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Justice Dept. Alters View of Mergers by Airlines

August 14, 2013 by

To the Justice Department, a merger between American and US Airways would increase the fares and fees that have been steadily rising.

But to the airlines, the merger would lower costs and provide more flexibility for many travelers. What is more, some industry analysts said that a hobbled American, which is still trying to emerge from bankruptcy protection, would struggle to compete against the two giants, United Airlines and Delta Air Lines.

“What we are saying today is simply that they got this one wrong,” Richard Parker, a lawyer for US Airways, told reporters on Wednesday.

The Justice Department’s action comes after a decade of rapid consolidation in the airline industry, including the mergers of Delta and Northwest in 2008 and United and Continental in 2010. But antitrust officials said on Tuesday that despite the cost savings for the carriers from consolidation, domestic airfares, on average, had increased much faster than inflation over the last several years, prompting the department to revise its thinking about what was best for the consumer.

The Transportation Department has calculated that after adjusting for inflation, the average domestic airfare climbed to $379 in the first quarter of 2013 from $335 during the recession in 2009. And the fares varied greatly, often depending on the level of competition. For example, passengers in Huntsville, Ala., paid the highest fare, $543, in the first quarter while Atlantic City had the lowest, $169.

“I think the economics of the Justice Department is correct,” said George Hoffer, a transportation economics professor at the University of Richmond. “However, they are a day late and a dollar short. This should have been their decision in the Delta-Northwest case.”

But Mr. Hoffer said the airlines could prevail in court because the earlier mergers created “a structural disequilibrium” in the industry, with United and Delta having more flexibility to reroute passengers, especially lucrative corporate customers, when trouble arises.

Another issue is American’s ability to compete as a stand-alone airline. The Justice Department’s Antitrust Division argued that American could come out of bankruptcy as a strong competitor without the merger. It pointed to American’s order of 460 new airplanes over the next decade, worth $38 billion and billed as the largest single order in history, as well as its recent return to profitability.

But some financial and aviation analysts see it differently. American’s domestic network and hubs are considered weaker than Delta’s or United’s, and its international network is smaller. The airline is also part of Oneworld, the smallest of the three global airline alliances. American, which is owned by A.M.R., cut its costs through bankruptcy, but it did little to bridge the gap in revenues with its peers, which can command higher fares and attract more business travelers.

“Apparently, the Justice Department takes the position not held by most analysts, who viewed A.M.R.’s proposed stand-alone plan as unlikely to be competitive or to succeed,” said Robert W. Mann, an aviation consultant.

If the merger is blocked, the clear winners will be United and Delta, which have global ambitions, some analysts say. A smaller American will struggle to attract business travelers with its smaller domestic network and smaller international footprint.

John Godyn, an airline analyst at Morgan Stanley Research, wrote in a note to investors that Delta and United “would have a duopoly on corporate travel, superior networks and more valuable frequent flier programs.”

Professor Hoffer, however, said that American had done enough cost-cutting in recent years to hold on to its spot as the nation’s fourth-largest carrier. “Because the industry is more concentrated, it would be easier for American to raise capital and grow itself,” he said.

Article source: http://www.nytimes.com/2013/08/15/business/justice-dept-alters-view-of-mergers-by-airlines.html?partner=rss&emc=rss

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Special Report: Aviation: Le Bourget Turns to Small Players

June 16, 2013 by Leave a Comment

PARIS — Competition to increase sales of wide-bodied jets is likely to dominate the Paris Air Show this week, aviation industry analysts say, following the maiden flight of the Airbus A350-XWB in Toulouse, France, last Friday.

Airbus has denied reports that it will bring the A350 to the show; but industry analysts say that it would be odd if the European plane maker failed to follow up last week’s flight with at least a brief appearance over Le Bourget field — perhaps this coming Friday, when French President François Hollande is due to visit the show.

Airbus expects to sign orders for “a few hundred” airliners at Le Bourget, Thomas Enders, chief executive of the plane maker’s parent company, EADS, said Thursday.

Boeing, meanwhile, will be trying to restore faith in its 787 Dreamliner. The 787 will be flying at Paris — with new lithium-ion batteries replacing the faulty ones that caused the fleet to be grounded early this year.

Boeing may also be poised to introduce a larger member of its 787 Dreamliner family to meet demand for long-haul travel within Asia and other long-haul routes, Reuters reported last week.

Long-discussed plans for a 323-seat version of the 787 may be formally announced at the Paris show, it said, in a report following up an earlier report in the Wall Street Journal. It said Boeing had declined to comment.

Yet, for all the pre-show buzz, neither Airbus nor Boeing will be presenting new models at the show this year.

