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Quest Means Business
New Rail Construction Project; Silicon Valley Spats; Digital Disney; Room Rates; Rare Earth Row Pits Europe, Japan, US Against China; Rare Earths Explained; US Trade Rep on Rare Earth Case; Rare Earths Global Chair Weighs In; US Fed Report; Dow Holds Above 13,000; Oil Prices Rising; The Millennials
Aired March 13, 2012 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
NINA DOS SANTOS, HOST: Rare earths and regular mud-slinging. The United States, the EU, and Japan accuse China of breaking international trade rules.
More jobs, more spending, and inflation it seems, at least, is at bay. Hopes from the Fed in its latest statement as rates stay low.
And defriended. Yahoo sues Facebook, taking patent wars into social media.
I'm Nina Dos Santos in for Richard Quest, and this is QUEST MEANS BUSINESS.
Good evening. Europe, the United States, and Japan are all accusing China of hoarding raw materials vital to the technology sector and they're asking the World Trade Organization, now, to intervene.
The nations say that China's policy on the export of rare earths breaks WTO rules. China has a virtual monopoly in this field, accounting for some 97 percent of the world's total population.
This country, however, has been tightening export restrictions on the materials since back in 2010, forcing up the price of rare earths around the rest of the world. Europe, Japan, and the US now want those restrictions lifted.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Now, if China would simply let the market work on its own, we'd have no objections, but their policies currently are preventing that from happening, and they go against the very rules that China agreed to follow.
Being able to manufacture advanced batteries and hybrid cars in America is too important for us to stand by and do nothing. We've got to take control of our energy future, and we can't let that energy industry take root in some other country because they were allowed to break the rules.
(END VIDEO CLIP)
DOS SANTOS: China insists that it isn't breaking any rules, here. Its Ministry of Foreign Affairs has been saying this: "China has worked out its own policy when it comes to managing rare earths, which is in line with those WTO regulations."
Now, despite being called "rare earths," these elements in question are actually not all that rare at all. In fact, they occupy vast swathes of the periodic table. Places like this, as you can see over here, and also this large chunk all the way over at the bottom of the periodic table down there.
If we hone in on some of these particular elements and just show you exactly why they're so important, you get an idea. Because what they do is they go into all sorts of everyday items that we use.
Let's start out with this first item, lanthanum. It's a particular substance of which huge amounts is needed for the production of batteries used in hybrid cars.
And as we all know, as people are more keen to become more environmentally friendly, well, those hybrid cars are becoming increasingly popular. One of the reasons why producers of those cars from the United States wants to see more of that lanthanum on the market.
Up next, if we take a look at this one, it's Yttrium. This is a particular substance used to make light-emitting diodes and also fiber optic cables. In our age of the internet, well, obviously, fiber optic cables, and access to the materials we need t produce them is paramount.
And then, finally, I want to move onto this particular element, here. It is neodymium. This element is used to make very strong magnets and hard drives. As we know, in this age of computer technologies, hard drives are really crucial to that cycle.
But also, they have a particular use in wind turbines and, crucially, for some of you who like music out there, they give that extra oomph to headphones and speakers in cars and also in your headphones, if you listen to in iPad, and so on so forth. So, these are some pretty crucial elements, here, in the supply chain for high-technology products.
Now, some critics say that the US made a mistake initially by letting China corner the market for rare earths and also, on the other hand, bear the brunt of the environmental damage that goes with producing these materials.
Ron Kirk is the US trade representative, and earlier today, he told me that this dispute isn't just about monopolies, it's about playing by those WTO rules.
(BEGIN VIDEOTAPE)
RON KIRK, US TRADE REPRESENTATIVE: The issue, first of all, Nina, is not about China cornering the market. The issue is about China living up to the commitments that it made when we granted them permanent normal trade relations status and voted to admit them into the WTO ten years ago.
And as part of that, China coveted to not negate in certain behavior in their export restraints on raw materials, which we challenged two years ago, and rare earths, we think, operate counter to that and have the potential to horribly distort the market, and also be another tool that China has used to try to force American manufacturers to relocate to China.
DOS SANTOS: But --
KIRK: So, we don't have any -- we're not challenging the amount they produced. We are challenging the way we believe they've unfairly distorted the market.
DOS SANTOS: But critics would also say that the United States decided not to produce rare earths themselves because it's extremely detrimental to the environment. You can't have it both ways.
KIRK: Well, you can -- listen. Again, we're not challenging China's actions to protect their environment, and to be certain, the United States is not alone in raising this concern. We were joined by the European Union and Japan in this case. When we challenged China's export restraints on raw materials, we were joined by Mexico and others.
Because we all recognize and understand China's being a part of this global economy can be a powerful tool to liberalize trade, but it isn't going to work if China only uses it to their advantage.
And the United States is going to look for alternative sources of materials, but that doesn't change and will not lessen our resolve to ask China to do one simple thing: you've got to play by the same rules as everybody else does.
DOS SANTOS: There aren't an awful lot of other producers in the world of rare earths. You don't have many options here.
Now, if China were to say, "Well, you know, we're limiting the supply of rare earths because it's detrimental to the environment," some of the byproducts are really very nasty, some of them are even radioactive. What if for environmental reasons, they want to curtail that supply themselves. You can understand why they'd want to do that.
