Apple’s Big Push in Asia: Bloomberg West (09/06)

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Sept.6 (Bloomberg)-- Full episode of "Bloomberg West." Guests: UFC President Dana White, Bloomberg Contributing Editor Paul Kedrosky, Bloomberg's Jordan Robertson, Stephen Engle and Andy Fixmer. (Source: Bloomberg)

Live from pier 3 in san francisco, welcome to the late addition of "bloomberg west virchow -- "bloomberg west." i am emily chang.

Our focus is on innovation, technology and the future of business.

Let's get to the rundown.

Apple has asia in its sights.

Bloomberg news has learned that apple is close to a deal to bring the iphone to the largest cell carriers in china and japan.

Numeral reports say the national security agency can crack encryption keys for e-mail, online purchases and other web services gaining access to personal data.

How much could this hurt tech top players?

Ultimate fighting championship matches usually cost doers more than $60 on demand.

Why is the extreme sport offering some fights for free on facebook?

First, to the lead.

Apple is making a big push into asia ahead of its event next week.

Sources tell bloomberg is -- apple is nearing agreements with the biggest mobile carriers in china and japan.

Japan's largest carrier docomo says the company has not made any announcements or decisions.

Sources tell us that docomo could start offering the iphone this year.

China mobile, a deal with that carrier would give apple access to nearly half of china's wireless users and could read up company's sales.

Bloomberg reached out to china mobile but it has not yet responded.

How significant would these deals be?

Jon erlichman is in l.a. with more.

Yes, huge.

Arguably bigger financial implications with this than anything apple could announce at least in the short term.

Just because of the pure numbers, china mobile with more than 740 million subscribers is absolutely huge.

Earlier, we were talking about how it has taken so long to get other potential agreements in place.

In the case of china mobile, it is complicated.

Part of it was for technical reasons.

Another factor is, when you were not fully subsidized -- when carriers are not fully subsidizing the phone purchase , you are potentially looking at a much higher bill as a customer.

China mobile did not want the position where they had to offer a device that was going to be incredibly high-priced in a market where people are hungry for phones that cost $100-100 $50 and are new.

That seems the plan -- $100- $150. that seems the plan.

Obviously, some of the china mobile customers are in rural areas.

They are not necessarily the three g, four g type users.

We are still talking about a massive number of potential people who could be buying iphones in the short-term.

This lower-priced iphone, would you say this is a big shift in apple strategy?

I think we are going to hear so much talk in the coming days, the debate over whether indeed apple is taking a new view on how it sells product, at what price.

I think on the side that no, they are not making change, people will say they already have lower-priced products on the market.

If you don't when the iphone 5, you can get the four -- 4as s or 4. thinking about how competitors from the market, to offer so many phones at semi-price points, for apple to have one phone at a lower price does raise the question, is it a major shift or not?

Especially if there is this opportunity to get it to hundreds of millions of customers.

Jon erlichman, thank you.

Will apple's asian asterisk -- efforts pay off?

I want to begin paul kedrosky, an early-stage venture investor.

He joins me from san diego.

I want to start with china first.

We all know this would be a huge deal if apple finally nails china mobile.

What a deal like this seal apple's fate in china?

I don't think it sealed its fate, but if it hadn't -- let's put it the other way.

If it didn't do something that involved some sort of distribution with china mobile, it is very difficult to be optimistic about apple's long- run prospect in china.

It is such a massive hole in their distribution given the numbers for china mobile versus other carriers.

You have to have them as a distributor.

As a result, apple was looking for the right to the contract -- entree and the much rumored 5c is a lower end product.

I am assuming china mobile has eaten some of these concerns with respect to volume guarantees.

You put those two pieces together and you got yourself a deal.

What do you think is apple's fate in china?

Given that apple is really a luxury brand, yet we are expecting them to release a cheaper phone as well.

In some ways, this has been a mistaken notion in the first place.

That the only thing that would drive apple's success was a cheaper product.

That underestimates the chinese appetite for luxury products.

We have seen this across the host of other products where there has been incredible appetite in a rapidly urbanizing and more wealthy china.

Products that aren't just commoditized generic stuff that they have seen historically, products that have the luxury brand cachet.

