EoW November 2013

Transatlantic cable

Tax havens

Telecom

Switzerland and the United States reach agreement on Swiss banks that enabled Americans to shield wealth in o shore accounts

Apple and Samsung are still duelling over the top spot in smartphones – but their competition is stirring

Microsoft Corp on 3 rd September announced that it is buying Nokia’s devices and services business in a $7.2 billion deal that includes access to the Finnish company’s patents. That some $5 billion of the total goes for the Nokia unit that makes mobile phones, including its line of Lumia smartphones, highlights an unmistakable trend: competition in the smartphone market is intensifying, with Microsoft (Redmond, Washington) only the latest entrant into a group bent on knocking the market leaders o their perch. “The smartphone market is still a rising tide that’s lifting many ships. Though Samsung and Apple are the dominant players, the market is as fragmented as ever. There is ample opportunity for smartphone vendors with di erentiated o erings.” This view, expressed by IDC analyst Kevin Restivo to the International Herald Tribune , rests on rapidly gathering evidence. Apple, of the US, and Samsung, of South Korea, between them still account for more than 90 per cent of the pro t in smartphones, analysts say. But the Tribune ’s Eric Pfanner con rmed that more companies all the time are emboldened to try to challenge them. Mr Pfanner saw some familiar names among the companies testing themselves against the two leaders in the mobile phone-making business, among them Nokia; Sony, of Japan; and HTC, of Taiwan. Relative newcomers include LG (South Korean), and Lenovo, ZTE and Huawei (all three Chinese). (“Chipping Away at the Smartphone Leaders”, 25 th July) Individually, none of these companies poses a threat to the top two. But, according to Boston-based Strategy Analytics, the next three top players (LG, ZTE and Huawei) showed strong growth over the past year. IDC (Framingham, Massachusetts) had Lenovo replacing Huawei in the top ve and also showing solid growth. Both research rms a rmed the increasing hold of Asian companies over the smartphone business, with Apple the only non-Asian brand among the leading contenders. Mr Pfanner observed that, as recently as the rst quarter of 2011, three Western companies – Apple, Nokia and Canada’s BlackBerry – topped the IDC list. Now, of course, Microsoft’s move on Nokia will thrust another important player into the line-up. † The two top- ve lists re ect the growth of sales in China, which has surpassed the US as the world’s biggest smartphone market, and in other developing countries. And much of the growth in coming years is expected to occur in the area of lower-priced smartphones, in which Chinese makers are strong and from which Apple is notably absent. An irony of “the eastward shift” noted by Mr Pfanner is that it is facilitated largely by the Android operating system from Google, of the United States. Analysts say buyers are more willing to look at alternatives to Apple or Samsung because the di erences among smartphones are becoming less pronounced. The proportion of phones running Android keeps growing, and technical speci cations are converging. According to Mr Pfanner, that makes price, where LG and the Chinese smartphone makers have an edge, an increasingly important selling point.

A watershed deal requiring Swiss banks to pay up to billions of dollars in nes and disclose information about their American clients was announced on 29 th August by the Justice Department in Washington, and presented by Swiss authorities on the following day. According to formulas worked out by Switzerland and the US, Swiss banks must provide the details on accounts in which American taxpayers have an interest; inform on other banks that transferred money into secret accounts, or that accepted money when secret accounts were closed; disclose all cross-border activities; and close the accounts of Americans who are evading taxes. By some estimates, Switzerland is home to more than $2 trillion in overseas deposits. Lynnley Browning, a Reuters business journalist based in New York, reported in the International Herald Tribune that the agreement covers much of the Swiss banking industry, with its tradition of bank con dentiality. Swiss banks that follow the programme will be eligible to enter non-prosecution agreements that sidestep guilty pleas or criminal penalties. (“Swiss Agree on Penalties for Banks That Aided Tax Cheats”, 28 th August) US Attorney General Eric H Holder, Jr seized his opportunity to exert some very direct pressure. “This programme will signi cantly enhance the Justice Department’s ongoing e orts to aggressively pursue those who attempt to evade the law by hiding their assets outside of the United States,” Mr Holder said in a statement; adding that it “is intended to enable every Swiss bank that is not already under criminal investigation to nd a path to resolution.” Switzerland and the US have been in negotiations over the tax evasion issue since 2009. A previous attempt by the Swiss government to arrange a deal failed in June when Parliament balked, on concerns about privacy and the absence of transparency in the negotiations. Legislators then called on Eveline Widmer-Schlumpf, the Swiss nance minister and president of the Federal Council, to work out an agreement with Washington. † “A stumbling block may still exist,” Ms Browning cautioned. Both sides to the deal are pledged to use information exchange channels outlined in existing treaties, but the US has not yet rati ed a 2009 treaty protocol that would ease that disclosure. An American with a Swiss sense of the right to privacy – Senator Rand Paul, Republican of Kentucky – is blocking approval, arguing that it would give the Internal Revenue Service (IRS) too much power to poke into the a airs of citizens. Under the terms of the deal reached in August, American clients of Swiss banks who have not already entered voluntary disclosure programmes set up by the IRS will be strongly encouraged to do so.

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November 2013