Archives for September 2018

American Airlines Just Raised Its Baggage Fee and Offered an Incredible, Maddening Explanation

Absurdly Driven looks at the world of business with a skeptical eye and a firmly rooted tongue in cheek. 

You knew it was going to happen.

I knew it was going to happen.

American Airlines knew it was going to happen too. 

The only question was how many hours the populace would be waiting before American followed Delta and United Airlines (and JetBlue) in raising baggage fees to $30.

When the announcement was made, I sat and pondered the meaning of life for a while.

Then I did the only thing my Yoda could suggest. I contacted American to ask for its logic in making this unpopular move.

An American spokesman told me: 

Like fares, baggage fees are set by the supply and demand for the product in the marketplace, and today’s changes are in line with what other U.S. competitors are charging. 

I stared at this for quite some time, tried to absorb it thoroughly and only then did I consider its fine logic.

I fear some might observe that if baggage fees are set by supply and demand, does that mean that American will raise them for every flight that happens to have a lot of cargo in the hold? 

After all, there might be less space. Ergo, the price should go up.

Please consider arriving at the ticket counter, to be told:

Yeah, sorry, we’ve got a big shipment of golf equipment in the hold today. So your baggage fee will be $175.

And when baggage fees didn’t exist, did this mean there was simply far too much space in the hold, none of it was precious, so it could be just given away?

I fear what American might actually mean by supply and demand is that when four airlines hold more than 80 percent of all available seats, they have most of the supply.

They therefore have the power to set the price of anything to a considerable extent.

The only thing that might even hold them back even a little is the existence of a budget airline on a specific route or, in this case, Southwest’s insistence that its customers’ bags fly free.

There’s a little more logical consistency, I fear, in the second part of American’s statement: United and Delta have done it, so we will too. What did you expect?

Of course, it’ll be fascinating to see whether the more baggage fees go up, the more people try and haul all their belongings onto the plane, hence delaying departure.

That’s something airlines really don’t like.

The baggage fee hike is merely a fare hike by other means. It also comes with a lower tax rate for the airline, as fees are taxed differently from fares.

I wonder if, for even a nanosecond over a third cocktail, an American executive or two might have considered that not raising the baggage fee might have given the airline a little point of difference.

Ach, but what’s the point of difference when your only true distinction is your network and you can just keep on scooping up (what you think is) your fair share?

Two Australian banks among six targeted by fake apps: security firm

SYDNEY (Reuters) – Customers of six banks including two of Australia’s largest lenders have had their personal details stolen by fake banking apps on the Google Play store, an internet security firm said.

Slovakian-based security software firm ESET said the official-looking apps had been downloaded over a thousand times since they were uploaded to the Google Play store in June.

In addition to Australia’s Commonwealth Bank and Australia and New Zealand Banking Group, banks in Britain, New Zealand, Switzerland and Poland were targeted, the firm said in a blog post.

The scheme was likely to have been the work of a single attacker, it added. The banks’ own apps and systems were not compromised.

“These groups are involved in phishing, obtaining your log-in credentials for your bank, or your credit-card information and in some cases both,” ESET researcher Nick Fitzgerald told Reuters from Christchurch in New Zealand on Thursday.

A Google spokeswoman declined to respond to questions about the scam, saying the company did not comment on individual apps.

Once downloaded, the fake apps asked customers for personal and banking details, including credit-card information and banking log-in details, ESET said.

After sending the data to the attacker’s server, the app would show messages saying “Congratulations” or “thank you” and end.

An ANZ spokeswoman said a customer alerted the bank to the fake app in June.

“We worked closely with the Google Play team to have the app removed in a few hours,” she said.

Commonwealth Bank declined to comment.

A spokeswoman for Auckland Savings Bank, which is owned by Commonwealth Bank, said customers alerted it of the scam in mid-May and immediately asked for the fake app to be taken down.

“No customers lost money as a result of this issue,” she said.

ESET did not say precisely how many people had been affected by the scam.

Reporting by Paulina Duran; Additional reporting by Charlotte Greenfield; Editing by Stephen Coates

Cboe exchange turns to machines to police its 'fear gauge'

NEW YORK (Reuters) – Hard pressed to quash allegations that its popular “fear gauge” is being manipulated, Cboe Global Markets (CBOE.Z) is turning to artificial intelligence to help put those concerns to rest.