Apple has long had that reputation worldwide.

It is one of the reasons you pay a 30% or 40% premium on laptops over laptops that are comparable size from other manufacturers.

The same is going to apply for apple in china on the phone front.

There is no question that the chinese consumers have the same appetite for luxury purchasing that they do in other categories.

It was silly to think otherwise.

Yet, in terms of -- apple is slipping in the ranks in china.

We are speaking with xiaomi ceo lei jun later.

Xiaomi is now above apple when you look at the smartphone rankings.

This is a company that sells cheap phones and just started three years ago.

I think that is true.

But this is kind of a blip along the way.

There is no doubt that apple -- china is going to move as quickly to smartphones at the rest of the world has.

One of the things missing was distribution outside major urban areas.

Apple has done fairly well in beijing and shanghai but poorly outside of those major urban centers.

This changes all of that.

You have the distribution, the numbers are going to change dramatically afterwards.

They haven't -- they are not racing past everyone, but they will be back to some sort of comparability with respect to numbers.

Looking at this potential china mobile deal along with a potential docomo deal, put this into context with us.

Apple and samsung are neck and neck worldwide.

What happens if apple does finally now both of these deals?

I think people are going to surprise people in china.

They are also looking at tripling the numbers of stores over the next year or so if every member the numbers correctly.

Apple is a pretty open marketplace -- it is also a really open marketplace in terms of the luxury halo effect that samsung does not get.

This is an attribute that samsung does not bring to the marketplace.

Apple is an aspirational product.

That is going to stand over the next couple of years.

You will see it become if not the dominant brand, number two in that market is.

Our sources are telling us this is not going to be announced next week, but it is coming to an -- coming soon.

Paul kedrosky, you will be back with us later.

Thanks, paul.

Will the next steve jobs come from china?

We hear from xiaomi's founder and ceo later this hour.

Up next, new leaks from edward snowden came -- claim the editing is -- the nsa can crack e-mail codes.

Remember, you can catch us streaming on your phone, tablet, and bloomberg.com as well.

? i am emily chang.

This is "bloomberg west." the nsa has found a way to break the encryption key keeping your e-mails, online purchases and on my medical records secure online.

That is according to new documents leaked by edward snowden.

Could this scare international customers away from services from american internet companies like google's gmail or cloud storage providers?

I want to bring in jordan robertson who covers cybersecurity forger -- four bloomberg news.

How egregious is this in comparison to the previous leaks?

This has a lot of security professionals shaken up.

Encryption is seen as a sacrosanct thing, that if you use encryption, you can protect your key medications.

Isn't it the job of a security agency to break the barrier down?

Exactly.

That is what the nsa was created to do.

It is different when these are proprietary codes used by a certain nationstate, when you talk about codes used worldwide, this is surveillance that we certainly would want to be applied to foreign countries, but apply to the u.s. is different.

What kind of companies, what companies could be hurt by this?

We saw an estimate today that said cloud providers -- like amazon, dropbox question mark -- dropbox question mark him -- dropbox?

Tens of billions of dollars lost over the next years because foreign companies might say, we can't trust you.

We don't know if you have inserted a backdoor into software that our citizens are using.

In some cases, you are not going to have many choices.

Trying to buy a pc without an intel chip or a router that is not cisco, something like that.

There are certain cases where they will not have much flexibility.

Instances where there is flexibility -- isn't it true though that if the united states has this capability, other countries have this capability to?

Very good point.

One analyst said to me this morning, a person who is very knowledgeable about these backdoors in technology, he said every government is doing this.

If there is a technology company in israel or china, the u.s. would exert an influence over tech firms.

Other countries would do the same thing.

This is buried so deep in the hardware, that is so interesting about the disclosure.

This is chip level infiltration.

Really hard stuff to look for.

You have to rip open the guts of the computer, look at it physically, a lot of analysis required.

What can consumers and businesses do?

Should we just assume that anything that is online is potentially reachable?

That is where a lot of people are today.

Without if you medications were encrypted -- the organizations that own the information can turn it over decrypted.

