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Quest Means Business
United Airlines CEO Warns Its Competitors That United Continental Will Be A Force To Be Reckoned With; Japan's Ongoing Nuclear Crisis, Government Demands Safety Review Of All Plants; Amazon Cloud Storm; Calling on the Boss; Royal Wedding Invitation
Aired March 30, 2011 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN ANCHOR, QUEST MEANS BUSINESS: Tonight, the chief executive of United Airlines warns its competitors we are force to be reckoned with.
(BEGIN VIDEO CLIP)
JEFF SMISEK, CEO, PRESIDENT, UNITED CONTINENTAL HOLDINGS: We are going to be a potent competitive force. And they're very scared of us. And they should be.
(END VIDEO CLIP)
QUEST: Japan's nuclear crisis, the government demands a safety review.
And you get off my cloud. Amazon's facing a backlash over its new music service.
An hour, a busy hour, because I'm Richard Quest and I mean business.
Good evening.
The world's biggest airline is the new United Continental. And tonight, the chief executive of United talked exclusively to us about how he plans to make it the world's leading airline. And he says other carriers should be afraid. In just a moment you'll hear from Jeff Smisek, the United boss.
First, though, look at the merger that created this aviation giant on a global scale and how it actually came to be. Join me, if you would be as kind, over in the terminal building. You see a merger of equals, is how it was billed. You had Continental Airlines, based in Houston. And you had United based in Chicago; the two formerly merged in October 2010. The totality, some 5,800 flights, to a whopping 371 airports. Now the new United covers, basically, just about every continent and now, since it has been happening, the two have been coming together and customers, flyers, should be noticing the difference.
From the airline's point of view, the aim is to get at least savings of $1.2 billion a year, and to create the world's leading airline. So much so far, so good. And largely that is because there is little overlap between the two. They have a lot of planes on orders, 787 Dreamliners and A350 planes from Airbus, the A350X. The object of the exercise for service, frequent flyers. Not this is really key. The new United Airlines has more frequent flyers in its program than the population of France.
So, when you try and put an airline together and you try and claim it to be a merger of equals, then you can start to see the difficulties. The boss of United is making bold promises. The proof will be in the pudding. Joining forces has been a long affair. I asked Jeff Smisek, the chief executive, if the merger, frankly, was going well?
JEFF SMISEK, CEO, UNITED CONTINENTAL HOLDINGS: We dated before we got married. We first of all looked at getting together in 2008. Decided to for all the right reasons. The right strategic combination, but the wrong timing, of the capital markets and oil prices and other things. We joined the Star Line, so we got to know each other well.
You know, airline mergers take a long time because we are heavily regulated. So just to get a singular operating certificate, so we can operate as a carrier, we're still in the process of achieving that. We hope to get that by the end of this year. And then you need to bring together work forces, so that for example, Continental flight attendants can work on United airplanes and United flight attendants can work on Continental airplanes. So that does take time, yes.
QUEST: What is proving to be the biggest issues?
SMISEK: So far? Well, you know, technology is always a big worry in any transaction like this, because there are different technology platforms. And that does keep you up at night. Because if you make a mistake in technology it's a pretty public mistake. You need to be careful and you need to migrate carefully and make sure that you are not losing data when you migrate. So, and we are of course, bringing carriers together at a time of some degree of stress in the industry with high fuel prices and of course the most recent problems in Japan.
QUEST: The work forces? Do you expect to have to lay off any more workers, across either of the two airlines?
SMISEK: No, you may remember, the reason this merger works so well is the network is spectacular. And the reason the network is spectacular is there is very little overlap. And so as a result there is very few workers who are losing their jobs.
QUEST: If you look at putting together two groups of pilots, two groups of flight attendants, unions wanting to ensure that seniority and perks are maintained, that must be a difficulty?
SMISEK: Well, the good news is that the co-workers are really excited about the deal. I mean, they-look, if you are an airline geek it doesn't get any better than this merger in terms of what we are building. So, I think my coworkers are excited, very excited about the transaction. Sure there are concerns for seniority integration of the two work groups, and different sets of work rules. But that's the things you work through in the negotiations with each worker.
QUEST: Frequent flyers are absolutely agog to know what you are going to do with the new merged program. And at this point, I have to express conflict of interest, of course, because I am one of those frequent flyers When are you going to reveal all?
SMISEK: Later this year we will reveal all. I think you are going to be-you are going to like the new program. Look it is a huge program. We have more members of our frequent flyer program than there are citizens of France, worldwide. This is a huge program. I think you will find the new program very attractive as a customer, and I think we'll find it attractive from United's perspective, as well.
QUEST: As the chief exec, you have the challenge of making sure that those members don't-you know, Groucho Marx' famous line? I wouldn't want to be a member of club that would have me as a member.
If you have the population of France, how do you make sure you treat each one as if they are the president of France?
(LAUGHTER)
SMISEK: I don't think we'll treat each one as though they are the president of France. I think what we have, tough, recognize that we have different tiers of members, some are as elite as you are, Richard, others not so much. And there are different benefits to go with each tier. I think the members, though, are going to enjoy the benefits of the tier as well.