A rung lower on the industry’s pecking order, Bombardier of Canada announced in March that it would not be flying its new C series midsized jet at the show, opting for further testing before a maiden flight planned for later in the month.

In the absence of novelties from the industry leaders, much of the focus at Le Bourget will shift to smaller players, according to Gilles Fournier, the show’s managing director.

With the big players reducing their budgets for the show, display space vacated by the large companies has been reallocated to small and medium-size businesses, Mr. Fournier said in April.

Patrick Guérin, communications director of Gifas, the French Aerospace Industries Association, said the number of small and mid-size businesses showcasing their products at Le Bourget this year would be 10 percent more than at the last show in 2011, with the number of French companies alone rising to a record 450, from 400.

Air show organizers said the total number of exhibitors would rise to 2,212, up more than 5 percent from 2011.

Article source: http://www.nytimes.com/2013/06/17/business/global/le-bourget-turns-to-small-players.html?partner=rss&emc=rss

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At Melissa & Doug Toy Company, Thriving on the Basics

June 8, 2013 by Leave a Comment

ESTHER BERNSTEIN, 6 years old with long blond hair, pulled on a pair of blue slippers with a gray tassel over the toe. She grinned.

“Look, Mom! I like these princess slippers!”

“Would you wear them to play dress-up?” her mother asked.

“Yes.”

Esther’s 9-year-old sister, Sydelle, grimaced and freely offered that she would not.

“Well, Sydelle, you’re too old for this toy,” her mother said. “You’re not the target market.”

It was a Sunday night, after dinner, at the informal in-home testing lab of Melissa and Doug Bernstein, better known as Melissa Doug, the toy company and the signature that adorns all their products. This August, their company will turn 25, celebrating a quarter-century of anachronism. In a time when major corporations dominate the industry, making toys with all manner of batteries, digital gimmicks or movie tie-ins, the Bernsteins keep making money in wooden puzzles, coloring pads, blocks, trains and simple costumes (the police officer, the princess, the pirate). They hatch many of their ideas by watching children at play — often among their own brood of six.

From left are Sydelle, 9, Nate, 5, and Esther, 6.

Christopher Capozziello for The New York Times

From left are Sydelle, 9, Nate, 5, and Esther, 6.

They do little public relations and don’t advertise in magazines, or on radio and television. They don’t put coupons in Sunday newspaper inserts. They don’t rely on big hits, industry analysts say, just a steady stream of variations on classic toys mostly for children up to the age of 5. Nonetheless, their business has grown by double digits every year, to an estimated $325 million in revenue this year from $100 million in 2008 (and to 650 employees from 200), according to a toy company executive familiar with the company’s operations. Such figures make theirs a midsize toy business, of which analysts say there are fewer and fewer these days. In this industry, three huge players — Mattel, Hasbro and Lego — account for around $14 billion in sales, or about a third of global toy company revenue.

The Bernsteins have come a long way from the days when they drove a Chevrolet Malibu, owned by Mr. Bernstein’s father, to deliver products. Growing up in Westport, Conn., an affluent community, Mr. Bernstein, now 50, thought himself the poorest kid, living in a 900-square-foot house. Now their home is 36,000 square feet, one of the biggest in the same township, with hand-chiseled stone and antique ceiling beams — not to mention a bowling alley, an indoor full-court gym and a video arcade.

But they are, as Mrs. Bernstein, 47, puts it, restless, very restless — and challenges are upon them in an industry that, like so many others, is being rewritten in the technology age. Overall toy sales have slumped. Some specialty retailers have closed. Low-cost manufacturing has commoditized many items. But Internet sales have soared, meaning that the Bernsteins are having to adapt to online sales and marketing after years of building relationships with specialty stores.

Crucially, the rise of high-tech entertainment has changed how children play. Apps and video games have soared in popularity; on Amazon, you can even buy an iPod stand to accompany a potty trainer. The phenomenon can provoke conflicting feelings in parents. Should they give in to children’s yearnings for a phone app or video game? Or limit the screen time and offer up something simpler and more nostalgic, reminiscent of a childhood real or imagined?

The topic of traditional versus high-technology toys is one that particularly piques Mrs. Bernstein. “When you’re using a computer or an app, it’s giving you all the information you need,” she said. “It’s a completely reactive experience.” But she thinks she knows why that is so appealing. “Parents are so scared of having their kids say, ‘I’m bored.’ It’s synonymous with, ‘I’m a bad parent,’ and so they never allow kids to feel boredom, which equals frustration, and so kids don’t get to the point where they have to dig deeper and figure out what to do.”