People walk by the Chicago Board Options Exchange (CBOE) Global Markets headquarters building in Chicago, Illinois, U.S., September 19, 2018. REUTERS/Michael Hirtzer

The exchange, which owns the lucrative volatility index the VIX .VIX, has taken several steps to confront manipulation claims that have helped drive the Cboe’s stock down about 15 percent this year, putting it on pace for its worst year ever.

In its latest effort to police trading tied to the index, the Cboe is working with FINRA, its regulatory services provider, to develop machine learning techniques to tell whether market conditions surrounding the VIX settlement are potentially anomalous, the exchange told Reuters.

“Incorporating the use of machine learning and AI (Artificial Intelligence) is a logical part of the ongoing enhancement of our overall regulatory program,” Greg Hoogasian, Cboe chief regulatory officer, said in an emailed statement.

Cboe declined to elaborate on when it began using machine learning techniques to monitor VIX settlements.

Any steps, however, may take a while to change investors’ minds on the stock.

“Any time you see controversy over manipulating markets and it involves a company, there are people who will walk away from the stock,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“It ends up tarnishing the company and subjecting them to legal risk that is very hard to quantify,” he said.

Tuz said Chase Investment Counsel, which owned nearly 19,000 Cboe shares in mid-2017, began selling its stake early this year, shedding the last of it on May 21.

Cboe’s stock performance this year has lagged that of other major exchange operators. Shares of Nasdaq Inc (NDAQ.O) are up about 17 percent, Intercontinental Exchange Inc’s (ICE.N) is up about 10 percent and CME Group Inc (CME.O) shares have risen 18 percent.

Concerns the index was being manipulated surfaced last year after John Griffin and Amin Shams of the McCombs School of Business at the University of Texas, Austin wrote an academic paper that noted significant spikes in trading volume in S&P 500 index options right at the time of settlement.

The paper also compared the value of the VIX at settlement with its value as calculated from S&P 500 options right after the settlement, and showed the two tend to diverge.

Instances of big deviations are taken as evidence by some that unscrupulous traders have been deliberately moving the settlement price.

Chicago Board Options Exchange (CBOE) Global Markets sign hangs at its headquarters building in Chicago, Illinois, U.S., September 19, 2018. REUTERS/Michael Hirtzer

A stock market fall on Feb. 5 that caused the VIX to surge the most in its 25-year history brought further scrutiny to the index, and led to dozens of lawsuits and ongoing probes into the matter by the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission.

The regulators have yet to comment on the matter and Cboe has denied the manipulation accusations, citing liquidity problems and legitimate hedging activity as reasons for unusual moves on settlement days.

“Only a forensic analysis of those episodes can confirm or refute such a claim,” said Kambiz Kazemi, partner at Canadian investment management firm La Financière Constance.

Meanwhile, the steps Cboe has taken to address the claims of manipulation are going in the right direction, said Kazemi.

The exchange operator recently overhauled the technology behind the auctions, improved the speed with which it sends alerts about auction imbalances, and sought to increase the number of market makers that provide buy and sell quotes for the auction.

POLICING THE FEAR GAUGE

Orderly VIX settlement auctions over the last few months have helped take some of the pressure off the Chicago-based exchange operator.

“I think we all will be observing the effects of the Cboe measures in the next few months,” Kazemi said.

VIX and associated products accounted for roughly a quarter of Cboe’s 2017 earnings, analysts estimate, and the controversy around the product has spooked some stockholders.

While financial firms have been using artificial intelligence software for everything from compliance to stock-picking, a growing number of firms have started to use it for market oversight.

Given the huge amount of data involved in market surveillance, machine learning algorithms can be far more efficient than humans in rooting out potential market manipulation, said Richard Johnson, a market structure and technology consultant at Greenwich Associates.

“It’s going to be a must have,” he said.

FINRA, which already monitors Cboe’s market on the company’s behalf, confirmed it was working on machine learning to enhance surveillance of the VIX settlement auctions, but would not offer specifics.

More generally, the Wall Street watchdog is working to use artificial intelligence to catch nefarious activities more quickly, including schemes that may have previously been unknown to regulators, said Tom Gira, who oversees FINRA’s market regulation department.

He said FINRA has begun using machine learning to scan for illegal activities across stock and options exchanges and is in the process of adding a feedback loop to the software that would regularly incorporate analysts’ data and allow the machines to detect ever-changing manipulation patterns.

