Ontario minister grandstanding on Nortel: Analyst

The Investment Canada Act requires Industry Canada to vet all foreign acquisitions exceeding $312 million.

Ontario Finance Minister Dwight Duncan said the government should try to keep Nortel’s patents in Canada, rather than allowing them to be bought by a foreign buyer.

“They obviously have enormous value,” he said in an interview. “If we lose them we lose our edge. We should be nurturing and fostering this industry in this country.”

But blocking the deal would be a bad idea, said Ronald Gruia, program leader for emerging telecoms at Frost & Sullivan.

“That send a very bad message to the international business community that when they do business in Canada we are protectionist,” Gruia said.

Duncan said he had “no idea” what patents would be transferred to Ericsson, other than the fact they enable next-generation wireless networks.

Ericsson officials said Monday they plan to acquire some Nortel intellectual property but license other patents. Neither Ericsson nor Nortel would say exactly which LTE patents Nortel will keep and license, and which patents it would sell.

But Mark Tauschek, lead analyst for London, Ont.-based Info-Tech Research Group, doubts there is much intellectual property involved.

“I can’t imagine that they have a ton of IP here,” he said. “The commitment to LTE came kind of late because (Nortel was) sitting on the fence between Wi-MAX and LTE.”

Tauschek was referring to Nortel’s decision last year to stop working on Wireless Interoperability for Microwave Access, adding Nortel said last year it intends to licence technologies that let handsets work on LTE networks. This is probably why Research in Motion (RIM) Inc. wanted to buy Nortel carrier wireless assets, he added.

Toronto-based Nortel, which has been operating under court protection from creditors since January, is discussing the sale of its business units with other companies. The agreement with Ericsson resulted from an auction last week, a process which started with Nokia Siemens Networks’ $650 million offer for the carrier wireless unit in June. Known as a “stalking horse” bid, Nokia Siemens Networks fully expected at the time it would be able to acquire Nortel’s carrier wireless business, but was unable or unwilling to top Ericsson’s offer.

Nortel, which was founded in 1895 as Bell Canada’s manufacturing unit, entered the enterprise data networking business with its US$9 billion purchase in 1998 of Bay Networks. Nortel is now trying to sell that unit, whose products include switches, routers, firewalls, private branch exchanges and phones. Avaya Inc. of Basking Ridge N.J. (which was Lucent Technologies Inc.’s enterprise unit until 2000) placed a stalking horse bid earlier this month for US$475 million. If any other companies plan to bid higher, they have not gone public yet.

Last year, Nortel tried to find a buyer for its metropolitan Ethernet unit. Tauschek was not aware of any Ontario Cabinet members trying to halt sales to foreign firms of Nortel’s enterprise or metro Ethernet properties.

“What about the other two major components Nortel’s business that they’re going to sell off?” Tauschek asked. “I don’t hear anybody squawking about Avaya picking up the enterprise unit. They’re only talking about the wireless business unit going into foreign hands.”

Waterloo, Ont.-based RIM said last week it approached Nortel in July wanting to buy the unit Ericsson picked up – plus other unspecified assets – but was rebuffed on the grounds that RIM refused to agree to wait a year before trying to buy other Nortel assets. Nortel has said RIM did not comply with the bidding rules – supervised by bankruptcy courts in Canada and the U.S. – because it refused to sign a non-disclosure agreement.

“They didn’t play by the rules, the rules were laid out early enough on that they could have certainly played by the rules,” Tauschek said, adding it was RIM’s lobbying that prompted politicians to weigh in.

“Politicians see an opportunity to grandstand and look like they’re lobbying for Canada and there’s not much substance there,” Tauschek said. “(Liberal leader Michael) Ignatieff sends an open letter to the Prime Minister, (New Democratic Party Leader) Jack Layton schedules a press conference and next thing you know Dwight Duncan’s saying ‘Oh, we want to keep this thing in Canada.’”

But Duncan said if the sale to Ericsson is approved, it will harm the economy, despite assurance from Ericsson it plans to keep Nortel’s research centre in Ottawa open while continuing to develop wireless technologies at its Montreal centre, which employs about 1,500.

“These plans can change very quickly,” Duncan said. “Next year the work could be done overseas. Who knows?”

It would be difficult for Ericsson to move the jobs elsewhere, Guia said. This is because if the deal is approved, Ericsson would inherit the contracts to build networks for North American carriers including Bell Canada, Telus and Verizon.

“Ericsson will require a presence in north America,” he said, adding he understands why Duncan opposes the deal.

“More and more companies are engaging in offshoring to optimize cost,” he said. “This has left the Ontario government in a difficult situation.”

But Gruia noted Nortel had outsourced its manufacturing to Flextronics and others more than 10 years ago.