innovation gap.

Productivity growth is key both to international competitiveness and rising national incomes. While Canada has a high rate of productivity, we have a low rate of productivity growth. Let me put that into perspective.

From 1960 to 1973, productivity growth averaged two per cent per year. At this rate, the standard of living in Canada would double about every 35 years. But since 1973, productivity growth has averaged only three tenths of a percentage point each year, meaning that at this rate, the standard of living would double only every 231 years.

The best way to jump-start productivity growth is through innovation. But here Canada also faces a serious problem. According to the OECD, we suffer from an innovation gap, characterised by:

• low R and D spending as a percentage of GDP, particularly by the private sector;

• weak diffusion and adoption of advanced technologies in all sectors, especially when compared to the U.S.; and

• a big mismatch between the skills needed in the economy and those which are now available resulting in the rather convoluted situation whereby we are importing people that possess high-demand skills, and enduring near double-digit unemployment.

While Canada has always been a great exporter, realising prosperity in the next millennium depends on taking a rising share of the most valuable export product of the future--the global market for innovative skill and intellectual capital.

But look at where we are. Exports are highly concentrated, with 55 per cent coming from the resource and automotive sectors. The top-five exporters in Canada account for 22 per cent of exports; the top-50 exporters account for almost half; and the top 500 account for some 75 per cent. Less than 10 per cent of small and medium-size enterprises take advantage of globalisation at all. So it looks as if our current profile by itself won't give us a particularly influential position in the most important industry of tomorrow.

This may not matter to people who are already well-off. But if we are to leave a better legacy for the next generation, then the enduring questions of unemployment, underemployment, and economic growth all have to be addressed today--through commitments to improving productivity, closing the innovation gap, and securing leadership positions in growth industries.

So what must be done? Where do we go from here? How can Canada be a meaningful player in the integrated global information industry?

I suggest the answer involves a fundamental reconfiguration of the Canadian economy to include a vibrant service sector, focused on exports, enabled primarily by a world-leading telecommunications infrastructure. That, I believe, will enable us to secure our future--if we act now.

Choosing a direction and implementing it are two different things. Implementation means making investments which are, in effect, bets on the future. And in most industries, especially mine, four factors make choosing the right bets increasingly difficult.

First, globalisation has changed the face of international business forever. In the past two decades, international telecommunications traffic has grown five times more than world trade and is now almost a trillion-dollar global industry. And with that comes increased competition--not only in our own market, which we welcome, but in other markets, which we must examine to see if participation there makes any sense.

Compounding that challenge is the fact that global telecom carriers are realigning to take advantage of the new environment. Today the global market is evolving around one of three supercarrier alliances which are changing the economics of the information industry. Not only do alliances offer seamless connectivity with regional or national telephone companies around the world, they also permit the sharing of the growing expense of innovation.

And while Bell and its sister companies in BCE are world-class in ability, we clearly do not match the scale of the global supercarriers. So as our near-term strategy unfolds, it is clear that all players in this fast-changing industry will engage in some form of enhanced relationship with one or more of the super-carriers.

The second factor is expanding competition, a natural offshoot of both rapid global deregulation and accelerating convergence. Total competition isn't news. Rather, it's the "new world" that Bell has been readying itself for ever since I joined the company three years ago. But total competition brings with it new pressures and complexities. Traditional sources of revenue will probably decline as most basic telecommunications services move to commodity-like pricing.

Some of our competitors will invest in the most lucrative parts of the market, but on the whole will simply resell our services, thereby enabling them to channel energies and investments into marketing and selling.

The third force leading to increased uncertainty is the incredibly rapid advance of technology.

The growth of the Internet is perhaps the best manifestation of technological accomplishment, going from virtually nowhere to becoming the hottest competitive battleground in under four years. As more and more people get on the net, a critical mass will be achieved that will deliver a huge amount of value to users just like the proliferation of fax machines did not so long ago.

I predict that most companies will reinvent themselves around the core capabilities that the Internet portends--most important of which is the ability to serve world markets from almost anywhere.

This is having a big effect now. For the first time in history, the volume of data traffic on our North American public switched network exceeds voice traffic. Peak loads on the telephone network used to occur at 10:00 a.m. and 3:00 p.m. every weekday. Now peak load occurs at about 10:30 p.m. every day!

This development has caused most players to abandon any previously held notion of how the Information Highway will evolve. The industry's TV-centric view has been replaced universally by a computer-centric view. But to me, the most important contribution of the Internet is that it has created a set of expectations in the mind of the public as to how information services will be available and delivered in the future--fast, reliable, in real time, and to a demanding standard of quality and sophistication.

That's because the fourth factor--customer ascendancy--has changed almost everything. The customer has displaced the regulator as the arbiter of our industry's future. The creation of the Internet, the reduction of long-distance prices, and the availability of choice has led to an expectation among customers that they will be receiving more and more for less and less.

This is a huge challenge to any industry but it must be met in my industry through innovation and a renewed focus on making services accessible, friendly to use, low-cost, and packed with features that customers want.