Reporting by John McCrank and Saqib Iqbal Ahmed in NEW YORK; Additional reporting by Michelle Price in WASHINGTON; Editing by Megan Davies and Tomasz Janowski

IBM Debuts Tools to Help Prevent Bias In Artificial Intelligence

IBM wants to help companies mitigate the chances that their artificial intelligence technologies unintentionally discriminate against certain groups like women and minorities.

The technology giant’s tool, announced on Wednesday, can inspect AI-powered software for unintentional bias when it makes decisions, like when a loan might be denied to a particular person, explained Ruchir Puri, the chief technology officer and chief architect of IBM Watson.

The technology industry is increasingly combating the problem of bias in machine learning systems, used to power software that can automatically recognize images in pictures or translate languages. A number of companies have suffered a public relations black eye when their technologies failed to work as well for minority groups as for white users.

For instance, researchers discovered that Microsoft and IBM’s facial-recognition technology could more accurately identify the faces of lighter-skin males than darker-skin females. Both companies said they have since improved their technologies and have reduced error rates.

Researchers have pointed out that some of the problems may be related to the use of datasets that contain a lack of diverse images. Joy Buolamwini, the MIT researcher who probed Microsoft and IBM’s facial-recognition tech (along with China’s Megvii), recently told Fortune‘s Aaron Pressman that a lack of diversity within development teams could also contribute to bias because more diverse teams could be more aware of bias slipping into the algorithms.

In addition to IBM, a number of companies have introduced or plan to debut tools for vetting AI technologies. Google, for instance, revealed a similar tool last week while Microsoft said in May that it planned to release similar technology in the future.

Data crunching startup Diveplan said at Fortune’s recent Brainstorm Tech conference that it would release an AI-auditing tool later this year while consulting firm Accenture unveiled its own AI “fairness tool” over the summer.

Read More for an In-Depth Look: Unmasking A.I.’s Bias Problem

It’s unclear how each of these AI bias tools compare with one another because no outside organization has done a formal review.

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Puri said IBM’s tool built on the company’s cloud computing service is differentiated partly because it was created for business people and is easier to work with than similar tools from others that are intended only for developers.

Despite the flood of new AI-auditing tools, the problem of AI and bias will likely continue to persist because rooting out bias from AI is still in its infancy.

Data Firms Team up to Prevent the Next Cambridge Analytica Scandal

A bipartisan group of political data firms are drafting a set of industry standards that they hope will prevent voter data from being misused like it was in 2016. The guidelines cover transparency, foreign influence in elections, responsible data sourcing and storage, and other measures meant to root out bad actors in the industry and help fend off security threats.

The conversations, which are being organized by Georgetown University’s Institute of Politics and Public Service, come at a time when data collection more broadly faces increased scrutiny from lawmakers and consumers. Ever since news broke this spring that the political firm Cambridge Analytica used an app to hoover up data on tens of millions of Americans and use it for political purposes, Facebook and other Silicon Valley tech giants have had to answer to Congress and their customers about their mass data collection operations. But the Georgetown group focuses specifically on the responsibilities of the companies that undergird some of the country’s biggest political campaigns. Among the firms participating in these discussions are Republican shops like DeepRoot Analytics, WPA Intelligence, and Targeted Victory, as well as Democratic firms, including Bully Pulpit Interactive, NGP VAN, and DSPolitical.

“These are the firms that power all of the elections in America, and so my hope was if you can get them in a room and get them to understand the importance of the data they’re using and to self-regulate, you could achieve a dramatic improvement on behalf of voters,” says Tim Sparapani, a fellow at the Georgetown Institute who is overseeing the group.

Sparapani served as Facebook’s first director of public policy from 2009 until 2011, after spending several years at the American Civil Liberties Union. A self-proclaimed privacy advocate, he has warned about the need for stricter oversight of data brokers for years. These are companies that collect, store, and analyze data about consumers for a variety of purposes. In the political world, that data can include basic information about how many times a person has voted, their party registration, and their donation record, but it can also include social media and commercial data that can help campaigns better understand who a given person is and target them with political advertising.

The data broker industry remains largely unregulated, both inside and outside politics. The Federal Trade Commission has urged Congress to regulate data brokers since at least 2012, but nothing has come of it so far. In June, Vermont became the first state to pass a data broker law, which goes into effect in January.

The Georgetown group first met last fall, months before Cambridge Analytica began making headlines. At the time, the industry’s primary concern was the risk of a data breach or a hack at the hands of a foreign threat: In the summer of 2017, a cybersecurity firm discovered DeepRoot Analytics’ entire trove of 198 million voter records was exposed in a misconfigured database, constituting the largest known voter data leak in history. Brent McGoldrick, CEO of DeepRoot, says the leak was a shock to the system.

