AT&T Feeling Pain From iPhone Fever

Subsidizing the 3G iPhone will undoubtedly hurt AT&T in the short term, costing the carrier about 10 to 12 cents per share off the top of its earnings this year and next year. AT&T's expected hit also illustrates how strong Apple's bargaining position was.

The release of the 3G iPhone has Apple (Nasdaq: AAPL) enthusiasts pumped up, but it left AT&T (NYSE: T) investors feeling deflated over the carrier's decision to heavily subsidize the new, cheaper device in the hopes of reaping longer-term gains.

AT&T's subsidies follow a well-worn path in the mobile phone industry, Gloria Barczak, a professor of marketing at Northeastern University in Boston, told MacNewsWorld.

AT&T's move falls in line with the industry standard to subsidize most cell phones, she said. "It also lowers the phone price to buyers, thereby expanding the base of users. Although customers are tied into a two-year contract, chances are that they will add services over time, increasing the revenues and profits to AT&T. The services are where the carriers make money, so it makes sense to lower the price of the phone to increase the number of users and the services they utilize."

The strategy is not unique to the cell phone world. In fact, it's a virtual version of the razor and razor blade model that was also adopted for printers -- with companies such as HP (NYSE: HPQ) selling printers for little or no profit and then making money on the ink cartridges, Barczak added.

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Scandals out of Cambodia

I thought you might be interested in more details on things discovered by Dr. John A. Hall, law professor and director of the Center for Global Trade and Development at Chapman University School of Law in Orange, CA, while in Phnom Penh (he will be going back there from May 22 to June 12 to help make a documentary film).

(1) Cambodia is positioning itself as a "sweatshop free" manufacturing base. This dates back to the US-Cambodia bilateral trade agreement, which linked access to US market with guarantee of labor rights and a program of factory inspections. Since end of garment quotas in '06, AFL-CIO et al convinced Cambodian government to voluntarily continue many of these programs. Is it working? Is the Cambodia model a viable model for manufacturing and labor elsewhere? Couple of assassinations of labor leaders suggest may not be as successful as it appears.

(2) Cambodian Beer Girls. International beer companies employ young women to sell beer in clubs and bars. Clear link to prostitution, as the girls are pressured to flirt with customers and sleep with the biggest spenders. Number of beer girls have died of HIV. Sexual abuse, victimization, encouraged to sleep with customers, all to sell Budweiser, Corona etc. They are treated sometimes as little more than slaves.

(3) Cambodian returnees/deportees: mainly young men (permanent legal aliens) deported from US (many for violent gang crimes, but some for such absurd things as public drunkenness, public urination etc). Fascinating story. I'll be working with Tiny Toones - a group run by former Long Beach gang member, teaches hip hop to street kids, teaches them dangers of glue sniffing etc. That's a positive outcome. But for most returnees it has been extraordinarily difficult, many dead, drugs, joined violent gangs, alienated. Why did Cambodian government agree to take them, when many had not direct connection to Cambodia (left as children after KR, or born in Thai refugee camps). Asian impact of US immigration crack-down.

Apple's 3G iPhone Stands Better Chance Against BlackBerry

Apple's 3G iPhone could become a strong competitor against the BlackBerry and weaken Google's initiative to build an open source operating system for smartphones.

Apple's just-announced 3G iPhone has the potential of becoming a stronger competitor in the business market against Research In Motion's popular BlackBerry, and could weaken the impact of Google's initiative to build an open source operating system for smartphones, experts said Tuesday.

Apple chief executive Steve Jobs introduced the latest version of the iPhone on Monday at the company's Worldwide Developers Conference in San Francisco. With support for carriers' 3G, high-speed wireless networks, third-party applications, a number of security protocols, and Microsoft's Exchange e-mail server, the new iPhone has what it needs to appease enterprise customers, experts said.

"This could enable Apple to challenge the BlackBerry market more aggressively," Fareena Sultan, digital marketing professor at Northeastern University, said in an e-mail. "Also, more third-party applications could help soften the impact of the Android initiative from Google and the Open Handset Alliance."

Gloria Barczak, chair of the marketing department at Northeastern's business school, agreed. "Apple's announcement of the iPhone 2.0 with 3G technology and GPS [global positioning system] are certainly the right moves to gain market share in the enterprise market."

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Fuel costs may ground more airlines

It's certain that the summer of 2008 won't be pretty for the airline industry: higher fares and fees for customers, more red ink for the airlines.

But what about next year, assuming that jet fuel prices remain at their historic highs?
Experts are predicting higher fares, a lot fewer travelers, a lot less capacity, fewer flights to fewer places and maybe a lot fewer airlines.

U.S. airlines are already outlining plans to make huge cuts in capacity. In recent days, United Airlines Inc., American Airlines Inc. and Continental Airlines Inc. have announced airplane groundings and schedule reductions for the latter part of 2008 and into 2009.

Many airlines have revealed plans to defer or cancel airplane deliveries in 2008 and 2009. Even rapid growers such as AirTran Airways, Southwest Airlines Co. and JetBlue Airways Corp. have slammed on the brakes.

But retrenching won't be enough to avoid big financial losses, industry observers say.