Plenty of toy companies have joined Melissa Doug in this niche, competitors whose simple offerings aim to entertain — but not too much. Companies like Haba, which makes blocks and wooden toys from sustainable woods, or Alex, which makes arts and crafts for “active fun.” But few companies can reach the size of the Melissa Doug operation without facing a tough decision: Do you keep trying to expand on your own, pushing into larger retailers, or do you sell to a major toy maker?

Article source: http://www.nytimes.com/2013/06/09/business/at-melissa-doug-toy-company-thriving-on-the-basics.html?partner=rss&emc=rss

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Travel Sites Merge, Which Some See as Boon for Consumers

April 30, 2013 by Leave a Comment

The online travel search business is consolidating, as two of the biggest online travel agencies, Priceline.com and Expedia.com, buy smaller search engines.

But most travel industry analysts said they did not expect either Priceline, which is buying the airline and hotel search engine Kayak, or Expedia, which last month acquired the German hotel search site Trivago, to tamper with the basic model of search engines: to show the consumer as many options as possible.

Search results in favor of Priceline, for example, would diminish the value of Kayak, said Bjorn Hanson, divisional dean of the Tisch Center for Hospitality, Tourism and Sports Management at New York University.

He said that market conditions — including hotel occupancy rates, which are much improved over their low levels in 2009 — and not consolidation, would have more of an effect on prices. In addition, he said, after consolidation, Kayak is likely to become better known. This would bring more consumers to the site, enabling them to make better price comparisons.

The hotel industry has emerged from two dark periods, Mr. Hanson said, one that followed 9/11 and the other in the midst of the most recent recession. “The hotel industry is doing better,” he said. In 2002, on a typical night, 41 percent of hotel rooms were unoccupied, and in 2009, 45 percent of rooms were vacant. That number has now dropped to 38 percent, “a dramatic change,” Mr. Hanson said.

“The change is so dramatic,” he said, that hotels do not consider it as necessary to list their unsold rooms on the sites of online travel agencies like Priceline and Expedia.

That can be an advantage for consumers because they now deal directly with hotel companies, which have worked to draw travelers back to their Web sites and apps with loyalty programs, knowledge of guest history and price guarantees. A hotel, for instance, may promise to match the price or beat it if the traveler finds a lower price for the same room through an online travel agency or metasearch site.

Mr. Hanson said online travel agencies typically used four models for the hotel rooms they displayed: in one model, they act like a traditional brick-and-mortar travel agency, and the hotel pays the online travel agency a 5 percent commission; the second is the auction model like the one used by Priceline.com. The third is the opaque model, as on Hotwire.com, where consumers do not know what brand they are buying. The fourth is the merchant model, in which the online travel agency buys the room inventory from the hotel company, which then pays a commission ranging from 18 to as much as 38 percent to the online travel agency. The hotels aim to use the online travel agencies as little as possible, he said.

Hoteliers view the search sites as a way to bring more consumers to their sites, said Michelle Woodley, senior vice president of distribution and revenue management for the Preferred Hotel Group. “It’s two streams of booking,” Ms. Woodley said.

“Hotel companies are not going to give every channel the same price now — parity deals — that were written into the conditions of the agreement” in the past, Ms. Woodley added. There can be five different prices for the same room, she said. “So for consumers, it’s a better environment.”

The days of the rapid growth of the online travel agencies are gone. “Online travel in the U.S. is mature,” said Henry Harteveldt, a travel industry analyst at Hudson Crossing. “Growth is flattening out. There isn’t double-digit growth like in the late 1990s and early 2000s,” he said. “Online travel agencies are exploring new ways to reach more people — acquisition and investments. Kayak and Trivago will refer more business to the respective purchasers.”

In March, Expedia ranked second after TripAdvisor, with Priceline third among the top 10 online travel agencies and search sites, for the “number of unique visitors,” according to comScore, which tracks visitors to travel and other types of Web sites. In March, TripAdvisor had nearly 20.95 million visitors, followed closely by Expedia with 20.92 million, and Priceline had 17.45 million. Kayak.com Network ranked eighth with 8.94 million visitors, with Trivago Sites ranking 248th with 142,000. Online travel agencies make money through online advertising more than through transactions, Mr. Harteveldt said.

Article source: http://www.nytimes.com/2013/04/30/business/travel-sites-merge-which-some-see-as-boon-for-consumers.html?partner=rss&emc=rss

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Walmart Strains to Keep Grocery Aisles Stocked

April 4, 2013 by Leave a Comment

Walmart, the nation’s largest retailer and grocer, has cut so many employees that it no longer has enough workers to stock its shelves properly, according to some employees and industry analysts. Internal notes from a March meeting of top Walmart managers show the company grappling with low customer confidence in its produce and poor quality. “Lose Trust,” reads one note, “Don’t have items they are looking for — can’t find it.”