“You just have a different mindset coming out of something like that, where you start to think differently about everything from security to privacy to the data you have and the perceptions of it,” he says.

Coupled with the intelligence community warnings about Russia and other foreign actors’ continued attacks on the American electoral system, McGoldrick says, it seemed well past time for his company and its competitors on both sides of the aisle to talk about protecting themselves and the people whose data they hold.

McGoldrick brought up the idea with Mo Elleithee, a former Democratic National Committee spokesperson who founded Georgetown’s Institute of Politics and Public Service in 2015. Together, they tapped Sparapani to oversee the effort. “We understand that in order to move the ball forward on privacy and security issues, we’re going to have to hear from people who, maybe we don’t like hearing what they have to say,” McGoldrick says. When the Cambridge Analytica story broke months later, he says, it only underscored the need for this kind of work.

The group, which has yet to be named, has begun circulating a set of guiding principles among data privacy advocates and the companies themselves to see what the participants are willing to agree to. While the final list is still being ironed out, Sparapani described a number of commitments for which there is broad-based support. One proposal would require the companies involved to alert one another and the proper government officials of any attempts by a foreign actor to influence the election. Another would have the companies vow to only use their tools to support people’s right to vote, not to suppress it. The group is working on a standard that would guarantee some transparency for consumers and educate them about how their data is being used. They’re also working on security standards around data storage, as well as language that they would commit to include in any contract with a potential client.

“It would make contractually binding not only their practices, but their clients’,” Sparapani says.

The hope is that these guidelines would act as a sort of seal of approval for political campaigns. “If firms have publicly stated they’re following these guidelines, hopefully candidates, committees, and causes will look for this when they’re trying to hire someone,” says Mark Jablonowski, DSPolitical’s chief technology officer, who has been involved in the initiative since its early days.

Of course, getting dozens of political opponents and business competitors who have never been regulated before to agree to any set of standard practices is no easy task. “Everyone’s got to have everything vetted through their lawyers,” McGoldrick says. “The last thing a lawyer likes is you voluntarily saying something you don’t have to say.”

“Sadly over the last few cycles there have been bad actors on both sides working in multiple campaigns,” says Chris Wilson, CEO of WPAIntelligence, which worked briefly with Cambridge Analytica during senator Ted Cruz’s 2016 presidential campaign. “I believe all in our industry, WPAi included, are hopeful that a set of standards will allow us, and the public, to be cognizant of the origins of data and its ultimate use.”

Until the details are finalized, it’s impossible to assess the effectiveness of this collaborative effort. As with any discussion around data privacy, it’s the fine print that matters. In California, where the governor recently signed a landmark privacy bill, lobbying groups have already begun picking apart nearly every sentence to better align with their interests.

Still, it is worth asking how much good this kind of work can ever do. These are well-known, well-regarded players in the industry committing themselves to a certain set of values. But what about everyone else? What about the people who are intending to deceive? Without substantive regulation, there’s nothing stopping anyone from harvesting data for nefarious purposes with impunity.

Then there’s the fact that these proposed guidelines don’t give consumers any real power. While other data privacy laws like the one that passed in California or Europe’s General Data Protection Regulation give people the ability to control what data is collected and see who it’s shared with, these proposed guidelines can’t promise the same.

Elleithee stresses that this is just the first step. Once the companies have all agreed to a set of standards, the Institute plans to convene a larger group from the broader tech and privacy communities. “As the conversation progresses, we want to bring more voices in,” he says.

Whatever the group eventually proposes, Sparapani says he fully expects pushback from privacy advocates. Even he has concerns. “If it were me, and I was critiquing this document, I could point out a dozen things I’d have the companies commit to,” he says. “In the room, they get an earful from me every time we meet, where I find this to be insufficient.”

But he also believes that waiting on the perfect solution that satisfies all parties will take more time than the country can afford. “Is it a fulsome commitment that I have been pushing for as an advocate? No. But does it begin to push companies to raise their standards to meet government and consumer expectations? Yes. And that’s a good thing.”


