Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 8 - Evidence, November 17, 2009
OTTAWA, Tuesday, November 17, 2009
The Standing Senate Committee on Transport and Communications met this day at 9:30 a.m. to study emerging issues related to its communications mandate and to report on the wireless sector, including issues such as access to high-speed Internet, the supply of bandwidth, the nation-building role of wireless, the pace of the adoption of innovations, the financial aspects associated with possible changes to the sector, and Canada's development of the sector in comparison to the performance in other countries.
Senator Dennis Dawson (Chair) in the chair.
[English]
The Chair: Good morning. This is the Senate Standing Committee on Transport and Communications' thirteenth meeting on our study of the wireless sector. This morning we have with us from Research in Motion, Robert Crow, Vice-President, Industry, Government and University Affairs, and Morgan Elliott, Director, Government Relations.
[Translation]
Research in Motion is a well-known company that designs, manufactures and markets innovative wireless solutions for the global mobile communications market. RIM makes the famous BlackBerry, which hit shelves in 2002 and helped to shape the global market for smart phones.
[English]
Robert Crow, Vice-President, Industry, Government and University Affairs, Research in Motion: Thank you, Mr. Chair and honourable senators. It is a pleasure to be here with you.
We would like to share with you a 20-page deck to give you an overview of Research in Motion. I think we also have ample time for a question and answer session. It is a great time to give you an update on the status of Research in Motion.
We understand that many of you visited our friends and colleagues in Europe recently. Part of my job is to travel the world in the four areas that I am responsible for in the company. As we move around the world, there are tremendous prospects for continuing growth and development of our company in all the things that we do.
Research in Motion is a Canadian success story; this is very important. We want people to realize that 2009 is a very important year. It is the twenty-fifth year for Research in Motion and the tenth year for BlackBerry. This is the start-up company that has been around for a quarter of a century. We have an important point of credibility in the marketplace.
Research in Motion has been in business for 25 years after being founded by students at the University of Waterloo. It was the first company in North America to do wireless data development in the late 1980s. We worked closely with wireless operators in Canada, including Rogers, and important infrastructure and technology companies in Europe such as Ericsson. That is more than 20 years of experience. Over those 20 years, we have built the world's largest dedicated research and development team and data and smartphone business.
It was in 1999 — 10 years ago — that the first BlackBerry solution was created. Last year, we hired 4,000 people on top of the 8,000 or 9,000 that already work for RIM. Our employment growth has been nothing short of phenomenal. I joined RIM in 2001 when we had about 1,000 people. In the early 1990s, I worked with people at RIM when there were only 10 people in the company. I have seen the company at every stage. In the eight years I have been with RIM, we have grown nearly 15 times. We are approaching 15,000 people worldwide.
We have shipped over 50 million BlackBerrys over the 10-year period. Approximately 32 million are in active use with data plans. As I indicated when we were talking in the hall, a number of others are in use simply as phones where the data plan is not in use. We are proud that they are there.
When I joined RIM in 2001, the world was much smaller. We were in the United States and Canada working with five wireless operators. We sent three people to colonize Europe starting in London. Today, as I mentioned, we are 15,000 strong and doing business in more than 170 countries. We have approximately 500 wireless operators and indirect channel partners including major operations like Wal-Mart, Costco, Best Buy and Carphone Warehouse in Europe, et cetera, distributing the BlackBerry solution around the world. It has truly become a global enterprise.
Our infrastructure is one of the secret sauces of BlackBerry. It is the private network that relays BlackBerry messages quickly around the world. It now carries more than 3 petabytes of traffic each month. That is a reasonable fraction in comparison to the total of the Internet, so it is a very important. It is probably the world's largest private IT network. That is an important secret to our success.
We are a global company and proud to be a Canadian company headquartered in Waterloo, Ontario. A couple of years ago, we would have said we have offices and laboratories in the Toronto area — Mississauga — and also in Halifax, where we have both research and development and technical support services. In Ottawa, we have 800 or 900 people. Recently, through acquisitions, we now have labs in Vancouver and Fredericton. There will soon be BlackBerry labs or offices across Canada. When we factor in the work we are doing with third parties and universities, we are indeed a coast-to-coast ecosystem in Canada.
We have offices or labs in 28 foreign countries across the Americas, Europe and Asia Pacific.
As our business started in North America, there are relatively more RIM people in North America. Our next move, as I mentioned, was Europe. Today, Europe is larger than all of RIM when I started eight years ago. Later, we moved into Asia Pacific and Latin America. They are excellent markets. Our business is robust, but still in its early stages. We see a lot of potential around the world.
How does one become a non-start-up company that is an instant success over 25 years? RIM is clearly a research and development company. The name, Research in Motion, was taken by the founders of the company to reflect that this is a company founded on scientific and technological research. The most recently published research and development effort was a shade under $700 million. That has been growing very rapidly. We have world-class research and testing facilities. I believe the next time we are measured, we will probably in the top three research and development investment companies in Canada.
We have broad university collaboration. The company started with students on a co-op term at university. There is a tremendous degree of affinity and respect for academic institutions, research and their people. We have ongoing international research collaboration with professors and graduate students. Again, it started in Waterloo, but the business expanded across Canada and is now strategically in other world locations. The eleventh employee of Research in Motion was a co-op student from the University of Waterloo. Today, we remain the largest private sector employer of co-op students in Canada at over 1,000. The last time I counted the research and development department at Waterloo, one person in six had been a co-op student at RIM before becoming a full-time employee. We really do make imaginative use of that co-op system. My department has student ambassadors at 27 different Canadian colleges and universities from which we recruit co-ops and graduates.
We were talking earlier about BlackBerry envy. The idea is that whoever had the newest model, had the best BlackBerry. It is a nice problem to have. Has anyone here owned either the first or second BlackBerry?
The Chair: I had the second one but not the first one; I feel badly about it now.
