Telus boosts research spending 147% in 2008 while BCE slips below $1 billion for first time in six years

BCE Inc. has slipped below the $1-billion mark for spending on research and development for the first time since 2003, according to the latest top 100 list of industrial R&D spenders. And while Canada’s largest telco still maintains the number two ranking, Telus Corp. has narrowed the gap with its biggest research spending year ever – driven largely by investments in its next generation wireless network and IPTV. According to a study released by Research Infosource Inc., Telus increased its R&D spending 147% between 2007 and 2008, from $85 million to $210 million, bumping its ranking from 26th to 11th spot. (see chart) The record spending followed a 34.6% drop in research expenditures in 2007, when its ranking fell from #19 to #26 on the Top 100 list. Telus has stated that a portion of this investment went into the development, evaluation and testing of its next generation HSPA mobile broadband network, being built for commercial launch by early 2010. Greg MacDonald, director of equity research at National Bank Financial in Toronto, points to IPTV as another reason for the higher R&D expenditures. “Clearly Telus thinks IPTV is important,” he says. “Throughout the biggest credit crash in my lifetime the company continues to spend money on IPTV… No one knows the exact numbers, but I would guess than more R&D was on IPTV than on HSPA.” Meanwhile, industry behemoth BCE fell by 21% in 2008, though it was still in second place at $985 million after a now defunct Nortel Networks at $1.68 billion. BCE’s R&D expenditures have been on a steady decline since peaking in 2005 at $1.6 billion, when its R&D as a percentage of revenue was 10.1%, compared to 5.6% in 2008. BCE’s shrinking R&D budget in both 2007 and 2008 appears to be linked to its failed attempt to privatize the company. “No doubt, they were trying to shore up their balance sheet to make the company look better,” Research Infosource CEO Ron Freedman told Tech Media Reports last year. “One of the problems with R&D is that it’s treated as an expense and not an investment, so there’s a natural tendency to cut back on things that reduce the bottom line.” McDonald agrees: “Bell was still suffering from uncertainty about whether it would be a private company. They cut back on a number of projects that were not considered to be necessary capital expenditures, and IPTV was one of them.” Though Telus would not break down its numbers, a company spokesman emphasized that it was the IPTV investment that made all the difference in 2008. “On the R&D side, the focus of our investments has been the future friendly home, having an system in your home to handle all security, all communications from one hub,” says Shawn Hall. Telus, however, is happy to talk, particularly about its capex investments, given that most carriers have cut capex in the past year. “We have increased our capex by 10% in 2009 to $2.05 billion,” says Telus’s Hall, who suggests that this helps drive demand for R&D. “It is a significant jump.” The other telco to make the Top 100 list was New Brunswick-based Bell Aliant, which saw its ranking rise from #81 to #60 between 2007 and 2008 as a result of a 42.7% increase in research spending ($33.8 million). This heft may be due to the trial IPTV rollout in that region. Rogers has absented itself from the debate altogether by refusing to divulge information. Ashleigh Blackmore, a Rogers spokesperson, told Tech Media Reports that “R&D investments are considered confidential and proprietary.” Rogers Communications Inc. came in at #39 on the list with expenditures of $53.1 million on revenues of $11.3 billion, compared to $49.5 million the year before. It’s the first year that Rogers had participated in the survey. Despite its epic fall from grace, Nortel continues to hold the #1 spot, although its R&D spending has been plummeting for several years. The telecom giant spent $1.68 billion on research in 2008, a fraction of the $5.9 billion its devoted to R&D at its peak in 2000. Despite the record low, Nortel spent the same amount of research last year as BCE and Magana International Inc. (ranked #3) combined. Research spending down overall The poor results from both BCE and Nortel in 2008 contributed to a drop overall in Canadian corporate R&D spending. The Top 100 Corporate R&D Spenders List reported R%D down by 3%, from $10.6 billion to $10.3 billion. Canada’s corporate R&D spending has now declined four out the past six years despite the fact that revenues have continued to climb. However, when Nortel and BCE are removed from the equation, research spending actually increased by 3.3% at the 96 other companies where full data were available. However, with inflation taken into account, spending was essentially flat over the period. The communications and telecom equipment sector continued to dominate industry spending, accounting for 27% of the total, down from 28% from the previous year. The big spenders were Research In Motion, which boosted R&D spending by 42%, and Alacatel-Lucent, where spending jumped by 26.1%. Looking ahead, Research Infosource predicts the tough economic climate for industrial research will continue. “Suffice it to say that there are bound to be major repercussions for corporate R&D spending next year… All bets are off for predictions of industrial research in the year to come,” the company writes. Research Infosource notes, however, that the trend towards lower R&D spending was occurring prior to the global economic meltdown and that when the “dust of the economic tsunami settles, policy makers at the federal and provincial levels need to quickly adjust their innovation strategies to account for the new realities.”

Telus boosts research spending 147% in 2008 while BCE slips below $1 billion for first time in six years

News | November 5, 2009

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