Business Without Boundaries

Robin V. Sears, Director, The Empire Club of Canada; Edward Lucarelli, Grade 11 Student, De La Salle College; The Rev. Vic Reigel, Christ Church, Brampton; Albert Hitchcock, Chief Information Officer, Nortel Networks; Doug Beatty, Chief Financial Officer, Nortel Networks; Bruce Rothney, Deputy Chair, RBC Capital Markets; Lou Natale, Sales Director, Nortel Networks and Director, The Empire Club of Canada; Dr. Frederick L.R. Jackman, CStJ, LLD, President, Invicta Investments Incorp. and Past President, The Empire Club of Canada; and Gord Nixon, President and CEO, RBC Financial Group.

Introduction by John Koopman

Daedalus, a Greek, was exiled to Crete after having murdered his nephew. On that island, in the service of King Minos, Daedalus built the famous Labyrinth of Crete designed to imprison the dreaded Minotaur, a monster, which was half-bull and half-man. There was a woman involved, but Daedalus essentially gave the secret of the Labyrinth to the King of Athens who then used that knowledge to slay the Minotaur. This so engaged King Minos that he imprisoned both Daedalus and his son Icarus in the Labyrinth.

Daedalus and Icarus ultimately escaped by constructing wings from feathers and beeswax and flying out of the Labyrinth. Daedalus had urged Icarus to neither fly too low lest his wings touch the waves, nor too high lest the sun melt the beeswax. Icarus failed to heed his fathers advice, and in his exuberance flew too close to the sun and of course crashed when the beeswax melted and the wings fell apart.

In those helter skelter days of 1999 and 2000 when we thought the Internet would change the world in the next quarter, we collectively drove up the price of all Internet-related stocks to what in retrospect were unreasonable levels. In our exuberance many of us flew too close to the sun and not surprisingly, like Icarus, most of us crashed.

All of us share some complicity for the madness of those days. As Charles McKay wrote 160 years ago in his book entitled "Extraordinary Popular Delusions and the Madness of Crowds": "Communities, like individuals have their whims and peculiarities, their seasons of excitement and recklessness. Men think in herds, and they go mad in herds."

The Internet bubble we saw was at its core no different from Holland with her 17th-century tulip craze, France with her 18th-century Mississippi madness, or England with her South Sea Bubble.

Heracles eventually found Icarus's body and buried it on the island of Icaria on a promontory jutting out into the Aegean Sea. This might also be a good burial spot for many of my Internet stock certificates.

Nortel, however, like the mythical Phoenix is rising from the ashes of the Telco collapse and is again flying to the front, once more a thought leader in a telecommunications industry that shows every sign of rebounding. Nortel is playing offense again and is more focused on research and development than it has been for many years.

Mr. Dunn is the President and CEO of Nortel Networks. When he joined what was then Northern Electric as a management trainee in 1976, the company had only about $1 billion in revenues and was essentially the in-house equipment manufacturing arm of Bell Canada. Total revenues today are in the $10-billion range. He is a CMA and has a Bachelor of Commerce degree from McGill.

Please join me in welcoming Frank Dunn to the podium of the Empire Club of Canada.

Frank Dunn

Good afternoon.

Thank you for providing me the opportunity to share with you our perspective regarding the global impact of today's telecommunications industry.

There are profound implications for both business and consumers--here and abroad. And specifically what does it mean for Canada on the world stage?

While globally the industry has been facing significant challenges during the past three years, telecommunications continues to advance as a significant and positive disruption for businesses, markets and governments worldwide. These technological discontinuities are as significant as previous advances such as digital, wireless and optical.

To underline the increasing social, political and economic importance of this industry globally, let me begin by outlining the three significant dynamics at play.

Accelerated Impact

First, industry impact is accelerating.

The shift from traditional wireline to wireless is advancing as globally, over the last year, mobile subscribers were up 20 per cent compared to last year. In Mainland China, alone, there are on average approximately four million new wireless subscribers each month. The number of wireless subscribers in India has more than quadrupled in the past three years, and Russia's subscriber base has increased more than tenfold.

There are approximately 90 million broadband subscribers worldwide with almost one-third of them based in Korea and Japan.

And network traffic continues to grow, driven by data. For example Internet traffic is expected to have grown at around 85 per cent in 2003.

There is also an ongoing proliferation of products that connect to the Net from more advanced PDAs, to MP3 players, digital cameras and household appliances help human right on the same footing as health care and literacy. Consider this: currently 62 per cent of North Americans have Internet access. That number is less than 1 per cent in Africa. What might the impact of that statistic mean to Africa's future?

At the same time let me offer another example. In India there are many remote farming villages without phone services. Certainly limited Internet service. Recently an entrepreneur introduced a "mail bus" which travels from one community to another. The bus simply picks up and delivers data from Internet kiosks and cafes in the villages as it moves through the countryside. Villagers use the kiosks for accessing their e-mail addresses and surfing the Net.

