Peer-To-Peer News - The Week In Review - November 5th, ’05

[JackSpratts]

"As this DRM system is implemented as a filter driver for the CD drive, just blindly removing it might result in an inaccessible CD drive letter. Instead, we recommend you contact Sony BMG directly via this web form and ask for directions on how to remove the software from your system. We've test driven this and they will provide you with tools to do this. However, they will install additional ActiveX components to your system while they are doing this so be advised." – Mikko


"We don't feel that the Czech legal system is mature enough to have intellectual property belonging to a Czech company." – Matthew Gertner


"To be honest with you, I don't even watch movies very often." – Fred Lawrence


"Judges are starting to realize that when it comes to surveillance issues, the Department of Justice has been pulling the wool over their eyes for far too long." – Kevin Bankston

























The DRM That Killed Sony

For at least the last six months Sony corp. has been quietly selling CD’s that surreptitiously install stealthware onto PC’s as part of an extremely ill advised digital rights management (DRM) initiative. These Trojan horses create hidden folders filled with secret files of a type normally used by hackers and may even be black-hat friendly, creating security nightmares for millions of users unlucky enough to have purchased Sony product. For a multitude of reasons this kind of behavior is totally unacceptable for anyone to engage in. That it comes from one of the gigantic worldwide media conglomerates is dispiriting and very dangerous, and must not be allowed to pass unchallenged. This is exactly the reason people elect lawmakers – to punish and prevent such behavior. That our system of government has become so perverse the lawmakers actually encourage such corporate misdeeds is reason enough to overhaul the system and throw the bastards out of office. But first things first. There are plenty of good reasons to reform copyright and encourage file-sharing, but Sony in it’s fathomless greed has forced upon us the most important argument yet: buying Sony CDs is now so hazardous reasonable people can consider no other option than to avoid it.

I will oblige. I trust you will too.

As for the lawmakers who kiss the corporate kleptomaniacs while they kick the common people, remember – Tuesday is Election Day. You have the vote. Use it wisely, and decisively.













Enjoy,

Jack.













November 5th, 2005





Milestones

AOL Founder Resigns From Time Warner

AOL founder Steve Case on Monday said he has resigned from the board of Time Warner Inc., ending a storied chapter in the history of the world's largest media company.

Case, who stepped down as chairman in 2003, was one of the original architects of the merger of AOL and Time Warner, which helped erase more than $200 billion in shareholder value from the stock and was the target of two government probes into its accounting.

Once viewed as an albatross to the owners of the Warner Brothers movie studio, HBO and Time Inc., AOL has emerged over the past year as the center of attention for top Internet companies looking to buy a stake in the division.

"I strongly believe that AOL - once the leading Internet company in the world - can return to its past greatness," Case said in a statement. "Over the past few months, I have been pleased to see a renewed focus on AOL at Time Warner, and the emergence of so many strategic alternatives."

Suitors such as Microsoft Corp., Google Inc., Comcast Corp. and Yahoo Inc. have held discussions with Time Warner to varying extents.

Although AOL continues to lose millions of dial-up Internet subscribers every year, the company made more of its programing available freely over its Web properties to attract online advertising.

Case said he was leaving to devote more time to his new company, Revolution, which provides health-care and wellness programing and services.
http://today.reuters.com/news/newsAr...TIMEWARNER.xml





DRM

Sony, Rootkits and Digital Rights Management Gone Too Far
Mark Russinovich

Last week when I was testing the latest version of RootkitRevealer (RKR) I ran a scan on one of my systems and was shocked to see evidence of a rootkit. Rootkits are cloaking technologies that hide files, Registry keys, and other system objects from diagnostic and security software, and they are usually employed by malware attempting to keep their implementation hidden (see my “Unearthing Rootkits” article from the June issue of Windows IT Pro Magazine for more information on rootkits). The RKR results window reported a hidden directory, several hidden device drivers, and a hidden application:

Given the fact that I’m careful in my surfing habits and only install software from reputable sources I had no idea how I’d picked up a real rootkit, and if it were not for the suspicious names of the listed files I would have suspected RKR to have a bug. I immediately ran Process Explorer and Autoruns to look for evidence of code that would activate the rootkit each boot, but I came up empty with both tools. I next turned to LiveKd, a tool I wrote for Inside Windows 2000 and that lets you explorer the internals of a live system using the Microsoft kernel debugger, to determine what component was responsible for the cloaking.

Rootkits that hide files, directories and Registry keys can either execute in user mode by patching Windows APIs in each process that applications use to access those objects, or in kernel mode by intercepting the associated kernel-mode APIs. A common way to intercept kernel-mode application APIs is to patch the kernel’s system service table, a technique that I pioneered with Bryce for Windows back in 1996 when we wrote the first version of Regmon. Every kernel service that’s exported for use by Windows applications has a pointer in a table that’s indexed with the internal service number Windows assigns to the API. If a driver replaces an entry in the table with a pointer to its own function then the kernel invokes the driver function any time an application executes the API and the driver can control the behavior of the API.

