There goes the competition

The first thought that popped into my head when I heard about AT & T making a bid for T-Mobile a while back was “Uh oh, there goes the competition”. In recent days, however, it seems that the pending merger has since been blocked by the Department of Justice due to antitrust concerns. They claim that the merger would create a duopoly market, which would result in consumers facing “higher prices, less product variety and innovation, and poor quality services due to reduced incentives to invest”.

Many governments and consumers flinch at the words “monopoly” and “duopoly”, and understandably so. Monopolies and duopolies have been given a rather bad name in economic textbooks all over for being static, inefficient and basically lazy. Once in a monopoly position, organizations tend to slack off and be less innovative. In order to raise or maintain profits, they pump up prices rather than invent new methods to reduce costs – simply because it is the easier way out. Consumers have little choice but to accept anything that the organization throws at them, especially if the service it is providing is essential. Hence, the Department of Justice’s fears of slipshod service and higher prices following AT&T and T-Mobile’s merger are not unfounded. Still, can nothing good come out of it?

Contrary to popular belief, AT&T and T-Mobile’s merger may actually benefit consumers and increase competition rather than stifle it. By merging with T-Mobile, AT&T will acquire a lot of equipment and resources that are vital in helping them widen their network coverage and improve signal strengths. Since regulatory bodies often block moves by these types of carriers to expand their network bases, such a merger will help them move forward with improving service for their customers.

The merger also seems likely to spur innovation and create competition rather than suffocate it. AT&T aims to use this opportunity to drive the implementation of a nationwide 4G network that would be a strong competitor to landline broadband services.

Or so they say? Can’t blame the Department of Justice for being doubtful! As AT&T gears up to fight back against the lawsuit, it will certainly be interesting to see how things pan out. 

Is the answer to print?

Looking at America’s debt figures always comes as a shock. They are truly staggering and rather incomprehensible to a normal citizen. To date, America’s debt stands at approximately $15 trillion, and has topped 100% of GDP. Amazingly, these numbers look set to keep on rising. Some analysts predict that American debt will increase to $19 trillion by 2015. I thought to myself – How in the world are they going to pay up?

At present, America’s economic outlook is grim at best. Stubbornly high unemployment figures, a recent credit rating downgrade and shaky unconfident markets do not exactly paint a very pretty picture of the current state of the US economy. In the meantime, while their economy is spluttering along, other countries are coming up from behind looking to catch up.  Frankly speaking, they look very ill positioned to pay off anything.

Despite this, America still has an ace up its sleeve. When the time comes for America to pay its bills, it can actually just print more of the dollar. Of course, the Fed would not just churn out $15 trillion worth of currency, as the fact remains that paper money has to be backed by gold. Doing so without increasing their gold reserves would cause the greenback to become banana money – completely worthless. However, by printing dollars in a controlled manner, America will be able to pay off some of its debt, because it’s denominated in USD. Going by the basic demand and supply principles of economics, increasing the supply of the dollar would cause it to depreciate relative to other currencies. Although holders of American debt would be getting their money back, its true value would have decreased.

As it would no longer be as favourable to convert American currency into other currencies, the best way to make full use of these dollars would be to spend it in America. Its export markets will start to grow again, which will hopefully stimulate its economy further to generate more cash to pay up.

Obviously, printing obscene amounts of money is not a long-term solution, nor is it enough to pay off everything. Congress needs to start rolling out a series of policies and plans that will make the American economy structurally sound. Without a firm foundation to back it, even this ace will not be able to save them.

London Burning

Following the fiasco over the US debt ceiling, its subsequent credit rating downgrade, as well as the uncertainty over the Eurozone crisis in recent days, markets have been thrown into a panic. The British economy, although fraught with its own problems (such as tough austerity measures), was viewed as a sanctuary of some sort – strong in its credit ratings, comparatively liquid and hosting a relatively promising property market.