KIRK: We -- again, Nina, I can't make it any more clear. This has nothing to do with legitimate steps China -- that China may undertake and probably should undertake to make sure that their mining of these materials is done in an environmentally responsible way. We applaud that.
But that's not what this is about. This is about China deploying a number of strategies over a period of years to artificially lessen the supply of these rare earths while making sure they are available in abundant supply to their own manufacturers.
And I think you can understand the damaging effect that has on the market, and especially when China expressly coveted not to engage in this type of behavior when we admitted them into the World Trade Organization.
So, you can absolutely have proper environmental stewardship, but you can also provide these materials in a way that's not discriminatory or market distorting.
(END VIDEOTAPE)
DOS SANTOS: Well, this dispute is driving a wedge between the world's major trading partners. Chinese trade with the United States was worth more than $450 billion in 2010. And on the other side of the equation, trade with Europe came to about $500 billion.
Ivor Shrago is the non-executive chairman of the Chinese mining company, Rare Earths Global, and he joins us now, live in our London studio.
First of all, Ivor, it seems as though the United States trade ambassador is forgetting something. They do have some rare earths themselves, don't they?
IVOR SHRAGO, NON-EXECUTIVE CHAIRMAN, RARE EARTHS GLOBAL: There are a total of about 110 million probable, extractable rare earth elements. He is forgetting that 19 million of those are actually in the US.
The US took a deliberate decision some 20, 25 years ago not to use its own product, but to buy the completed product. As a consequence, China has developed a particular skill and expertise in extracting and, more importantly, refining the rare earth from the rare earth oxides in their separation plants.
That skill is with my company, and we in fact welcome more rare earth from outside because we are able to export our skills in helping them to develop their own mines.
DOS SANTOS: That really is one of the issues, here, isn't it? It's the technology that was involved 20 years or so ago to get what was then a rather unpopular byproduct of the mining industry out of the ground, is also toxic doing so, isn't it? To the environment.
SHRAGO: No, it's not. The way we do it with the mine that we extract the rare earth from, we do it by in-situ leaching method, which is a method by which -- holes are drilled at the top of the mountain and then the result in -- and filled with a solution of water and ammonium carbonate. And then it is --
DOS SANTOS: Soaked through --
SHRAGO: -- soaked through, and then carried into containers, which is then dried, filtered out through a further solution of water and ammonium sulfide. And then, eventually, it is taken off to our separation plant, and then filtered out into the separate elements.
DOS SANTOS: But originally, about 20 years ago, when places like the United States were deciding whether or not to develop this particular skill, it was considered environmentally dicey at that point.
Now, if we talk about where we stand now in terms of the supply chain, isn't it a question of a lot of people want to use high-technology, touch- screen phones, touch-screen tablets and, to a certain extent, the United States has just found itself on the wrong side of this equation?
SHRAGO: Well, there is. They took a wrong decision. And if you look at, say, this iPhone, without this dysprosium, this would be about four or five times its size. We'd still be back in the 1980s in terms of size with our electronic equipment.
DOS SANTOS: Just ever so briefly before I go, they're saying that this isn't about just rare earths, it's about the rules of trade in accordance with the WTO. What's your comment to that? They're saying just, places like China aren't playing fairly by the rules that they've signed up to.
SHRAGO: It's an election year.
DOS SANTOS: OK, Ivor Shrago, thanks ever so much for joining us.
Now, the Fed statement is out, and there's a warning over the price of oil, as some analysts have been expecting, some might say. We'll take you to the ins and outs of what Ben Bernanke has to say about it next.
(COMMERCIAL BREAK)
DOS SANTOS: The Federal Reserve says that the United States is heading for a spell of higher than expected inflation, and that's basically because of the recent spike in the price of oil and gas. Policymakers released their statement about an hour or so ago and, in it, they say that inflation is likely to rise in the short term, as oil and gas head in the same direction.
There's better news when it comes to the unemployment front, though, because the jobless rate is expected to fall, albeit, though, gradually. And, as expected, the Fed also decided to keep interest rates on hold at their current, ultra-low levels.
Well, investors are focusing not only on the Fed's decisions, but also crucial to this is the language that it decided to use to communicate what it said today. Maggie Lake has been taking a look over the report, and she joins us, now, live in New York. Any surprises, Maggie?
MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: Only at the margin, Nina. And let's be really clear about that language, because it matters so much. For the most part, the Fed really sticking with its assessment of a sort of moderately improving economy, even though the data stream we've seen lately has been pretty darn good.
When it comes to inflation, which you mentioned in the intro, though, let's talk about that. They did admit that, in the short term, they acknowledge the fact that gas and oil prices are going up, but they were very careful about what they said.
Inflation has been subdued in recent months, although prices of crude oil and gasoline have increased lately. Longer term, inflation expectations, however, have remained stable.
Now, that means that they're not worried about it. They see it at the register, just like we do, but they're telling the market they're not worried about it.
The other difference in this, the departure from the statement we saw last time around, was interesting what they had to say about the global situation. This, of course, had been a big concern, what's been happening in Europe, the fact that everyone was worried about contagion.
This time around, they say that the strains in global markets have eased although, they go on to say, they still think the situation presents downside risk.
All in all, the Fed has been a little bit more reluctant, Nina, to sort of acknowledge what most analysts see as an improving US economy because they're worried, I think, about the market running ahead of them.