QUEST: Right. Let me rephrase that. I suppose what I'm really saying here is, with so many members to ensure that you keep the quality at the new United-and you and I have talked before about this. You say it is not enough just to be the biggest, you've got to be the best. You have also got to make money. So that must take a lot of your focus.
SMISEK: It does, but you know, your point, I think, is well taken that we are really focused on delivering service. Because airline travel is not a seat, it's an experience. And we're very focused, I'm focused on making sure we have got the right culture at the new company. So, we can get the right level of service. So, whether you are a frequent flyer or whether you are an episodic flyer, when you get onboard a United aircraft you are going to have a good travel experience.
(END VIDEOTAPE)
QUEST: Jeff Smisek, talking to me. And later in the program you'll hear him talk about the industry, the aviation and airline industry, and particularly the rising price of oil.
In a moment, radiation readings in the seawater near the Fukushima nuclear power plant. They have reached their highest levels yet. What is the Japanese government doing to make sure there will be no repeat of the nuclear crisis? QUEST MEANS BUSINESS, good evening.
(COMMERCIAL BREAK)
QUEST: The Japanese government has made its first acknowledgement that safety measures at the country's nuclear plants are not up to scratch. Today it ordered safety upgrades to all of Japan's 55 plants. The work will start immediately. It must be completed by the middle of April. TEPCO, which operates the disaster-hit Fukushima Daiichi Plant, has announced that four of the sites reactors will be permanently decommissioned. Now, TEPCO shares fell almost 18 percent in Tokyo.
It all seems to be a bit too much, not surprising, for TEPCO's president, Masataka Shimizu, has been admitted to hospital suffering from dizziness and high blood pressure. The radiation leaks from the Fukushima plant are causing concerns across the globe as things-as the company has tried to deal with this crisis. Work around the clock preventing the leaks goes on. CNN's Martin Savidge is in Tokyo with the latest developments.
(BEGIN VIDEOTAPE)
MARTIN SAVIDGE, CNN INTERNATIONAL CORRESPONDENT: New concerns at another nuclear facility here in Japan as smoke rises over reactor No. 1 at the Fukushima Daini facility. It was actually coming out of the turbine rooms. Firefighters were called in. They saw the smoke was rising from an electrical panel. The electricity was shut off. The smoke went away. It does not appear to be anything related to anything nuclear. They are still keeping an eye on it right now.
As to the Fukushima Daiichi plant, there today, some success. They began draining water, highly radioactive water, out of the crawlspaces and basement areas of the turbine rooms. They need to do that to get the workers in there to start making badly needed repairs. Meanwhile, public attitudes toward public attitudes toward TEPCO are changing. Many people here growing increasingly angry at the big power company that owns those facilities. Saying they don't believe the company is telling them the truth.
UNIDENTIFIED MALE (through translator): Because the government doesn't want to take responsibility for this incident they are only giving minimal amount of information.
SAVIDGE: Meanwhile the chairman of TEPCO is speaking out today and he admitted that the company has not had a very good track record when it comes to communicating.
UNIDENTIFIED MALE (through translator): We are very sorry for causing troubles and concerns to the international community. And we are making efforts to get more updates out to people overseas.
SAVIDGE: There were also high levels of radiation that were detected in the seawater just off the Fukushima Daiichi nuclear plant. The levels were 3,000 times the legal limit. Health officials say that is not a concern for humans. You would have to drink almost the entire ocean in order to get sick from that. Still, what is a concern is the fact that the company apparently still cannot say exactly where that radiation is leaking from the plant, into the ocean. In Tokyo, I'm Martin Savidge. Back to you.
(END VIDEOTAPE)
QUEST: Martin Savidge in Tokyo there now.
On the markets and how they are trading in the midweek. U.S. stocks, they are showing solid gains and it was a result of President Obama's call for a greater energy production domestically. And there were two reports on job growth that stoked rosy feelings about the nation's economy.
(DESK BELL CHIMES)
If you look at the market, up 93 points, 12,373; just a gain of just shy of 0.75 of 1 percent. Those good numbers on the jobs out of the U.S. helped to lift the markets also in Europe, where in London mining stock also saw good gains. Vedanta Resources, the best of the bunch, 3 percent to the good. M&S, Marks & Spencer's, a place where people buy their underwear, amongst other things, the slumped on a downgrade. The German automakers MAN, Daimler, Volkswagen and BMW saw gains in Frankfurt and that is why you see the Frankfurt market up 1.75 percent.
So, moving along now. European markets have now been up for six days in a row. It is the longest winning streak since December. Bob Parker is the senior advisor at Credit Suisse and I asked him if the gains are part of a classic correction reversal.