It’s relatively easy to spot system call hooking simply by dumping the contents of the service table: all entries should point at addresses that lie within the Windows kernel; any that don’t are patched functions. Dumping the table in Livekd revealed several patched functions:

I listed one of the intercepting functions and saw that it was part of the Aries.sys device driver, which was one of the images I had seen cloaked in the $sys$filesystem directory:

Armed with the knowledge of what driver implemented the cloaking I set off to see if I could disable the cloak and expose the hidden processes, files, directories, and Reegistry data. Although RKR indicated that the \Windows\System32\$sys$filesystem directory was hidden from the Windows API, it’s common for rootkits to hide directories from a directory listing, but not to prevent a hidden directory from being opened directly. I therefore checked to see if I could examine the files within the hidden directory by opening a command prompt and changing into the hidden directory. Sure enough, I was able to enter and access most of the hidden files:

Perhaps renaming the driver and rebooting would remove the cloak, but I also wanted to see if Aries.sys was doing more than cloaking so I copied it to an uncloaked directory and loaded it into IDA Pro, a powerful disassembler I use in my exploration of Windows internals. Here’s a screenshot of IDA Pro’s disassembly of the code that calculates the entries in the system service table that correspond to the functions it wants to manipulate:

I studied the driver’s initialization function, confirmed that it patches several functions via the system call table and saw that its cloaking code hides any file, directory, Registry key or process whose name begins with “$sys$”. To verify that I made a copy of Notepad.exe named $sys$notepad.exe and it disappeared from view. Besides being indiscriminate about the objects it cloaks, other parts of the Aries code show a lack of sophistication on the part of the programmer. It’s never safe to unload a driver that patches the system call table since some thread might be just about to execute the first instruction of a hooked function when the driver unloads; if that happens the thread will jump into invalid memory. There’s no way for a driver to protect against this occurrence, but the Aries driver supports unloading and tries to keep track of whether any threads are executing its code. The programmer failed to consider the race condition I’ve described. They’ll have to come up with a new approach to their rootkit sooner or later anyway, since system call hooking does not work at all on 64-bit versions of Windows.

After I finished studying the driver's code I rebooted the system. The cloak was gone as I expected and I could see all the previously hidden files in Explorer and Registry keys in Regedit. I doubted that the files had any version information, but ran my Sigcheck utility on them anyway. To my surprise, the majority did have identifying product, file and company strings. I had already recognized Dbghelp.dll and Unicows.dll as Microsoft Windows DLLs by their names. The other files claimed to be part of the “Essential System Tools” product from a company called “First 4 Internet”:

I entered the company name into my Internet browser’s address bar and went to http:// www.first4internet.com/. I searched for both the product name and Aries.sys, but came up empty. However, the fact that the company sells a technology called XCP made me think that maybe the files I’d found were part of some content protection scheme. I Googled the company name and came across this article, confirming the fact that they have deals with several record companies, including Sony, to implement Digital Rights Management (DRM) software for CDs.

The DRM reference made me recall having purchased a CD recently that can only be played using the media player that ships on the CD itself and that limits you to at most 3 copies. I scrounged through my CD’s and found it, Sony BMG’s Get Right with the Man (the name is ironic under the circumstances) CD by the Van Zant brothers. I hadn’t noticed when I purchased the CD from Amazon.com that it’s protected with DRM software, but if I had looked more closely at the text on the Amazon.com web page I would have known:

The next phase of my investigation would be to verify that the rootkit and its hidden files were related to that CD’s copy protection, so I inserted the CD into the drive and double-clicked on the icon to launch the player software, which has icons for making up to three copy-protected backup CDs:

Process Explorer showed the player as being from Macromedia, but I noticed an increase in CPU usage by $sys$DRMServer.exe, one of the previously cloaked images, when I pressed the play button. A look at the Services tab of its process propertieds dialog showed it contains a service named “Plug and Play Device Manager”, which is obviously an attempt to mislead the casual user that stumbles across it in the Services MMC snapin (services.msc) into thinking that it’s a core part of Windows:

I closed the player and expected $sys$DRMServer’s CPU usage to drop to zero, but was dismayed to see that it was still consuming between one and two percent. It appears I was paying an unknown CPU penalty for just having the process active on my system. I launched Filemon and Regmon to see what it might be doing and the Filemon trace showed that it scans the executables corresponding to the running processes on the system every two seconds, querying basic information about the files, including their size, eight times each scan. I was quickly losing respect for the developers of the software:

I still had to confirm the connection between the process and the CD’s player so I took a closer look at each process. Based on the named pipe handles I saw they each had opened when I looked in Process Explorer’s handle view I suspected that the player and $sys$DRMServer communicated via named pipes and so I launched Filemon, checked Named Pipes in the Volumes menu, and confirmed my theory:

At that point I knew conclusively that the rootkit and its associated files were related to the First 4 Internet DRM software Sony ships on its CDs. Not happy having underhanded and sloppily written software on my system I looked for a way to uninstall it. However, I didn’t find any reference to it in the Control Panel’s Add or Remove Programs list, nor did I find any uninstall utility or directions on the CD or on First 4 Internet’s site. I checked the EULA and saw no mention of the fact that I was agreeing to have software put on my system that I couldn't uninstall. Now I was mad.

I deleted the driver files and their Registry keys, stopped the $sys$DRMServer service and deleted its image, and rebooted. As I was deleting the driver Registry keys under HKLM\System\CurrentControlSet\Services I noted that they were either configured as boot-start drivers or members of groups listed by name in the HKLM\System\CurrentControlSet\SafeBoot subkeys, which means that they load even in Safe Mode, making system recovery extremely difficult if any of them have a bug that prevents the system from booting.

When I logged I discovered that the CD’s icon was missing from Explorer. Deleting the drivers had disabled the CDs. Now I was really mad. Windows supports device “filtering”, which allows a driver to insert itself below or above another one so that it can see and modify the I/O requests targeted at the one it wants to filter. I know from my past work with device driver filter drivers that if you delete a filter driver’s image, Windows fails to start the target driver. I opened Device Manager, displayed the properties for my CD-ROM device, and saw one of the cloaked drivers, Crater.sys (another ironic name, since it had ‘cratered’ my CD), registered as a lower filter:

Unfortunately, although you can view the names of registered filter drivers in the “Upper filters” and “Lower filters” entries of a device’s Details tab in Device Manager, there’s no administrative interface for deleting filters. Filter registrations are stored in the Registry under HKLM\System\CurrentControlSet\Enum so I opened Regedit and searched for $sys$ in that key. I found the entry configuring the CD’s lower filter:

I deleted the entry, but got an access-denied error. Those keys have security permissions that only allow the Local System account to modify them, so I relaunched Regedit in the Local System account using PsExec: psexec –s –i –d regedit.exe. I retried the delete, succeeded, and searched for $sys$ again. Next I found an entry configuring another one of the drivers, Cor.sys (internally named Corvus), as an upper filter for the IDE channel device and also deleted it. I rebooted and my CD was back.

The entire experience was frustrating and irritating. Not only had Sony put software on my system that uses techniques commonly used by malware to mask its presence, the software is poorly written and provides no means for uninstall. Worse, most users that stumble across the cloaked files with a RKR scan will cripple their computer if they attempt the obvious step of deleting the cloaked files.

While I believe in the media industry’s right to use copy protection mechanisms to prevent illegal copying, I don’t think that we’ve found the right balance of fair use and copy protection, yet. This is a clear case of Sony taking DRM too far.
http://www.sysinternals.com/blog/200...al-rights.html





Study of Sony Anti-Piracy Software Triggers Uproar

File-Hiding Technique Alarms Security Researchers; Developer Offers Patch
Brian Krebs

Irate music fans who posted to dozens of online blogs vowing to never again buy Sony CDs as long as the company keeps using a suddenly beleaguered anti-piracy software program may find that their outbursts have been partially rewarded today.

On the heels of the Internet uproar over security concerns with its copyright-protection measures, the company that developed the software for recording-industry giant Sony BMG Music Entertainment says it is providing computer users with a "patch file" that will mitigate some of the features that alarmed security researchers when they were discovered earlier this week -- especially the program's built-in ability to hide files on the user's system.

Privacy and security experts charged that the technology built into many of Sony's music CDs since March is unnecessarily invasive and exposes users to threats from hackers and virus writers.

"Here you have one of the biggest name-brand corporations on the planet getting into what many people in other circumstances would consider hacking," said Richard Smith, a security and privacy consultant based in Boston. "That's just not acceptable."

Earlier this week, computer security researcher Mark Russinovich published an analysis showing that some new Sony CDs install software that not only limits the copying of music on the discs, but also employs programming techniques normally associated with computer viruses to hide from users and prevent them from removing the software.

Russinovich's findings -- posted on the Web site (http://www.sysinternals.com/) that he runs with another researcher -- indicated that the CDs in question use software techniques that behave similarly to "rootkits," software tools that hackers can use to maintain control over a computer system once they have broken in.