The idea that in correction itself, the mechanisms that create encryption are broken, has got a lot of people shaking their heads thinking, encryption is still good when a pride -- applied properly, but it makes it very hard to trust the communications that all of us have on the internet.

The story will continue to unfold.

Jordan robertson, thank you.

Are you a facebook user upset with the privacy policy?

The social network is listening to your complaint.

That is next on "bloomberg west." ? welcome back.

I am emily chang and this is "bloomberg west." you can also catch our early edition at 10 a.m. pacific.

Facebook recently proposed some policy changes on user privacy, trying to cram leprae -- clarify language on how photos and information might be used in advertisement.

They did users seven days to review and comment on the proposals.

Facebook poll bloomberg today they are taking the time to ensure that people's commissar reviewed and taken into consideration my next guest call this a big mess.

Back again with paul kedrosky in san diego.

Why is it such a big mess?

I just find facebook -- i was talking to someone about this earlier today.

I find them baffling with respect to this tone deaf notion they have about their own relationship with their customers.

I was trying to think of an example.

This kind of predatory notion of preying on your own customers.

Think about this privacy change.

The notion that got people upset is that they make it -- the changes were proposed.

The date you was -- the idea was it was much easier to use your name and image on behalf of facebook for brands who have a relationship with facebook.

This is madness.

The idea that if you don't pay attention on day one, on day two i show up in an advertising fang -- campaign.

I can think of no other major company that has the accommodation of tone deafness and predatory or relationship.

Are you saying we shouldn't trust facebook?

No.

i think it is very clear we can't trust them.

We can't trust them -- is very clear that for whatever reason , there is this kind of tone deafness with respect to changes and one of the key policy documents that dictate the relationship they have with all of us.

They will make changes in that relationship and a fairly capricious and opaque sort of way.

There are direct implications for how you continue -- how your relationship with that service is showing up in an advertising.

Paul, facebook has been down this road before many times.

Mark zuckerberg has apologized over privacy issues many times.

Why does this keep happening?

I wish i knew.

I assume it comes directly from mark.

That is a somewhat horrible thing to think that it is directly from the ceo.

I even went so far as to suggest to a colleague, the billion- dollar idea of the future is tracking facebook privacy screw ups as a service.

We could track all of this, people would subscribe.

That is how expected and common this is.

That is what is disappointing.

There is a lack of an adult relationship with your customers such that privacy issues are expected.

Do you think that to a certain extent, facebook as they have in the past is trying to push us beyond the current boundaries and at a certain point, we will get there, maybe we are not ready just now, but it will happen and inevitably, they are going to be able to use all of this information and photos however they want in the future and we have to be careful about what we put on facebook?

I don't think so.

There is maybe not a bright line but a fairly red line in terms of what they can do with their information.

We should help draw that line because to me it is completely unacceptable.

I get the idea that privacy boundaries shift over time and some people care and some don't. the notion of shifting capriciously is just absurd.

It is not having an novel -- adult personal relationship with your customers.

This is the reason why facebook dominance is important.

Because of this uneasy relationship they have with their customers.

Quickly, what should users do?

What can we do?

Should we not use facebook?

Doesn't think like that is an option.

I suspended my facebook some time ago.

Part of the reason, i didn't have a team of lawyers to read every change in the privacy documents.

What you are forced to do is pay attention to these issues because they have direct implications.

It is not reveal -- trivial stop -- stuff.

Practicing what you preach.

I like it.

Paul kedrosky, sticking to his word.

Thanks, paul.

A new photo app is causing quite a stir in tech circles as well.

Frontback is only a few weeks old but is quickly catching on with photo fans including ashton kutcher.

Jon erlichman has also been playing around with the app.

He caught up with the company's founder.

I have been seeing jack dorsey posting these on twitter.

What is is all about?

It is a symbol, -- a simple concept.

Error to cameras, one on the front and one on the back.

You can theoretically take pictures with both.

That is what they are doing.

A lot of times we do behind the scenes photos and you might use instagram.

I thought, let's try this out.

It sounds simple, technically it is a little complicated.

I spoke with the founder, who actually started another business and this was kind of a side project they were doing, so much so that they quietly launched this because they were fearful that investors might be an gray that they are focusing on something else.