Mr. Crow: We still have a few of them in the drawer. You could probably have one. When I came to RIM in 2001, I had my choice of one of those two BlackBerrys. I chose the second one because the first one required you to replace the AA batteries. We had trays of AA batteries and recycling boxes for spent batteries on every reception desk in the company. People could come in and drop off their used batteries. It was a great innovation that allowed you to remove the battery without losing the memory. It had an internal lithium battery that would recharge and hold the memory long enough for you to install a new battery.
I draw your attention to that evolution, which quite quickly gave you the familiar BlackBerry. We first had the flat, candy bar shape early in life, followed by the slimmer BlackBerry Pearl, which remains an important BlackBerry in the marketplace around the world today. The BlackBerry Curve family is mid-sized. Some data out of the United States yesterday shows that six of the top 10 smartphones are BlackBerrys, and the BlackBerry Curve is number two. If you aggregate them all, we dominate that market, but the BlackBerry Curve is the number two selling smartphone in the United States, which is one of the largest markets in the world.
Our newest offerings include the BlackBerry Storm and the BlackBerry Bold. The beauty of this evolution is that as technology advanced, our ability to incorporate more and more features without compromising the user experience improved. We were able to do more than simple messaging. The next big thing was to put a phone in the BlackBerry, followed by the addition of colour, multimedia, and a camera. Some people back in the early days said that there was something wrong with the company because we did not have those elements. However, we did it when the time was right and we were certain that it would work properly and never compromise the user experience. The hallmarks of our product are its ability to work right out of the box and its long battery life. That has been true for the entire 10 years of 18 to 20 products. We continue to innovate. I work in the RIM research and development centre, so I know what is happening. I cannot divulge any details of what is in the works for the future but it is really exciting. We have not stopped innovating and dreaming about taking the company to where it needs to go.
Another important aspect of our company's success has been security. Certainly you are aware of specific incidents where security is paramount. Your colleagues in the United States and their staff were issued BlackBerrys during the aftermath of 9/11 and the anthrax scare in Washington to keep the government running. A rock-solid security was engineered into the BlackBerry that has been verified externally by agencies and independent testing labs around the world. This gives us an important edge to provide service to both the public and private sectors where high-level security really matters.
There is a multinational scheme of joint accreditation for security. There are four levels of common criteria certification called EALs. We are the only wireless solution to achieve an EAL 4+ certification. We have common criteria recognition arrangements with many countries.
We continue to be known as a platform for on-the-run electronic mail. People began using electronic mail so much; it is thought that BlackBerry was the first company to turn electronic mail into instant messaging or chat. People use their email on a BlackBerry because everyone is on all the time, in the way that kids now use their chat tools. All of those chat tools are available on BlackBerry, plus so much more. Recently, we opened our own applications store called App World. Last week I was in San Francisco at our second developers' conference. We took it right into Silicon Valley and called out the best and the brightest from around the world to join us. We had 1,300 very enthusiastic developers of BlackBerry solutions. These private companies have hitched their wagon to Research in Motion and are happily making their living producing everything from games to business applications to utilities and driving instructions. There are many thousands of these and a growing number are available through App World.
It is important that we provide increasingly rich multimedia experiences. Our integration is truly astonishing. The success of Research in Motion has allowed us to create a tremendous tradition of being supportive of the community. We do this as a company and as individuals. The best known examples are the philanthropy of our co-CEOs, Jim Balsillie and Mike Lazaridis. Mike Lazaridis founded the Perimeter Institute for Theoretical Physics and the Institute for Quantum Computing at the University of Waterloo. Jim Balsillie founded The Centre for International Governance Innovation, CIGI, and the Balsillie School of International Affairs, which are affiliated with Sir Wilfrid Laurier University and the University of Waterloo. We carry many affiliations. In addition, some of the proceeds and wealth created, in the hundreds of millions of dollars, is matched by municipal, regional, provincial and federal governments to create power centres of international excellence and to enrich the academic environment from which Research in Motion has grown.
What does all this do? This is a growth company so I will talk a bit more about our growth. We were not surprised but quite delighted that Fortune magazine went outside the U.S. borders to look at companies from around the world. They discovered that Research in Motion has been the fastest growing company in the world over the last number of years. Trust me, it feels like that most days when you stop to catch your breath. We spend a lot of time recruiting, developing and making new friends in new places. That growth is also showing in our revenue. In fact, the company's growth curve looks like a hockey stick. When I give this presentation to foreign visitors I say, "We like these curves that look like this, because we are Canadians and we love hockey. All our growth curves must look like that." Our next one, the subscriber curve, is very much in the shape of a hockey stick. This is about halfway into the deck. This shows that the last time we announced that we had about 32 million subscribers, which was at the end of August.
It is interesting to note that it took five years from the launch of BlackBerry to get 1 million subscribers. In the next year, it took nine months to get another 1 million. I think we are now adding them at the clip of 4 million to 5 million a quarter; 20 million a year, or more. This is something that is truly becoming an international phenomenon.
What about around the world? As you can see on the world map, we will have to do something about Greenland, where we do not know any operators. I had a colleague who once showed this slide and Greenland was missing. I thought, "What happened to Greenland?" It is one of the few remaining large spots where BlackBerry is not available in the world. As I said, as recently as eight years ago, BlackBerry was available in both the United States and Canada, and then only in a spotty way. We had different networks and different standards. Some will remember that if you had a BlackBerry that worked in Toronto, it would not work necessarily in Kingston, and if you had a BlackBerry that worked in Kingston it would not necessarily work in Peterborough. Today, you have a BlackBerry that works almost any place in the world.
This is an incredible technical achievement to realize. Those of you who travel the world, and I know that senators do in the course of their work, will realize that it was not that long ago when you would get off a plane and find it difficult to have a working electronic device. Think of Japan and Korea. I represented the company at the OECD Ministerial Meeting in Seoul, Korea, in 2008. I had the only working BlackBerry in Korea. I had the BlackBerry Bold that many of you have showed me. That was a brand new product still in the labs. It was the first time that technology had caught up and merged. We had what the wireless operators were delivering in Korea and what we were building for global markets come together.
