How Socio-Economic Changes Affect Bell Canada Enterprises

Introduction:

The presence of today's speaker gives credence to the futuristic accuracy by which The Empire Club chooses the eminent individuals who address us. How did one know that Raymond Cyr would move from his already lofty post as Chairman and President of Bell Canada-our favourite phone company-to become President of Bell Enterprises, which boasts the largest number of registered shareholders of any Canadian corporation, making that leap just in time to speak to us? Do we have a crystal ball, or are we blessed with prescience? Actually, it is due to the good networking of Bell Canada, and networking is appropriate for a communications company. Last fall the recently retired former Public Relations Director of Bell Canada's Ontario Division, Mel James, convinced me that Mr. Cyr would be an ideal speaker, and as I spend fifty percent of my time on the telephone 1 readily agreed. Now that Bell Enterprises has been added to his list of responsibilities, Mr. Cyr's stock as a speaker has gone up and I see that Bell stock has gone up also.

Raymond Cyr was born and educated in Montreal. He joined Bell Canada 28 years ago with an engineering degree from the University of Montreal. He held various senior positions leading to the presidency of Bell Canada in 1983 and later became Chairman and CEO. He has been a director and still is, of many Canadian corporations. On January 1, 1987, he took on the presidency of Bell Enterprises, a management holding corporation with interests in telecommunications, manufacturing, energy, printing and real estate and, as 1 mentioned, boasting the largest number of shareholders of any Canadian corporation. It also has common shares listed on stock exchanges beyond Canada; in the U.S., Europe and Japan.

There are some interesting and intriguing facets about Mr. Cyr that caught my attention. He is among the few executives who has taken the one-year course at National Defence College in Kingston. Also, he was President of The Telephone Pioneers of America, the largest voluntary association of industrial employees in the world.

He is a member of the Canadian-U.S. Advisory Committee, the Canadian Chamber of Commerce and is Chairman of the Montreal Museum of Contemporary Art. He is a man with a wide range of responsibilities and an equally wide range of interests.

Let us welcome Raymond Cyr, President of Bell Enterprises and Chairman of Bell Canada.

J.V. Raymond Cyr

About a year ago, when I accepted your invitation to speak, I was pretty sure what my subject would be today. I thought then I would address the subject that most people were, and still are, asking about-the significance of the changes taking place in the telecommunications industry. And my plan was to do that against the background of socio-economic changes occurring in Canada.

But change is so all pervasive, it seems, that it even affects those who would dare to observe and comment on it. Even my own situation has changed.

So instead of discussing with you the significance of the changes impacting my industry, against the background of current socio-economic change in Canada-I have chosen a much more important subject. I want to discuss the significance of current socio-economic changes in Canada, against the background of changes that are affecting my industry. You see how my perspective has changed!

My first observation concerns the increasing degree to which we, as a nation, have become dependent on the services sector of our economy.

Less and less are Canadians making or growing real things, such as shoes or turnips. More and more we are devoting our people, our money, our time and our energy, to helping those who do produce real things-helping them do so better, faster and cheaper. As a nation, our main product has become service.

For example, the services sector of our economy now accounts for two thirds of Canada's total domestic output, and it employs more than 70 percent of the country's workforce.

And these jobs aren't solely at the lower income end of the scale. For example, in 1983, three-quarters of all the scientists, engineers and technologist working in -Canada, were employed in the services sector.

There are a couple of points that I see as significant in this situation. '

The first is that a services-oriented society does not seem to be so affected by business cycle swings as a goods-oriented society. And that's good news for Canada.

The recession of 1982 demonstrates the point. During that year, our overall Gross Domestic Product dipped by 4.3 percent. This was a combination of a dramatic nine-percent plunge in goods production, but only a 1.5-percent drop in service production.

A second significant result in our becoming a nation mainly of servers is that it's generally more difficult to trade services in the world's markets, than it is to trade goods. While this currently may be bad news for our country, we can gain successes if we're willing to work harder-and work smarter.

Anything physical can be traded pretty well anywhere, providing you can find someone who wants it-and is willing and able to pay your price. But services are less concrete. Largely, they exist as insight and experience in the minds of people. Services are not easily quantified or measured.

Canada has traditionally posted large surpluses in the trade of goods, while posting deficits in other areas, but we nevertheless do have services that the world wants.

Our banking industry, for example, is recognized the world over for its strength. As well, several major Canadian firms have established worldwide reputations for their know-how

and integrity in engineering consulting services.

Another sector where Canada is a leader on a competitive international level is, of course, telecommunications.

Most countries in the developed world have good telecommunications systems. We like to think that none is as good as Canada's, but pretty good. This is not the case, however, in lesser-developed countries, where authorities now have come to understand that telecommunications is a key to economic development.

There is keen competition among the world's major providers of telecommunications services to assist in these development efforts.

A good example of Canadian competitiveness in this area is Bell Canada International, which has completed projects in more than 70 countries. These were successes in selling services-specifically, our telecommunications insight and experience.

Right now, Bci is carrying out our second billion-dollar-plus contract in the Kingdom of Saudi Arabia. These are the largest consulting contracts ever seen in the telecommunications industry.

Northern Telecom, our telecommunications equipment manufacturing subsidiary, is a major success story in its own right. Beginning from a Canadian base, it evolved into a North American leader, then expanded on a global scale. Today Northern Telecom is the world leader in the supply of fully digital telecommunications systems.