It has taken off.

What is jack dorsey's connection to this?

He knows one of the investors well and actually, jack dorsey met with the thunder yesterday to talk about strategy.

He likes it.

His father likes it.

Tim dorsey is a user of it as well.

One thing that we should highlight is that this company, now that it has success, is going to make some changes or updates.

Next week, the company is going to make some updates.

They started this, when you think about a social network, is it based around stuff people want to do?

They want to try it with photos first.

People are interested.

Now they have two good on that instagram wrote instead, saying, who can i follow?

Thanks for bringing us that story all stop we will see you back here later in the stove.

? you are watching "bloomberg west" where we focus on the knology and the future of business.

Yahoo said it received more than 12,000 requests for user data from the u.s. government in the first half of this year.

That is more than any other country which shares information with the government about data collection.

The next highest requests came from germany and italy.

American tower, the biggest operator of cell towers in the u.s. has agreed to buy mip our holdings for about $3.3 billion.

The deal will bring american tower around 5400 towers in the u.s. as well as management rights to 9000 additional sites.

Fire at a factory in china has sent chip prices soaring.

Memory chips used in smartphones and pcs for companies like apple , suspended operations after the fire.

Chip prices have soared 19%, the highest level in three years.

The ultimate fighting championship has produced global events for 20 years.

Those events are viewed on television by millions of people and they are all paying for it.

Now, facebook is streaming some of ufc's content for free.

Jon erlichman has more from l.a. ufc has a long standing contract with fox and cable channels.

When it launched in two years ago, it didn't need a digital strategy.

Does a stream on facebook stand a fighting chance?

Dana white joins us now from las vegas.

Talk to us about the facebook strategy.

How it fits into everything you're doing.

As fight promoters, we try to -- the way that the ufc works, every fight, people want to see.

I can't do a television day where i can get every fight on television so we did a deal with facebook where we started streaming what we call facebook fights.

The first fights of the night stream live and free on facebook will believe.

Is that something that five or six years ago, you would have said, let's get a deal, another tv related deal where you can show those fights.

Now you go to facebook to do the same thing.

I guess you could say that.

What would have happened five or six years ago is they would not have been seen at all all stop -- all.

They would have gone into the library.

Now, because of the power of facebook and the distribution of facebook, we can put on these fights and people all over the world can tune in.

We say free, but does this open a new door for you when it comes to the advertising that is tied to facebook?

As far as the ability for you guys to make money, and you do make money.

How does it factor into this?

We do fight on youtube two.

Any type of social media or internet -- like i say, who knows where all this is going?

A lot of people believe that television is going to the internet.

We will see.

I know that you had concerns over the years about piracy and it seems like you have a pretty good handle right now on how things are being distributed.

Are you comfortable, still get frustrated about the paper views that end up somewhere that shouldn't have?

It is part of the business.

People are going to steal the product.

We really did crackdown a couple years ago.

We have been doing a pretty good job.

It doesn't drive me crazy.

It is part of the business.

As for the long standing relationship with fox -- now we have fox sports, what can you tell us?

What has been your interpretation on how things are coming along?

How important is it to your future success?

Our relationship has been great.

These are guys who did a content deal with us but are also interested in growing the sport.

We have delivered.

We have done a great job on fox sports one and you will continue to see more and more ufc on that network.

The answer to that question is yes, obviously if we can go on to fox sports 1 and contribute to building this thing into a real powerful network, it is definitely going to be good for the ufc you . what else could you be doing with them?

We launched it and we pulled it big number, and all the programming that we have done on fox sports number one for the fox -- top six rated shows on the network.

What i would like to see is you are going to see more and more ufc programming.

The fox factor through ufc, a big deal.

Good of you to join us.

Dana white joining us from las vegas.

Back over to you.

Thanks s much, john.

Some call him the steve jobs of china but xiaomi ceo lei jun says he thinks his company is more like amazon.

We sit down with the chief of the chinese smartphone maker that is beating apple next.

You can also watch us streaming on your tablet, phone and bloomberg.com.

? welcome back.