He found that traditional methods of uninstalling the program would not work, and that attempts at removing it corrupted the files needed to operate his computer's CD player, rendering it useless.

Sony spokesman John McKay said the technology has been deployed on just 20 titles so far, but that the company may include it on additional titles in the months ahead.

The music industry is aggressively defending its works from Internet and other forms of piracy, going so far as to sue individuals alleged to be trading large numbers of song titles online. The industry loses roughly $4.2 billion worldwide to piracy each year, according to the Recording Industry Association of America.

Russinovich discovered that the techniques employed by the Sony program to conceal its files from the user and to make them harder to remove could also be used by virus writers and hackers to hide malicious files on any computer running the anti-piracy program.

In response to criticisms that intruders could take such advantage, First4Internet Ltd. -- the British company that developed the software -- will make available on its Web site a software patch that should remove its ability to hide files, chief executive Mathew Gilliat-Smith said.

Russinovich called the offer of a patch "backpedaling and damage control in the face of a public-relations nightmare" and emphasized that users who try to remove the files manually after applying the fix will still ruin their CD-Rom drives.

Sony's move is the latest effort by the entertainment companies to rely on controversial "digital rights management" (DRM) technologies to reverse a steady drop in sales that the industry attributes in large part to piracy facilitated by online music and movie file-sharing networks like Kazaa and Limewire.

DRM technologies by their very nature need to be secretive, according to Peter Ullman, a partner with Woodcock Washburn, a Philadelphia law firm that specializes in intellectual property matters.

"If the software is put there to protect valuable content from being misused, then the software has to be able to protect itself from being subverted, so the companies that produce this security technology tend not to want to publicize how their technology works," Ullman said.

At issue is whether Sony has provided customers with adequate notice about what they can expect when installing the software, said Ari Schwartz, deputy director of the Washington-based Center for Democracy and Technology.

"Sony needs to be more transparent in how and what they're installing so that consumers can make informed decisions," Schwartz said.

Windows users cannot listen to tracks on the CD without agreeing to install the anti-piracy program, which merely advises that "it will install a small proprietary software program" that will remain there "until removed or deleted."

But according to Mikko Hypponen, director of research for Finnish antivirus company F-Secure Corp., users who want to remove the program may not do so directly, but must fill out a form on Sony's Web site, download additional software, wait for a phone call from a technical support specialist, and then download and install yet another program that removes the files.

Hypponen agreed that Sony's software could help hackers circumvent most antivirus products on the market today. He added that installing the Sony program on a machine running Windows Vista -- the beta version of the next iteration of Microsoft Windows -- "breaks the operating system spectacularly."

While the anti-piracy software allows consumers to make a limited number of additional copy-protected discs, it also imposes compatibility and portability constraints. Users of Apple Inc.'s iPod -- the dominant portable media player on the market -- have no way of transferring tracks from protected Sony CDs to their device, since Apple has not yet licensed its own DRM technology for use with copy-protected discs.

"We're still in this new digital era where the entertainment industry wants to protect ... their content, without due consideration of the consumer's right to use that content in a fair way," Russinovich said. "We need to have an open discussion as to where we should draw the line."

David Eisner, a blogger and software developer at the University of Maryland's Computer Aided Life Cycle Engineering Center, believes the record label's actions will ultimately backfire and drive otherwise legitimate customers to download pirated music from the online file-sharing networks.

"The people they're trying to stop from stealing their music are always going to find a way around these types of technologies," Eisner said. "Sony is just hurting people who obtain their products legally, and many of these same people are now going to think twice about doing so."
http://www.washingtonpost.com/wp-dyn...110202362.html





Is Sony Trying to Kill the CD Format for Music?
Andrew Brandt

By now, you've probably heard the news that Sony, the media giant, has been quietly installing hidden software on PCs, when people buy music albums published by Sony BMG Music, and try to play them on their computers. The software, called Extended Copy Protection (or XCP) uses rootkit techniques similar to those used by viruses, Trojan horse programs, and spyware to hide the fact that it is installed from the user.

The discovery, by security expert Mark Russinovich (whose outfit, Sysinternals.com, makes several free Windows utilities I find invaluable in diagnosing spyware infestations), details how Sony uses commercial software that automatically installs itself when you put a music CD in a Windows PC's CD drive.

Russinovich's own anti-rootkit software, Rootkit Revealer (a free download), as well as the Blacklight rootkit detection utility (made by F-Secure, an antivirus company, free until the end of the year), now detect the software used by Sony, which was licensed from a British firm called First 4 Internet.

The bigger question people have got to ask is, does Sony not respect the integrity of the computers of its customers? This cavalier act of sneaking software onto PCs not only violates our own Prime Directive -- it's our PC, dammit -- but threatens the entire music industry.