It was a remarkable period to have the Secretary-General of the International Telecommunication Union come over, Dr. Touré, and ask, "Where did you get that BlackBerry? It works here." Again, it is a matter of convergence technologically and having that engineering drive to anticipate where standards are going and to be able to build to that. Today, we are in more than 170 countries. As I mentioned, in many of them our business is still very young.
The next slide covers smartphones versus traditional cellphones. A smartphone is basically a phone and a computer merged. It is a telecommunications device that has an operating system; that is how they are defined and distinguished from a traditional mobile telephone.
The red lines represent the last couple of years of sales of traditional mobile phones, worldwide. About 1 billion of those were sold in 2007. There is also a forecast out through 2013. Traditional mobile phones are predicted to dip this year and then to start growing again only gradually, during the recovery from the general economic slowdown.
Smartphones, represented by the blue line, started at a much smaller base. They started almost at zero — and, they do so because ours was the first, in 2000 — and now we are growing at a steady clip. Notice the growth even through the economic downturn period. This phenomenon is even more pronounced in the advanced countries.
These data are brand new. They came out last week. I do not have Canada but I do have the United States on the next picture. You will notice that there is a dramatic shift going on in the United States. The sales of traditional mobile phones are going right off a cliff, but the sales of smartphones are rising steadily as a share. The good news is that a rising tide lifts all boats and we are one of those boats that are being lifted by the tide. Additionally, we have been fortunate to be leaders in this sector and we have been enjoying, as you will see on the next page, the growth in the installed base.
As we move to the coloured pie charts, the first one will show you brand new data from last week, indicating RIM's market share in the global smartphone share. Not only are we being lifted by the tides but we are also growing our share of that marketplace. Year over year, we went from 14.6 per cent of sales to 19 per cent of sales, which is an achievement of which we are quite fond. This is on a worldwide basis.
I do not have the U.S. chart. It is even more dramatic, but it did not appear in this deck. Our market share in North America exceeds 50 per cent and has remained rock solid over the last while. We are pleased with the adoption that we have had at home in Canada, where we have the highest market share, as you can imagine, of anywhere in the world. The United States is our largest market and the second market that we entered. In the U.K., our market share is now about 25 per cent of smartphones up from just 18 per cent a year ago. This is a business that is growing quite well relative to its competitors.
The secret is that RIM is purpose built for growth. That is, we built the company to grow. I have had tremendous opportunities to do what I am doing today; I am telling you the RIM story. Governments around the world have tremendous interest in the ingredients of a company that can go from three people in a dorm room to 15,000 people, millions of customers, and tens of billions of dollars of revenue in 25 years. They want to know. It was built for growth pretty much from the first day.
Mike Lazaridis asked what are the challenges that you have if you need to scale. One thing you need no know about RIM is that RIM is a complete company. Every BlackBerry is designed by RIM. Every component is engineered by RIM, typically with a partner. Every BlackBerry is sold by a partner of RIM, supported by RIM personnel. The BlackBerry is serviced by partners; the legal contract is written up by our legal department, and all our financial work is done by RIM. It is a complete company in that sense. We are not a company that said, "Well, manufacturing is not important. We will let someone else do that." Those who visited us in Waterloo know that we have a manufacturing plant that has a capacity of several tens of millions of units a year. We build every BlackBerry in that plant before it is assigned to a partner's plant somewhere around the world for scale-up. We believe that every BlackBerry that has ever been built has been built by RIM using either the method of direct manufacturing by RIM or of manufacturing by a partner of RIM under RIM's supervision. Even partners of RIM who build for us are on the same systems and have the same management structures and are controlled as if they are virtual BlackBerry factories. If a complete company is to grow, everything has to grow, everything has to scale. I have listed all the different things that are become challenging.
Finding people is always at the top of the list. I am always asked how a small country like can Canada possibly support a world-class telecommunications company. I say, wait a minute, there is a small country called Finland about the size of Toronto that seems to have done okay. We are not a small country. This is a sizable country with a sizable talent base. We are also an open country. We have benefited tremendously from the production of people in Canada through our education system and attracting people to Canada through our open doors and our immigration system.
I am a numbers guy. When I joined the company eight years ago, I asked where all the people came from. I got a list of colleges around the world where RIM people were trained. This was at a time when there were only 1,200 of us. I found that our people came from over 300 colleges and universities around the world. Thirty per cent of them had a degree from the University of Waterloo, but the rest were from all around the world.
Our company has been successful in our town and, of course, other parts of Canada by creating magnets where well trained people in all disciplines required can find and do productive work to grow something positive. That has been an important secret to our success.
When I first met the people at RIM in the early 1990s, they were working in one quarter of one half of an old Bell Canada building that we now own. We have 25 buildings now on the Waterloo campus.
We have developed our markets in distribution, built alliances, dealt with processes and complexities.
When the story of RIM is finally written, it will certainly be a technological story of creativity, drive and so forth, but it will be a story about a brilliantly funded company. It was funded by early government support of student enterprise through different programs and private sector initiatives and offerings. It finally became a public company raising money on world markets at appropriate times.
It has been expensive to do the research and development that creates a world leader. Therefore, having the resources ahead of time has been critical and, most important, it has been critical in attaining operating leverage.
We are scaling into market opportunity. Jim Balsillie talks about driving into a snowstorm. The snowstorm is big and it will end. We do not know how big it is, but we know there is an incredible opportunity.
There is a lot of creativity, technological development, industrial design, study of markets and so forth going on at RIM. We are now at a stage where our company can realize what the economists would call economies of scale — simply being bigger — and economies of scope — doing multiple things that are mutually reinforcing.
We are also realizing big returns on individual and group productivity. Our employees have the best tools in the industry to work with. Whether you are maintaining a machine in the plant or designing circuitry for a BlackBerry, you will have absolutely the best equipment, software and tools. There is a huge focus on business processes and so forth. We cannot be competitive without that. We like to say that we are the only company in the world where everyone has a BlackBerry.