Unfortunately for the struggling British economy, this perspective has now been tarnished by the violence and unrest that was sparked off by the shooting of Mark Duggan, a 29 –year-old black man. The videos and images online are shocking – people in hoods looting shops, cars vandalized, windows smashed and fires ablaze. The riots have hit London especially hard, with violence and crimes not only occurring in the poorer areas of Tottenham, but also closer to the heart of the city – Camden, Hackney and so on.

The opinion of many is that the shooting had broken the floodgates of frustration of many impoverished Londoners. The austerity measures put in place in a bid to control Britain’s crippling debt have left many struggling to make ends meet, or even put a roof over their heads. After all, the riots began in Tottenham, which has the highest unemployment rate in London. Despite the speculation, the true cause of why the rioters are causing havoc has yet to emerge.

Whatever the reasons may be, it is time for the government to step in and put a stop to the chaos. The city plans to host the Olympics next year, and certainly cannot afford to have people lose confidence in the ability of the Metropolitan police to keep the peace. With its debt problems and hints of a double dip recession approaching, these riots could seriously damage Britain’s economy if not swiftly dealt with.

Should the root cause of the problem be poverty, how is the government going to help the frustrated and suffering while reining in its debt at the same time? Outreach programs and unemployment benefits all cost money that the British economy may not be able to come up with. As David Cameron puts it – “It is clear that there are things badly wrong in our society.” Question is, how are they going to right it and restore order to the once vibrant city of London?

The Importance of Tolerance

I admittedly frequently take tolerance for granted. I grew up in Singapore, a cosmopolitan and mostly harmonious city populated with a web of people of different colours and backgrounds. Growing up in such an environment has made it easy for a young Singaporean such as myself to forget that my country once struggled to achieve racial harmony as well – which is why I am often shocked by the level of prejudice there is all around us. 

Take the recent attacks in Norway for example. On July 22^nd, anti-Islamist Anders Behring Breivik set off a car bomb in Oslo and proceeded to murder 69 people attending a summer camp on a nearby island. Although horrific on a multitude of levels, the sad thing is that the event was simply one of the many that has occurred over the history of humankind that showed that in spite of the human ability to love, much narrow-mindedness and hate exists in the world.

Although Singapore is a peaceful city, upon closer examination, we too are often guilty of intolerance (though no one has gone on a killing spree because of it). For instance, Singaporeans kicked up a massive ruckus over the building of a temporary dorm for foreign workers near a residential estate. As much as we like to proclaim that we believe in racial harmony and what not, a lot of underlying feelings of xenophobia were exposed during that episode.

We are now living in a shrunken world, where huge distances no longer have the same meaning as they did in the past. Air travel has allowed millions to criss-cross the globe and experience a variety of cultures. Countless businesses have operations in various countries, and it has become ever more imperative that we express tolerance and build acceptance to build strong working relationships with overseas clients.  

So the next time that you experience a negative feeling towards someone else because of a superficial quality such as the colour of his skin, or the sound of his accent, take a step back and rethink it - because the world could use a little more tolerance.

Is it time for a new superpower?

Frankly speaking, I love the US. I have been there quite a few times before the financial crisis and the vibe of the country is amazing. The sheer expanse of land and the call of “FREEDOM!” in the air is almost intoxicating. Seeing as the American economy is an economic powerhouse that wholly embraces consumerism, I have always been content in having Americans “run the world”. However, several recent events have led me to reconsider and seriously question that.

In what can only be described as a display of American control over the world economy, a liquidity shortage in the US banking system sparked off the worst financial crisis since the Great Depression. The havoc that it caused is common knowledge – bailouts, bankruptcy, unemployment and uncertainty dominated the news. Countries struggled to pull their economies together. While some, such as China, managed to ride the crisis unscathed, others like Iceland were not so lucky. The crisis was of such an epic proportion that it spawned a debt crisis in the Euro zone that leaders are now struggling to contain.