Finance professor Harlan Platt at Northeastern University in Boston said he expects oil prices to drop as the U.S. economy slows down and the impact ripples to other countries such as India and China. But oil prices must drop considerably from today's levels to save the airlines.

"If you don't have an oil price of about $75 or $80 a barrel, at the end of 2009, you'll have most of the airline industry on the financial ropes," Dr. Platt said. "They will have run out of cash or virtually run out of cash."

He noted one industry analyst's prediction that oil will hit $150 a barrel soon.

"If that happens and if that price holds, the industry will continue to hemorrhage through the end of 2009, and they'll have run out of options," he said. "They'll need to file for bankruptcy protection. And by 'they,' I mean most of the airline industry."

From Food to Fuel: The Sweet Promise of Corn

Few things are as enjoyable as the first fresh ear of corn in the early summer. Boiled or grilled, the golden kernels speak of warm sunshine, family picnics and relaxed informality. Known scientifically as Zea Mays, and more traditionally as Maize, corn is a thoroughly American vegetable that has gained a global following. And it’s not just fuel for the body, it’s also fuel for the automobile: ethanol produced from corn forms a foundation of U.S. planning for a post-oil world.

Packed full of nutrients, and offering an oil-free future for car lovers everywhere, what’s not to love about this all-American beauty?

Well, quite a lot actually. Today’s corn agribusiness is a manufacturing behemoth fully participatory in the global economy, with more in common with BP, ExxonMobile and Shell than with the rural smallholders of American history.

Corn is hands-down America’s number one field crop, leading all other crops in both value and volume. Around 80 million acres of land are planted to corn in the U.S., and 2007 saw the largest corn crop in history at over 13.1 billion bushels, 10.6 percent above the previous record of 11.8 billion bushels set in 2004. The National Corn Growers Association (NCGA) proudly points to the fact that the US accounts for nearly 40 percent of global corn production.

But surely growing corn is an effective way to combat global hunger?

Unfortunately not. Most of the U.S. corn crop is used as feed for livestock. Indeed, corn accounts for more than 90 percent of the total value and production of feed grains. Few forms of agriculture are as calorically inefficient as growing crops to feed animals: the corn-fed animals ultimately provide a mere fraction – between one-third and one-tenth – of the food value that has been fed to them.

Unfortunately developing nations are following the factory farming practices of the U.S., and use corn overwhelmingly as livestock feed. China and India, newly prosperous as a result of globalization, have adopted western methods of factory farming animals to provide meat for their increasingly prosperous middle class. As a coherent plan for fighting global hunger, using corn as feed for raising animals is nothing short of lunacy.

What about processing corn into ethanol for use as a clean alternative to fossil fuels?

The corn lobby loves this particular golden kernel: corn is not only an environment-friendly fuel it’s also patriotic, reducing U.S. dependence on foreign oil. What a relief for Americans facing sharply increasing oil costs: thanks to corn we won’t have to contemplate a future without cars, don’t need to expand public transportation or rethink our love of the suburbs and distant shopping centers. Thanks to corn we can expect a future not so dissimilar to today. We grow it, we drive it. A perfect win-win situation.

These are golden times for the corn industry. President Bush has called for the production of 35 billion gallons of ethanol by 2017, which would equal about 15 percent of the U.S. liquid transportation fuels. Over the next five years, $5.7 billion in federal tax credits will support the ethanol market. The NCGA states that it “continues its tireless work building demand for ethanol to ensure that the tremendous growth we’ve experienced in the industry will be dwarfed by what’s to come.” Its top priority remains an energy policy that establishes a renewable fuels standard which “could increase ethanol production by 5 billion gallons per year in the next decade.”

But there are problems with this happy vision. First, of course, is growing concern over the use of hundreds of millions of pounds of pesticides, herbicides, chemical fertilizers and other additives used to grow corn. The National Academies has warned that if projected increases in the use of corn for ethanol production occur, the harm to water quality could be considerable, and water supply problems at the regional and local levels could increase.

Second, using corn to produce ethanol is not particularly energy efficient. The Cato Institute has noted that it takes the equivalent of seven barrels of oil to produce eight barrels of corn-derived ethanol. In contrast, sugar-cane ethanol of the type produced in Brazil is almost eight times more fossil fuel efficient to produce than the U.S. corn-based product. Yet the U.S. government – under massive pressure from the powerful corn lobby – continues to focus on encouraging domestically produced corn-ethanol while imposing high tariffs on imported alternatives.

Third, switching corn production to ethanol manufacture, and diverting food crop production globally to ethanol-producing corn, threatens to further undermine and destabilize global food production. The environmental and political costs of oil-reliance have been evident for decades. The true costs of switching to ethanol-driven transportation are only just being contemplated.

Perhaps, after all, corn is not so good for us. The agribusiness of corn manufacture poisons our water, diverts food production, and stimulates the inefficient use of food crops as livestock feed. Neither is corn a panacea for our failed transportation policies, unless we are willing to stomach a future where people starve so that we can drive. It’s time for the U.S. government to rethink its policy of automatically bowing to the corn lobby’s false promises of a golden corn-based future.

The author of this piece, John Hall is an Associate Professor of Law and Director of the Center for Global Trade & Development, Chapman University School of Law, Orange, Calif.