Senators, those of you who are BlackBerry users, think of the productivity that product adds to your life. It is the ability to communicate in the manner you need to with your colleagues, subordinates and superiors around you. When you extend that to an entire business enterprise, the group productivity benefit is large.
Since I joined RIM in 2001, revenue has grown by a factor of 50, but our head count is only up about 10 or 12 times. Each person on average is about five times more productive than they were when I started. That is what productivity growth is all about; it is about realizing those economies of scale and scope and generating the surplus to reinvest, not only in continued growth, but in our shareholders and communities. This is very visible.
I would like to circle back to our imaginative human resource practices and a thought I would like to leave with the committee. Our HR practices involve deliberate synergy. We believe in the campus model. We have studied all great technology companies and found they all have a campus somewhere, whether in Sunnyvale, California, Redmond, Washington or in New York state. Our main campus is in Waterloo. We have acquired property in Kanata to have a modest campus; likewise in Halifax and Mississauga.
We like to keep people together where they can be more productive. I have mentioned the creative use of student trust and a growing global brain trust through our global outreach to the university sector. Fifteen per cent of RIM full-time employees — one in six — has worked as a co-op student or intern.
What about the public policy environment that sustains this? Why is it that a company like RIM exists in Canada, continues to invest and believe in Canada and continues to have more than one-half of its employees based here?
Much of it has to do with the broad business conditions that we find. I mentioned having access to great people. This will remain a joint effort that we will continue to work with government to ensure. I would also be remiss in not mentioning our scientific research environment. The programs have been outstanding, particularly the scientific research and experimental development program. It helps to underwrite the growth needed to continue to generate ideas embodied in products of the future. It has paid back many times. In our case, it has been very fairly administered. It is also very important that this program be fair handed and evenly administered across the country going forward.
World-renowned research and facilities in clusters creates a strong network of science and technology. It also provides access to services and expertise we need in areas other than engineering and science. A company cannot be only that. I speak first as an engineer who is part of the research and development department, but I know our company also depends on highly talented people in finance, marketing and so forth.
I spend time with Mike Lazaridis yesterday and he told me that five years ago he thought the prospects of RIM were unbelievable, but today they are even better. We continue to see tremendous prospects. Perhaps, we can get into some of those prospects in the discussion.
Honourable senators, thank you very much. We are happy to take any questions you may have.
Senator Johnson: Thank you for your excellent presentation. It was very comprehensive. You are a tremendous success story in the world as your boss said yesterday. A few people have made comments previously. Maybe you can enlighten us for the record in the committee hearings.
Do you think Canadian telecommunications are in a state of crisis, and if so, what measures are needed to calm that crisis? Professor Michael Geist made several comments on this in his presentation before the committee.
Mr. Crow: I am not familiar with what Mr. Geist said in that context. I have been involved in the Canadian information and communication technology business throughout my career. I have seen good times and bad times, including some very disconcerting events, such as the collapse of Nortel. However, when I look at the Ottawa region and other places where Nortel was active and see the number of new start-up businesses, I have hope for the future.
A fair bit of excellent research work on wireless technology is being done in our universities. There is a great deal of interest in it. Interestingly, much of that research is changing from wireless infrastructure to wireless applications or embedded software and devices, which is more along the lines of what we do and less what Nortel once did. As well, there is a lot of adaptability in the system. It is difficult for me to put any kind of a sharp point on a crisis with that longer view.
Senator Johnson: You specifically mentioned your frustration with pricing and said that carriers could sell more BlackBerrys.
Mr. Crow: There was such a comment two or three years ago. I have not thought about that in a long time.
Senator Johnson: Your company is highly respected in the area of philanthropy and the way it treats students. My nephew is in your program and is having a marvellous experience. What sets you apart from other companies?
Mr. Crow: It is so interesting to reflect on that after eight years. The culture of RIM is unusual and unlike anything I have ever seen. I have had an opportunity to work in the academic community, in business associations and in the private sector. I have never seen anything quite like it. We have a highly collegial environment for a private company, one in which individual contribution is respected. The best example of that is the security slide. One of the first 20 employees was a co-op student hired by Mike Lazaridis. The co-op student was working in the Centre for Applied Cryptographic Research at the University of Waterloo. He convinced Mike that he should engineer a product with security and cryptography built in at the outset. Mike did that and it became one of the hallmarks of the company. That contribution came from a 20-year old university engineering student talking to the founder of the company. To this day, I have never seen a place of business that allows so many people to have a voice. It is also a place of exceptional talent.
Senator Johnson: Certainly, you attract the best and the brightest.
Mr. Crow: We are fortunate. When you are at the top of your game, as we are, it is much easier than it is in the early years. I watched as Mike and Jim built the company in the 1990s. I was with a trade association and RIM was one of many companies with whom we worked. In those early days, anyone wanting any kind of a job with RIM was required to have an interview with one of the co-CEOs. The early people were handpicked and they continue to have a strong interest in ensuring that we have top level people. That intellectual level of preparedness is like no other that I have seen.
Senator Johnson: Do you have any policy recommendations for someone who becomes as addicted to a BlackBerry as I am? Are there any programs for this?
Mr. Crow: One of the first things shown to me in the early model was the auto on-off feature. If you so choose, it can come on at a specific time and shut down at a certain time. There are many funny stories about that. We have a new cradle for the BlackBerry so that you can use the alarm clock feature.
Senator Plett: I was one of the fortunate who travelled last week with four other members of the committee to Estonia and Belgium. My questions will be based on that experience.
According to our notes, the penetration rate in Canada and the United States is 74 per cent and 86 per cent respectively, which is well below the average of OECD countries. In Estonia, I believe it is 125 per cent. When we were in a classroom of Grade 2 students, Senator Housakos asked them: Who has a cellphone? All the students put up their hands — they all had cellphones. Does a relatively low penetration rate in Canada have any adverse effects on RIM?
Mr. Crow: We more than make up for this in Canada by the fact that our share of the marketplace is much higher because our business started here. As well, when you see penetration rates in excess of 100 per cent, it means that the same individual has more than one SIM card and is swapping to get around roaming for economic reasons. It is a big problem in Europe, which I am sure you discovered during your travels.
