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Paul Wells on all the latest out of Ottawa—along with the occasional post about jazz. Follow Paul on Twitter: @InklessPW
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Nortel: Two more thoughts

by Paul Wells on Wednesday, August 5, 2009 8:48am - 11 Comments

We’re having a pretty good discussion about Nortel over here, as we try to decide whether Roger Martin’s stern lecture in Monday’s Globe about How The World Really Works is, you know, reality-based. Results so far are inconclusive. Meanwhile, two more thoughts, of perhaps varying orders of seriousness, on this whole business.

• Does Research In Motion really want to be in the business of arguing for national preference for tech firms and their intellectual property? RIM operates in 195 countries. It has already sought growth through takeovers of strategic firms, and while the case that comes most readily to mind, Certicom, was Canadian, RIM will surely want to buy out promising smaller firms abroad from time to time. So it maybe shouldn’t be arguing now, in Canada, that such takeovers should be forbidden.

• Don’t “the Nortel patents” function as a perfect MacGuffin in this story? As the Hitchcock scholars among you know, a MacGuffin is that rare and prized object that everyone desires so much it drives the plot of a movie. It’s best if its nature isn’t explained too specifically. It’s just…the thing everyone wants. The Lost Ark. The Maltese Falcon. The oscillation overthruster. The briefcase. The Nortel patents. By God, Smithers, don’t you see? We’ve got to get our hands on the Nortel patents before the Swedes do….

Tags: globalization, MacGuffin, nortel

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anon

Buckaroo Bonzai!! Love the oscillation overthruster reference
Anon

This is speculation, but my guess is that RIM did not want the wireless segment falling into a competitor's hands. I think they're worried about complications with respect to carriers who are currently Nortel customers deciding to switch to Ericsson handsets rather than continuing to carry RIM products. The patent issue is a useful diversion, IMO.

RIM is facing a number of headwinds, not the least of which is the growing trend among the large carriers to bundle competing products to their commercial customers. The BlackBerry is no longer the only game in town, and I'd venture to say that within the next two to three years, the entire smartphone market will become commoditized which will bring enormous pressure on RIM to sustain its margins. Think of what's happened to Microsoft, for example.

Finally, I think another worrying thing about RIM is its midlife-crisis syndrome. Increasingly, its top people seem to be preoccupied with stuff that's not related to creating shareholder value.

http://intensedebate.com/people/CBP CBP

Neat point on the commoditization but iPOD still rules the world…with some creative marketing and "cheap" upgrades every year or so, BlackBerry may be around for a long time regardless of the carrier. It will all be about 4G anyway in a few years.

Jenn

The thing I don't understand, and haven't found enough information on, is this business about if you bid on this part you can't bid on this other part. Can we delve into that aspect further? It might improve the clarity of the positions if nothing else.
RayK

"Don’t 'the Nortel patents' function as a perfect MacGuffin in this story?"

Simply put "no".

Patents confer monopoly rights on the patent holder–meaning the patent holder will inevitably restrict supply of the patented invention in order derive economics profits. This is not the theorectical "prefectly competitive market" in which resources are allocated efficiently and profits eliminated by competition.

I can only assume your MacGuffin metaphor is based on the idea that, while patents do confer monopoly rights since, these particular patents are being sold in an involuntary public auction competitive bidding for the patents will eliminate monopoly profits in the same way that competitive production normally would. But this is true only for the corporations bidding for the patents. The spin-off benefits that are derive from the patents monopoly status don't factor in companies' bidding process.
http://intensedebate.com/people/Jack_Mitchell Jack Mitchell

I would like to echo a quesion of Stephen Gordon's from the other thread: why didn't RIM outbid Ericsson? Since they're now, by proxy, wrapping themselves in the Maple Leaf, why bid in the first place? Do the patriotism arguments only hold water for the difference between the two bids?

I like Paul's point about its not being in RIM's interest, as a big multinational, to prevent big multinationals from roaming the globe like Godzilla. But perhaps, in the absence of anti-protectionist international agreements, the idea is just to make the most of every particular situation and hope that, in future, nobody at Uzbekistan Electronics remembers this episode.

Dot

And arguably, by RIM not submitting a bid, Nortel (and Canadian taxpayers by their argument) are worse off as a result. That assumes that a public bidding war would be allowable (ie not single confidential bid, highest wins based upon one offer)

You may recall that when Balsillie went public, claiming that RIM was shut-out of bidding before the bid closed, he suggested that RIM would be willing to pay up to $1.1 billion. Well, guess what. Erickson bid? $1.13 billion, just enough to win had RIM . So, had he kept his trap shut and submitted the $1.1 billion, who knows – RIM might have won, or Erickson would have entered an even higher value – their floor price set by RIM's public pronouncements.

shouldIsellyourwheat

What RIM wants/wanted:
1) The LTE patents at a cheap price.
2) Some of Nortel engineers working on LTE next-generation patents.

The LTE patents are NOT part of the Ericsson deal, only licenses to the patents. The engineers are. Most of the things Ericsson is buying, RIM has no interest in. It is in Canada's interest in terms of jobs saved that the Ericsson bid go ahead. The legacy wireless and next generation business has to be attached to one of the global telecom survivors.

RIM is merely positioning itself to be in an advantageous position to obtain the LTE patents at a cheap price by activating the clueless political and media classes that it wants the patents, and wants to scare off potential foreign buyers of those patents when they come up for auction, and/or to "force" Nortel to auction off those patents to RIM, RIM is also advertising to Nortel's best LTE engineers that RIM is interested in them.

What is best for Canada is that the Ericsson bid succeeds, and that RIM gets the LTE patents, and those things are NOT mutually exclusive.
Dot

The dashed agreement is what appears to have sparked the current uproar, in which RIM has appealed to Ottawa to review the Nortel breakup, alleging that technology sensitive to national security is being sold off to foreigners.

But when Mr. Balsillie went on a public offensive, claiming RIM was being blocked from buying the entire wireless unit, Mr. Zafirovski [Nortel CEO] said he was perplexed. In all his discussions with RIM, the transfer of the equipment business had never been discussed – only the LTE patents, which could still be up for grabs after the operating businesses are sold.

“I like Jim, I like RIM; I'm puzzled,” Mr. Zafirovski said.

http://www.theglobeandmail.com/news/technology/pa…
Stephen

That RIM wouldnt sign an NDA is the interesting point. You need to see that NDA, what would it have precluded them from doing had they signed it.

A little tidbit in the Globe today indicated that RIM looks to be interested in the security/encryption parts of the Nortel LTE patents. This makes a little more sense given their failed purchase of Certicom. Encryption has always been a big thing for RIM, and the purchase of Certiconm would have lowered their costs, since they pay a license fee.

Being in the business of secure wireless email RIM doesnt want a key component of that threatened.
Stephen

As for the NDA……hmmmmmm….Rim has never been mistaken for boy scouts

" The injunction was granted by the Court following application by Certicom on the basis that RIM and its subsidiary had breached non-disclosure agreements entered into by Certicom and RIM in 2007 and 2008 by using confidential and proprietary information supplied by Certicom to RIM for its bid. Certicom had provided this information to RIM for its use in the course of discussions respecting a possible friendly acquisition of Certicom by RIM. As part of its ruling, the Court found that RIM and its subsidiary had breached the non-disclosure agreements"

http://blogs.zdnet.com/BTL/?p=11598