What has this meant? Obviously the ability to access current technology, but more profoundly for them greater control over crop disease as these remote farmers are able to consult with urban, university agricultural experts via the Internet, and more effective price setting for crops as farmers communicate with each other easily regarding weekly market conditions.

In the past, emerging economies experienced the same decades-long industry cycles in traditional sectors like mining and manufacturing, as we did in North America. That will not be the case with telecommunications. New technologies are enabling these countries to skip over what were major milestones in conventional cycles.

Countries like India believe that a robust and reliable telecommunications infrastructure will be a significant tool for increasing their prosperity, attracting foreign investment and driving economic and social change. And, they are not burdened by legacy network investments, meaning they are moving quickly to highly affordable state-of-the-art technologies.

Consider that telecommunications currently represents approximately 4-5.5 per cent of GDP in emerging markets. In Canada it is currently 3 per cent.

These countries have passion and imagination. India recently installed a complete Optical network in six months. The normal amount of time would be approximately 12 to 18 months.

It is also worth noting that both China and India are now graduating more computer engineers than the U.S. Consider the potential of that passion and imagination, coupled with an increasingly well-educated population and state-of-the-art technologies.

Broken Business Model But there are challenges.

All of this data traffic travels on public and private networks which are becoming increasingly compromised as traditional business models come up short.

Data traffic is increasing dramatically without a proportional increase in revenue being generated by service providers. At the same time historical voice communications do not generate sufficient revenues for service providers to cover the costs of reinvestment in upgrading and enhancing existing networks.

Globally carriers are facing increasing volumes and mounting operating costs. Their challenge is to keep capital outlays down while maintaining or increasing revenues and driving out costs. But when you see your revenue going down and costs going up, the margins go away and that's the wrong way to go.

If you're an enterprise, to a great extent you don't see the productivity improvements from the networking capability that you need in order to drive substantial new network investment.

The solution? In Canada, we need to expand our imagination and embrace new business models.

The Transformed Network

For us that means ensuring today's public and private networks are transformed; becoming more powerful, with a multipurpose infrastructure to deliver rich new network services and manage escalating traffic. At the same time they must deliver increased user productivity and cost efficiencies.

How do we see network transformation unfolding?

We see smarter, more intuitive private and public networks that are always on, accessible from anywhere offering both voice and multimedia, but also enjoying convenience and cost economies.

We see data and voice becoming ubiquitous network properties.

Networks will be characterized by a common language, interoperability and no access barriers.

The boundaries between private and public, wireline and wireless, voice and data networks disappear.

What does this all mean for businesses? Total customer reengagement.

Much of today's communications are impersonal but that is based on our imagined limitations as to what current technologies can deliver versus the actual reality.

Today's technologies are simpler for the user, with this simplicity and intelligence built right into the design so the end consumer does not have to deal with complexity--and security and personalization are ensured rather than premiums.

Through transformed networks, you can reach out to your customers, using these integrated technologies to provide them with the information they need or want, how and when they want and to differentiate your company from your competitors.

Within your companies, you can have one phone number that follows you and each of your employees and one e-mail address where you and they can always be reached. Work becomes "what you do, not where you go." In short it means business without boundaries.

Business without boundaries gives companies the potential to grow in new directions and enjoy unprecedented flexibility and customization and the opportunity for more direct customer engagement.

Imagine customer relations models that enable you to appear to anticipate customer needs and adapt to customer preferences regarding, time, and place or channel instantaneously.

For example, today if you waiting at the airport and your flight is cancelled passengers have to re-enter the line and wait impatiently while two or perhaps three service representatives work hard to serve lines of irritated customers.

Existing network technologies can allow airlines to automatically rebook the customer's flight for a later date and immediately send the confirmation to the passenger's preferred devicebe it a cell phone, PDA, home phone or laptop, all within the space of a few minutes wherever she is in the world.

As the barriers to efficiency, productivity and growth are removed, new ways of doing business and growth opportunities will continue to emerge.

Think of the possibilities for businesses, government agencies or municipalities if you are now able to increase the number of customer touch points and channels and link multimedia with call agents, link mobility with commerce, link e-commerce with entertainment and implement location-based services and advertising.

Within the financial-services sector there is a move to buying managed services compared to buying technology. Enterprise customers are often doing this in parallel or in conjunction with outsourcing computing companies. These partnerships buy a managed network service paying only on a per-port usage basis. This allows the financial-services enterprise to focus on core banking initiatives and applications, avoiding investment of capital into basic infrastructure. By focusing on advanced applications, these enterprises have been able to roll out leading edge CRM tools to provide higher levels of customized customer services.

And, like you, Nortel Networks is also competing for superior talent. Employees desire choice, flexibility, mobility and pride. They also want management, processes and tools that encourage collaboration across functions, time zones, cultures, time and place.