And in fact, if you took a look at what happened in the market reaction today, stocks were already in rally mode, so the reaction wasn't really felt there. It was in the bond market. We saw yields on the ten- year benchmark bond yields here in the US rise higher.
Why? Because the Fed didn't make any mention of any more quantitative easing, they didn't say anything at all, in fact, and a lot of people are beginning to think, given what we've seen going on with the economy, that that stimulus may be coming to an end, and you're seeing bond yields go up.
The Fed doesn't want that to happen. They want to keep borrowing costs low through 2014, they reiterated that calendar date again. They don't want the market to get ahead of them. It presents an interesting conundrum for the Fed.
The one last thing I'll tell you is that, while there was no mention of quantitative easing of any kind this time, that Operation Twist, that buying of longer-term maturities is going to end in June.
Most market participants think in that April meeting, the next meeting, they're going to have to telegraph what they plan to do about that. We didn't get any hint this time, but that means that next meeting becomes all the more important to the market. And again, you're already seeing the bond market running up in anticipation of that. Nina?
DOS SANTOS: Yes, you certainly do, especially given the fact that Operation Twist was supposed to flatten that all-important yield curve. Maggie Lake, as always, good to see you. Many thanks for that.
Well, Maggie was just telling us about the market reaction in response to the Fed. She was just saying that markets -- equity markets were already in rally mode before this, but the Dow was actually already at a 13,000 -- above 13,000 just before that statement came out. As you can see, it's currently at 13,128, up by 168 points, or 1.3 percent.
Let's go over to Alison Kosik, who's live at the New York Stock Exchange, to tell us why and what the market reaction was.
Alison, you made some pretty good predictions this time yesterday saying that they probably weren't going to talk about quantitative easing, obviously weren't going to talk about moving rates. So, the market has seemed to be pretty strong. It seems that they were already in buying mode before.
ALISON KOSIK, CNN CORRESPONDENT: Yes, exactly. So, the market is actually rallying for three reasons. What you'd -- what we've seen sort of happen in the past, literally 20 minutes, is the market kind of shoot higher on news from JPMorgan Chase that it's going to go ahead and buy back up to $15 billion in shares and offer its dividend.
This, of course, coming ahead of the results coming out from the Fed's bank stress test of US banks to find out if these banks are strong and in good condition. So, JPMorgan Chase making this announcement.
Immediately, we've seen bank stocks shoot higher, anywhere from 3 to 5 percent, Goldman Sachs up more than 5 percent, Bank of America shares up 3.5 percent. JPMorgan Chase shares up almost 6 percent on this news. That's why you're seeing this extra push higher on the Dow, as we see it, 167 points higher.
But even before that, yes, the market was rallying before the Fed had its meeting. What investors pretty much liked about this is that the Fed didn't take another stimulus off the table, that the Fed wound up leaving the door wide open about a stimulus, and that the Fed really didn't say anything unexpected.
There was also some relief that Operation Twist remains in place. Of course, that's about shifting that $400 billion from short-term to long- term bonds.
But yes, we did see the market rally for those two reasons, and then a third reason: retail sales in the US made their biggest gain in five months in February, rising 1.1 percent. It's showing that American consumers, especially, are buying cars and trucks, even though they're paying more for gasoline.
So, that retail sales number really giving the market that initial push, because it shows that consumers are holding up spending-wise, despite the fact that gasoline prices head higher on a daily basis. Nina?
DOS SANTOS: OK, great. Alison Kosik joining us there, live at the New York Stock Exchange. Many thanks for that.
Now, oil prices continue to rise in today's session. It's something that both Maggie and also Alison were talking about in their respective pieces just before.
Let's have a look at how NYMEX crude is trading at the moment. As you can see, it's adding another 70 cents or so on the barrel at the moment. It's up more than 12 percent over the course of the last three months alone.
And if we take a look at the main European contract, which is often more reactive to some of the geopolitical events that underlie this high oil price, well, Brent is currently up above $126 a barrel, it's up more than 20 percent since just the start of this very year.
Up next, we meet two more of our Millennials. App -- the gap years might sound like fun to some, but for these guys, it's a question of serious business and for this firm to succeed. Stay with us to find out what they do.
(COMMERCIAL BREAK)
DOS SANTOS: Tonight, we continue our series on The Millennials. Last week, we introduced you to 22-year-old Michael Burbach in New York, a photography assistant and also an aspiring actor, as well as Milli Bongela in Johannesburg, the 26-year-old fashion blogger.
And this week, we bring you two more. In London, Joe Braidwood, 26 years old here, and already he's chief marketing officer for SwiftKey, that's an award-winning app.
And in Santiago, Chile, we have David Lloyd. He is 27 years old and already managing director of his own company. These two are both part of a new generation that's bent on success -- on its own terms, though.
(BEGIN VIDEOTAPE)
UNIDENTIFIED CORRESPONDENT (voice-over): They are young and confident, educated and ambitious. Born in the 1980s, they are the new generation entering the workforce, and their thirst for success knows no bounds. Meet The Millennials.
JOE BRAIDWOOD, CHIEF MARKETING OFFICER, SWIFTKEY: I just want to keep you in the loop on that.
UNIDENTIFIED CORRESPONDENT: In London, 26-year-old Joe Braidwood, chief marketing officer for tech start-up SwiftKey.