(BEGIN VIDEOTAPE)
BOB PARKER, SENIOR ADVISOR, CREDIT SUISSE: Obviously, we had the major sell off on the Japan disaster. Since then, and very much so, over the last week we have seen investor capital return to equity markets. I think a number of factors. First of all, I think investors recognized that the sell off that we had post the Japan earthquake, was too extreme. And therefore values became very attractive. I think in addition, one should note, the action taken by the bank of Japan and by the G7, the G7 intervention to prevent yen appreciation, was very successful. And that has resulted in the yen reversing. Also the bank of Japan has injected significant volumes of liquidity in the domestic money markets in Tokyo and that has boosted the Japanese market.
QUEST: And of course there is a realization that whatever the supply chain affects, you know, it will not be worst-case scenario for global corporations.
PARKER: I think that is true. And then one also ought to add was that you know 10 days ago markets were very concerned about the nuclear situation. Rightly or wrongly, markets are now becoming more relaxed about that.
QUEST: Once they have moved back to their position of neutrality, as before the Japan incident, do we continue to see ahead of steam for equities. And I'm thinking here, because we're going to get first quarter numbers.
PARKER: Correct.
QUEST: In the next few weeks. It is all predicated that things- there is a slight slowdown under way?
PARKER: Well, I think there are a number of risk factors. The first risk factor is obviously what happens in the Middle East from now?
QUEST: Right.
PARKER: Does the oil price spike higher? My view is, probably not, it all hinges on what happens in Saudi Arabia.
Second risk factor is, are we going to see a slowdown in corporate earnings? The corporate earnings numbers I think are going to be good. They are going to be consistent with 10 to 15 percent corporate earnings growth this year. That is down from last year, but it is still a strong number to support equity markets.
QUEST: In which case, you know I always ask you where the smart money is going. So where is it going?
PARKER: Well, I think the other risk factor which is worth mentioning, is emerging markets central banks are still raising interest rates. So therefore, I think the underperformance of emerging equities will probably continue for another couple of months.
QUEST: Do you still like high dividend yields?
PARKER: Well, I think that on the thesis that the equity rally is going to be positive, but moderate, therefore you have got to focus on income generating assets and that is the high dividend equity sector.
QUEST: Remind our viewers what sectors we're talking about.
PARKER: Well, primarily it is sectors like the energy sector, which is obviously a hedge, against things getting worse in the Middle East. It is the telecom sector. It is health care.
QUEST: It is non-cyclicals?
PARKER: It's classic defensive sectors.
QUEST: Right.
We need to just talk about the Irish stress tests on their banks.
PARKER: Yes.
QUEST: Does the European stress test have any credibility left, bearing in mind that some of the big banks that were tested blew up?
PARKER: This time around, yes. And that is partly because they were not very credible the first time around. And the European regulators absolutely determined that this time they've got to be credible because if they don't you are then going to have a problem with the performance of European banks in the money markets and the wholesale markets.
(END VIDEOTAPE)
QUEST: It is always lovely to hear the good common sense and investment direction from Bob Parker. But, of course, as always we make no advice about where you should put your money. You pays your money, you takes your own choice. You win or you loose. Don't come after me hoping to get any back.
When we come back after the break, how to preserve one of the most sacred sites on Earth. Vatican City, it is a "Future City" and it is after the break.
(COMMERCIAL BREAK)
QUEST: It is the city within a city, a place of pilgrimage and of worship. Now the spiritual center for millions of Catholics across the world, it is Vatican City, of course. It is a holy relic in the middle of a living, breathing, modern, capital metropolis. Well, this week it announced it expects 300,000 people to cram into St. Peter's Square for the beatification of Pope John Paul II, which takes place on May 1. As I found out in tonight's "Future Cities", maintaining the Vatican's beauty and relevance, architecturally, well, that takes a lot of work.
(BEGIN VIDEOTAPE)
QUEST (voice over): Could this be the most beautiful border crossing in the world? The Colonnade in St. Peter's Square, this was intended to represent the arms of God embracing humanity, a symbol of unity, and of division.
ENRICO BRUSCHINI, VATICAN HISTORIAN: This is the official border of the Vatican City, or the Vatican State. So here, we are in the Vadia (ph); there, just across wide marble is Italy.
QUEST: The national boundary is the result of tensions across the centuries.
(On camera): Pope Pius the IX, famously described himself a prisoner in the Vatican; a sign of the power struggle between church and state. Today, relations of course, are much better. In modern Rome, the evidence that the mayor of the city and the Vatican work closely, is there to see.
GIOVANNI ALEMANNO, MAYOR OF ROME (through translator): We represent the civil authorities, they represent the religious authorities. We respect each other and try to work together for the good of citizens.
FATHER FREDERICO LOMBARDI, DIRECTOR, HOLY SEE PRESS OFFICE: There is a common interest for the well-being of the city of Rome, also, to have good relations. And for Rome it will be very bad if they don't have good relations with the Vatican, because they know very well that the Vatican is a source of life, of also, of economic activity.
QUEST (voice over): Recent relations, though, have had to endure sexual allegations made against Catholic priests. In spite of this scandal religious tourism is booming. The Vatican has made Rome the number one European destination for pilgrims. And of course, since you can't get to one, without going through the other, it has generated business on both sides of border.