Socially and culturally Canada and Europe are different. I travel to Europe a great deal and have found that to be the case. For example, there is a difference in terms of the age at which we permit our children to have their first personal communication devices. As a father of four, my experience has been that the age crept downward as I watched them grow. Generally, it is not until students are in Grade 7 to Grade 9 that we see them with cellphones. There is a social difference.
Our core markets have been older, working-age people. It is only recently that teenagers have shown an interest in BlackBerry. When Grade 2 students have their BlackBerrys someday, we will be delighted because we have elements for that age group.
Senator Plett: In Estonia, we saw a cellphone used for virtually everything that people did. For example, a person could park their car, punch in their code and receive a message that they were parked legally. They bought newspapers and paid for their bus travel by cellphone. The charges were on their monthly invoices.
Whose responsibility is it for Canada to move forward to more extensive use of cellphones?
We met with members of the European Parliament. I asked why the rest of Europe is not as advanced as Estonia. Slight exception was taken to the question but the reality is that the rest of Europe is not trying to emulate Estonia in that area.
Is it the responsibility of companies like Research In Motion or the responsibility of the government to bring Canada to that point?
Mr. Crow: It is a multi-party responsibility. I will start with the role of government, which is to ensure that we have rules and regulations that enable the private sector and the respective institutions, perhaps regulatory institutions, to permit things to happen. If there are some that are at the edge and for which we wish to be famous, perhaps we can provide assistance in getting those moved forward through the research phase. Predominantly, this is a private sector matter and it is one of building the infrastructure among the various providers that one needs.
Technologically, to be honest, it is not that difficult for a writer of a BlackBerry program to write a program that will send messages to the transit company and ask, "When is the next bus coming?" The question is this: Is the transit company set up to know where the buses are much less to put out public notice of where those buses are and when. If we have the feeds of the raw data, then we have an opportunity to do that kind of thing.
I go to London often. I downloaded the information for the London tube map. It has traffic and outage notification. If you go into the tube and stop in London, there will be a barrier up and a polite person saying, "I am sorry; we are maintaining today." Here, we can get this information on the BlackBerry before we even get to the tube. That is a service that will be increasingly easy to use. Part of this has to do with the standards by which such messages are promulgated. That is becoming increasingly more standardized over time.
What can be done in a fairly compact and technologically advanced country like Estonia can be fairly easily replicated in our urban areas in a short period of time. Our challenge, as a large country with such vastness of territory, will be attaining coverage at reasonable cost. Whether we can do what they do in Estonia within the next three to five years, should not be a problem in my view.
Senator Plett: My last question is a little more personal. Along with Senator Johnson and Senator Zimmer, I am from Manitoba. I have spent most of my time connected to MTS, which is together with Bell, and so on. After seeing television advertisements showing what BlackBerry was doing and what they were coming out with, I went to my supplier to buy a BlackBerry. I said I wanted the top line colour for the BlackBerry. They said they were sorry, but Rogers was the only supplier selling that model. When I went to buy another BlackBerry, I wanted the model with a camera. They said they were sorry but that Rogers had that model and they would not have it for another six months.
Why would BlackBerry give preferential treatment to some companies versus others?
Mr. Crow: First, the problem is going away. The latest BlackBerry, the new BlackBerry Storm, will be out on all three networks at the same time. That will be a first. It is a matter of technology.
In the early days of cellular telephony, wireless operators had to choose between two digital standards: The CDMA standard that was popular in United States, in certain parts of Canada, in Korea, and in a few places in Latin America; and the so-called European standard, GSM. A large number of North American companies contributed to that standard as well. That was popular in Europe. Rogers adopted that standard, as did AT&T in the United States. A couple of years ago, 85 per cent of users in the world were on the European standard; only 15 per cent of the customers in the world were on the so-called North American standard, the CDMA standard. You happened to live in an area where an operator made a technological choice in one direction as compared to another.
If you were a technological supplier, like RIM, building for the marketplace, the first market you would build for would be the large one, for the 85 per cent. The differences are so profound that it requires different radios and different signalling technologies in the BlackBerry. It is not just differences in the screen. You have entirely different chip sets from different chip suppliers that are used in CDMA radios versus the GSM radios that you would have on the Rogers or AT&T or any of the European systems.
Over time, we have gone from so-called second generation wireless, which is where this began; to third generation wireless where we see some degree of convergence. That is where we are today. In the fourth degree, we believe there will be little, if any, difference among in the technology that the wireless operators will use. As vendors, we hope that it becomes more standardized because we need to build BlackBerrys for everyone. Fortunately, as a smaller company, where we build one at a time, the first one to be built with all of the latest features would be for the largest world market.
Senator Plett: If you get tired of working with RIM, you have a career in politics.
Senator Zimmer: Thank you, gentlemen, for your presentation and appearance today. Your company is a model for the world. As Canadians, we are proud of that. My first question is not a question, so do not start the clock on me. Where did the name come from?
Mr. Crow: BlackBerry?
Senator Zimmer: Yes.
Mr. Crow: In about 1998, before I joined the company, RIM was talking about stuff like a wireless wizard and other strange names. Mike Lazaridis made a savvy decision: He went to a naming company. There are companies in New York, or Los Angeles, or somewhere, where they will do research and ensure that whatever the word is it does not mean something awful in some other language. They will make sure the name is available. Mike Lazaridis tells the story of the firm coming into his office with his marketing people who he had assigned to this project to show him the final names. He said that it went from bad to worse. They had terrible names. He thought he had wasted all his money; it was expensive to do. They got to the last choice and it was "BlackBerry" and he loved it. He said, "You got me. You sold me."
Some say that if you look at that early BlackBerry, the little one that was vertical, in the upper left corner of the picture, the keys on it resembled the nibs on a berry and it was black in colour. That is urban folklore. However, the truth is that it was a deliberately crafted name.