More Great WIRED Stories

Here's Why Valuation Determines Total Dividend Payments For Overvalued Stocks: Johnson & Johnson

Introduction

In my most recent article, found here, a reader made a comment where a question was asked that I believe deserved a good answer. The following excerpt of the comment really reached out to me because this person claims to have been asking this question for 5 years without receiving a good answer. Here is the excerpt:

“Again, someone please explain to me how valuation determines the future direction for dividend growth and total dividend payments for overvalued stocks. I’ve been asking this question for five years here on SA w/o a good answer. Nothing theoretical please – I want to see actual data.”

Consequently, I felt compelled to write this article because this question is highly representative of what I consider my current life’s work. I have been in the investment business since 1970, and over those many decades, I have always followed a strict valuation investment strategy. However, when I was younger, I applied valuation to growth stocks because my objective was to build as much wealth as possible. As I have matured, my objective has become more focused on protecting my wealth while simultaneously letting my money that I worked so hard for to start working for me. In simple terms, I evolved from a growth investor into a more conservative dividend growth investor.

Examining the Theoretical In Real-World Conditions

The comment cited above asked to see actual data and nothing theoretical. Personally, I think that is a fair request because for theoretical to have any real value, it must apply under real-world circumstances. On the other hand, for a hypothesis (theory) to be proven, it must first be clearly articulated and laid out. Therefore, what follows is the theory, or perhaps more appropriately, the rationale as to why valuation has a material impact on total dividend payments.

The first and most important point about dividends are that they are paid on the number of shares owned. Consequently, regardless of what happens to the share price of the dividend stock once it’s purchased, the dividend amount is calculated based on the number of shares owned. Therefore, even if the stock price falls dramatically, your dividend income will remain the same and vice versa.

Consistent with this first point is the reality that lower valuation is simultaneously associated with lower stock prices – ceteris paribus. Therefore, when you buy a given stock at a lower valuation, you are initially purchasing more shares than had you bought it at a higher valuation. In this regard, price and valuation are related, but they are not the same. To be clear, a higher price earnings ratio related to a given level of earnings results in a higher price than a lower price earnings ratio related to the same level of earnings.

Moreover, it is true that the specific growth rate of the dividend itself (the rate of change of growth from one year to the next) will be identical regardless of valuation. However, the starting yield, which is often referred to as yield on cost, will be higher at a lower valuation than at a higher valuation. Consequently, your future yield will be higher, but more importantly so will your future level of cumulative dividends received.

The comment referenced in my introduction was presented and asked in two different yet similar ways. Here is a second excerpt, which was originally stated in the first two paragraphs of the comment:

“*** re: NEE “…there are some who think they can redeploy the net $12,000 into a better investment that will grow even more over the next 5 years. ***

In order to define “better”, the question that needs to be answered is what is the goal of the investment? If the goal is dividend growth and total dividend payments over a defined time period, someone needs to explain how the “elevated” valuation will affect future dividend growth and total dividend payments.”

I offer this second excerpt in order to establish a clarification. If the question relates to the current investment, the “elevated valuation” will not change the future dividend growth nor the total payments of that investment. However, if the “$12,000” is invested into a lower valued company that offers a higher current yield than the original investment is currently offering, then the future dividend payments will be significantly higher. On the other hand, the dividend growth of either the original or the new investment will be directly proportionate to the amount of operating growth and subsequently dividend growth rate that each individual investment would achieve.

The following screenshots cover purchasing Johnson & Johnson (NYSE:JNJ) over two historical 10-year time frames. With the first, Johnson & Johnson is purchased when valuation was excessive, and the second when Johnson & Johnson was purchased when valuation makes sense. Both historical earnings and price correlated graphs, as well as the associated performance graphs, tell the story. However, to really receive a clear explanation of how and why this works, I suggest the reader watch the analyze out loud video covering the same time frames that follows.

Johnson & Johnson: Purchased on December 31, 1998 Overvalued P/E ratio 38.4

Johnson & Johnson Purchased December 31, 2008 Undervalued P/E Ratio 13.1

FAST Graphs Analyze out Loud Video: Johnson & Johnson 10 Yr Results Overvalued Versus Undervalued

In the following analyze out loud video, I’m going to clearly illustrate how valuation does have a material impact on the dividend income. As an aside, valuation not only has a material impact on dividend income, it also has a major impact on total return. As a clue to what you will see in the video, when Johnson & Johnson was purchased when it was overvalued was also during a time when its earnings growth was over 13%. In contrast, when Johnson & Johnson was purchased when it was undervalued was during a time when its earnings growth rate was only 6% or half as fast. Nevertheless, Johnson & Johnson delivered more dividend income and a higher total return thanks to attractive valuation even though its growth rate was much lower.

