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Factors that hinder Canada's tech, digital sectors have nothing to do with UBB

Canada is not a digital backwater, despite over half a million Google hits saying that it is.

Regardless of our prices and data caps, we are among the world's heaviest users of the Internet. There are factors that are hindering our technology and digital media sectors, but they have nothing to do with any limits on wireline or wireless speeds, prices or data limits. Usage-based billing may be an important debate, but not because of economic or innovation reasons.

That was pretty much what I said while filling in for Paul Kedrosky in Banff last week at a panel on foreign investment in the telecom sector. I didn't get a chance to go into as much detail as I wanted there, but I did promise the audience my next Globe column would cover those topics in more detail.

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My last column cited the Economist study showing that Canadians are the third biggest consumers of gigabytes on the planet. Even fresher data came from the Banff presentation given by Bryan Segal, VP at comScore. As of January 2011, Canadians were No. 1 in the world for online engagement across all of average usage days per visitor (30.8), average minutes per visitor (2,743), and average pages per visitor (3,510). For some context, those Canadian numbers are respectively 69 per cent, 97 per cent and 67 per cent higher than the global average - and between 9-24 per cent higher than the second most engaged country, the U.S.

It is generally accepted that the more broadband a country has, the more economically and technologically successful it will be. Interestingly, the data for that assumption is not clear. Using OECD data on broadband penetration, Canada used to be No. 1 in the G7 in 2002, almost double the second place player. Since then, although the Canadian number has risen to 30.1 per cent, our relative advantage has been eroded and we are now 4th in the world.

Yet over the same time frame, the Canadian economy outperformed the G7 average in terms of economic growth, currency, unemployment, and competitiveness. In terms of the purely innovation economy, and over the same time frame, Ottawa has produced more start-ups than during the tech boom, and the number of Canadians employed in the video game industry on a per capita basis is No. 1 in the world.

(Please note I am NOT suggesting that the loss of our relative broadband advantage caused our superior economic or innovation performance. I am only saying that there is not a perfect correspondence between broadband and economic or digital performance.)

Every year Deloitte Canada has a contest called the Technology Fast50. We are currently interviewing this year's candidates in order to find the 50 fastest growing tech companies, based on five-year revenue growth. These companies are growing their top line at hundreds or even thousands of per cent over the last half decade: in fact, last year's winner was up 64,240 per cent. Many of the participants in the UBB debate compare our data practices to those in the U.S. But when our Canadian Fast50 winners feed into the North American Fast500, we have consistently been outgrowing the American companies on the list. In other words, despite our higher prices and lower data caps, our winners outgrow their winners.

Which ties into some proprietary data that I want to share. Each year, we survey all Fast50 CEOs, and one of the questions is: "what have been the biggest impediments to your growth?"

In any of the last four years, and out of hundreds of responses, not a single executive has mentioned digital infrastructure, the price of wireless or wireline data, speeds, caps or insufficient competition.

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They have raised other issues. They need more experienced salespeople, they appreciate the government R&D tax credits but find the rules too complex, and they worry about inflation and tax rates.

But in every year that we have done the survey, the executives of these companies say that the lack of access to capital is their biggest barrier to digital and technological success.

There are governments around the world proposing to massively increase the speeds and capacity of their broadband networks, and are willing to subsidize them. These initiatives can cost tens or even hundreds of billions of dollars.

Meanwhile, programs that would genuinely benefit Canadian innovation and competitiveness like angel tax credits, simpler R&D tax credit rules or more retail venture capital would cost a few billion dollars, at most.

Where are the online petitions to support programs that cost little, and will actually make a difference to our future?

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About the Author
Technology columnist

Duncan Stewart is the Director of Deloitte Canada Research in the areas of Technology, Media & Telecommunications (TMT). Duncan has two decades of experience in the TMT industry. As an analyst and portfolio manager, he has provided research or made investments in the entire Canadian technology and telecommunications sector. More


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