Walmart is addressing the grocery concerns with measures like a new inventory system and signs that will help employees figure out what is fresh and what is not, Jack L. Sinclair, Walmart United States executive vice president for food, said in an interview. Brooke Buchanan, a company spokeswoman, said Walmart felt its stores were fully staffed.

Before the recession, at the start of 2007, Walmart had an average of 338 employees per store at its United States stores and Sam’s Club locations. Now, it has 281 per store, having cut the number of United States employees while adding hundreds of stores.

“In its larger supercenter stores, Walmart can’t keep the shelves stocked, and that is driving customers away,” said Terrie Ellerbee, associate editor at the grocery industry publication The Shelby Report, in an e-mail.

She traced the problem to 2010, after Walmart reduced the range of merchandise it carried in an attempt to make stores less cluttered. Customers did not like the change, and Walmart added merchandise back, but with declining sales then, it did not add back employees, she said. “Without enough labor hours to get those items back, not to mention to do routine stocking, shelves were left bare,” Ms. Ellerbee said.

Walmart charged into the grocery market about two decades ago, realizing that frequent trips by grocery shoppers could help improve traffic. Grocery made up 55 percent of Walmart United States sales in 2012, which was flat from the previous year. The company’s grocery prices are usually about 15 percent below competitors’, according to Supermarket News.

Grocery has also been a centerpiece of its corporate responsibility strategy, as the company has trumpeted its support from Ms. Obama in selling healthy foods in underserved, low-income communities.

At the event with Ms. Obama in Springfield, Mo., the company said it had saved customers $2.3 billion on fresh fruits and vegetables in two years.

Ms. Obama’s office said that Walmart “has been a strong partner” on the healthy-food front. “There’s still more to be done, but we look forward to continuing working with Walmart and others,” said Sam Kass, executive director of Let’s Move!, Ms. Obama’s anti-obesity program.

Yet growth has been slowing, analysts say.

“They’re still growing share and aisles at a tremendous rate, but not at the rate they were, in part because many of the established operators that are left today are pretty strong,” said Mark Hamstra, retail and finance editor of Supermarket News.

Walmart does well in dry goods, but fresh food requires more manpower to stock and rotate goods, involves more waste and is a higher-cost operation, he said.

According to the notes from the Walmart meeting last month in Orlando obtained by The New York Times, while Walmart has 20 percent of the market share in dry grocery, it has 15 percent in fresh (areas like produce, meat, deli and bakery).

Safeway customers are 71 percent confident in its fresh produce, the notes said, while Walmart customers are 48 percent confident in Walmart’s produce. In the interview, Mr. Sinclair of Walmart said he did not know where that data came from, but that “we believe that we can improve the perception of quality of produce for Walmart customers.”

Article source: http://www.nytimes.com/2013/04/04/business/walmart-strains-to-keep-grocery-aisles-stocked.html?partner=rss&emc=rss

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Time Warner Cable Ad Campaign Aims at Regaining Customers

January 20, 2013 by Leave a Comment

On Monday, the company — the second-largest cable provider in the country behind Comcast — will begin a marketing campaign aimed at former subscribers who might be having second thoughts about their current video service.

The company says it will spend at least $50 million on broadcast, print, online and direct mail ads for the campaign, which it is calling “The Better Guarantee.”

The ads convey the idea that while the company’s cable service did not always live up to expectations in the past, it has become better.

“We, as a company, are fundamentally different and better than we were a few years ago when these upstart competitors started coming in,” said Jeffrey A. Hirsch, the chief marketing officer for residential services at Time Warner Cable. By upstarts, he was referring to Verizon FiOS and ATT U-verse, two relatively new fiber optic television and Internet providers that have gained subscribers at the expense of cable providers.

Some of the Time Warner Cable ads specifically challenge Verizon, saying it promised monthly savings that have not panned out.

“That promise of new isn’t such a great promise, and people are starting to come back to Time Warner Cable,” Mr. Hirsch said. “So we decided it’s time to put some muscle behind the idea.”

The campaign announcement comes a week before Time Warner Cable releases its fourth-quarter earnings, which may show deepening losses in television subscribers, known in the industry as basic video subscribers. Industry analysts at Jefferies Company published a forecast last week that had Time Warner Cable losing 140,000 such subscribers, a slight increase from the 129,000 it lost in the same quarter of 2011. The same forecast had three other cable providers stemming their losses year-over-year.