The other story that I hear is from a colleague who was at the staff meeting when this was announced. Only a couple hundred people worked in the company at the time. Mike Lazaridis came down and he said, "Whatever you are working on, I want you to know that from now on it is known as BlackBerry and we will never call it anything else." People looked at him like he had grown two heads. Their reaction was, "What is this?" However, the name took. It was a powerful name. It is interesting how the brand grew. Without advertising, that brand grew and stuck. We look at the people who measure the strength of brands and it is one of the fastest growing and valuable brands in the world. That is how it started.
Senator Zimmer: Once in the world, once in a time you will hit a name that is magical. It is like when they marketed tuna, they were competing against salmon and they used the slogan: buy tuna, it does not turn pink in the can. It was amazing.
Mr. Crow, RIM has done very well for itself at home and globally. In terms of fostering continued growth, not only your company, but the entire Canadian IT industry, what efforts and partnership have you undertaken to foster ongoing interest in this field, whether at secondary or post-secondary institutions?
Mr. Crow: RIM is a company that is a joiner and leader. We are active in all our business associations and so forth. We believe in working in our community from the local tech association and the Chamber of Commerce right through. We are proud to be leaders in that space.
With specific reference to the educational community, we have a team in my group that is responsible for this work. We have programs that start reaching out to young people in the early grades of school. We have programs to support research of PhD students in their final years of advanced research and defence of their dissertations.
Let me describe a few. One of my favourite programs that we are replicating and trying to figure out how to scale is called the BlackBerry Academic Program. I have on staff a qualified science teacher who has joined us to lead this program. We always have a co-op student working with this person. They designed a curriculum where the students take a BlackBerry apart and learn a little about the science of the BlackBerry. It is meant to be a science lesson. The lesson can be as simple as a Grade 3 lesson, or it could be tailored to Grade 11 or Grade 12 where they are learning about waves, physics, circuits and things like that. They take apart a BlackBerry and put it back together to learn about it.
We have a lab near Dortmund, Germany. Our lab manager there was intrigued and said they needed to have this program. We had this translated into German and now we have the BlackBerry Academic Program in Germany. It is considered a wonderful way of reaching out to the community. We are trying to replicate this program through our company wherever it happens.
As we move through the school system, we are also major supporters of Shad Valley. I do not know how many of you know the Shad program in Canada. It has been around for 25 years. Every year, 500 young Canadians in grades 10, 11 and 12, in groups of 50, attend a Shad Valley session for the month of July in one of 10 universities. The program is for gifted students interested in science, technology and entrepreneurship. Their job is to live and work together with instruction from university personnel to form and build a company where they will develop an actual prototype of a technological program. This is a wonderful program that I would encourage any of you who are interested to learn about and get behind. We have in RIM now, I believe, 30 people who have been in this high school program and then later came to RIM, including a fellow I worked with in the first year.
In colleges and universities, we have industrial research chairs at three universities and are looking at two others. We do individual research projects that could be in the magnitude from $20,000 to $200,000 per year across the country with about 12 or 15 universities. Our co-op program now reaches out to about 25 Canadian schools.
We have an integrated program from the early grades through to the most advanced doctoral research.
Senator Zimmer: The co-CEOs have donated hundreds of millions of dollars to research institutions such as the Perimeter Institute for Theoretical Physics and the Centre for International Governance Innovation. Why these institutions and not some more established organizations?
Mr. Crow: In the case of the Perimeter Institute and the Centre for International Governance Innovation, CIGI, both of those are net additions to the institutional fabric of Canada. The Perimeter Institute is now the largest institution of theoretical physics in the world, not only Canada. Nothing on its scale exists anywhere else in the world. CIGI is unique in its mandate and scale.
The important point about the personal philanthropy of Mike Lazaridis and Jim Balsillie and their vision is that each of these investments has a practical link into the existing institutions. In the case of CIGI, we have the Balsillie schools that train graduate students. It is now under construction and is affiliated formally with the University of Waterloo and Wilfrid Laurier University. In the case of physics, Mr. Balsillie put $150 million into the Institute for Quantum Computing at the University of Waterloo, which is an existing institution. If you visit us, you can see the crane and the building slowly rising that will house Mike and Ophelia Lazaridis Institute for Quantum Computing. It is being built on a Canadian campus.
Senator Zimmer: Competition among smartphone manufacturers throughout the world is fierce, but RIM is a market leader. What do you attribute to that success? What impediments do you see on the horizon of Canadian public policy? How do we create the environment to create the next RIMs?
Mr. Crow: That is a good question.
If you had Mr. Lazaridis here, he would probably be a little shy, but Mr. Lazaridis and the first 50 or 100 people at RIM created this market. We built the first smartphones and therefore we know a lot about them. We have been at it the longest; we have the largest dedicated group of people; we know the most about it in the world. Therefore, we continue to invest, we continue to look forward. We ask what we can do that will help people enrich their lives. It is not about looking back to see who is in the rear-view mirror.
The Canadian business environment has been steadily improving over the course of the sweet spot of RIM's growth. We can look back to the days when Canada was having bad budget problems in the early 1990s. The country worked its way out of those problems and built strong research institutions and so forth over the last number of years. Those coincide with the growth of RIM. Our general approach to taxation, our continuing generous approach to immigration and the outward look of our government to embrace the world as trading partners have all contributed. This was undertaken by many previous prime ministers and our Prime Minister today is taking up that tradition in going to India and China. These are extremely important things for Canadian business.
We remain modest in size compared to our competitors. We count on the support of the Canadian government everywhere we go. I cannot tell you how helpful our ambassadors, missions, the Trade Commissioner Service, et cetera, have been in the growth of our company.
These are secrets in the Canadian sauce that need to be preserved. We maintain our openness, our external focus, the solid business climate and our commitment and passion to research and education of people at the highest level. We will have a chance to be very competitive in the world.
Senator Zimmer: Thank you for your presentation today. We are very proud of your company. Please pass on to Mr. Balsillie that we wish him the best of luck and continue to try to get the Phoenix Coyotes back to Hamilton. They are the original Winnipeg Jets. We cannot go and watch in Winnipeg, but we will go to Hamilton to watch them there. Thank you for your time.