Summary and Conclusions

In summary, and with all things remaining equal, you can increase your income and your total return by selling an overvalued dividend growth stock and reinvesting into a similar quality undervalued dividend growth stock. It’s important to remember that in both cases, the forecast of future growth is equally as tenuous. In other words, this will not work out if the original investment continues to grow while the new investment falters. Therefore, the concept of similar quality is essential, as well as the predictability of future growth.

Consequently, I do not suggest that investors act impetuously or frivolously when making buy and sell decisions on their portfolio. I’m a fervent believer in the old adage that “a portfolio is like a bar soap, the more you handle it the smaller it gets.” Therefore, and to be clear, this kind of strategy only works over a complete business cycle. Investors need to recognize that out-of-favor stocks tend to stay out of favor for a period of time and in favor stocks likewise. In other words, these decisions make sense as long-term decisions and not as short-term trading decisions.

If you enjoyed this article, scroll up and click on the “Follow” button next to our name to see updates on our future articles in your feed.

Disclosure: I am/we are long JNJ.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Cryptocurrency project Tezos to launch main network next week: document

NEW YORK/ZURICH (Reuters) – The Tezos cryptocurrency project is preparing to launch the long-awaited main version of its network that underpins a new virtual token on Monday, according to a message seen by Reuters from Ryan Jesperson, the president of a Swiss foundation that promotes the initiative.

FILE PHOTO – Tezos co-founder Kathleen Breitman speaks during the Crypto + ICO Summit cryptocurrency conference in Duebendorf, Switzerland March 28, 2018. REUTERS/Arnd Wiegmann

The Tezos Foundation raised $232 million in July 2017 to build the network and issue a new type of cryptocurrency to its backers in one of the largest-ever initial coin offerings, and launched an initial version of the network one year later after months of delays.

The Tezos Foundation plans to transition the network to a mainnet, or a more complete version, on Monday, according to Jesperson’s message. A foundation representative did not provide comment in time for publication.

That launch would mark an achievement in a project hobbled by internal infighting and delays. Tezos still faces litigation in the United States and the threat of increased regulatory scrutiny of the nascent cryptocurrency sector.

A high-profile feud between project founders Arthur and Kathleen Breitman and former foundation president Johann Gevers was followed by Gevers stepping down in February. He was replaced by Jesperson, one of the project’s contributors.

Since Tezos’s problems were first detailed by Reuters in October, several class-action lawsuits have been filed in the United States against the project’s organizers alleging the fundraiser violated federal securities laws and defrauded investors.

    In February, the U.S. Securities and Exchange Commission denied a public information request from David Silver, a lawyer representing some of the class-action plaintiffs, seeking information on Tezos, saying doing so could interfere with an investigation or enforcement activities.

The Tezos fundraiser was structured as a donation, though some contributors say they believed it was an investment. If deemed a securities offering, the new cryptocurrency might fall under the remit of the SEC.

The Reuters investigation published in October also found that Arthur Breitman, a French citizen registered with the Financial Industry Regulatory Authority (FINRA) in the United States, had not reported any outside business activity while working at Morgan Stanley in 2014 and 2015 when he was developing and pitching Tezos.

In April, FINRA suspended Breitman from associating with broker-dealers for two years, part of a settlement to resolve allegations that he made false statements about his side venture while working at Morgan Stanley.

Reporting by Anna Irrera and Brenna Hughes Neghaiwi; Editing by Meredith Mazzilli

Trump's antitrust enforcer considers shifting up a gear

WASHINGTON (Reuters) – The chairman of the Federal Trade Commission, which stops mergers it believes will push up prices, signaled Thursday he was willing to consider tougher enforcement, a move that could affect high profile big tech companies but also energy producers, drug makers and a big swath of the U.S. economy.

The Federal Trade Commission building is seen in Washington on March 4, 2012. REUTERS/Gary Cameron (UNITED STATES)

Joseph Simons, who was nominated by President Donald Trump to head the FTC in October 2017 and began work in May, noted in a brief speech that during two previous stints at the FTC, most recently as head of the Bureau of Competition, there had been a tendency to take a relatively hands off approach to antitrust enforcement.

“But now at the beginning of my third stint at the commission, things have shifted. The broad antitrust consensus that has existed within the antitrust community in a relatively stable form for about 25 years is being challenged,” he said at a conference organized by the FTC.