Morning has broken. Already, commuters are hurrying to work. Behind them, the view is imposing, as St. Paul's Cathedral makes its mark on London's historical landscape. Hoping to leave his own stamp on his workforce is this 26-year-old.
BRAIDWOOD: I'm Joe Braidwood, I'm the chief marketing officer of SwiftKey.
UNIDENTIFIED CORRESPONDENT: Joe's trajectory has been typically Millennial: out of university and with a law degree in hand, he jumped right into the workforce, working as a journalist for British broadcaster Sky News.
BRAIDWOOD: I was this sort of young, fresh-faced person with not much experience at all coming in and saying, "But this is all wrong. We should be doing things, thinking about the instant audience of people that you can communicate with online."
So, I helped introduce Twitter at Sky News when I was there, and there were a lot of people in the industry at the time who would say, "Oh, it's just Twitter," and "I don't think this is anything that's going to last, it's just a fad, you kind of geeky child obsessed with new technology."
We need to delay the promotion. So, I just wanted to keep you in the loop on that.
UNIDENTIFIED CORRESPONDENT: In the loop and on Twitter, Joe's got all the Millennial jargon, and he's using it at work, promoting and marketing SwiftKey, a tech start-up that creates apps using linguistic technology. In other words, predicting what you're going to write next.
BRAIDWOOD: What's so great about this company is that it's acknowledged that we're all Millennials that founded it, we all worked together to build something that we don't rest on our laurels, but we don't come to the table with any preconceived ideas about what we're going to achieve.
UNIDENTIFIED CORRESPONDENT: There's no doubt this maturity will push him to new levels.
BRAIDWOOD: I wouldn't say necessarily that I work harder, but I think that I'm more dynamic.
UNIDENTIFIED CORRESPONDENT: But it will be his Millennial ambition that will take him places.
BRAIDWOOD: Thinking ambitiously, I don't think, is a bad thing.
UNIDENTIFIED CORRESPONDENT: As the company grows, Joe knows there's a chance that they may be bought out.
BRAIDWOOD: I quite like the idea of a kind of a guide.
UNIDENTIFIED CORRESPONDENT: Can he control his own destiny?
DAVID LLOYD, MANAGING DIRECTOR, INTERN LATIN AMERICA: What time can we meet?
UNIDENTIFIED CORRESPONDENT: In Santiago, Chile, meet 27-year-old David Lloyd, managing director of Intern Latin America.
Santiago, Chile. One of Latin America's most vibrant economies, a hotbed of entrepreneurship, land, and new opportunity.
LLOYD: We can keep a theme in TMI.
UNIDENTIFIED CORRESPONDENT: Looking to make it here is this young Englishman.
LLOYD: I'm David Lloyd, I'm 27, and managing director of Intern Latin America and Intern London.
UNIDENTIFIED CORRESPONDENT: Starting up a business in Chile is not the first big leap this Millennial has made. Two years ago, he quit his job on the trading floor at Merrill Lynch in London and became his own boss.
LLOYD: Obviously, you trade kind of security and financial security for doing something which is potentially kind of a lot more exciting and challenging, and that's kind of a balance that you have to -- that I had to make.
UNIDENTIFIED CORRESPONDENT: David took a typically Millennial gamble. He spotted an opportunity and ventured to South America, where he launched his own company, Intern Latin America, providing students with internships throughout the continent. In no time, he was doing press for Colombian TV.
(LLOYD SPEAKING SPANISH)
UNIDENTIFIED CORRESPONDENT: Today, it seems, his gamble has paid off. David has received a $40,000 grant from Start Up Chile, a government program.
LLOYD: Obviously, the money is the thing that stands out, but the reality is that the connections, environment, and everything in Start Up Chile for me is by far the biggest benefit.
UNIDENTIFIED CORRESPONDENT: Taking the grant means this Millennial has everything to prove.
LLOYD: You do so something off the kind of normal path, and you instinctively can feel a bit defensive, potentially, and you really want the thing to be a success.
UNIDENTIFIED CORRESPONDENT: A simple task for someone who's always been an overachiever.
UNIDENTIFIED FEMALE: How ambitious would you say you are?
LLOYD: Very ambitious. Work's priority, 100 percent.
UNIDENTIFIED CORRESPONDENT: Keeping up with his own ambition, now that could be more challenging.
LLOYD: I've got no interest in kind of doing nothing, being lazy. Achieving nothing would be very disappointing for me.
UNIDENTIFIED CORRESPONDENT: Next week on The Millennials.
(LLOYD SPEAKING SPANISH)
UNIDENTIFIED CORRESPONDENT: Networking in a foreign language, David works the salsa floor looking for business opportunities in Santiago.
And working your profile. Joe takes us with him to Las Vegas as he takes on the Consumer Electronic Show.
(END VIDEOTAPE)
DOS SANTOS: And, of course, you can join in the conversation on Twitter or Facebook. Get in touch, let us know what you think of our Millennial series. The big questions we're asking out there is, do they inspire you, or do they just make you feel, well, frankly, old? The hash tag is #cnnmills, or you can also access our Facebook site at facebook.com/cnnquest.
Up next, Europe's biggest construction project blasts off.
(BEGIN VIDEO CLIP)
(HORN SOUNDING)
(END VIDEO CLIP)
DOS SANTOS: The mayor of London sounds the horn to start the tunneling. We'll go underground to bring you the full story.