“The Better Guarantee” is an extension of “Enjoy Better,” a brand-image campaign that Time Warner Cable began last February to retain existing subscribers as well as win new ones. The new ads point to specific improvements the company has made: smartphone apps, on-demand TV options and narrower windows of time for home service calls. Gone are the dreaded four-hour windows, the company says; two-hour windows are now the norm and one-hour windows are being put in place.

In an interview by phone, Mr. Hirsch also mentioned “much faster Internet than we had two, three years ago” and a home security service.

To entice former subscribers to try Time Warner Cable again, the ads promote a 30-day money-back guarantee. “If the consumer doesn’t see that we’ve improved our service, we’ll send them their money back,” said Gregg Fujimoto, a senior vice president for the company.

Some of the ads feature actual subscribers, explaining why they came back to the company. Mr. Fujimoto said there would be use of social networking Web sites as well as traditional advertising media.

Other cable providers, facing the same competition from satellite and telecommunications providers, have also tried to burnish their reputations lately with ad campaigns. Comcast started a new phase of its marketing for Xfinity, its consumer services, last summer. The providers have also invested an enormous amount of money in infrastructure so that their television and Internet services are on par, or better, than their competition’s.

The providers are up against persistent discontent from subscribers who say their monthly bills are too high and their set-top boxes are too slow. Surveys for the University of Michigan’s American Consumer Satisfaction Index have shown for three straight years that Verizon FiOS is the highest-regarded television provider in the country.

ATT and two satellite providers, DirecTV and Dish Network, have also ranked above the industry average, while Time Warner Cable, Comcast and other cable providers have remained below the average. But the 2012 survey had some good news for Time Warner Cable: the company’s score ticked up four percentage points, the most of any television provider on the index.

Article source: http://www.nytimes.com/2013/01/21/business/media/time-warner-cable-ad-campaign-aims-at-regaining-customers.html?partner=rss&emc=rss

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Generic Lipitor Sets Off an Aggressive Push by Pfizer

November 30, 2011 by Leave a Comment

As it loses its patent for Lipitor, the top-selling cholesterol drug, on Wednesday, Pfizer is completing relationships and shoring up discounts — like a reduced co-payment of $4 a month versus the $10 customers would pay for many generic prescriptions.

Some deals require pharmacies to reject prescriptions for low-cost generics, starting Thursday, and substitute a discounted name-brand Lipitor. Some deals have blocked generic makers from mail-order services that account for an estimated 40 percent of all Lipitor prescriptions.

The company’s aggressive strategy may offer lessons for drug makers facing similar losses of patent protection for other blockbuster drugs over the next few years, and may chart a new path for shifts between the big pharmaceutical companies and generic rivals.

Lipitor was the first drug to exceed $10 billion a year in sales, and accounted for almost one-quarter of Pfizer’s revenue in the last decade.

With Pfizer’s plans to try to maintain brand loyalty for the next six months becoming public, industry analysts have raised the company’s earnings outlook by 2 to 4 percent, and now estimate that it could retain 40 percent of the market through next year. Pfizer officials declined to comment on that estimate.

Aiding its chances is a stumbling start-up by generic competitors. Ranbaxy Laboratories, the Indian subsidiary of the Japanese drug company Daiichi Sankyo, won the right to bring the first generic version to market. But Ranbaxy has disclosed it is under federal investigation. It has not yet received Food and Drug Administration approval. Ranbaxy’s president has said it will be ready by Thursday.

Watson Pharmaceuticals of Parsippany, N.J., is a second competitor with a generic version of the drug authorized and manufactured by Pfizer. But Watson has to give about 70 percent of its profits to Pfizer, according to the investment house Sanford C. Bernstein Company. And Pfizer’s own deals are undercutting both Watson and Ranbaxy on price.

“Pfizer’s tactic of dressing up as a generics company is pulling the rug under the incentive system created to foster the development of generic drugs,” David A. Balto, a lawyer for some generic makers and a former policy director for the Federal Trade Commission, said Tuesday.

Pfizer’s strategy so far is limited to the first 180 days after Lipitor goes off patent. During that period, under law, generic competition is limited and the first entries have historically charged fairly high prices to recoup their costs. After the first six months, any company can enter the generic market, and prices plunge.

Although Ranbaxy and Watson have not yet announced their prices, one top Pfizer official said on Tuesday that its new discounts could be adjusted to beat any tit-for-tat reduction in the expected generic pricing.

“They are a set contract but they could change,” said David S. Simmons, president and general manager of Pfizer’s established products unit. “I mean, it’s at the discretion of two parties. They could change.”