Mr. Crow: Thank you so much.
Senator Merchant: Good morning. I too wish to thank you for being here and giving your presentation.
One of the concerns, and the area we look at in this study, is the matter of security. I understand that President Obama has been allowed to keep his BlackBerry but only for communication with his family. He is not allowed to have other communication on a BlackBerry.
How concerned are you about security? How do you handle security?
Mr. Crow: As I mentioned in my presentation, security was built into the BlackBerry's basic design and architecture, and it remains a feature of our solution that sets us apart from any of the competition. At the start of my presentation, I showed you all of our security certifications.
Security is also the concern of foreign governments as we go into new markets. Governments, in order to use wireless technologies, want to make sure their communications will not be intercepted by bad people within or outside of their country. I spent a lot of time with my colleague, who is the vice-president for BlackBerry security, travelling and visiting and speaking with IT leaders in foreign governments to assure them about the solution that they have.
The fact that the solution is trusted means that among our largest customers — in fact probably our largest single customer if you aggregate them all together — would be the Government of the United States of America, which is a great level of trust. Our product is not built to be, nor do we pretend that this is the spy phone that you should have and scramble the jets and that type of thing. However, for the kind of security that is required most of the time, the vast majority of the time, and that it can be verified according to this, this is one of the ways we make our living.
Again, there is a constant state of vigil. Not a single new BlackBerry or a single new software release goes out the door without a thorough security review.
Senator Merchant: I also have a question about a reference you made to Nortel. We know that Nortel is a great Canadian company, and recently there was an auction of the assets and you were not able to bid. Can you give an elaboration about lessons you have learned from the failure of Nortel and what lessons you have learned through the bidding process?
Mr. Crow: Again, that was too bad. We remain disappointed but life goes on and, as you know, we have to look forward and not back.
Any business you look at you must be simultaneously paying attention to the future trends and try to intercept those trends, but as well paying tremendous attention to what is happening today. I cannot recall the name of the book but the book out there is that if you look at the failure of great companies, typically the company fails because of an incident that happened five or more years in the past. The company, therefore, is able to carry on with momentum and finally on fumes until it extinguishes itself.
I am not an expert on Nortel, but we know there was a very long period from the time Nortel was healthy to the time it finally expired. It suggests that we need to go back and look in the archeological diggings of what had transpired five years ago to see where that real difficult mistake was made.
All businesses that are moving forward try to learn from those mistakes and realize we need to be cognizant of what we are doing now, not just about what we plan to be doing.
Senator Merchant: For the record, could you tell us what happened; why you were not successful in the bidding process?
Mr. Crow: It was a combination of circumstances. The specific technical circumstance was that we were presented with a non-disclosure agreement to sign that contained a clause that would essentially strip the assets that we were interested in of their value from RIM's point of view.
When Mr. Lazaridis addressed the Industry Committee he said it was like trying to buy the house of your dreams, if you recall, and the lawyers found out there was a clause that indeed the house is yours but someone else has the right to live in it. We simply could not sign up to that and that technically was the incident that was the final straw, if you will, in terms of our withdrawal or inability to move forward with it.
Senator Merchant: Did you feel that maybe there are some policies that the government could put forward to strengthen your hand?
Mr. Crow: Again, we are on the record, and in terms of the review of the Investment Canada Act, we believe when assets have a market value in excess of the threshold that should call for a review. Certainly we still believe that. That threshold is in the $300-million range for automatic investment Canada review and this deal had a market value in excess of a $1 billion but a book value of approximately $100 million.
We believe that it would be better public policy to have such situations evaluated on the basis of a good estimate of fair market value and that would have triggered the kind of review we had called for.
The review would be a review on its own merits but, again, the specific public policy change would be a change in the regulations of that act to trigger a review in such circumstances.
Senator Fox: Thank you for being with us. Obviously you are an extraordinary Canadian success story of which we are very proud.
Please explain the difference in security for the sender in using his PIN against going email?
Mr. Crow: The real difference is whether you are using BlackBerry in the context of using the BlackBerry enterprise server, whether you are on the parl.gc.ca type of server versus using the Rogers.BlackBerry.net or one of those. In the corporate or institutional environment, where the BlackBerry enterprise server is used, basically all transmissions as between the BlackBerry and the corporate data centre are encrypted with what is known as commercially strong encryption.
In the case of the BlackBerry Internet service, which is the provider off the store, where you would go into the store and just fire it up on your own, that is protected by security provided by the wireless operator and also by compression provided by RIM.
In terms of the difference in PIN versus email, once upon a time there used to be no tools that would enable a company to back up or intercept or maintain records of PINs. That is no longer the case. The real difference is whether that communication moves into an actual mail server or not. In the case of PIN messaging it does not, so therefore it is never placed in a central store to be found later again. That is one of the great appeals of the PIN messaging. While not heavily encrypted, it is in a situation that would be very difficult to intercept.
Senator Fox: Moving to the state level, you indicated that you had been able to satisfy American authorities as to the security of using the BlackBerry. I go back to days when I sat on the Information Highway Advisory Council. There was real concern that the Americans would not allow messaging to go across their country or into their country unless the American authorities had the encryption key.
Did you have to give the encryption key to the Americans for information going across their territory?
Mr. Crow: No.
Senator Fox: Are you allowed to answer the question truthfully?
Mr. Crow: I am allowed to answer the question truthfully, senator. Indeed, we are. To be honest with you, this is a matter that is a subject of deep conversation. RIM has for many years cooperated with the NSA in the United States via our own security establishment here in Ottawa, so we have deep levels of technical cooperation. The people who do this kind of work are cleared to do it, for classified discussions on all those levels.
What we do say publicly, and say this in all our public presentations and white papers, is that the BlackBerry system generates keys that are known only to the BlackBerry hand-held and to the BlackBerry server. Those keys are never known to RIM and never known to any third party. That is what you would think of, as they call in the business, a zero knowledge type of solution. There are no keys for us to give anyone.