(COMMERCIAL BREAK)
DOS SANTOS: Hello.
Welcome back.
I'm Nina dos Santos.
You're watching QUEST MEANS BUSINESS.
And these are the main news headlines this hour.
As Afghans protest Sunday's alleged massacre of 16 civilians, we're learning more now about the American soldier accused of the rampage. Officials say that the suspect is on his fourth deployment but his first in Afghanistan. They also say that he suffered a traumatic brain injury in 2010 in Iraq, but was subsequently cleared for duty.
A Syrian opposition group says the security forces have killed at 36 people this Tuesday. Video posted online appears to show a recent explosion in Homs. Another opposition group says that defecting soldiers killed 12 troops during an ambush in Southern Daraa Province.
In Southern Bangladesh, at least 32 people are dead after a ferry carrying at least 20 -- 250 people capsized on its way to the capital, Dhaka. As of Tuesday evening, officials say that around 35 people have been rescued and at least 60 people remain missing. The ferry sank after colliding with another craft.
New arrests in Tuesday in London in connection with the U.K. phone hacking scandal. Well, police say that six people were taken into custody on suspicion of conspiracy to pervert the course of justice. One of them is Rebekah Brooks, the former editor of the now defunct "News of the World" tabloid newspaper, who is also a News International executive.
British Prime Minister David Cameron has just arrived in Washington for official talks with Barack Obama. The two leaders are expected to focus on a timetable for troop withdrawal from Afghanistan and also to talk about the conflict in Syria.
Two budget deficit blowouts and two very different responses from the European Union. The EU is suspending $650 million worth of aid to Hungary. It says that Budapest has failed to show that it can bring its deficit under -- under 3 percent of GDP by the year 2013.
Well, the EU says that it will reconsider only if Hungary manages to pass more budget cuts by the month of June. This is Spain's finance minister, though, receiving an unusual greeting here from the Euro Group president, Jean-Claude Juncker, in Brussels today. Now, despite appearances, European leaders are giving Spain an extra breathing room here, because they've agreed that the country should cut its deficit to 5.3 percent of its GDP this year. That is still well above its original target of what I believe was 4.8 percent before.
Well, German investors are also breathing a little easier these days, according to the latest numbers from the ZEW Index. Well, the German think tank says that its reading of investor confidence is currently at its higher level -- highest level in nearly two years.
Europe's main markets are at an eight month high. The Xetra DAX, obviously the market in Germany, broke through the 7000 mark, to finish up more than 1 percent.
Markets had already closed by the time Fitch decided to upgrade Greece's own sovereign debt rating to a level of B minus, with a stable outlook. Do remember that this follows Monday's debt swap, but it has upgraded it to from a "restricted" default rating, which was only put on on the 9th of March.
Europe's largest construction project is underway. Digging has started on the $23 billion Crossrail scheme to link East and West London.
Jim Boulden caught up with London's mayor, Boris Johnson, to take a look at the giant drills that are likely to carve out a significant route under the British capital.
(BEGIN VIDEOTAPE)
JIM BOULDEN, CNN CORRESPONDENT (voice-over): Sounding the horn for London and kick-starting one of Europe's biggest construction projects. These boring machines will soon tunnel under London to add a fast east-west train service far below the capital's creaking Victorian-era transports.
(on camera): In all, there will be eight of these giant machines, creating 21 kilometers, or 13 miles, of tunnel under London. The plan is to have the entire railway operational by the end of 2018.
(voice-over): Never one to miss a photo opportunity, the mayor is touting improvements to London's transport during his reelection campaign.
BORIS JOHNSON, LONDON MAYOR: That east-west corridor will be massively improved. It's going to be like the RER in Paris, only much, much better.
BOULDEN (on camera): And you've had to scale back the budget a bit, though. And you have to be a bit more realistic, I guess, within that sort of budget?
JOHNSON: Yes. We've -- we've taken cost out in a pretty relentless way. In the end, though, you've got to go ahead with the project. This is an amazing thing. This will -- this will liberate loads of Londoners from the -- the oppression of being jammed together in the tube.
BOULDEN (voice-over): Crossrail has been in the planning stages for decades. Now, firms from the U.K., Germany and Spain are heading the tunneling portion of the $23 billion rail line.
Britain was once burdened with a reputation of big projects being late and over budget. Crossrail could Crossrail could literally build on build on Britain's more recent reputation of getting big projects like the Olympic Park completed on time and on budget.
PHILIP CAVE, KIER CONSTRUCTION: Whether you're doing the Olympics or you're doing Crossrail, you need to work with a whole range of people, from the design experts to the clients on the land-based side of life, also to the contractors, where we understand the costs and the risks which are associated with a project. Yes, it creates work and volume of work through the business, but it also builds reputation. We can take that reputation and we translate that to work both in the U.K. and internationally.
BOULDEN: The train service will have limited stations in Central London. So it will cut the journey from Heathrow Airport to London's financial center in half, to 32 minutes, with no need to change trains.
ANDREW WOLSTENHOLME, CEO, CROSSRAIL: For one ticket at Heathrow, for instance, just go right their way across London. It has a huge opportunity to connect to the existing line. So it relieves the lines that are already here.
BOULDEN: If the 73 mile line can be opened with little hassle and within budget, there are plans for a second Crossrail, running southwest to northeast London.