Mr. Simmons said the intention of Pfizer’s discount was to keep Lipitor “at or below generics’ cost to the health care system.”

The discount is also extending to many Medicare prescription drug plans that will dispense Lipitor even if patients ask for generics, according to a memo released by an advocacy group called Pharmacists United for Truth and Transparency.

The memo, from CVS/Caremark, a pharmacy benefit management company, and dated Monday, notified pharmacies that the generic form of Lipitor would not be covered for 29 prescription drug plans it managed for Medicare Part D. Instead, any prescription claims for generic atorvastatin will be rejected with a notice saying: “Brand Lipitor will pay at generic co-pay.”

The company’s memo did not disclose the financial terms.

The government may receive the rebates that drug manufacturers pay to benefit managers and insurers if they are fully disclosed and characterized as rebates, not fees, according to a March report by the Office of the Inspector General for the Department of Health and Human Services. But benefit managers’ records may not be accessible or auditable, it added.

Article source: http://feeds.nytimes.com/click.phdo?i=49ffe153070fde0164f5d059aad4e3a6

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Sprint Faces Challenges With or Without AT&T’s Deal for T-Mobile

September 5, 2011 by Leave a Comment

Nevertheless, Sprint would face the same daunting problems endemic to the wireless industry if the merger were thwarted, industry analysts say.

“It essentially maintains the status quo, which, given the results of Sprint over the last couple of years, is not the best place to be,” said Christopher King, an analyst with Stifel Nicolaus.

Mr. King says that Sprint has arguably already lost to Verizon and ATT. Sprint itself has acknowledged the difficulties it faces when competing against companies whose scale will allow them to secure better deals on hardware. The company has also argued that the amount of spectrum that a combined ATT and T-Mobile would control would be anticompetitive.

Other analysts are more optimistic about Sprint’s chances, as the company appears to be stemming the loss of subscribers after several years of serious erosion. Even so, its market share of subscribers on contracts dropped to 13 percent in 2010, down from 17 percent in 2008, according to Barclays Capital. The company reported a net loss of $847 million in the second quarter of this year.

Sprint, which sells a number of smartphones using the Google Android operating system, is to a large degree pinning its hopes of attracting more customers on the phone that performed that magic for ATT and Verizon: the Apple iPhone. Analysts widely expect the two companies will reach an agreement.

But the most pressing issue facing Sprint, the analysts say, is its need to build a fourth-generation, or 4G, wireless network. It would give Sprint customers a speedy wireless connection most suited to data-hungry smartphones. Because 4G offers service similar to home broadband Internet, wireless companies want to build out 4G networks as the way to provide data service to compete with established providers.

And Sprint is falling behind and faces a daunting row of hurdles just to stay in the game.

Data service is becoming increasingly important to a wireless industry that is experiencing declining revenue from voice traffic. Data charges will account for more than 41 percent of the revenue from contracted wireless subscribers in 2011, according to James Ratcliffe, an analyst at Barclays. That compares with less than 30 percent in 2009.

Almost everyone who wants a cellphone already owns one, so the only way for wireless companies to add voice customers is to poach them from rivals. The number of people demanding data service, on the other hand, is growing as cellphone users embrace smartphones, so wireless companies can earn more from existing customers by persuading them to add larger data plans to their voice plans.

Sprint has an advantage in this market because it continues to offer unlimited data plans, while ATT and Verizon have tiered plans.

It could hold that advantage if it aggressively builds out a 4G network that is wider and better than its rival’s 4G networks. But it is not clear that will happen. The company is planning to set out a new strategy for its 4G network next month at its investor conference in New York, and declined to comment before then.

All the options the company has at its disposal have flaws, according to experts.

Sprint relies on awkward partnerships to secure the amount of spectrum it needs to build a new network. ATT and Verizon have largely been able to buy outright the spectrum they need. ATT has cited access to additional spectrum as a major reason it needs to acquire T-Mobile.

For Sprint, which lacks the capital of its larger rivals, securing spectrum has been even more difficult. It has set out to patch together what it needs through collaborations. In 2008 it entered a partnership to acquire a large portion of Clearwire, a troubled wireless company that controls a large swath of spectrum.

The two companies set out to build a 4G network in tandem, hoping to benefit from a significant head start. This allowed Sprint to market the country’s first 4G network, and it became the first wireless carrier to offer a 4G smartphone, the HTC Evo 4G, in June 2010. But the effort soon slowed, in no small part because of Clearwire’s tenuous financial situation. Verizon has since overtaken Sprint as the nation’s largest 4G provider.

