March 26 – April 1
America’s mobile phone merger – Not so Fast, Ma Bell
AT&T has proposed a $39 billion takeover of T-Mobile USA, creating a dominant cell-phone operator with a 39% market share in the US and near duopoly with Verizon, the current leader. The combined market share of the two companies would be 70%. To tempt the Obama administration, AT&T claims the merger aids the agenda of allowing greater access to broadband internet for more Americans. The firm argues that the combined entity will create a stronger rival to Verizon, allowing for improved industry competitiveness. In sharp contrast, Canada recently concluded that the lack of competition in the country has resulted in having some of the rich world’s highest calling rates. In the UK, the recent 4G auctions are to be managed in a way to guarantee that consumers have at least 4 national operators to choose from. The writer’s conclusion is that a duopoly would reduce choice for Americans, consolidate an already uncompetitive marketplace, and be difficult to reverse.
The Texas Budget – A Blow to the Model
The most recent official budget estimate puts Texas at a $27 billion shortfall for the 2012 – 2013 budget. The state has a projected outlay of $99 billion with$72.2 billion available in general revenue plus $9.4 billion in its “rainy day” fund. Additionally, the state’s unemployment rate has now crept up to 8.3%, despite staying well below the national average for most of the recession. During the recession, Texans were quick to point fingers at states like California and highlight the Texas model of fiscal prudence, low-taxes, and low services. Now it seems the tides are turning. However, some of the state’s problems can be blamed on the national economy. The success of the Texas economy during the recession attracted a large number of job seekers from other states, and the level of job creation has not been able to keep up. The comptroller’s office argues that high energy prices and other incentives will continue to grow job creation. Eventually, the shortfall will need to be closed by brutal budget cuts that are now being made.
Portugal’s government collapses – The next domino
This week Portugal’s Prime Minister Jose Socrates resigned from office after being voted down for the fourth time on proposed austerity measures. His measures included a special tax as high as 10% on pensions and were opposed by leaders of the centre-right Social Democrats (PSD). Portugal is already likely to seek help from the European Financial Stability Facility (SFSF), and recent events may create further complications. Portugal’s bond yields are currently trading at their highest point since joining the Eurozone. Since joining, the country has been among the slowest growing economies and also the EU’s poorest member. As attention in the EU turns towards the cost of bailing out Portugal, markets will likely move on to begin the attack on Spain.
China’s Carmakers – Dream Deferred
In 2008, a subsidiary of Warren Buffett’s Berkshire Hathaway bought a 10% stake in BYD, a Shenzen based company that makes mobile phone batteries, cars, and solar panels. Within a year, share prices had risen 9X, but today they are trading at a third of their peak. Recently, BYD announced a series of delays for a hybrid car intended for the US market. In the domestic China market, the once popular, low-priced F3 sedan is getting outsold by Geely. Sales are up, but they do not meet estimates and are expected to decline further. Adding to the pain, BYD was fined for obtaining land improperly for a factory in Xi’an and Chinese cities are increasingly restricting the number of cars to curb congestion and pollution. In two years, the company that once signaled the promise of China’s future is finding it much more difficult to make those visions a reality.