Religious events, such as the pope's Sunday address, continue to draw large audiences. This stimulates the city's economy. And it also causes disruptions.
UNIDENTIFIED MALE: The only problem is for us Romans, Roman citizens, is when there is the public audience, and you can imagine the jam, the traffic around Rome becomes crazy. But we say, it is not too important if we think what the pope did in the past and are still doing. If Rome is so beautiful, we can see, thank you to the popes.
QUEST: Today, Romans might ask, but what have you done for me lately? Especially since adapting Rome's traffic system to the Vatican's and pilgrims' needs will be a difficult and expensive task. The Vatican, meanwhile, is modernizing, in its own way.
LOMBARDI: We are also a living organism in the City of Rome, and in the surrounding atmosphere. And then we have continued communication for (UNINTELLIGIBLE) with Vatican Radio, we have founded a radio channel, in FM, about the problems that we have in the city.
QUEST: Radio Vaticana recently celebrated its 80th birthday. It is one of the oldest radio stations in the world. And now broadcasts in 45 languages. The pope's latest thoughts are available on the Vatican's Twitter page. It is a symbol of the church's aim to keep up with the times.
(On camera): When you think of the Vatican you rarely think of progressive, and cutting edge, but there is a building here, just over there, that might make you rethink that.
(Voice over): On the roof of the Paul VI (ph) Auditorium, 2,500 solar panels power the building. Since they were installed the Vatican says they have saved the equivalent of 90 tons of oil.
PIER CARLO CUSCIANNA, DIRECTOR, VATICAN TECHNICAL SERVICES (through translator): It was quite difficult installing photo voltaic panels here at the Vatican. This is the only modern building that could support such a system. When the room is in use, this system guarantees autonomy in terms of energy. When the room is not used, the energy goes into the Vatican's network, and is used for the electrical systems of nearby buildings.
QUEST: Renewable energy on the Vatican insight, and it seems renewable faith on the congregations outside. Catholicism remains deeply ingrained in Rome's culture. Practiced in beautiful churches like Santa Maria. But not everyone in Rome is a believer and a follower.
BJORN THOMASSEN, POLITICAL SCIENTIST, AMERICAN UNIV. OF ROME: So many Romans have a quite reluctant relationship to the church and the role that it plays in the history of the city. And many Romans jokingly talk about the pope as a foreigner, that lives in a foreign state, and that he should have no influence over our daily lives. So you see a vary ambivalent attitudes.
QUEST: On certain doctrinal issues the Vatican is perhaps under no pressure to revamp, or radically modernize. But as a city, within a city, the Vatican must protect its legacy, even its mystery and modernize without upsetting its host.
As the city of Rome plans its future, it does so with divine intervention.
(END VIDEOTAPE)
QUEST: Our look at the Vatican ends this month's look at "Future Cities" from Rome.
When we come back, the boss of the world's biggest airline says people should be afraid to fly. He doesn't mean the passengers. He's talking his rivals. It is tough talk from Jeff Smisek in just a moment.
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(COMMERCIAL BREAK)
QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS, this is CNN. And on this network the news always comes first.
(NEWSBREAK)
QUEST: News agencies are reporting that fighters loyal to internationally recognized president, Alassane Ouattara, now control the capital of Ivory Coast. And residents say there are scenes of jubilation.
The U.N. Security Council is scheduled to vote just hours from now on a resolution calling for self-declared president, Lauren Gbagbo, to step down.
Rebel fighters in Libya are losing more ground to forces loyal to Moammar Gadhafi. An opposition spokesman said they've withdrawn to the Brega area and the rebels need weapons and they're open to training from foreign troops. The U.S. and UK say they have not ruled out arming the opposition.
Guyana (ph) will be facing Sri Lanka in the Cricket World Cup. Well, the noise -- India won today's semi-final match against their rival, Pakistan. The fans are elated. More than a billion people watched, including the two nations prime ministers, who attended the match together.
Right now, the price of oil is over $104 a barrel in New York. And that, of course, is giving great concern to most industries, but particularly to those in aviation and the world's airlines.
To return to my interview with the head of United Airlines, Jeff Smisek, I asked Mr. Smisek, with prices where they were, $104 plus, if he was OK with that.
(BEGIN VIDEOTAPE)
SMISEK: We need to make money no matter what the oil price is. And we need to adjust to that, which means investing in modern, fuel-efficient aircraft, engines, operations.
So we need to learn to make money in higher oil prices. And I believe that we're likely to have oil price for a -- high oil prices for a long time.
QUEST: So in that scenario, you've just to live with it, you obviously hedge, but hedging is only, at best, a...
SMISEK: Hedging is temporary. Hedging lets you live to fight another day, ultimately, when the hedges burn off, you're paying a higher oil price, right?
QUEST: So you're going to have to pass on some of this higher oil price to passengers?
SMISEK: Well, we have -- we have done so.
