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Adam Chowaniec is among the legions of entrepreneurs who cut their teeth in the now depleted training grounds of Nortel Networks Corp.

At 58, the Ottawa-based Mr. Chowaniec is chairman and an investor in five high-tech companies.

As a younger man, he designed a ground-breaking personal computer, the Amiga, while working for U.S. technology pioneer Commodore Systems.

But it all started with Nortel - or, at least, with its former Ottawa subsidiary Bell-Northern Research, where Mr. Chowaniec worked as a technology researcher 30 years ago.

"In those days, Bell-Northern offered a tremendous opportunity in technical and management learning," says Mr. Chowaniec, who left the research unit because he wanted to branch out in business.

The days of Nortel as an entrepreneurial breeding ground are fast coming to an end in the aftermath of the company's bankruptcy protection filing, which will probably see the former high flier broken up and pieces sold off.

Nortel's recent history has been a saga of scandal, missteps and a cratered stock price. So why bemoan the potential dismemberment of a company that has been on a spectacular downward spiral since the year 2000?

For the Canadian technology industry, Nortel's disappearance would be a catastrophe. At the moment, there are no new Nortels - companies able to serve as role models, funding sources and training academies - in the pipeline.

Canada's technology sector spawns thousands of small companies with great ideas, but not enough contenders that can make the leap to large, international players. They become targets for foreign acquirers - Cognos ULC and ATI Technologies are recent examples - they blow themselves up in the quest for growth, or they sell the technology to outsiders because they can't fund their growth plans.

The harsh truth is that as Nortel shrinks, there is only one company, Research In Motion Inc., that could even dream of replacing it as Canada's globally active technology champion. And no other company has been able to spin the intricate ecosystems that Nortel has fostered through its spinoffs and supply chains.

The problem is compounded by the fact that taxation, training and business practices in the industry have been directed at generating lots of small players, rather than pushing companies to the next stages of development.

"You can't build a knowledge economy without significant anchor companies like Nortel," Mr. Chowaniec says. "Like anchor tenants in a mall, they're the ones that make the little guys able to be there."

Nortel has the benefit of a long history with roots as a technology bulwark reaching back to the early 20th century. The company's alumni have thus spawned hundreds of Canadian companies. Estimates vary, with the Information Technology Association of Canada (ITAC) putting the number at 260 existing firms; technology veteran Denzil Doyle says it is closer to 450 in the Ottawa area alone.

Nortel has been a huge factor in building an information technology industry that, on the surface, sports an impressive wingspan. The sector employs almost 600,000 people - not counting those who run IT systems for banks and other institutions. That's higher employment than in the auto sector, whose major players are being bailed out as vital components of Canada's economy.

Technology people are well educated - 43 per cent have a university degree, according to ITAC - and the average 2007 earnings of $58,600 were 47 per cent higher than the average wage in the economy. In all, the sector makes up about 4.7 per cent of the economy.

But only Nortel, and to some degree, RIM, qualify as landmark companies that provide the supply chains, know-how and investment to sustain many smaller players in the industry, says Lynda Leonard, senior vice-president of ITAC.

"It's the power of Nortel's supply chain - the entry they give to large customers in global markets that mid-sized companies would be hugely challenged to do on their own."

If Nortel is dramatically reduced, it will not only signal the end of an anchor company, but will spawn myriad new startups, particularly in Ottawa, where many skilled, high-paid people will find themselves on the street. Their only recourse would be to start a new company at the most difficult time in the business cycle, points out Mark Binns, former Nortel manager and managing partner at Torque Customer Strategy, a Toronto consulting firm.

In the search for a new Nortel, the only candidate consistently mentioned is RIM, but the Waterloo, Ont., wunderkind is no Nortel - yet. Its BlackBerry wireless device is a comet of a product that has seized a lucrative slice of the global information technology market. It is imaginative in adding new applications, but it is not a basic research powerhouse. Its R&D spending remains a slim shadow of even a diminished Nortel's. RIM spent about $254-million in 2007, compared with Nortel's $1.8-billion, according to numbers compiled by Research Infosource. The company founders are active in creating physics institutes and pursuing hockey teams - and they are role models for others in the technology hothouse of Kitchener-Waterloo. But they don't have the wide reach of a Nortel.

Still, there are emerging contenders to the ranks of Nortel and RIM. For example, software company Open Text Corp., RIM's neighbour in a Waterloo business park, currently has 200 jobs open in the worst downturn in decades. But Open Text is just hitting $1-billion in annual revenue, the minimum scale for a significant global company - although it is a healthy size for a software firm.

Tom Jenkins, Open Text chairman and member of a recent federal task force on Canada's competitive challenges, sees no silver bullet in building the next Nortel. It's a matter of tenaciously pushing for innovation, year after year.

Mr. Jenkins warns that technologies go through constant cycles of creation, maturation and decline, and companies have to continually renew themselves or die. He points to fallen computer giants, names like Honeywell, Burroughs and Control Data. We shouldn't be burdened by nostalgia for these so-called icons, he insists. "We develop an emotional attachment to people and companies that have been around a long time, and we wax philosophic about it. But we can never forget that this is a jungle where you get up every day and you eat what you kill. Beyond the comfort from those names, the reality is every day we have to get up and compete."