Jim Boulden, CNN, London.
(END VIDEO TAPE)
DOS SANTOS: Now, Yahoo! has updated its status with Facebook this morning. And, yes, you guessed it, it's complicated. So much so, in fact, that they're going to the federal courts. We'll explain why after the break.
(COMMERCIAL BREAK)
DOS SANTOS: Well, if you've seen "The Social Network," you'll know that Facebook is no stranger to the world of lawsuits. Well, now, it seems to have another one on its hands. And this time, it comes from Yahoo!.
Now, Yahoo! has been saying that Facebook owes it money for 10 patents to do with things like online messaging and social networking. As a result, it's taking it to the federal court, marking the first big patent dispute in the world of social media.
These kind of lawsuits have been the hottest trend for smartphones for years now, it seems, with everybody in Silicon Valley suing one or the other. And this is just kind of a snapshot of the picture that we have at the moment.
Let's start out with Yahoo!, because it's one of the protagonists today. Yahoo! sued Google back in 2004. And that ended with Yahoo! being awarded millions of Google's shares.
Since then, Google's Android software has seen several lawsuits and counter-suits involving Apple.
Now, speaking of Apple, the late Steve Jobs once said that he would wage, quote, "a thermonuclear war" against Android. He thought that it was based on stolen ideas between Apple's own IOS system.
And Apple has filed a string of lawsuits itself against all sorts of companies that do use Android, like, for instance, HTC and also Samsung. And, also, let's not forget Motorola, which decided to sue Apple back in 2010. Google is so worried about patent lawsuits, that it seems to be spending about $12.5 billion just to buy Motorola's own mobile business, Motorola Mobility.
So it really seems to be a veritable merry-go-round, or some might say vicious circle, among all these companies with various suits pending between each other.
Now, Colleen Chien is the assistant professor at Santa Clara in Silicon Valley.
And she specializes in these kind of patent disputes.
Obviously, some of these companies are ones that she's probably familiar with, as we all are.
And she joins us via Skype.
First of all, Colleen, this suit from Yahoo!, some analysts have been saying that it smacks of desperation, the sort of company that's, you know, seeing its business model die and it's just clutching at the last embers of what it can.
Do you agree with that?
COLLEEN CHIEN, ASSISTANT PROFESSOR, SANTA CLARA LAW:
Well, I think what's become more common recently is that as patents have become much more valuable and you've seen these large purchases take place, then a number of companies are looking more carefully at their portfolios and asking, how can we make money off of the portfolio?
And I think from a, you know, kind of common sense perspective, that makes sense. You know, you spend a lot of money on R&D. You spend a lot of money on patenting. And so corporate boards are now looking at portfolios and saying that's not an asset that's been used, can we try to - - to monetize it?
DOS SANTOS: It sounds like they're spending an awful lot of money on lawyers, as well as R&D, though. Perhaps a little too much here. If they're each suing each other, it's probably counter-intuitive or counter- productive.
CHIEN: Well, I think that is a great point. And I think the cost of doing business in, you know, in technology has -- has risen greatly now because of these patent suits. For many years, although there were a lot of patents on these different technologies, companies tried not to -- to fight in the courtroom. They'd rather duke it out in the marketplace.
But now, as you do see more assertions being more common, it's becoming more acceptable to -- to go through that, even though it's very disruptive for the company that brings the suit, that invites countersuit and it takes a lot of resources, as you said, away from kind of the main business.
But as it becomes more lucrative to do so, companies find themselves considering this possibility.
DOS SANTOS: Now, for the average layperson like me, who's not necessarily a technophile, what I would have thought is common sense dictates that some of these patents will be obsolete by the time these cases actually are solved.
CHIEN: Well, the interesting thing about patents is that, especially in the software and Internet spaces, they're often written with such broad and vague language that even though the technologies change, the patents can also adapt and, in some sense, cover later developed technology that the inventor didn't have in mind at all when they wrote the patent.
So, for example, you're -- you know, you might wonder why are old patents over pagers relevant?
Well, because they might involve messaging between two headsets. Well, those two headsets can be construed as pagers, but they can also be thought of as smartphones. I know we see, in the Internet space, some of these ideas have been around for a long time but the patents are still enforced and can be construed to cover technology that's been developed more recently.
DOS SANTOS: OK, Colleen Chien there, professor at Santa Clara Law in Silicon Valley.
Many thanks for helping us to decipher the legal code of all these patents. It seems almost as complicated as the computer and binary code that's used to program them.
Now, with such high stakes involved in the tech world, it's no surprise that some companies, like Disney, are looking to get in on a piece of the action, as well. And that's why this firm is focusing on more mobile games, like, for instance, Where's My Water?, the latest offering.
I spoke to the head of its mobile unit, Bart Decrem, and I asked him why Disney was buying into the world of apps these days.
(BEGIN VIDEOTAPE)
BART DECREM, SENIOR VICE PRESIDENT & GM, DISNEY MOBILE: There's 250 million iPhones or IOS devices and 300 million Android devices out there. So a whole generation of kids -- we call them guests -- is growing up and this is their first screen. And then there's whole markets -- a billion and-a-half people in China, a billion people in India. And for many of those folks, this is their first screen.
So this is a really important new distribution channel, way of connecting with our guests.