Verizon’s network is built on a technology called LTE, which is incompatible with the WiMax technology that Sprint’s network is based on. That presents Sprint with yet another problem because Verizon’s technology is becoming the industry standard. Sprint could soon have trouble persuading hardware manufacturers to build devices for its network.

Sprint has said it will shift to LTE. But there will still be eight million to 10 million orphaned Sprint devices running on WiMax by the end of the year, according to Mr. Ratcliffe of Barclays. Sprint will have to support that technology for some time, which adds to its costs.

Sprint’s solution is a deal it reached with LightSquared, a company that sells spectrum to niche carriers. LightSquared agreed to pay Sprint $9 billion to build a 4G network using its spectrum.

But Sprint hit yet another barrier. Federal regulators are hesitant to allow the companies to use this spectrum because it interferes with GPS frequencies.

Between Clearwire and LightSquared, Sprint should have the spectrum it needs to build its network, analysts say, but it is unclear how it will be able to make the investment to take advantage of this. There is speculation that Sprint will have to buy Clearwire outright, or assemble a consortium of other companies to help it do so.

Another option would be a collaboration with cable companies that control spectrum and could be willing to work with Sprint.

Charles S. Golvin, a telecom analyst at Forrester Research, thinks that Sprint’s best hope, whether or not the ATT and T-Mobile merger goes through, is to differentiate itself with unlimited data plans as it builds a reliable network. There is a certain marketing advantage to going against Goliath and saying, “We’re the little guys, we have to try harder,” Mr. Golvin said.

“That sort of story could work for them.”

Article source: http://feeds.nytimes.com/click.phdo?i=14a1aab462b52f8908e04cb185fea117

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Will Consumers Benefit if T-Mobile Stands Alone?

September 1, 2011 by Leave a Comment

But a big question, industry analysts say, is whether the mobile industry will be genuinely more competitive and innovative with T-Mobile as a stand-alone company.

The two biggest carriers, analysts note, are gaining subscribers, while their smaller national rivals, Sprint Nextel and T-Mobile USA, a unit of Deutsche Telekom, are losing ground.

“The gap between the haves — ATT and Verizon — and the have-nots, which is essentially everybody else, is only getting wider,” said Kevin Smithen, an analyst for Macquarie Securities.

Craig Moffett, an analyst at Sanford C. Bernstein, agreed, saying: “This market is going to consolidate one way or another.”

But in taking action, the Justice Department is making a bet that this is not necessarily the case. And its analysis concluded that the anticompetitive risk of allowing ATT to reduce the ranks of the four largest carriers — which provide more than 90 percent of mobile wireless service in the country — to three was too great.

Wireless looks to be the communications and computing technology of the future, as sales of smartphones and iPads surge and people increasingly use them for sending and receiving messages, reading, and playing games. Competition among mobile carriers, then, is clearly important to both consumers and the economy.

But even if the deal goes through, other forces could eventually shake up the tiny club of large wireless companies. There are upstart carriers, led by MetroPCS, which offer discount service and prepaid plans, enjoy strong positions in some local markets and have national ambitions. A specialist company, LightSquared, is selling capacity on its high-speed wireless network at wholesale rates to niche carriers.

The Federal Communications Commission has begun prodding broadcasters to free up wireless spectrum, opening up more potential opportunities for newcomers to the market. And powerful companies like Google, Apple and Microsoft, with deep pockets and a stake in mobile computing and communications, could also step in and change the game, analysts note.

The mobile market is “a fast-shifting chessboard these days,” said Kevin Werbach, an associate professor at the Wharton School of the University of Pennsylvania and a former counsel for new technology policy at the F.C.C.

“If the ATT merger with T-Mobile fails,” Mr. Werbach added, “it will shuffle the pieces still more.”

Yet the Justice Department was faced with a decision about the near-term impact of a huge merger, rather than one about the possibility of new entrants or new technology stimulating competition years down the road.

ATT had argued that adding T-Mobile would give it the extra network capability it needed to fairly quickly roll out the next generation of high-speed service — so-called 4G — across the nation.

The Obama administration has championed the accelerated rollout of faster wireless service as an important foundation for innovation and future growth. But the administration’s antitrust regulators decided there were other ways for ATT to do that without taking out a competitor.

For one, the company could just invest in expanding its own network. Another approach, analysts say, is network-sharing arrangements with T-Mobile and other carriers. That way, rivals avoid the redundant investment of building cell towers side by side. But the companies remain separate and still compete on service in those markets.

“Network-sharing arrangements are common in some European markets,” said Jan Dawson, an analyst at Ovum, a technology research firm. “You get some of the same benefits, without running into the kind of antitrust concerns ATT has with T-Mobile.”