“First, some recent economic literature concludes that the U.S. economy has grown more concentrated and less competitive over the last 20 to 30 years, which happens to correlate with the timing of a change to a less enforcement-minded antitrust policy, beginning in the 1980s,” he said. “These concerns merit serious attention.”

Simons also noted calls for antitrust to address issues of income inequality and lagging wages, and said that this would also be discussed.

“We do this with the goal of understanding if our current enforcement policies are on the right track or on the wrong track, and if they are on the wrong track, what shall we do to improve them?” he said, noting that he was keeping “a very open mind.”

Rebecca Slaughter, a Democrat on the five-member commission, noted in a tweet a Roosevelt Institute study showing relatively few big companies dominate markets ranging from airlines to pharmaceuticals, saying “@FTC is listening.”

Trump has pushed for tough enforcement of antitrust law but muddied the waters by singling out AT&T’s purchase of Time Warner, owner of CNN, which Trump has frequently criticized. The Justice Department sued in court to stop that deal but lost. It has appealed.

Big tech companies such as Alphabet Inc’s Google, Facebook Inc, Amazon.com Inc and others have faced criticism from Republicans and Democrats for everything from widespread collection of users’ information to being used by Russia to meddle in the 2016 U.S. election to being unfair in how they use their dominance to compete with smaller rivals.

The FTC conducted an investigation of Google that ended in 2013 with a slap on the wrist for the search and advertising company. Yelp Inc has pushed for the agency to re-open that probe.

In a congressional hearing in June, Simons noted the clout of the few, powerful big tech companies but also said he would not support attacking companies “because they’re big and successful.”

The FTC does much more than review big tech mergers. It also reviews mergers in the energy sector, such as a deal to combine industrial gases companies Praxair Inc and Linde, as well as mergers across health care, from hospitals deals to pharmaceutical mergers.

The FTC, which is currently made up of three Republicans and two Democrats, shares the work of enforcing antitrust law with the Justice Department.

Reporting by Diane Bartz; Editing by Susan Thomas

British air taxi firm takes flight, inspired by F1 racing advances

LONDON (Reuters) – A British energy entrepreneur and one-time Formula 1 racing team owner is entering the race to build new inter-city “flying taxi” services that tap recent aerospace advances while steering clear of more fanciful blue-sky visions touted by tech-focused rivals.

Stephen Fitzpatrick, founder of Ovo Energy, an upstart challenger to the UK’s big six electric utilities, said his new venture will apply lessons from F1 racing to build electric Vertical Take Off and Landing (eVTOL) aircraft.

    Vertical Aerospace, as his self-funded, Bristol-based flying company is known, aims to offer short-haul, inter-city flights carrying multiple passengers using piloted aircraft within four years, Fitzpatrick said.

Since its inception in 2016, the firm has hired 28 veteran aerospace and technical experts from Airbus, Boeing, Rolls-Royce, Martin Jetpack and GE with extensive experience building certified commercial aircraft.

Unlike the majority of flying-car projects from tech, aerospace and automotive entrepreneurs that have captured the popular imagination by seeking to turn aircraft into pilotless, autonomous vehicles, Vertical believes it can overcome regulatory and safety concerns by delivering piloted, fixed-wing aircraft that capitalize on incremental, existing innovations.

    Vertical is looking to target some of the most congested air corridors in the world with aircraft that don’t require runways but also have enough heft to travel up to 500 miles (800 km), Fitzpatrick said in an interview.

“We are investing in all the technology evolution taking place in aerospace but we are trying to apply that to something that’s real world and is possible to execute four years out,” the Vertical Aerospace founder and chief executive said.

“We are not waiting for huge changes in existing regulations.”

Competitors working toward launching autonomous flying cars early in the next decade range from aerospace giant Airbus to Uber, which is developing an intra-city flying taxi fleet, Volocopter, which is testing drone taxis that resemble a small helicopter powered by 18 rotors, and AeroMobil, with a stretch-limousine concept that can turn into a fixed-wing aircraft.

An image handed out on behalf of Vertical Aerospace shows its prototype of a flying taxi during a demonstration at Costwold Airport, near Kemble, Britain, June 5, 2018. GF Williams/Milltown Partners, handout via Reuters

Several of these projects envision services that can be ordered up, on-demand, via smartphones, from skyhubs in city centers.

FLYING RACE CARS

    Vertical said it had conducted a test flight of an unmanned, single-passenger vertical take-off prototype at an airport in Gloucestershire in western England in June after it was granted flight permission by the UK’s Civil Aviation Authority (CAA). The black passenger pod with four rosters set the stage for more ambitious work.