QUEST: And you're going to continue to do so?
SMISEK: And we will continue to do so, to the -- to the -- to the point that the market will permit us to do so. And that, and, of course, higher prices will decrease demand. And so we'll adjust capacity accordingly, as well.
QUEST: There's a camera. Feel free to tell me and the world what you think of the politicians that load your industry with taxes.
What do you think about them?
I mean in the UK, it's APD. In the United States, there's a variety of taxes on every ticket. And it looks as if the industry is going to continue to be a tax revenue machine.
SMISEK: Well, we are -- we are heavily burdened by taxes. And we're an important part of the economy. And higher taxes destroy jobs. It's just a fact. And let's take a look at the APD here in the UK. It's a curious policy to have an APD of -- of its magnitude for a -- for an island nation, because the UK is heavily dependent on -- on air travel. Certainly, if you're going to go interview somebody in -- in LA, you're not going to take a boat.
And -- and, also, I mean take -- if British Airways sells a ticket to an American, it's an export. So you're taxing an export here, which is a curious policy for any politician, to tax exports.
QUEST: It's not just the UK, of course.
SMISEK: No, of course not.
QUEST: Isn't it...
SMISEK: It's the same thing.
QUEST: It has a variety of them.
SMISEK: Yes, it does. We -- and we -- we're -- we're -- you know, we have a tax, as you know, more heavily than alcoholic, tobacco and firearms. We're taxed as a sin. It's a foolish policy but -- but governments get addicted to -- you know, get addicted to the cash flow.
QUEST: And they are -- and they just continue...
SMISEK: They can't help themselves.
QUEST: In that environment, do you see further global consolidation?
SMISEK: Well, I think you see consolidation in various geographies. You've seen it in Europe. You see it in Asia. You see it in Latin America. You've seen it in the US. Because of restrictions on laws of foreign ownership and control, there won't be trans-border mergers, because the laws prohibit them, which is not to say the laws couldn't be changed. I think that's improbable, though.
QUEST: Finally, you -- you are -- you -- every -- finally, every reference to United always now has "the biggest airline in the world." United, more planes than anybody else. United, the largest fleet and the largest employers in the world.
Other airlines are going to start capitalizing on that as being a potential weakness for your airline.
SMISEK: Well, I think they fear us and they should. The fact is, not only are we the largest, but we will be the leading airline. I mean we're very focused on customer service and that's why I'm so focused on the culture of the new company.
When we're done with this integration in about 18 months, and when we've got that all behind us, we are going to be a potent competitive force. And they are very scared of us and they should be.
(END VIDEO TAPE)
QUEST: Jeff Smisek with a warning to his competitors.
As we continue our program tonight, well, forget the plane, but we're going to stay in the sky. Actually, we're heading for the clouds with Amazon and its new music service. The record companies think Amazon has jumped the gun.
(COMMERCIAL BREAK)
QUEST: You may have been as fascinated by this story as I was. Amazon has launched its Cloud Drive, letting customers listen to music where they want and creating a record label storm in the process.
Now, users can have five free gigabytes of space on Amazon's servers. That's enough for about 1,200 MP3s. The files can be accessed anywhere and the problem is that Amazon hasn't consulted the record labels on licensing. It means it's unclear if there needs to be new agreements to use music files in this way.
For instance, Sony says it's disappointed and that it's keeping its legal options open.
Amazon has beaten its competitors to the bun -- to the punch, the punch, even. The bunch and the punch.
Apple and Google have been looking into similar services for years. But, of course, it's a licensing issue that they have to resolve. And while they've clearly dallied on the way, Amazon has jumped right in.
What are we going to be talking about?
Cloud computing. Well, you may be quite familiar with the phrase "cloud computing."
But how does it all relate to this particular incident?
I think we need to understand a little bit more about cloud computing. And this is what it's all about.
That is the cloud. Now, into the cloud, you have the servers. This is what Amazon has got. It's already got gazillions of space on its servers. And now what it's basically going to do is say you put your music on their server.
What do I mean?
Well, whether you're using a tethered computer with a desktop, whether you're using WI-FI with a laptop or the new wireless 3G, 4G, any G, G, you could use a Smartphone on that, as well.
The net effect is it doesn't matter where you are or what sort of device you are using. You are tethered and you are connected to the server, which is owned by Amazon. The information goes backward and forwards between there to your machines. It's still your -- it's still your music, but it's on their servers.
We need to talk more about this.
Joining me is Phil Gallo, who joins me from Los Angeles, the senior correspondent at "Billboard".
So cloud computing -- we know what it is and we know how it works.
So why -- what's so wrong with it when it comes to music from the record labels?
Are they just being miserable?
PHIL GALLO, SENIOR CORRESPONDENT, "BILLBOARD": They're -- they -- it boils down to control. I think that because they don't see themselves as having any kind of control in this situation, they, therefore, want to kind of say hey, what -- what about us?
We should be -- we should be asked about whether or not our -- our music should be placed up there.
Of course, it's not their music anymore. They've already sold it to the consumer.
