August 30, 2011 7:15 AM

The past year has not been kind to Research in Motion Ltd., Canada’s leading technology company. The Waterloo-based maker of the BlackBerry smartphone has seen its share price nosedive in the wake of less than stellar launches of new products such as the Playbook, disappointing earnings guidance, and plans to cut its global workforce.

The company is still profitable - it earned $695 million on revenue of $4.9 billion in its last quarter - yet some have begun to speculate on whether the Canadian government should step in to "save" RIM from the fate that befell Nortel Networks Corp., the last great Canadian technology company which filed for bankruptcy two years ago.

Given that RIM remains profitable, it seems premature to suggest that the government can or should do much of anything to assist it. The company faces mounting criticism over its product lines and its failure to address the competitive threats from Apple Inc. and Google Inc., business issues that lie beyond the expertise or mandate of government policy makers.

While RIM's current problems can't be solved by government policy, my weekly technology law column (Toronto Star version, homepage version) some of its shortcomings may be a product of Canadian policy [note not all - there is lots of blame to go around]. Indeed, RIM is the quintessential Canadian technology company, reflecting the market's strengths and weaknesses [note that I recognize that Canadian revenues are a small part of the RIM's overall revenues. However, the majority of its executives and workforce are Canadian. It is a company born out of a Canadian culture and market environment].

RIM was never shy about trumpeting its perceived competitive advantages. For years, co-founder Mike Lazaridis promoted the data efficiency of RIM's BlackBerry, while emphasizing that wireless spectrum is a finite resource (Lazardis in 2006, in 2009, and 2010). From RIM's perspective, efficient use of data makes its devices more attractive to wireless carriers which incur lower costs when compared with bandwidth hogging devices such as the Apple iPhone.

The emphasis on spectrum scarcity and the value of currying favour with telecom carriers is very much a product of the Canadian marketplace. Bell, Rogers, and Telus dominate our wireless market, resulting in longer consumer contracts than those found elsewhere, among the highest roaming fees in the world, and expensive wireless data costs. Moreover, the government has retained foreign investment restrictions in the telecom sector long after most other developed economies dropped them, and it is years behind the United States in conducting spectrum auctions that could yield new competitors.

Given a Canadian environment where data is expensive, competition limited, and spectrum relatively scarce, it should come as no surprise that RIM viewed data efficiency as a key competitive advantage. On a global level, however, RIM's positioning has emerged as a disadvantage, since lower data costs elsewhere mean consumers are more interested in using the wireless Internet than in rationing it.

Moreover, telecom carriers are the key decision makers for the availability of devices in uncompetitive markets only where they can dictate what consumers can use. In a fully competitive marketplace, it is consumer demand, not carrier choice that carries the day. Garnering carrier support may have been viewed as crucial through the prism of a Canadian market that until recently featured only one GSM provider, but in more competitive markets consumers and companies that offer "must have" devices hold the upper hand.

The government response to RIM's troubles should therefore not focus on assisting the troubled, but still-profitable BlackBerry maker. Rather, it should recognize that the policies that resulted in an uncompetitive telecom market have implications that extend well beyond pricey consumer cellphone plans.

For better or worse, RIM is very much a product of its environment. Addressing RIM's woes requires establishing policies that ensure that the next Canadian tech giant emerges from a more globally competitive market where conserving Internet use and prioritizing carriers over consumers are not viewed as competitive advantages.

Originally posted on Michael Geist's Blog

Blogger Profile: Michael Geist

Dr. Michael Geist is a law professor at the University of Ottawa where he holds the Canada Research Chair in Internet and E-commerce Law. Dr. Geist has written numerous academic articles and government reports on the Internet and law and was a member of Canada's National Task Force on Spam. He is an internationally syndicated columnist on technology law issues. He is an internationally syndicated columnist on technology law issues.

Posted by Sue Ansell at August 30, 2011 7:15 AM

Categories: General Economic development Canada Trends

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