DOS SANTOS: One thing that, just on an anecdotal basis, I remember is, you see my younger nephews, about three. I've also got young cousins who are about seven. Whereas in my day and age, parents would put their child in front of the television, now they put them in front of the iPad.
DECREM: Yes. It's just a lot of fun. It's very intuitive and it's more interactive.
In the case of, for example, Where's My Water?, it's a puzzle so the kids are engaged and you're actually using your brain and, you know, solving problems.
DOS SANTOS: Now, one position that Disney is in is that it has very recognizable cartoon characters that it can roll out into application gains.
So you're going to be doing that with things like The Little Mermaid, WALL-E, some of the really famous Disney characters that could now become parts of games, not just cartoons.
DECREM: Yes, absolutely. In addition to creating new characters like Swampy, on these devices, we also want to bring our existing characters to life on what's really a set of magical devices.
DOS SANTOS: Now, if we're talking about applications, you have a bit of experience of setting up companies that make those applications. You sold one of them to Zingo, which is a formidable success story, that one.
DECREM: Yes.
DOS SANTOS: It's using the famous...
DECREM: (INAUDIBLE).
DOS SANTOS: -- farm, though (ph).
Is this going to be a significant portion of Disney's revenues going forward?
DECREM: I think right now, the dollars are still modest by Disney's standards. But, you know, in another year or two, there will be a billion people on these devices. So as a network, it's a massive opportunity for companies like Disney.
DOS SANTOS: What are the ingredients toward creating one of the most successful apps?
DECREM: Well, the most important thing is people love their iPhone, their iPad, their smartphone. And they feel like they're these amazing, magical devices. So if you want to be successful, you've really got to offer something delightful, fun and sort of with a sense of perfectionism behind it.
DOS SANTOS: And, also, you've got to keep updating these games...
DECREM: Absolutely.
DOS SANTOS: -- once you put them forward now. So you have a look at Swampy, your character...
DECREM: Yes.
DOS SANTOS: -- in Where's My Water? -- I happen to know this now, after having rooted around on the Internet a little bit. You've had to upgrade those puzzles.
DECREM: Yes.
DOS SANTOS: When it comes to selling these things to people, I think your application only costs about 99 cents. That's not a lot of -- a lot of money.
DECREM: Ninety-nine cents. But there's a billion people out there that might go buy it, right?
And so we've added a lot of company. We've put the game out. It had 80 levels. Now, you get 200 levels. So every few weeks, we add more conthins (ph) so people will keep coming back.
(END VIDEO TAPE)
DOS SANTOS: The business trip is back. While next, the president of Hotels.com will be here to tell us why recovering corporate travel is pushing room rates higher.
(COMMERCIAL BREAK)
DOS SANTOS: Hello and welcome back to the show.
Well, hotel room prices rose by an average of 4 percent last year, according to Hotels.com. It says in particular that strong corporate travel has been helping to push up room rates right around the world, although, on the whole, prices are still a little bit cheaper than they were back in 2005.
There are a whole set of reasons why we're seeing this particular trend.
Let's start out with this. We've seen prices drop particularly in the Middle East and North Africa, places like Egypt, Tunisia, Qatar. And in particular, if we home in on Egypt, the resort of Sharm El-Sheikh has been about 30 percent lower than 2010 in terms of volumes and rates. Obviously, the main reason for this is -- yes, you guessed it, the Arab spring uprising that we saw last year.
Now, we've also seen a series of issues in Greece that have undermined prices, notably, the unrest and backlash against austerity as this country has had to apply for two bailouts. The average room rate in Athens has been dropping, to the tune of about 10 percent. And it now stands at $125 per room. and now, we get to the brighter news here. It's not often we get a chance to tout London's fortunes, because, obviously, sometimes the weather is a little bit dicey here. But if we take a look at the forecast when it comes to what could be coming through on the London Olympics front, well, it does look pretty rosy, because rooms expect to double in price from 2011 and to prices that could be around about $330 per room per night. So that's a pretty expensive price. It could be doubling just because of the likes of things like the Olympics, and also, let's not forget, the queen's Jubilee.
Now, David Roche is president of Hotels.com, which did that survey.
Thanks very much for coming on QUEST MEANS BUSINESS.
DAVID ROCHE, PRESIDENT, HOTELS.COM: Thanks for having me.
DOS SANTOS: It's always interesting to read your surveys, because for the last few quarters, obviously, the Arab Spring uprisings and also the issues in Greece have been taking their toll.
Just how much will it take to get people to go back to those kind of places?
ROCHE: I think that's very interesting. And I think that has a lot to do with people's perceptions about the safety there and the -- the visibility, the forward visibility of the safety. And I think the hotel trade there is doing what it can do to drop prices, make it still more attractive. And I suppose those countries have got to just hang in there, continue to promote a very positive image and let time heal those wounds.
DOS SANTOS: You know, one of the interesting things that we were looking at there was Greece. I suppose what's putting people off going to Greece is, obviously, the backlash against austerity, perhaps a little bit of security concerns. This is a country that's having to curtail all sorts of public spending, street sweeping, etc. And yet it's still within the Eurozone, so it's not cheaper to go to.
ROCHE: Well, one of the things that you don't have in Greece is you don't have currency risk if you're coming from the Eurozone. And that is, in a sense, a comfort and a problem. It's a comfort for consumers traveling there. They know that they can pay in euros. They know exactly what they're going to pay. And it is a problem for hoteliers there who can't adjust their prices down particularly.