I am emily chang and this is "bloomberg west billionaire elon musk's space exploration company is trying out new ways for engineers to design rockets using 3-d technology.

Spacex posted an online video manipulating a 3-d model using hand gestures.

Musk explained the importance of this technology.

We are on the verge of a major breakthrough in design manufacturing, being able to take the concept of something from your mind, trance that -- translate that into a 3-d object on the computer and take that and be able to make it real.

Spacex is teaming up with companies like the motion -- leapmotion to make the technology work.

Xiaomi has already claimed a larger share of the chinese mobile market and apple.

Founder and ceo lei jun ticket -- took a page right out of steve jobs's book.

Bloomberg west.

Exclusive access to the product unveiling.

With a young steve jobs like haircut and wardrobe, lei jun has cultivated an apple-like old friends he in china for his three-year-old smartphone upstart.

Shall mean -- xiaomi means little rice in china.

Their devotion to the product is not unlike apple enthusiasts.

He has lots of new friends , but just don't call him the steve jobs of china.

A lot of people think we are china's apple.

I feel this only cap lowers -- captures part of it.

I feel we are different from apple and more like amazon, selling hardware at cost and stacking services and content on top of the hardware.

In terms of product style, ok, we are more like apple.

We are a little like both.

Except that xiaomi only began selling phones about 22 months ago.

Sales this year are far above their own forecast, selling more than 7 million handsets in the first half, beating apple and china and -- i can say that we are profitable.

I asked which one would win here.

Xiaomi.

Apple is more expensive and their handset is higher quality.

Xiaomi's system is better.

I think xiaomi is better.

It is more suited for chinese people.

Why would a young chinese person picked this one over this one, the iphone 5? i think both are cheap.

Lei jun is not going to be number one.

He hired hugo vara from google -- hugo barr a from google but he says there are no plans for an ipo and he is not seeking strategic partners for a company that he says is valued at $10 billion.

I am not interested in being a big company.

I hope to be a good company focusing seriously on a few products.

This is my personal goal.

I hope to have a small company where i can be at the frontline of the product line.

I have no interest in being a boss.

Maybe the opposing force here, in three years and a xiaomi has moved office five times" -- its workforce.

It is no longer a little company.

Stephen engle joins us from beijing.

Let's talk about the money xiaomi is turning a profit for the first time.

How has it been able to turn a profit so quickly when their phones are so cheap?

That is one thing that we kept on asking lei jun.

How are they profitable question mark -- how are they profitable?

They said it would be three years before they even break even.

They have already reached profitability.

Their new phone that sells exclusively with china mobile sells for only 122 u.s. dollars.

They told me that is priced at rock-bottom.

That is their cost.

That is what they are selling it at.

We asked again and again, how are you making money?

Their phones are on average about one third the price of an iphone or galaxy s4. physically, they are saying sales grew so fast, faster than expected, that they achieved scale faster.

They reduced cost, started making money more than a year ahead of schedule.

They are expected to triple handset sales this year to 20 million units and they just launched internet ready tv.

On top of that, they don't have bricks and mortar.

All of this is sold online.

They have no distribution network other than male.

The key for them is not the hardware.

There are going to give that away almost for free.

It is software and services.

That was stephen engle in beijing.

Samsung also revealed one of the most anticipated gadgets of the year this week, the galaxy dear smart watch.

-- lxe dear smart watch -- galaxy gear smart watch.

Ever since dick tracy was created, we have dreamed of a smart watch.

This is one of them.

It is the galaxy dear from sam -- galaxy gear from samsung.

It uses bluetooth to wirelessly connect to a samsung smartphone so it can make and receive calls.

It can also receive e-mails, text messages, and work with apps.

It includes a built-in speaker, microphone and a camera so that you can send audio and video straight from your wrist.

The smart watch has been a tricky proposition.

It is going to be expensive, costing around $299, more than the smartphone it is supposed to work with.

Battery life is supposed to be about one day.

Wristwatches have had infinite power since, i don't know, the 19th century given the cunning use of springs.

The real question is how it will function in the real world, ordinary average consumers.

We are talking about average consumers who are already smartphone users willing to spend an extra $300 for an additional gadget and don't mind carrying to gadgets, it narrows down pretty quickly.