After all, if you suspect that a commercial CD will install software secretly, which you won't be able to remove and which, itself, may increase the already-great security problems of your Windows PC, would you continue to buy CDs?

I'll tell you right now, I won't. I'd much rather buy an unrestricted copy of a song electronically, using iTunes, or Rhapsody, or one of the other music services that offer this feature, than take a chance that some music disc will stick some hidden files in my Windows folder, which I can't see or remove.

Sony has dealt itself a serious blow, and the best thing it -- and the rest of the music publishers -- can do right now is condemn this practice, apologize to the customers that were affected, provide a method to get this junk off affected PCs, and make declarations that they will never, ever do this again.

I don't think they will. And if they don't, I simply won't buy CDs anymore. Period. From any publisher. And I recommend that you don't, either. As a fan of music who respects the need for artists to make a living, and a security-savvy PC user, I'm incensed that Sony -- any company -- would think it's OK to do this. It's not. But the only way (I can see) to send that message effectively to Sony BMG executives is to vote against CDs with my wallet.

Sony was crucial in creating the CD format more than 25 years ago. In this age where every purchasing choice we make affects the level of control we have over our PCs, they seem to be committed to killing it.
http://blogs.pcworld.com/staffblog/archives/001051.html





The "Sony Rootkit" Case
Mikko

There's been some recent developments in digital rights management systems (DRM) that have security implications. Some DRM systems have started to use rootkit technology. Rootkits are normally associated with malware but in this case a rootkit is used to enforce the copy control policies of audio CDs!

Rootkit is technology that hides software from the user and security software. This kind of technology is normally used by malware authors that want their presence to remain undetected in the system as long as possible. DRM software is not malicious but it has other reasons for hiding from the user. DRM software restricts the user's ability to make copies of a record and for that reason uses technology that prevents removal and modification of the software.

Sony BMG is currently using a rootkit-based DRM system on some CD records sold in USA. As far as we know, this system has been in use since March 2005. We've made some test purchases for Sony BMG records from Amazon.com and can confirm that they contained this technology.

When you insert such a CD to a Windows-based PC, the record will display a license agreement and then it will seem install a song player software - while it really installs a rootkit to the system. Once the rootkit is there, there's no direct way to uninstall it. The system is implemented in a way that makes it possible for viruses (or any other malicious program) to use the rootkit to hide themselves too. This may lead to a situation where the virus remains undetected even if the user has got updated antivirus software installed.

F-Secure has implemented an anti-rootkit scanner in F-Secure Internet Security 2006. The F-Secure BlackLight scanner is able to detect both this Sony DRM rootkit system and any malware that hides using it.

We've just published a technical description on this rootkit, with details on how to distinguish hidden items belonging to the DRM system from potentially harmful malware.

So: if you've recently used CD releases from Sony BMG that state that they are content protected on your Windows computer, the "Scan for Rootkits" function in our product will detect this program on your system. Same happens with our free BlackLight beta that you can download from our web site.

If you find this rootkit from your system, we recommend you don't remove it with our products. As this DRM system is implemented as a filter driver for the CD drive, just blindly removing it might result in an inaccessible CD drive letter. Instead, we recommend you contact Sony BMG directly via this web form and ask for directions on how to remove the software from your system. We've test driven this and they will provide you with tools to do this. However, they will install additional ActiveX components to your system while they are doing this so be adviced
http://www.europe.f-secure.com/weblog/#00000691





New DVD Watermark Has Pirates In Its Sights
Barry Fox

Hollywood has unveiled a powerful new technology which it hopes will help kill the pirating of movies. The system relies on sound – not vision – and was unveiled at a conference held by the international DVD Forum in Paris, France last week.

The opportunity for a novel copyright protection system arose because the Forum is now finalising the standards for the new High Definition DVD system that goes on sale early in 2006. The details of the system were explained by Alan Bell, executive vice-president of advanced technology with Warner Brothers in California, US.

All HD-DVD players will have a sensor that looks for inaudible watermarks in the soundtrack of movies. The watermarks will be included in the soundtracks of all major movies released to cinemas.

If a DVD player detects the telltale code, the disc must be an illegal copy made by copying a film print to video, or pointing a camcorder and microphone at a cinema screen. So the player refuses to play the disc.
Subtle variations

The mark is made by slightly varying the waveform of speech and music in a regular pattern to convey a digital code. The variations are too subtle to be noticeable to the human ear, but are easily recognised by the decoder in the player.

A variation of the system can also prevent the playback of discs made by pointing a camcorder at a home screen while it is playing a legitimate disc sold to individual consumers.