Few predicted the widespread damage the greed of Wall Street caused. However, even as America is in the midst of trying to revive its stubbornly bleak economy, the antics and rigid bureaucracy of the White House threatens to engulf the economy in yet another crisis. This time, the repercussions are a lot clearer.

On 2^nd August, America will run out of funds and will have to default on payments to one of its debtors. Instead of focusing on the problem at hand, however, the Democrats and Republicans have managed to embroil themselves in a deep argument with little room for compromise. If they do not reach an agreement soon, it is likely that many will lose confidence in the dollar and cause a slew of other problems for the world economy.

This entire fiasco has made me question how sensible it is for the world to let America lead things. The insatiability and excesses of Wall Street has already dealt a heavy blow to the foundations of the world economy. The Democrats and Republicans are deeply divided over almost every issue. Even when it threatens the livelihoods of their people, they are unable to put aside their differences to come to an agreement. With obstinately high unemployment rates, deepening debt and not to mention a war that is hemorrhaging money, America seems ill positioned to lead the world out of darker times.

Perhaps it is time for a new leader to be handed the reins. Any takers?

Football and beer - a winning combination?

I participated recently at a football tournament which took place inside Beer fest Asia 2011 in Singapore. What struck me was that it has become such easy an association - beer and football. A strange mix of a healthy option of playing sports, while on the other hand associated with alcohol that is a root cause of illnesses.  Let’s take a step back and think about this strange association!

In which way does the association go? It is widely agreed that beer companies target football viewers. The three most popular beer brands in Singapore, Heineken, Carlsberg and Tiger, all target the male football fan as an important part of their advertising campaign. However, to a lesser extent, sports clubs bring newcomers to their clubs by offering alcohol. An example hereof is a certain organization in the US which wants to make football -or for them ‘soccer’- popular by associating the product more with the sport by offering “soccer newbies” free beer while introducing them to the sport.

Should we allow such a strong connection between alcohol and football? Is it justified that large beer companies sponsor sports events and major leagues? It is clear to see that their advertisements encourage people to consume more beer. A similar case to this one existed between F1 and cigarette companies. Even though, through public pressure, an advertisement ban has been imposed on this sponsorship, F1 still found other willing backers. In France there is already such a law which bans most alcohol advertising.  

The association of beer and football has become an easily made association and it is interesting to think about its implications. Should beer manufacturers be more conscious in how they channel their advertisement or should we take our own responsibility in what we consume? Where is the line between a healthy and responsible state and a nanny-state?

Oracle vs HP and the consequences of this battle

Decisions have consequences. The more you wield, the larger the impact your decisions have on the people around you. This is especially true for Oracle or HP.

Oracle’s decision to stop making new versions of its database software based on the Itanium chip has severe consequences for HP, which had planned a future for its servers running on Itanium technology. HP also claim it was an illegal move performed by Oracle, forcing HP’s Itanium customers to switch to Sun servers, a company which was purchased by Oracle last year. Furthermore they claim that Oracle terminated a long term contract in the development of Itanium technology with HP. Therefore, HP has filed a lawsuit against Oracle. It is important to review the consequences of these industry changes.

As for HP’s server division, if their lawsuit turns out to be unsuccessful, the consequence consists in shifting focus away from Itanium technology servers towards different technologies. This also has consequences on selecting their industry partners to effectively support this new roadmap. Next to this, HP will have to encourage their existing Itanium customers in changing their Itanium server for different technology servers. This might result in a potential loss of customers and damage to its brand name.

Do you think Oracle’s actions are to be considered unethically or do they have valid arguments to state their recent decisions?  

The dispute between these two large companies has consequences for thousands of companies and governments far beyond their own industry and is a good example of the importance of competitive intelligence. Does your company have the processes in place to  keep you up to date with the latest insights on the market environment? Do you understand your competitors, customers, suppliers, regulators and distributors?