So, look, there are going to be a continued, you know, issue in Greece, but it will offer very good value in the summer, which is clearly the very big season now.
DOS SANTOS: Now, when it comes to the summer, the real big one here is London, of course, isn't it?
ROCHE: Um-hmm.
DOS SANTOS: We don't get the chance to tout London's fortunes as often as when the Olympics or the queen's Jubilee comes around, twice in one go. It's going to be a whopping great summer for London hoteliers, isn't it?
ROCHE: Well, I -- I -- I think it will be. But you've got to remember that the background here is in 2011, London only went up in price 1 percent, right?
So you might say, if you're a hotelier, you're due a bit of good news about now, right. So we are seeing, in Central London, prices have gone up more than 100 percent, on average. And we think that the last few rooms that are still available -- and that's not many -- in Central London, will probably see far higher year on year gains than that.
DOS SANTOS: Gosh, expensive prices, indeed.
Great speaking to you.
Thanks ever so much.
ROCHE: Thanks for having me.
DOS SANTOS: David Roche there from Hotels.com.
Now, speaking of the London Olympics, and, of course, the queen's Jubilee, all of will be taking place in summer here in the British Isles. And sometimes the weather is a little bit unreliable there.
But for the moment, it's blue skies and sunshine. And that also means there's a drought.
Let's go over to Jenny Harrison, who's standing by to tell us all at the CNN International Weather Center -- Jenny.
JENNY HARRISON, ATS METEOROLOGIST: You know, Nina, there's always a down side, isn't there?
It's lovely to enjoy the blue skies and the sunshine. And you think wow, what a great sort of water, what a great start to spring.
But my goodness, the down side, as you said, is very much the drought. Now it really has already reached serious levels across much of the U.K., certainly much of England. And you can see here, less than 50 percent of the average rainfall has come down in the last winter season across, you can see here, these areas in the ogee, the amber color. This is after two very dry winters. So this is a problem that actually goes deep down under the ground. It's not just a case of the reservoirs are a little bit low. The reservoirs are low. The reservoirs are also very low.
And, of course, the problem is that as we go into spring and summer, we're actually anticipating this drought to potentially get worse. There's no rain in the forecast for the immediate future.
And so the water restrictions are going to begin as early as April, certainly across the southeast of England. Remember, as well, it does come down to sort of population density in the southeast, where we do have the most dense population.
But East Anglia in Britain, its driest six months since 1921, when they began to take records. So it gives you an idea of just how serious this problem is.
So what will happen when it comes to the Olympics?
All these people flocking to London. I think different estimates give you slightly different numbers, but at least five million people are expected to come on a sort of daily basis throughout those two weeks, an extra five million, and as many as half a million will be staying in London.
So we've got to find some way to actually sustain the forces that are there. And that means harvesting rainwater from rooftops. It's a very simple one. You can do this yourself in your garden. It's so easy. Put out a big barrel and collect the water off the drainpipes.
Also, more efficient fixtures, you know, such as lavatories, also, sinks, that sort of thing. And then swimming pool backwash recycling. This is all the water that gets filtered from a swimming pool. That can then be recycled and used again, never as drinking water. And, in fact, a lot of this recycling that's going to take place is at a new plant, next to the Olympic Plant. And that will be, again, the water, two flush toilets to actually water and irrigate the land.
This is the forecast as we go into the next few months. And, of course, just not forgetting the southwest of Europe, as well, an extreme drought in some places there already.
But it's not looking good, really, it has to be said, Nina.
It might make for a nice summer...
DOS SANTOS: OK.
HARRISON: -- but a dry one.
DOS SANTOS: I know. Yes. And -- and we haven't even got anywhere near spring yet.
HARRISON: Yes.
DOS SANTOS: Jenny Harrison, as always, good to see you.
Thanks ever so much.
We'll have a final check on the world's stock markets in just a moments time.
Stay with us.
QUEST MEANS BUSINESS continues after this break.
(COMMERCIAL BREAK)
DOS SANTOS: Hello and welcome back.
You're watching QUEST MEANS BUSINESS.
For all of you out there waiting to hear about the stress tests that have been imposed on the 19 largest U.S. financial institutions, we're now hearing, according to the Reuters News Agency, that the Federal Reserve will be releasing its details on that latest round of stress tests in a few hours from now, a little bit earlier than some had been expecting.
The Fed is, of course, requiring some of the nation's largest lenders here to prove that they have enough capital to withstand another major economic shock in the future, like the one we saw after the aftermath of the collapse of Lehman Brothers back in 2007 to 2008.
Let's have a look at how U.S. stocks are faring at the moment, because what we're seeing is they're heading for a bit of a higher close at the moment. As you can see, the Dow Jones Industrial average well above that 13000 mark. As you can see, at 13177.87, up to the tune of about 200 points and rising at the moment.
We're currently up about 1.75 of 1 percent at the moment. And that's largely thanks to comments that the Federal Reserve has made, but also, they did caution that the oil price remaining high could be a threat to the kind of economic recovery we're seeing.
And that's it for this edition of QUEST MEANS BUSINESS.
Thanks ever so much for joining us.
I'm Nina dos Santos in London.
Stay with CNN.
The news continues after this.
END