The consumer discs will also have an audio watermark, which differs from the cinema mark. If an HD-DVD player senses the consumer watermark it will check whether the disc is a legal, factory-pressed version and, if not, shut down.
Children’s parties

Alan Bell believes the DVD Forum has done all it can to prevent foul-ups. “We know that there might be a Hollywood movie in the background during a children’s party, and if Dad takes a home movie the watermark might end up on the sound track,” he says. “So the player will only shut down if it is continuous for quite a long time.”

Fred von Lohmann, an intellectual property attorney at the Electronic Frontier Foundation in San Francisco, California, says: “Few may object if you're only talking about the blue-laser DVD drives, but the trouble with watermarking schemes is the scope of the technology."

"For any watermarking scheme to be effective, technology companies have to be forced to re-engineer playback devices to detect the watermarks," he told New Scientist. "The risk is that Hollywood starts dictating the redesign of existing DVD drives, CD drives, hard drives, and personal computers, all to buttress the watermark."
http://www.newscientist.com/article.ns?id=dn8247





Data Security Laws Seem Likely, So Consumers and Businesses Vie to Shape Them
Tom Zeller Jr.

It has been a bad year for data security.

The Privacy Rights Clearinghouse, a consumer advocacy group in San Diego, has counted 80 data breaches since February, involving the personal information of more than 50 million people. The sensitive data - names, Social Security and credit card numbers, dates of birth, home addresses and the like - have either been lost by or stolen from companies and institutions that compile such data.

In February, ChoicePoint, the big data broker, raised public awareness of the problem when it announced that thieves had fraudulently obtained information on 145,000 consumers. In August, even the United States Air Force reported a data breach - a hacker may have gained access to a military management database and personal information on 33,000 officers.

In response, more than a dozen bills have been introduced in Congress this year.

Companies that compile, trade and store consumer data, while largely resigned to the idea that new legislation will hold them to a higher standard for security, want to minimize the impact of any new law, maximize their discretion when it comes to notifying consumers of breaches and limit their liability when they do spring leaks.

A bill introduced by Senator Jeff Sessions, Republican of Alabama, for instance, simply requires businesses to improve security on the data they carry and to notify consumers only if there is a "significant risk of identity theft."

But proving a "risk of identity theft" is nearly impossible, said Chris Jay Hoofnagle, senior counsel with the Electronic Privacy Information Center in Washington, a public interest research center.

Mr. Hoofnagle and other consumer and data privacy groups want strict new security standards that would require notification whenever data is inappropriately viewed or acquired.

They also want to give individuals the right to see and correct information that companies have collected on them and the ability to freeze their credit, that is, to prevent new credit accounts from being opened in their names without authentication.

Senator Charles E. Schumer, a New York Democrat, introduced a far-reaching bill earlier this year that addressed many of these points, but it failed to gain bipartisan support.

The existing batch of state laws - including California's data security notification law, which is largely credited with forcing companies nationwide to tell consumers about data breaches - also present a sticking point. The data brokering industry wants to ensure that any new federal law pre-empts state laws and limits the ability of states and individuals to sue in the event of a breach.

Consumer and data privacy groups, figuring that any law passed by Congress is likely to be less restrictive, want to preserve the ability of state and local governments to make and maintain tough laws.

"Industry hopes to use the furor over breaches as a way to pass a modest federal reform that just happens to also permanently restrict the states from passing virtually any financial privacy or identity theft laws," said Edmund Mierzwinski, the consumer program director for the United States Public Interest Research Group in Washington.

Whether any bill will pass this year is an open question, though the pressure is on. Just last week, 47 state attorneys general sent a letter to Congress urging the creation of a tough, far-reaching bill that would include many of the components that advocacy groups seek.

And on Wednesday, Representative Clifford B. Stearns, Republican of Florida, introduced the Data Accountability and Trust Act, which proposes tough new regulations for data brokers. The bill would force companies handling consumer data to, among other things, appoint a data security officer, draft explicit security policies and submit them to the Federal Trade Commission, offer consumers access to their own files and create a procedure for correcting errors.

The bill would also require companies to notify not just consumers of a breach, but also the F.T.C., which would then be permitted to audit the company's security program.

"But it needs better enforcement language," said Joseph Ansanelli, the chief executive and co-founder of Vontu, an information security company in California, who has frequently testified before Congress on issues of consumer privacy protection.

Mr. Ansanelli says the biggest problem with data security is the patchwork of laws governing too many narrowly sliced industries and too many different situations, when it is really all about the data.

"Confusion," he said, "is the enemy of consumer protection."
http://www.nytimes.com/2005/11/01/business/01theft.html





Spy Agencies Told to 'Bolster the Growth of Democracy'
Douglas Jehl

A new strategy document issued Wednesday by the Bush administration ranks efforts to "bolster the growth of democracy" among the three top missions for American intelligence agencies.

