UPDATE: Politicians query Nortel, Ericsson

 The taxpayer has not spent one nickel on research and development of wireless technology in the last eight years for Nortel Networks Corp., the company’s chief strategy officer said.

George Riedel made his remarks during an emergency meeting Friday of the House of Commons Standing Committee on Industry, Science and Technology.

During the hearing, politicians heard about how Ericsson’s offer to buy Nortel’s wireless unit could affect national security, negotiations between Research in Motion and Nortel for Nortel’s Long Term Evolution wireless patents and whether Nortel will continue operating as a patent licensing company.

“In the last 10 years Nortel has not been able to use federal funds” to develop CDMA and LTE and patents, he said. Nortel has “not used any R&D tax credits” to reduce tax liabilities.


Liberal leader Michael Ignatieff wrote an open letter July 27 to Prime Minister Stephen Harper asking for a “full review” of the sale of “to make sure the transaction is in Canada’s interest” and “to ensure that the intellectual property developed with the investment of taxpayers’ dollars continues to benefit us all.”

The letter did not specify which investment he was referring to. Ignatieff’s spokesperson, Michael O’Shaughnessy, did not answer a question from Network World Canada asking how much money Ignatieff was referring to and when it was spent. In an e-mail, O’Shaughnessy would only say it refers to tax credits under the Scientific Research and Experimental Development program and “assistance provided by Export Development Canada.”

In order for Nortel to have benefitted from the SRED program, it would have had to owe income tax to the government, and in order to owe tax, it would have to have had income. Nortel has lost money 10 of the last 11 years.

Riedel did not know if Nortel used SRED tax credits prior to 2001.

LM Ericsson last month agreed to buy the business unit of Nortel that manufactures products for wireless carriers using code division multiple access (CDMA) technology. Ericsson’s agreement resulted from an auction July 24, which was preceded by a stalking horse bid from Nokia Siemens Networks in June.

The Industry, Science and Technology committee is chaired by Michael Chong, Conservative Member of Parliament for Wellington-Halton Hills.

In answering a question from Marc Garneau, a Liberal MP who sits on the committee, Riedel said in 2003 Export Development Canada provided “a bonding facility” to support customer commitments, in order to sell network or tech in markets.

The amount was between $250 million and $750 million but was not for research and development, Riedel said.

EDC gave “post filing support” of $30 million after the bankruptcy filing in January, he added.

Nortel is trying to sell its business units and has been operating under bankruptcy protection since Jan. 14. After Nokia Siemens Networks presented its bid, Waterloo, Ont.-based RIM complained it was effectively shut out of the auction process, and called on the federal government to review the sale. On July 20, RIM stated in a press release “the loss of Canadian ownership of Nortel’s CDMA and Long Term Evolution businesses may significantly, adversely affect national interests, with potential national security implications ….”

Ericsson’s purchase was approved by courts in the U.S. and Canada but may still subject to a review by Industry Canada because the Investment Canada Act requires a review of all purchases by foreigners of Canadian firms exceeding $312 million. Nortel has claimed the “book value” is actually $149 million.