QUEST: You see, that's the difference. There's a huge -- I mean, look, all right, I'm -- maybe I'm sounding a little partisan here and -- I mean it's one thing if I copy the music and give it to you.
Now, that's the old argument, isn't it?
But if I then just store it on your computer, it's very difficult to see they have much of a case.
Or am I missing the point?
GALLO: No, I -- I think that the -- what they'll eventually come around to is the music is streaming. And they've only really set up streaming when it comes to promotional activities. They're really not any sort of service where they make money from streaming. And I think that they're still in that strange place of how do people get this music, what is streaming, what is downloading?
We know how we make money from downloading, but isn't there something that, when somebody is streaming it for an audience of, say, more than one, who deserves to get some money from that?
QUEST: I -- I was about to say, because if you and I both have the same piece of music, "The Sound of Music," for example, and we both put it into the Amazon Cloud, it's not storing two pieces of the same music, is it?
It's just going to store one of the pieces of music and allow us to access it what -- when we want to?
GALLO: Theoretically, that would be true. The question becomes, if I sit in Los Angeles and I -- I download my -- all of my music and I post it up there on the cloud and then I take a trip to Madrid and I access that music and the person I'm staying with, I give him my login so he can listen to the music, too. And then I -- I pop over to New York and do the same thing, eventually, they could say, you know what, you're -- you're spreading your music out into places -- you're giving it away. And they've always -- that's always been what has confounded the major labels.
QUEST: Yes. And -- and you would rightly be -- be accused of being promiscuous with your music. But if we then try and -- the -- the record labels -- and I can hear -- I can hear the chief execs who are watching or the executives watching this fume. I can see the steam coming out their ears in this debate.
And, by the way, you can e-mail me at quest@CNN.com if you've got a point of view that you want to count into this -- quest@CNN.com.
But, Phil, as we finish, the music industry has spent many man hours trying to -- to manage this digital revolution.
Do you believe they've done a half decent job?
Or are they continually on the back foot?
GALLO: Well, you know, we had an interview on Billboard.biz today with the chief music executive from Amazon. They view this is as solving a problem that the consumer has. And so they are the retailer trying to solve a problem for the consumer.
The record companies have consistently said, how do we make more money from the offerings we're making?
They have not finding out how to be consumer friendly. They -- they have tried having their own sales operations. You see Sony.
QUEST: Right.
GALLO: They have their own devices that they want people to use to play back on. And it's -- it's -- the more it gets out of that we sell something to a retailer who then sells it to the consumer and it's a physical product...
QUEST: Right.
GALLO: -- the more the record industry just kind of recoils and says, we need a -- we need a new order and we don't know how to write it just yet.
QUEST: And, Phil, you and I will talk more about this.
I'm very grateful that you've come in from Los Angeles.
Many thanks, indeed.
If you comb know over here, you will see the classic reason why we are talking about this.
If you want to know why AT&T is so concerned, for instance, to get into and make itself bigger, it is, of course, WI-FI and wireless. The growth of these two areas of communications has led to this demand for AT&T to grow that little bit bigger.
And now, the boss of AT&T is making the case for its $39 billion merger with T-Mobile in the US. It's a deal which would transform telecoms, for good reason -- that reason.
(BEGIN VIDEOTAPE)
MAGGIE LAKE, CNN BUSINESS CORRESPONDENT: You have said that you are confident that this deal is going to get through regulators and that it's going to bring better service. But consumer groups are adamant about the fact that if there are fewer players, there will be higher prices.
Can you give any guarantees or any assurances that that is not going to be the result?
RANDALL STEPHENSON, CEO, AT&T: Well, the best assurance we can give is looking at history. You know, over the last 10 years, you've seen a number of business combinations occur in this industry. And over that same 10 year time horizon, prices have done nothing but decline consistently for 10 years. In fact, over that 10 year time horizon, prices have gone down by 50 percent.
And there's even an OECD study out looking at these businesses combinations and the effect that it's had on pricing in this industry. Their conclusion is that the consolidation has led to significant cost reductions and synergies, which have found their way into the consumers' pocket by virtue of low prices.
LAKE: I understand that from a business perspective. I kind of feel like as a consumer, that may have been true for a while. But now I feel like things are getting more expensive again as we move into these sort of more complicated data plans and -- and some of the competitors that seem to be left now are people who are not really in the same class. And that's certainly been the criticism of some of the competitors that -- that you mentioned, when you think about this, MetroPCS, that are kind of pay as you go, pay per month. And it's -- it's kind of a -- a dual class system. And that's what they're worried about, that that -- that's where the pricing pressure is going to come from.
STEPHENSON: Actually, if you look at -- take the new services you're talking about. You referred to the data services, if you will. 2007 was kind of the beginning of the broadband revolution, the mobile broadband revolution. In 2007, if you wanted to -- to use data on AT&T's network, to use a megabyte of data cost you about $1.90. Today, that costs $0.16.