The "Net Generation" of future employees who have grown and learned with the potential of the Internet will demand mobility, flexibility, security and choice in their work environment, and therefore from the transformed network.

Business without boundaries allows for talent acquisition and market presence regardless of geography. A worker from Yellowknife is suddenly as competitive and accessible as a worker in Toronto or Istanbul. Today's network technology could enable job candidates anywhere in the world to participate in video recruitment interviews at kiosks in shopping malls, libraries or government employment centres.

It is also creating new careers. Health infometrics is the study and application of new technologies in the health-care field. In facilities like Mount Sinai, the advancement of eHealth promises enormous benefits, not only in how care is delivered but in how it is received, how research is conducted, how educational opportunities are extended, how costs are managed and how consumers can keep themselves healthy through easier access to more information.

It may also no longer be necessary for enterprises to acquire real estate in booming, expensive market locations. Likewise it may no longer be necessary to locate buildings/hubs in geographical centres of expertise, particularly for those of us in the knowledge-based industries. Also, more telecommuters may also lead to less air pollution and fewer highways to build and maintain. Good news for both taxpayers and the environment.

More efficient networks also mean more efficient communication, helping to eliminate the obstacles to doing business with consumers, partners and conducting internal operations.

Telephone pole repairmen are now equipped with wireless technology, including a communication jacket and specialized eye piece that connects to their trucks which retrieves service information on what they need to fix while they are up a pole--rather than climbing up and down the pole numerous times for reference. This network technology makes their jobs easier, safer and more productive.

At Nortel Networks, over a third of our work force is equipped to work remotely. That number is increasing daily due to employee demand and our ability to support an effective, seamless virtual working environment for these telecommuters without impacting productivity but rather increasing it.

This is critical when you think that today's enterprise is characterized by optimized work forces with niche expertise being outsourced. There are fewer layers, increased spans of influence and more collaborative teams that come together for a specific purpose and then disband.

Also, this type of environment provides for increased business continuity contingencies.

For example, during the August power outage Nortel Networks employees based in Ontario and the Eastern U.S. were able to maintain close-to-normal productivity levels and customer engagement because so many of our employees are enabled to work outside a traditional office environment, due to the strength of our network and the ubiquity of laptops, WLAN, broadband access and VolP

In another example, following September 11, "mission critical" financial agencies like the Bombay Stock Exchange and the Securities Industry Automation Corporation, the technology subsidiary of the New York Stock Exchange, are using new network technologies as a distinct tool against natural disaster or terrorist attack. These technologies greatly reduce the risk of a long-term outage and prompt quick recovery from service disruptions helping to ensure the stability of global financial markets.

The Road Map

So how do we ensure that the Canadian business environment can transition to this new world?

In Canada we have a significant heritage as a global telecommunications leader. Canadians and Canadian businesses enjoy one of the world's most sophisticated, accessible and reliable telecommunications systems.

But how many of you here this afternoon think of your own communications network as a critical business tool, a competitive differentiator or an effective revenue generator?

As I said at the beginning, the global communications industry is becoming aligned around the vision of network transformation. The process is well underway. It's just a question of pace.

We would however offer the following perspective regarding the road map for success:

First, an appropriate level of enterprise investment that enables the continuous introduction of technologies, focused on delivering operational efficiencies and customer opportunities for revenue generation and service offerings.

Second, an educational system that produces innovators, allowing our industry to consistently deliver those new technologies.

And thirdly, a regulatory and policy environment that is appreciative of a quickly globalizing business environment coupled with rapidly advancing technologies.

Let me leave you with some thoughts on that last point.

We are at a profound inflection point. Regulators globally are wrestling with these issues particularly as new technologies like the Internet challenge the definition of national or political boundaries. For instance, how do you regulate residents in New York who receive their phone service from a company in Hong Kong--possible now because of VoIP?

Over the years Canadian regulation has always been able to adapt to the impact of new technologies and structural changes in the market for communications services.

Throughout, Canadians have benefited by a regulatory approach that has protected the public interest but has not constituted an impediment to investment, innovation and growth.

At Nortel Networks, we support regulation that's equitable, ensures a market return for investment, and is applied consistently. Consistency in application, known as regulatory certainty, is essential if service providers in Canada are going to make multi-year commitments to invest capital in next-generation communication infrastructure.

As a technological leader, we are also working hard to educate regulators and policy makers around the world about the dramatic business and social impacts of the technologies I've spoken about today.

I challenge all of you today in both government and industry to use telecommunications to move beyond incremental benefits to complete transformation.

As the world becomes more global, converged networks will be a key competitive differentiator in driving customer re-engagement, personalization, productivity and effective cost management.

Thank you for the opportunity to share our perspective. We are excited by the future, the challenges it brings and the opportunity to continue to represent Canada globally as a telecommunications leader.

The appreciation of the meeting was expressed by Lou Natale, Sales Director, Nortel Networks and Director, The Empire Club of Canada.