It is a very interesting topic of discussion, when I go to other countries, because there are countries that would prefer to be able to have the keys in order to unlock the communications of perceived terrorists or enemies. There is quite a bit of steady work in travelling to those places and assuring them that there are no such keys to be shared.
Senator Fox: I would like to ask a question about Canada's research and development advantage. You mention this on page 24 of your presentation. Are you saying that in absolute terms? Do we have a comparative advantage in terms of research and development here in Canada?
Mr. Crow: It is not as great as it used to be. Other countries have been catching up. I have not had a recent briefing on this subject, but I was involved in a previous life and the current one on most of the advisory committees that ever existed around our own program, so monitoring that until the last four or five years was a very important exercise. It is probably time to have a good look at the competitiveness of that program, vis-à-vis others who have introduced programs. France, Australia and Britain now have strong programs. The U.S. has introduced the idea of a strong permanent program in its recovery act; it has not enacted it yet. There are others out there that would make a claim that they have equally good programs. I have not seen a recent analysis of it.
The other point is that over that lengthy period of time when I was involved in the advisory structure for the whole of the economy, there remained the ongoing stewardship requirement to make sure we are providing this program on an even-handed basis across the country and from industry to industry. It is a very difficult program to administer and, therefore, requires some constant attention.
Senator Fox: Do you speak to Industry Canada about your concerns?
Mr. Crow: Industry Canada is more of an intermediary, but the program is administered by the Canada Revenue Agency under policy developed under the Income Tax Act. The Department of Finance has policy and the actual implementation is through the CRA.
Senator Fox: I see you mention, always nice words, enlightened cooperation among federal and provincial governments. To have a good research and development system in Canada, my understanding is that you need both horizontal programs that the federal government can bring in and vertical programs, which would be provincial programs. Do you find that the climate to harbour the type of work you do is good in all provinces across Canada or do some provinces have vertical components that are better or superior to the vertical components in other provinces?
Mr. Crow: The provinces do have a different approach to it. We do not have a lab in Quebec. Quebec has quite a different approach to its ability to match the federal program by matching on a labour dollar basis, labour expenditure basis as opposed to taking a vertical slice. That is an intriguing approach. Ontario's program, where much of our research and development is done in Canada, applies much more generously to early stage firms, as does the federal program, but in the case of the federal program, which keeps going at a lower rate for larger firms, the Ontario program at this point basically goes to net zero after a company receives a different type of incentive. Therefore, you look at other aspects in the business environment, such as supportive universities, availability of labour, and what is close to home, as the factors that become most important.
Senator Cochrane: We are all proud of RIM, trust me.
You are such good citizens. Here in Ottawa we have many small high-tech companies. Some have already started; some are still starting up. It could be as a result of Nortel, which had many employees here in Ottawa. I would like to know what lessons RIM could provide to some of these small companies, following on your success.
Mr. Crow: The most important lesson is to have a real customer. Dr. Doug Barber, a professor at McMaster University, is well-known in this and other Canadian entrepreneurial communities. Dr. Barber, who is from Hamilton, is one of the founders of Gennum Corporation. He recently completed a study. He said that too many of our small start-up companies are so fixated on the gizmo, the product or the service that they forget to actually go out and find a customer and interact with a customer who will both finance the venture by acquiring the product or service and pay. Too often that is left far too late into the game.
In the case of RIM, RIM started almost as a consulting company. Mike and Doug had customers from the day they started. They got permission from the dean to do their final co-op term on the basis of having a contract with General Motors to do some automation in the plant. The lesson there is, first, to have a strong commercial side to your technological development. You cannot do it with just one side.
The second one is perseverance. I have a lot of respect for the people who started RIM and I knew many of them in the mid-1990s. They ate a lot of Kraft Dinner and a lot of that stuff that did not go pink in the can. People made personal sacrifices but had faith in one another and in the purchase. It does not always work out. We know the statistics for emerging businesses; they are not pretty in any sector of the economy. However, there is the opportunity when people really sacrifice and work together for that to happen.
Third, and the final one, is to be connected in part of your community. RIM was a founding member of Communitech Technology Association in Waterloo. When we started to grow up here we joined OCRI right away. We are also members of tech associations around the world. That is where the small companies and the larger companies can interact and learn from one another and realize that they are not in it alone. There is much to be learned from interacting with your peers.
The Chair: I have a few comments. You talk about the name BlackBerry. We might have told this story before: One day we were holding a caucus in Chicoutimi and people had planned their communication strategy around the fact that we would be communicating among each other with our BlackBerrys. I had to explain that you did not have them at that time; I said in Chicoutimi, they have blueberries, not BlackBerrys. Everybody had planned their communications and had to revisit how they would communicate with each other.
During our trip last week we were saddened to learn that some of the people we had met in Paris and London and in Europe who worked for the Canadian embassy were promoting the BlackBerry in absentia because they do not have BlackBerrys. The department had decided to cut the BlackBerry funding.
It sounds a little bit surprising that among all the things they could cut, they would cut the promotion of Canada's prime product. I am giving you a challenge to try to convince the people who made that decision that it certainly does not sound very bright.
Here in the Senate, we had to fight for a long time for the right to use our BlackBerrys in the Senate chamber. The Speaker would get up once a week and say that they were not allowed. Some of continued to use them. We still have problems. We are still not allowed to use applications on our BlackBerrys. There are good applications for airline reservations on Air Canada and translation services. If you are on a trip to Estonia there is an easy translation application for currency. They all exist, but we are not allowed to use them. That is probably a challenge for Mr. Elliott to see if he can convince both levels, because it is the same for both chambers. We should be promoting the product instead of making obstacles to promoting it.
We did have strong success with the BlackBerry. We would ask people in high-tech meetings how many people had a BlackBerry and basically they all had them. We were quite proud. We had a strong opinion and we are coming back with a reinforced opinion on how good you are for Canada's reputation.
On that note, thank you very much.
Mr. Crow: Thank you for having us.
(The committee adjourned.)