John D. Negroponte, the director of national intelligence, said the rankings were intended to align the work of intelligence agencies with the administration's broader national security goals. The top two "mission objectives" are efforts to counter terrorism and weapons proliferation.

At a briefing, Mr. Negroponte said he did not believe that the priorities reflected a significant change from those in place before the overhaul of intelligence agencies and the establishment of his post six months ago. But another senior intelligence official, speaking at the same briefing, said the emphasis reflected an acknowledgment that American agencies needed to do "a better job" in understanding the role played by "soft power."

The Bush administration has seized upon the expansion of democracy abroad as a central theme of foreign policy, especially since President Bush devoted much of his second inaugural address to pledging support for democratic movements "in every nation and culture."

Among other things, the strategy says that "collectors, analysts and operators" within the 15 American intelligence agencies should seek to "forge relationships with new and incipient democracies" in order to help "strengthen the rule of law and ward off threats to representative government." The strategy, published on www.dni.gov, is unclassified, and the officials said it was not intended to apply in any way to any covert action that might be undertaken by the United States.

The document provided few specifics, and Mr. Negroponte said it could take as long as two years before its goals were fully reflected in intelligence budgets. But the second intelligence official said it would be prudent to expect to see funds shifted away from classified technical intelligence programs, some of which Mr. Negroponte's office has already selected for cuts, and toward human spying.

"Without prejudging anything, that's where they keep the money," the second official said, referring to the multibillion-dollar budgets controlled by the National Security Agency, the National Reconnaissance Office, and the National Geospatial-Intelligence Agency, which build, launch and operate reconnaissance and eavesdropping satellites.

The second official spoke on condition of anonymity, under ground rules set by Mr. Negroponte's office.

While counterterrorism was listed first among intelligence priorities, the second official suggested that Mr. Negroponte's office was still reviewing how intelligence agencies were organized to wage that effort.

A new National Counterterrorism Center has been designated the "mission manager" by Mr. Negroponte, but the C.I.A. maintains its own such center, and the two sometimes compete for resources.
http://www.nytimes.com/2005/10/27/politics/27intel.html





China To Promote Peer-To-Peer

The Chinese government has announced an initiative to promote commercial exploitation of peer-to-peer technologies.

The P2P Application Promotion Alliance has been set up by the Internet Society of China and will encourage the development of P2P technologies, regulate their use and protect intellectual property rights. In other words, no file sharing.

'ISC plans to help regulate Chinese companies' activities to ensure that illegal activities are not spawned by P2P in China,' reports ChinaTechNews.

The initiative follows the first successful criminal prosecution for file sharing in Hong Kong. China appears determined to take a hard line on file sharing, doubtless with the intention to assure software makers, movie studios and record labels that they can do business there.
http://www.pcpro.co.uk/news/79478/ch...eertopeer.html





China Luring Scholars to Make Universities Great
Howard W. French

When Andrew Chi-chih Yao, a Princeton professor who is recognized as one of the United States' top computer scientists, was approached by Qinghua University in Beijing last year to lead an advanced computer studies program, he did not hesitate.

It did not matter that he would be leaving one of America's top universities for one little known outside China. Or that after his birth in Shanghai, he was raised in Taiwan and spent his entire academic career in the United States. He felt he could contribute to his fast-rising homeland.

"Patriotism does have something to do with it, because I just cannot imagine going anywhere else, even if the conditions were equal," said Dr. Yao, who is 58.

China wants to transform its top universities into the world's best within a decade, and it is spending billions of dollars to woo big-name scholars like Dr. Yao and build first-class research laboratories. The effort is China's latest bid to raise its profile as a great power.

China has already pulled off one of the most remarkable expansions of education in modern times, increasing the number of undergraduates and people who hold doctoral degrees fivefold in 10 years.

"First-class universities increasingly reflect a nation's overall power," Wu Bangguo, China's secondranking leader, said recently in a speech here marking the 100th anniversary of Fudan, the country's first modern university.

The model is simple: recruit top foreign-trained Chinese and Chinese-American specialists, set them up in well-equipped labs, surround them with the brightest students and give them tremendous leeway. In a minority of cases, they receive American-style pay; in others, they are lured by the cost of living, generous housing and the laboratories. How many have come is unclear.

China is focusing on science and technology, areas that reflect the country's development needs but also reflect the preferences of an authoritarian system that restricts speech. The liberal arts often involve critical thinking about politics, economics and history, and China's government, which strictly limits public debate, has placed relatively little emphasis on achieving international status in those subjects.

In fact, Chinese say - most often euphemistically and indirectly - that those very restrictions on academic debate could hamper efforts to create world-class universities.