The sum total of all of these factors has resulted in a sea of broken assumptions and a revolutionary change in thinking about how companies, including Bell, do business. In an environment where there are no guarantees, each company has to step up and make its bet. Our bet is that the telecommunications and application-software industry has tremendous potential to serve global markets, and create jobs here at home.

For Bell, this means winning the battle for the future not only about getting the costs right. We have put the job of creating a perpetuating cycle of innovation at the top of our management agenda, along with improving efficiency, productivity, and shortening the product-development cycle.

To that end, Bell will be announcing in a few weeks time the creation of a new software-based service-development organisation, which will be one of the largest R and D shops in Canada. We will share more details on this initiative soon.

One reason for taking this step is not only to tackle head-on the innovation gap that Bell faces, but to take aim at the innovation gap which threatens Canada's prosperity. We hope and expect that this new organisation will have the same catalytic job and company-creating effect in Canada, as the formation of Hewlett-Packard did in Silicon Valley four decades ago.

This is a bold ambition, perhaps, but one that I believe is entirely within reach. But nothing less than a bold commitment to earning leadership will succeed, because winning the battle for prosperity in the next-generation economy is going to be a formidable challenge. Winning will be reflected in how well companies and countries attract, retain, and engage intellectual capital, which is and will continue to be the most important source of innovation.

We plan to be in on the ground floor to ensure that a distinctly Canadian voice helps guide the evolution of the global digital economy. The prize is an opportunity to serve customers, reward both shareholders and employees, and improve Canada's standard of living.

The digital economy is based on the increasingly efficient movement of information. And while a lot is happening today, much more is needed if Canada is to become a leader in the digital economy and an exporter of services. The government of Canada has set out a vision for telecommunications based on two clear goals which are shared fully by Bell:

• one, that Canadians must receive world-class telecommunications services at competitive prices from a strong domestic industry;

• and two, that Canada strengthens its position in the development and provision of such services globally.

To help achieve this vision, Bell's efforts and those of our partners in the Stentor alliance, are focused around three strategic initiatives.

First, we must create the world's first National Area Network--a coast-to-coast, high bandwidth capacity, all-digital, wireline and wireless infrastructure offering access to all Canadians. A National Area Network will let every Canadian compete for prosperity, from Timmins to Kelowna to Repentigny to Baddeck. In a digital economy, every Canadian and every part of Canada can have the same starting place.

The second strategy involves making Canada into a living laboratory--a world-leading incubator of communications solutions for the world, all enabled by the digital economy. We would furnish the means whereby innovative companies from around the globe could create and test advanced business and consumer services right here. This means re-conceptualising our networks to being more like computer operating systems, rather than pipelines moving bits of information.

The third strategy calls for creating new applications, solutions and services for domestic and global markets. I believe this would help smaller and medium-size businesses by boosting their productivity and return on investment. Larger companies are already benefiting from new solutions and steadily improving operating costs. Governments could benefit from the ability to deliver services, strengthen education, and improve the cost and efficiency of health care in new and innovative ways.

These strategies condense into one powerful idea: we must focus on the creation of an enabled environment right here in Canada to create, attract, and keep the next-generation companies that seek to serve world markets. Only then can we move from selling traditional services in traditional ways to selling new services in new ways. This is the real promise of the digital economy.

But the question remains: "Who will do it?"

Global telephone companies and domestic cable companies certainly have a role. After all, the Canadian market is too attractive for them to ignore.

But creating the digital economy and closing the innovation gap that Canada faces won't be achieved through price wars, cream-skimming, reselling, or through any of the idealised market structures that dominate the language of discussion today.

It will only be built through a competitive spirit that is reflected in actions, initiative, and investment in innovation. It will be less about choosing the right industries than choosing the right conditions where next-generation industries can flourish.

Because in a digital economy, the computer bit knows no flag. Innovative individuals and companies will locate to the best, most hospitable environment in the world. This means that all of us--governments, business, and Bell--are engaged in a competitive struggle to ensure that the architects of the companies of the future choose Canada.

The stakes are clear--Canada cannot become a branch plant in the most important industry of tomorrow. That's why Bell will continue to seek the same rules for all competitors in all telecommunications-related markets, and continue to rely on the free market as the best way to let customers decide which services should thrive and which should not.

My challenge to the international supercarriers is to come and invest in Canada. If we invite the world here to compete, everyone on the same terms, following the same rules, Canada can't lose. This is a vision worth fighting for.

Thus we are waiting for the decision of the CRTC on local competition policy and a host of other critical issues with keen anticipation. Regardless of the outcome, we intend to fight for our customers' business because that is the only way forward to achieve success.

Let's Build the Future In Canada

Ladies and gentlemen, the new world is a world of information and the digital economy will become a fact. The only question that remains is: "Where first?"

I think the answer should be, "Right here," because Canada has a proud heritage, beginning with Alexander Graham Bell, that today gives us a chance to shape and lead this new world economy for some time to come.

That's the reason why getting our rules right, our targets clear, and old paradigms behind us is so important. We must move now.

Thank you very much.

The appreciation of the meeting was expressed by Douglas Todgham, Vice-President, The Canadian Institute for Advanced Research and Third Vice-President, The Empire Club of Canada.