Top R&D telcos invest in LTE, IPTV and e-health

BCE Inc. and Telus Corp. have been listed as two of Canada’s largest research and development spenders for the 2009 fiscal year, just behind Research in Motion Ltd. (RIM) and Nortel Networks Corp. The telcos are focusing their research on next generation wireless technology, Internet protocol television (IPTV) and e-health initiatives. Last week, consulting firm Research Infosource released a list of Canada’s top 100 corporate R&D spenders in 2009. Although BCE ranked third, spending $806 million, the list shows that the $806-million figure is an 18 per cent drop from 2008 spending, when the company put $983 million toward R&D. Telus ranked just behind Bell in the fourth spot, with $653 million in R&D—a 211 per cent increase from 2008, when the company spent $210 million. “There have been some really strong gains on the telecommunications side in the last decade, with Telus being one of them,” Research Infosource CEO Ron Freedman said in an interview. “It is very encouraging when service companies get heavily involved in research.” In 2009, Research Infosource ranked RIM in the No. 1 spot among all corporations, spending $1.1 billion on R&D. Nortel ranked No. 2, with $864.5 million. RIM’s R&D investments increased 51 per cent from 2008, when it spent $729.9 million. Nortel’s spending dropped 48.5 per cent from 2008, when it allocated $1.68 billion to R&D. Research and development spending overall in corporate Canada has been on a downward trend since 2000, and Freedman said the 2009 figures are concerning because they show the impact the recession had on R&D spending since it hit in late 2008. “It's a real dilemma if R&D spending is not going to rise when revenues are rising,” he said. “What will happen with R&D spending when revenues are falling?” Greg MacDonald, director of equity research at National Bank Financial, said the economy isn’t the main driver for the technology sector, which needs to stay on the cutting edge. “Spending on R&D for telcos, when it relates specifically to network strategy, is very important,” he said. “I would not draw the conclusion that the economy itself has made the boards and management teams of these companies decide that they want to take their overall R&D spending to a new plateau at a lower level.” R&D expenditures tend to go up and down in cycles, reflecting what is needed to remain competitive in the business. “Cycle is the important word,” MacDonald said. “I suspect Telus is at the top of its spending cycle for R&D and BCE is at the bottom. This type of spending goes in waves.” Telus spokesman Shawn Hall said in an interview that 2009 was a key year for the company. “Last year was a peak year for us, both in terms of R&D and capital investments because of the roll out of HSPA and investment in IPTV,” he said. “Telus’ culture is that in a down market, we continue to invest in researching the next phase of the network.” Telus said it is dedicating financial resources to the future roll out of fourth-generation LTE and e-health technologies. “Communication technologies will be part of the solution to solve the healthcare challenges that Canada is faced with, given the aging population and rising healthcare costs,” Hall said. Bell spokeswoman Jacqueline Michelis said the company’s capital expenditures were approximately $3 billion in 2009 and will be roughly the same in 2010. According to Research Infosource, Bell ranked in the No. 2 spot in 2008, just behind Nortel. “Our focus has been on reducing costs and redirecting savings toward service enhancements and network deployments,” Michelis said. “Our focus both last year and again in 2010 is on deployment of new state-of-the-art wireless and fibre networks, such as HSPA+ and fibre to-the-home, as well as new services like mobile television and Fibe Internet.” Michelis added that R&D is a “big part of Bell's broadband strategy,” noting investments are being directed to areas like LTE. Bell told The Wire Report last month the company is testing fourth-generation wireless services, and it expects to launch LTE technology ahead of its competitors. MacDonald said BCE is also concentrating on making Internet protocol television (IPTV) a focal point in its research. “Bell will ramp up spending on that, whereas Telus is going into a downward cycle,” he said. MacDonald added that the companies have an interest in developing applications for the healthcare sector, noting the $40-million sale last week of Bell Aliant's information technology division, Xwave, to Bell. He said the sale is a signal that Bell plans to develop e-health solutions. “One of the reasons cited is that Bell wants to get into the healthcare side of IT consulting,” MacDonald said. “My guess is that you will probably see more R&D spending on healthcare out of BCE.” news@thewirereport.ca

Top R&D telcos invest in LTE, IPTV and e-health

News | November 2, 2010

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