    It is gearing up to produce a fixed-wing, piloted version of its vertical take-off aircraft capable of carrying multiple passengers. It will work with regulators to win certification in the first stage of the air taxi project through 2022, it said.

    In a later stage, Vertical will seek to extend the aircraft’s range, introduce elements of autonomous flight and expand the number of chartered routes it can serve.

Belfast-born Fitzpatrick prides himself on developing business ideas in areas where, at the outset, he has zero technical background.

    He said he spent years studying energy markets before launching his energy utility firm, Ovo, in 2009. It now counts around 680,000 customers, or 2.5 percent of the UK domestic retail energy market, and employs 1,200 staff.

    His first brush with hardware and physical product engineering came when he was a short-term owner of flagging Formula 1 team Manor Racing.

Fitzpatrick said it dawned on him that many racing car advances also applied to aircraft, from high-powered electric batteries to hybrid power trains, lighter structural materials, like carbon fiber and, of course, aerodynamic design.

    “The technology we were using in Formula 1 was just too high-spec to be applied to the challenges of the typical road car,” Fitzpatrick said. “What you can get from an F1 engine has more power density per kilo than a jet turbine,” he said.

Slideshow (5 Images)

Reporting by Eric Auchard in London; Editing by Keith Weir

Enterprise investments in datacentre infrastructure rebound as component shortage price hikes hit

Following successive quarters of decline, enterprise spending on datacentre infrastructure appears to be rallying, fuelled in part by rising component costs and demand for private cloud deployments.

That’s according to Synergy Research Group’s second-quarter datacentre infrastructure market tracker, which shows a 28% increase in the amount of money spent on datacentre hardware and software over the past 24 months.

Much of this growth can be attributed to the growing demand for public cloud-enabling datacentre hardware and software. This, in turn, has benefited suppliers in this space, which are reporting 54% revenue growth over the same time period.

“We are seeing cloud service revenues continuing to grow by 50% per year, enterprise SaaS [software-as-a-service] revenues growing by over 30%, search/social networking revenues growing by over 25%, and e-commerce revenues growing by over 40%, all of which are driving big increases in spending on public cloud infrastructure,” said John Dinsdale, chief analyst at Synergy Research Group.

According to Synergy’s own calculations, total datacentre infrastructure equipment revenue hit $38bn in the second quarter of 2018, with public cloud-enabling technology accounting for around a third of this spend.

The analyst house has also picked up on a sudden surge in spending on infrastructure for use in enterprise facilities, particularly where private cloud-enabling technologies are concerned.

“Growth for enterprise datacentre infrastructure has been much lower, and spending was actually in slow decline until the recent spike in server demand and pricing gave vendor revenues a boost,” Synergy Research Group said in a statement.

Within the enterprise, it is private cloud infrastructure that is driving spending, with a 45% increase since the second quarter of 2016.”

From a supplier perspective, Dell EMC is leading the private cloud market, followed by Microsoft and HPE, Synergy’s research shows, while on the public cloud-enabling infrastructure side, it is the white-label, original design manufacturers (ODMs) who are ruling the roost.

“ODMs in aggregate account for the largest portion of the public cloud market, with Dell EMC being the leading individual vendor, followed by Cisco and HPE,” said Synergy.

Rising cost of hardware

It is not just the growing demand for private cloud deployments that has caused enterprise spending on datacentre infrastructure to surge. Ongoing component shortages are also driving up the average selling price of kit, which is having an impact too.

It is a trend fellow IT analyst house Gartner has previously flagged as having a dampening effect on server shipments across Europe, the Middle East and Africa (EMEA) in recent quarters, as increased prices have caused some enterprises to delay server refresh projects.

Despite this, and as a direct consequence of the price hikes, the amount of revenue generated by sales of these servers has risen.

In particular, it is the supply of semiconductors, and consequently dynamic random access memory (DRAM), that appears to have hit the datacentre infrastructure market hard in recent months.

Industry watchers have attributed the shortages to a mix of issues, including the explosion in hyperscale cloud datacentres, growing demand for internet-connected devices, and the supply chain disruption caused by a series of mergers and acquisitions in the server component space.

There is also evidence, Synergy said, to suggest enterprises are also buying more expensive datacentre equipment, as they opt for systems that can handle the increasing workload complexities associated with running hybrid cloud environments.