So this data pricing, while consumption is going up -- in fact, if you look at consumption on our network, mobile broadband data is up 8,000 percent of that same period of time and pricing has come down, as I just articulated, from $1.90 per megabyte to $0.16 per megabyte.
So the data, the facts continue to suggest this is a hyper competitive market. I would suggest it's probably one of the most competitive in the world. If you look at key markets, Miami, San Francisco, T-Mobile is actually not even the fourth player. T-Mobile is the fifth player. These -- some of these providers that people talk about are small are actually moving into the position of being in one of the top three or four in several of these markets.
LAKE: Most analysts think that you are going to have to make some concessions. As compelling as that argument may be, that you're going to have to make some concessions, perhaps sell some assets. I know you're not going to negotiate which assets with me and tell me which ones you'd be willing to sell.
Is there anything that is off the table, that you just will not consider, in order to get this merger done?
STEPHENSON: Well, it's too early to probably have that conversation. We have done a number of these type of transactions over the years, as have most people in the industry. Each transaction we've made some concessions to -- to get over the DOJ's hurdles and concerns with specific markets. And I anticipate there will be some of those concessions in this particular deal.
LAKE: While we wait, there have been some concerns by consumers that AT&T is not ready to flip on the 4G, even though you sell 4G phones.
When is that going to happen?
Do you need the merger in order to do that?
STEPHENSON: We're deploying 4G now. And we're deploying 4G LTE specifically, which is next generation. We're deploying that this year. In fact, by mid-year, it will be deployed and by end of year we intend to have 70 million pops covered with our LTE footprint.
What this transaction does is allows us to go a step further. By putting these two companies together, it will allow us to do what neither company could do independently, and that is cover 95 percent of the country with these LTE capabilities.
And so here's 47 million Americans in rural America who will now have access to mobile broadband on the LTE, the latest technology. We then -- we think there's a very exciting part of this deal.
LAKE: So just to be clear, if the merger does not happen and it gets rejected, you feel confident that you are going to be able to meet the needs of your customers, deal with the capacity constraints that we've seen, roll out 4G without any issue?
STEPHENSON: We will not be able to roll it out as broadly as we will with this transaction. And the reality is what this transaction does, is you put the two companies together, because of the spectrum position and the sell site density that we'll now have, it gives us an almost immediate lift in capacity of 30 percent.
You need that capacity to help make these technology migrations and to accommodate the current growth in -- in mobile broadband usage.
(END VIDEO TAPE)
QUEST: That's the chief executive of AT&T, who is now starting the massive lobbying for his deal with T-Mobile.
So far, we've talked to Amazon, AT&T. They're two giants that charge you to use their product. Google, of course, more often than not, charges you nothing, now, nada.
Well, there's a fascinating article that says it's because Google sees you as the product, not the customer. And that could lead to anti-trust issues.
Read this article. I really enjoyed this one. You -- I've posted it on Facebook.com/CNNquest. So -- which proves the point, you're not the customer for Google, you are the product. And they'll market you and me anyway they can.
Jenny Harrison is at the World Weather Center.
There'll be no marketing going on -- Miss. Harrison.
JENNY HARRISON, CNN METEOROLOGIST: No, no, Richard. None of that. Just the absolute bare facts, yes.
Now, I'm going to start out, unfortunately, not with some particularly good news. The rain has been easing across in Thailand. I was telling you about this yesterday, showing you some pictures of the floods there. You can see in the last few hours, there's still been quite a bit of activity across these southern portions of the peninsula, you can see there.
But in terms of the actual amount of rainfall, well, again, in just the last 24 hours, we have seen nearly 250 millimeters into Surat Thani. And have a look at these images. There's some more into us. Because now, as I say, even though the rain has been easing off, it really hasn't helped the flooding situation. At least 11 people are now confirmed dead after these flash floods you're looking at that swept through eight provinces in Southern Thailand.
And obviously causing huge amounts of problems, as well, for thousands of people. And as I say, even though the rains are coming to an end, the floodwaters showing no real signs of abating just yet.
Now, let me just show the entire region we're talking about, because as I was saying -- showing you yesterday, some of the totals then had reached over 800 millimeters. Well, laths, in just the last 24 hours, we're now over a meter of rainfall since Saturday. This is 20 times the monthly average. So you really get an idea as to why we are seeing such widespread and also significant flooding in the region.
And then also, Ko Samul, as I was saying, a very popular destination for many tourists, if you're not living there already. Since Saturday, again, getting on for 950 millimeters. And you can see already, that's 18 times the monthly average there, as well.
Now, the rain, as I say, it is actually showing some signs of easing. But it really has inundated and affected so many thousand people -- 716,000 people. And I did mention the fact that a very popular tourist destination. So, as you can see, over 1,000 people just stranded on the islands.
But the rains beginning to ease off. I still can't stay it's going to be exactly dry. But we shouldn't be seeing the torrential downpours within those thunderstorms.
