It's the source of thousands of quality, high-paying jobs. It is still the biggest corporate spender on research and development in the country. The campus in Ottawa once known as Bell Northern Research - to locals, the Big Nerd Ranch - is still home to about 4,000 people, one of the biggest concentrations of smart minds in Canada.
If innovation is your yardstick, Nortel Networks is more important to the economy than the shrunken Ontario branch plants of General Motors and Chrysler that received a multibillion-dollar pledge of financial support from Ottawa and Queen's Park. Yet you don't see Industry Minister Tony Clement or Premier Dalton McGuinty circling Nortel with open chequebooks, and thank goodness for that.
A government bailout right now would be unlikely to accomplish much.
Nortel's descent into bankruptcy protection represents the inevitable denouement to a horrible eight years. Its repeated missteps - the artificial boosting of revenues through easy credit to customers; the post-bubble unravelling in 2001; the accounting scandals; the hiring of the ineffectual William Owens as a caretaker CEO; the never-ending restructuring schemes - so weakened the company that when the financial crisis hit, it couldn't withstand it.
But the Chapter 11 filing need not destroy what's left of the business, and it isn't going to cause much more than a ripple in the Canadian tech sector. Nortel has become too insignificant, and others, like Waterloo, Ont.'s Research in Motion, have risen to help fill the R&D gap.
Once upon a time, the feds would never have allowed Nortel to go down like this. In private-sector research, Nortel was it. The company was a great wellspring of startups. It spawned serial tech entrepreneurs like Terry Matthews. Long before anyone coined the term Silicon Valley North, it was also a central figure in Canadian manufacturing. In the 1940s, Nortel, then called Northern Electric, was thrust into the war effort and invented new technology to advance long-distance communications. In the 1950s, it made some of the earliest television sets. In the 1960s, its researchers were among the first to consider the use of fibre-optics to transmit information at the speed of light.
In 1996, what now appears to be the beginning of the end of the company's golden era, Nortel spent $2.6-billion (U.S.) on R&D - eight times as much as the next-largest spender in the country. Nortel was every bit as important as the most prolific university.
Now? Not so much. Nortel still spends a lot of money on research - $1.7-billion in 2007. But increasingly the money is spent not in Canada, but in China, where the company opened a shiny new R&D centre in Beijing in 2006. Last fall, the company eliminated the job of its Canadian-based chief technology officer, John Roese, and moved to a more decentralized structure for its research work.
More to the point, the budget is shrinking, because of hard times and because it's not clear where the payoff is. One always treats the numbers from Nortel's financial statements with skepticism - who knows, the books may have to be recast for an 87th time - but here's what they tell us. From 2003 through 2007, Nortel spent nearly $9.5-billion on research and development. Yet Wall Street analysts expect that Nortel's revenue in 2009 will be no higher than it was five years ago.
All of that money has been spent not to grow, but merely to forestall a steeper decline. Nor has it solved Nortel's single biggest strategic problem: that it is a second or third player in many areas of its business but a market leader in nothing.
That's also why a bailout would be pointless, as Messrs. Clement and McGuinty surely understand. (They also understand the number of votes involved: Nortel has about 6,000 employees in Canada; the auto sector employs more than 100,000.) It's too early for government help. Nortel must first undergo a corporate soul-searching exercise: What does the company want to be? Where does it want to compete, and where does it want to give up? Assuming it is not dismantled entirely, the future Nortel will certainly be smaller, and focused on perhaps one or two lines of business.
If the government should help anyone, it's Nortel's pensioners, who stand to lose if the company is sold and the pension fund, which is badly in deficit, is wound up. But the inhabitants of the Ottawa campus aren't middle-aged auto workers who have been on the assembly line since high school. Most are educated, skilled, and highly employable. There's no need to shed tears, or tax dollars, to rescue them.