That was sam grobart.

Ibm is teaming up with professional tennis.

We go behind the scenes for a look at the high-tech side of the u.s. open when "bloomberg west" returns.

You can also watch us streaming on your phone, tablet and bloomberg.com.

? a comeback.

I am emily chang.

In today's new hollywood, now that the fight from time warner cable and cbs has wrapped up, the focus is shifting to other companies.

Disney and dish network.

They have until the end of this month to reach a new deal on retransmission fees.

There is nothing to suggest these companies are gearing up for the same kind of public feud with saw between cbs and time warner.

Dish is known for being a feisty company and disney has a big negotiating ship with espn.

With us from l.a., andy.

Are there aspects of this that are similar to the time warner cable-cbs fight?

Absolutely.

Like cbs, abc wants retrans fees, which are phase that they pay to retransmit -- our fees that they pay to retransmit programs.

For dish, like time warner cable, dish wants more digital rights.

They want to build programming over the internet to their subscribers.

So their subscribers can acces ss espn or abc wherever they are.

There is a conflict there.

Isn't there some sort of ongoing legal dispute between them anyway?

With this, there is a lot of legal dispute.

Abc, along with the other broadcast companies, they are suing dish right now.

They have a feature called the ad hop which is apps commercials -- zaps commercials.

The broadcasters say, you don't have rights in your contract for this.

That is where that lawsuit came from.

Dish actually sued espn for violating its contract.

Dish said that espn was giving lower rates to competitors.

-- --'s -- dish's competitors.

They were awarded -- and dish is appealing.

They are trying to get a jury to rehear the trial.

Definitely some wrinkles in those talks.

How many households are we potentially talking about here for a potential blackout?

For espn or disney, they would be blocked on all of dish's 14 million subscribers.

That would be a pretty big impact.

For abc, it is a little less because they would only be affected in those markets where it disney owns abc stations.

However, those are the biggest tv markets in the country.

That is new york, los angeles.

It looks like a repeat of the cbs situation.

That is pretty substantial.

We will keep following the story.

Now, to tech in the u.s. open.

At the action heats up in new york, what does it take to process and understand the millions of data points produced by match play?

Ibm has created its own version of moneyball.

We got an inside look at how it works.

Tennis's roots may trace back to 12th-century france, but flash forward to modern-day flushing, new york.

The game and the way we watch has certainly evolved.

Advances are in large part due to official sponsors and i.t. providers like ibm.

Their technology has been a fixture of the game for over two decades.

How many different technologies are at play recording the game, gathering the data?

Three or four.

There is technology around capturing service speed which is radar.

The chair umpire system for recording score, the stats.

That all gets fed back to a central repository.

This eta has become a real game changer.

Over the past eight years, ibm has compiled more than 41 million data points from grand slam play.

Ibm has analyzed all the points and has created keys to the match, a predictive analytics algorithm.

What are the three keys?

Good indicators of performance.

We track those of the match progresses.

So it is kind of like moneyball for tennis?

Very much to moneyball for tennis.

In the 2012 u.s. open women's singles championship between the korea and -- victor ia and serena williams, they predicted that serena needed to win 54% of rallies.

44% of first serve returns and win 15% of first serve points with an ace.

That is exactly what she did.

Williams went on to win the championship.

They're trying to make sense of them, how to figure out how to monetize them down the road.

For years, what we did was present the data as data.

We visualized it, see how many first serves a player got.

Now, we are taking it to the next level where you can understand and get insight as to what the data means.

That was richard crane.

Now it is time for the bwest byte, one number that tells a lot.

Jon, you know, it is my favorite kind of bite.

The best kind.

13.2% is our buy.

That is apple's market share.

It is a surprise because we are into the cycle of the iphone 5, but it was posted to 17% last year.

It is a reminder that you have names like lenovo and samsung and lg which continue to grab a lot of share.

Maybe that is why apple is going to the low priced phone market.

We are all looking forward to apple's event next tuesday.

We will be covering it.

Everybody have a wonderful weekend.

We will see you back here on monday.

?

This text has been automatically generated. It may not be 100% accurate.

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