Now, another region we're watching is this northern area, on inland in particular, across Northern Australia. And, of course, Darwin, already, the first few months of this year, seeing more than their annual total amount of rainfall. And we are watching this for any possible tropical development. Even if it doesn't, it will continue to produce -- you can see there -- these very heavy amounts of rain.
The winds will be fairly strong along the coast, but if it doesn't develop into a cyclone, then we don't need to worry about that too much.
But look at these accumulations here over the next 48 hours. So some flooding likely in that region.
Some rain on the way to western areas of Europe, as well. It's going to be, really, in the form of a sort of a fairly persistent rain, but not particularly heavy. It will stay fine and dry in the south. The winds are not too bad right now. The winds will be increasing into the northwest. And that's where you could face a few delays at the airports as you go into Thursday -- Richard, back to you.
QUEST: Now, Miss. Harrison, get your large hat out and wear something suitably appropriate.
HARRISON: I'll do that.
QUEST: Because I'll -- well, you -- you'll do more than that. We're talking royal wedding and here...
HARRISON: (INAUDIBLE).
QUEST: Well, yes. Here on QUEST MEANS BUSINESS, our coverage begins tonight. And you are cordially invited. Well, not Jenny Harrison, but you are.
(COMMERCIAL BREAK)
QUEST: Join me in the garden. It's my great pleasure to extend a cordial invitation to the social event of the year, the wedding of Prince William and Kate Middleton.
Now, each week starting tonight, we'll be taking you through every aspect of the day -- the business, the economics, the right dos and don'ts and these rather nice, fancy cakes, too. Not a detail of the wedding will be spared and not on our detail of our coverage will be spared, too.
But, of course, it wouldn't be a royal wedding without an official range of china -- china plates, china mugs, pill boxes. One factory in England was commemorative china. And we were given a guided tour. Unfortunately, I'm not allowed to name the company. It's one of those conditions of making china for the collection.
Never mind, we sent Emily Rubin to have a look.
(BEGIN VIDEOTAPE)
EMILY REUBEN, CNN CORRESPONDENT (voice-over): They've been making fine bone china in this factory in the north of England for more than 200 years. But the industry has changed. Sales are down and this company was facing an uncertain future -- until it was chosen to produce the official wedding china.
MIKE DUVILLE, OPERATIONS MANAGER: In fact, it's grape leaves. We've engaged 50 percent more stock. We've doubled our production. We are working six days a week.
REUBEN: Every piece is made by hand using methods dating back 200 years.
DUVILLE: This man will do 3,000 or 4,000 pieces a day.
REUBEN: And this is the final product -- approved by Prince William and his bride-to-be, Kate Middleton.
NULA MCGOURITY, RETAIL DIRECTOR, THE ROYAL COLLECTION: And we're dealing with a very young couple here, who are modern and contemporary. So we wanted a design that was modern and, we think, a little bit romantic.
We actually put the designs forward toward them. But they've got an awful lot on their mind at the moment. So they were just -- we just wanted to make sure that they were happy with the designs that we selected. And they certainly were.
REUBEN (voice-over): The seal of royal approval doesn't come cheap. This mug costs $56 and it's $63 for a plate.
(on camera): The Queen's Gallery Shop here at Buckingham Palace is one of just a handful of royal collection shops where you can buy the commemorative china. Since it went on sale in December, it's outstripped all records, selling to 50 countries worldwide.
(voice-over): All money from the sales goes back to the Royal Collection, a trust that positives art and artifacts in the royal household.
No one is saying how much they'll raise, but with more than 70,000 pieces already produced, it's looking to be very lucrative, indeed.
Emily Reuben, CNN, London.
(END VIDEO TAPE)
QUEST: Now, the royals aren't the only weddings we're interested in. Planning the big day is a huge event, even for -- well, frankly, ordinaries like you and me. So we want to hear your stories. We're calling it For Richer, For Poorer. In other words, send us pictures of your big day, how you spent your money, what was that little touch that made everything that little bit special and what was the thing you wished you had saved your cash on.
So do send us an e-mail with your pictures and your advice.
If you were getting married again, what advice would you give?
Ah, you can't beat a nice cup of tea -- quest@CNN.com.
I'll have a Profitable Moment after the break, if there's any cakes left.
(COMMERCIAL BREAK)
QUEST: Tonight's Profitable Moment.
There are many ways to look at a royal wedding. You can look at it economically, in terms of the huge amount of tourism that is generated and the financial benefit.
You can look at it constitutionally, the thousands of years of monarchy all in continuity.
But fundamentally, it's a love story between the two people involved. And many British royal marriages have seen difficulty and ended in divorce, except, of course, the queen's, which has had so many decades of happiness.
Over the next weeks, there will be a lot of people who will say, why are we making so much fuss?
Well, I'll tell you. It's easy to say what's the fuss about, but in a world full of disasters and squabbles, what's wrong with enjoying a little cheer?
And that's QUEST MEANS BUSINESS tonight.
I'm Richard Quest in London.
Whatever you're up to in the hours ahead, I hope it's profitable. : "PIERS MORGAN" is after the headlines.
END