T-Mobile USA’s German corporate parent wants to get out of the United States, and concentrate its resources elsewhere. But the unit’s assets — its wireless spectrum and network of cell towers — could be sold off to others who might sustain a fourth national competitor, like cable, satellite or technology companies that want to offer wireless service, according to some analysts.

The potential for bigger wireless bills for consumers if T-Mobile was acquired by ATT, legal experts say, was a crucial part of the Justice Department’s analysis. T-Mobile offers smartphone service with voice and data plans that, in some markets, are cheaper than ATT by 20 percent or more. Lower prices are the most easily measured consumer benefit of competition, and in merger cases, the government typically looks at the potential for price increases of 5 percent to 10 percent or more as significant.

ATT has some sought-after offerings that T-Mobile does not, like Apple’s iPhone. But, according to the Justice Department, ATT’s prices would have been higher without the competitive pressure from T-Mobile.

ATT, when advocating for the deal announced in March, repeatedly said that the merger should be judged not by the impact on market share nationally, but by the impact on local markets, where there are often smaller, regional competitors.

In its complaint and supporting documents, the Justice Department said it had examined local markets carefully. In more than half of the 100 larger markets, for example, the T-Mobile-ATT combination would have more than 40 percent market share.

In its way, the government complaint tells a story, portraying T-Mobile as a particularly important competitor. With its pricing plans, T-Mobile has led in making smartphone service affordable to a mass market. T-Mobile, the government states, was an early adopter of smartphones that used Google’s Android operating system.

“The picture presented is that T-Mobile is not just any competitor, but a ‘maverick,’ in the term of art used in antitrust,” said Andrew I. Gavil, a professor at the Howard University law school. “So if it’s acquired, you remove a disruptive, innovative force from the marketplace.”

Article source: http://www.nytimes.com/2011/09/01/technology/can-t-mobile-carry-on-as-stand-alone-company.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Medtronic Giving Yale Grant to Review Bone Growth Data

August 4, 2011 by Leave a Comment

Facing intensifying scrutiny over one of its bone growth products, Medtronic announced Wednesday that it was giving a $2.5 million grant to Yale to oversee a complete review of the study data that examined the product’s safety and effectiveness.

In June, a medical journal charged that researchers sponsored by Medtronic had generated misleading studies about the product, called Infuse, that overstated its benefits and asserted that it did not pose risks.

Infuse is a bioengineered material used primarily in spinal fusions, a procedure in which vertebrae are joined to reduce back pain. Industry analysts have speculated that sales of Infuse have dropped since the periodical, The Spine Journal, published its special issue on the product.

Experts said that Medtronic’s action was the first time that a medical device maker would turn over the underlying and detailed patient data from company-sponsored studies to independent experts so that they could review it and draw their own conclusions.

Typically, companies release only summaries of that information, a practice that can hamstring the ability of experts to examine it.

Infuse has been used in about a quarter of the estimated 432,000 spinal fusions performed in the United States each year.

When The Spine Journal special issue first appeared, the company announced that it would respond to the publication’s assertions by conducting a review of all Infuse-related study information.

Under the plan announced Friday, Yale will use the $2.5 million provided by Medtronic to assemble of panel of outside experts, who will then commission two academically recognized research organizations to review the company’s study data.

Dr. Harlan Krumholz, a cardiologist at Yale, who will oversee the effort, said that Medtronic’s decision was groundbreaking because it would allow independent researchers to assess the underlying data supporting a product’s safety and effectiveness.

“Published data is often missing critical information,” Dr. Krumholz said.

Dr. Eugene Carragee, editor of The Spine Journal, said he was pleased that Medtronic officials had decided to release the data.

The plan will give access to the study data to other researchers along with the groups Yale retains.

Dr. Carragee, a professor at Stanford, said that he remained concerned that little study data exists for one major use of Infuse, a type of spinal fusion, because a study of that application was halted early when patients suffered complications.

Still, he added Medtronic’s decision was “a big step in the right direction”.

Side effects associated with Infuse include infection, bone loss, unwanted bone growth and male sterility.

A stronger version of Infuse called Amplify, was recently rejected for approval by the Food and Drug because of concerns about possible cancer risks.

Along with the recent issue of The Spine Journal, the Justice Department is conducting a criminal investigation of Medtronic’s marketing of the product and a Senate committee is also conducting an inquiry.

Medtronic has not been accused of any wrongdoing, and researchers who conducted research on Infuse have defended their findings.

Article source: http://feeds.nytimes.com/click.phdo?i=f7b810f5e9af8de32eaa623e943d352e

Filed Under: Business News Tagged With: , ,
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