Mr. Jenkins sees a role for government in creating the right policy framework to survive in that jungle. And on policy, there is no shortage of recommendations.

In the past, industry watchers say, Canada has focused too exclusively on incentives for ground-breaking research and development, while ignoring the operational and strategic barriers to building great global companies.

For example, there are strong tax breaks for research and development, but not enough incentives for commercializing products, argues David MacDonald, CEO of technology vendor Softchoice Corp. and chair of ITAC.

Canada has trained skilled technologists and researchers, thanks to government programs and to Nortel's own largesse in funding research. But what is desperately lacking is business training to build technology winners. That requires finance, marketing and strategy skills oriented to technology companies and entrepreneurial enterprise.

According to Mr. Chowaniec, what happens in business schools may be more important to our technology future than what transpires in engineering schools. "Governments all want technology people, but what we don't have are commerce skills targeted at these enterprises."

Even so, there are still not enough engineers to feed the fastest-growing companies (although some talent will no doubt be freed up as Nortel reorganizes). The result, Mr. Jenkins says, is the companies have to look elsewhere for people. "What starts to happen is that if we can't fill those jobs here, we have to geographically diversify and go to where the skills sets are being developed and build jobs there."

Mr. Chowaniec is highly critical of government procurement, which does not provide enough of a leg up for small companies. Most other countries in the world use spending muscle to bolster technology hopefuls, but not Canada, he says. His companies get quicker public procurement response from the United States than from Canada.

There is another constant theme - the shortage of homegrown venture capital. That is particularly noticeable now, as U.S. venture capitalists pull back to concentrate on their domestic markets.

Even in good times, U.S. venture capitalists like to keep close tabs on their Canadian firms they invest in, and encourage the opening of U.S. branch offices. Eventually, the Canadian firms move more and more operations south to satisfy investors.

It is often marketing, sales, administration and distribution that get shifted to the United States, while the research core remains in Canada. That sounds like a fair trade-off until you realize what Canada needs most now is expertise in the very functions going to the U.S.

Not all the outlook is negative. There are models of growth that are working in Canada, often because individual investors like Mr. Chowaniec are building clusters of innovation. His galaxy of five companies, including integrated-circuit maker Tundra Semiconductor Corp., is relatively small with about 500 people employed.

Meanwhile, telecommunications tycoon Sir Terry Matthews has created more than 80 companies over his career; after merging and morphing this group over the years, he has ended up with a core of 30 tech businesses at various stages. But to fund and support a group like this, you need to create wealth - and where does that come from? For Sir Terry, as for countless other Canadian technology builders, it all started with a job at a Nortel firm - and now that wellspring is quickly drying up.

*****

Now a financial basket case, Nortel was one of the great innovators in telecommunications: Its researchers even heralded the arrival of fibre optics as a replacement for conventional copper wire

FIBRE-OPTIC CABLES

Researchers at Northern Electric were the first to propose the idea of using glass fibres to carry information instead of conventional copper wire. In 1966, the company became the first to publish a paper that laid out a theory for a network of fibre-optic cables. By the 1980s, Northern was a world leader in fibre-optic cable research and helps to build the first national networks in the U.S. and Canada.

MODEMS

Nortel was the first company to introduce an "always on" 1-megabit computer modem. The plug-and-play technology was built into Nortel's telephone switching equipment and offered speeds 22 times faster than those of the 56 kbps modems that were standard at the time. Orders for the one-meg modem topped $1-billion just eight months after it was announced.

DMS-100

The company's dream to move the telecommunications industry from analog to digital technology led to the DMS-100, the first fully digital central office switching system, which allowed phone companies to connect up to 100,000 telephone lines.

UMTS

In early 2005, Nortel was leading the industry in developing new high-speed wireless technology, including Universal Mobile Telecommunications System (UMTS) products. Only 18 months later it sold its money-losing UMTS division to Alcatel-Lucent for $320-million (U.S.). The unit included 1,100 R&D jobs in France, Canada and China.

PHONES

Some of Nortel's best-known devices were the phones that could be found in many Canadian homes for decades. In the 1960s, the company created the Contempora or "Princess," the first phone with an in-hand dialler. Nortel's Meridian line of phones became ubiquitous in Canadian offices and in 2002 accounted for 10 per cent of the company's revenue, about $1-billion.

WIMAX

In 2006, Nortel began investing in a fourth-generation wireless technology called WiMAX, betting that a competing standard known as LTE (long-term evolution) would be slower to develop. Several large phone companies, however, opted for LTE gear over WiMAX, forcing Nortel to pair back its investment in WiMAX - by moving it into a partnership with Tel Aviv-based Alvarion Ltd. - and play catch-up with LTE.

Matt Hartley, Simon Avery

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Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
OTEX-Q
Open Text Cp
+0.05%38.83
OTEX-T
Open Text Corp
-0.15%52.56

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