However, we see the evidence daily that Canada is only one of the players in a global high-technology race in which exports and jobs are at stake. To compete successfully for exports, Canadian companies need the same structural and operational elbow room as their international competitors.

I should point out that this is already an uphill struggle, because we're competing with larger companies in larger countries, having larger markets, and many of them are heavily subsidized by their national governments.

Peaceful trade is the lifeblood of nations, and a bridge between rival ideologies that leads to greater international understanding. But we Canadians are getting the message in clear, unmistakable terms that we are going to have to fight for our rightful share in world markets if we are to maintain the living standards achieved in the past.

In the global marketplace, as in the domestic business sector, there is no free lunch. We get exactly what we pay for in terms of the efforts we are prepared to expend.

More and more, as the world shrinks, competition increases, and business becomes more international in its scope. It is not a sense of entrepreneurial adventurism that drives us in our search for world markets-it is simple necessity. Almost as in time of war, we have a stark choice-to do or die. And that, of course, is no choice at all.

No country, perhaps Canada least of all, can survive and prosper in isolation. Our world is well on the way to becoming a single marketplace. And international competition is pushing us towards a global marketing strategy.

One of the psychological barriers we need to overcome in this context is our fear of corporate bigness. In sectors such as electronics and telecommunications, a comprehensive research and development program requires a critical mass to keep things going. We shouldn't fear bigness, because what Canada really needs is more multinational companies-companies with the size and muscle to take on world-scale competitors.

BCE and its subsidiary corporations have had many international successes-not in every marketing attempt, of course, but overall, a strong track record.

You may have read in this morning's newspapers that, during 1986, BCE achieved one billion dollars in net income-for the second year in a row. That's a Canadian record, but I think it's worth pointing out right away, that on the world scene, it falls into the medium-size category of business success. So we have to continue seeking new opportunities.

Northern Telecom, as we all know, has carved out a leadership position in North America. It has deployed its forces throughout the world and is breaking new ground in Japan, China and other markets.

But there are still major opportunities to be exploited. To do this, it commits some eleven percent of its revenues to support the major research and development activities necessary to insure future technological and marketing success.

Northern's competition includes some of the world's largest companies-to cite a few, AT and T, L.M. Ericsson, Philips, Siemens, and Nippon Electric. But beyond that, the world market is becoming increasingly populated by the colossal joint ventures formed by these huge and widespread corporations. And many of these companies operate with statesanctioned dominance in their own domestic markets.

We have confidence in Northern Telecom and we're optimistic about other major subsidiaries as well. I'd like to mention them briefly.

Bell Canada, your telephone company, must operate within the domestic telecommunications market, but it is highly efficient and strives constantly to remain innovative. So we expect Bell Canada's revenues will continue to grow, especially in competitive business areas.

Bell is moving ahead aggressively with new network services such as Envoy and iNet (the electronic gateway), already growing at rates of seventy percent per year.

Closer to the residential customer, new technology such as digital switching will permit new services to the home. The trials in Peterborough of "Call Management Services" are well under way. Such features as knowing the telephone number of the calling party should eliminate annoyance calls and open the horizon to many new applications in the home. In passing, l might point out that, contrary to what you may have read in the newspapers, Bell Canada together with other members of Telecom Canada has put in a fully compliant bid for Teleglobe.

It has done so with other partners.

TransCanada PipeLines is a world leader with its pipeline and transmission technologies. Like others in the energy field, it was strongly affected by depressed prices in 1986. However, its domestic pipeline operations carried a record volume of natural gas for the third consecutive year.

Over the last two years, TCPL has written down the value of its oil and gas assets and has restructured its marketing forces. It has prepared itself to compete vigorously. As you know, there has been a recent improvement in world oil prices and if that trend continues, it has to be good news for TCPL.

BCE Development, our real estate subsidiary, has doubled its assets in the past year to more than two billion dollars. BCED has a strong and experienced management team now focussing its efforts on the development of commercial incomeproducing properties. These activities are showing positive results now and we foresee a strong future.

BCE PubliTech, which holds our printing, packaging and publishing interests, is now the sixth-largest commercial printer in North America. In addition, it is winning international successes on several continents against competitors in the fields of telephone directory publishing and lottery and security printing.

BCE Commcor is a new company, just created, to hold our interests in the emerging communications and information services markets. These companies are growing rapidly and are projecting combined sales in the order of $300 million by year end.

That's the checklist of our major holdings. Our interests are widespread and diverse, but they have a common potential for growth and much of that must be on a world scale.

Against this background of increasingly intense global competition, the pace has to be kept up. We can only afford to give BCE employees and subsidiary companies about one day-today-to enjoy the renown of having set Canadian business records.

We're already challenging ourselves with the target of more than $2 billion of net income by the mid-1990s. We have a commitment to double our annual spending on that essential competitive ingredient-research and development: and we already have the most extensive industrial R and D programs in Canada. That means we'll be spending some one-and-a-half billion dollars on R and D five years from now. So we're going to have to achieve our target to remain among the world's leaders.

We'll continue to look at new opportunities as they arise but, as you can see, BCE has the main components of its organization in place. Our task now is to ensure their growth and continuing development over the next decade or so. And that's what we intend to do.

The appreciation of the meeting was expressed by William Kam, a Past President of The Empire Club of Canada.