"Right now, I don't think any university in China has an atmosphere comparable to the older Western universities - Harvard or Oxford - in terms of freedom of expression," said Lin Jianhua, Beijing University's executive vice president. "We are trying to give the students a better environment, but in order to do these things we need time. Not 10 years, but maybe one or two generations."

Nonetheless, the new confidence about entering the world's educational elite is heard among politicians and university administrators, students and professors.

"Maybe in 20 years M.I.T. will be studying Qinghua's example," says Rao Zihe, director of the Institute of Biophysics at Qinghua University, an institution renowned for its sciences and regarded by many as China's finest university. "How long it will take to catch up can't be predicted, but in some respects we are already better than the Harvards today."

In only a generation, China has sharply increased the proportion of its college-age population in higher education, to roughly 20 percent now from 1.4 percent in 1978. In engineering alone, China is producing 442,000 new undergraduates a year, along with 48,000 graduates with masters' degrees and 8,000 Ph.D's.

But only Beijing University and a few other institutions have been internationally recognized as superior. Since 1998, when Jiang Zemin, then China's leader, officially began the effort to transform Chinese universities, state financing for higher education has more than doubled, reaching $10.4 billion in 2003, the last year for which an official figure is available.

Xu Tian, a leading geneticist who was trained at Yale and still teaches there, runs a laboratory at Fudan University that performs innovative work on the transposition of genes. On Aug. 12 his breakthrough research was featured on the cover of the prestigious journal Cell, a first for a Chinese scientist.

Beijing University drew on the talents of Tian Gang, a leading mathematician from M.I.T., in setting up an international research center for advanced mathematics, among other high-level research centers. Officials at Beijing University estimate that as much as 40 percent of its faculty was trained overseas, most often in the United States.

The president of Yale University, Richard C. Levin, interviewed in Shanghai, where he was the featured guest at Fudan's centennial celebration in late September, also had high praise for China's students.

"China has 20 percent of the world's population, and it is safe to say it has more than 20 percent of the world's best students," he said. "They have the raw talent."

But Mr. Levin also noted that China's low labor costs simplified the effort to upgrade. He said he had been astounded by the new laboratories at Jiaotong University in Shanghai, which he said could be built in China for $50 a square foot, compared with $500 a square foot at Yale.

Some critics say that the country is trying to achieve excellence in too many areas at once and that the plans of the 30 or so universities selected for heavy state investment duplicate efforts, sacrificing excellence. Even Mr. Levin tempered his enthusiasm with a warning that the "top schools have expanded much too fast and are diluting quality."

In many cases, though, the toughest criticism comes from people who have worked in the system.

"It is important for different universities to have different qualities, just like a symphony," said Yang Fujia, a nuclear physicist and former president of Fudan. "But all Chinese universities want to be comprehensive. Everybody wants to be the piano, having a medical school and lots of graduate students."

Mr. Yang, who leads a small experimental university in Ningbo, also criticized the lack of autonomy given to many Chinese researchers.

"At Princeton one mathematician spent nine years without publishing a paper, and then solved a problem that had been around for 360 years," Mr. Yang said, a reference to Andrew J. Wiles and his solution to Fermat's last theorem in the early 1990's. "No one minded that, because they appreciate the dedication to hard work there. We don't have that spirit yet in China."

Similarly, Ge Jianxiong, a distinguished historical geographer at Fudan, said Chinese culture often demands speedy results, which could undermine research. "In China projects are always short-term, say three years," he said. "Then they want you to produce a book, a voluminous book. In real research you've got to give people the freedom to produce good results, and not just the results they want."

Mr. Ge added that education suffered here because "it has always been regarded as a tool of politics."

Dr. Yao said he had expected to concentrate on creating a world-class Ph.D. program but had found surprising weaknesses in undergraduate training and had decided to teach at that level. "You can't just say I'll only do the cutting-edge stuff," he said. "You've got to teach the basics really well first."

But the biggest weakness, many Chinese academics indicated, is the lack of academic freedom. Mr. Yang, the former president of Fudan University, warned that if the right atmosphere was not cultivated, great thinkers from overseas might come to China for a year or two, only to leave frustrated.

Gong Ke, a vice president of Qinghua University, said universities had "the duty to guarantee academic freedom."

"We have professors who teach here, foreigners, who teach very differently from the Chinese government's point of view," he added. "Some of them really criticize the economic policy of China."

Li Ao, a writer in Taiwan, visited Beijing University in September and gave a speech calling for greater academic freedom and independence from the government. The next day, after reportedly coming under heavy official pressure, he delivered a far tamer version elsewhere. .

The Chinese government also censors university online bulletin boards and discussion groups, and recently prevented students at Zhongshan University in Guangzhou from conversing freely with visiting elected officials from Hong Kong.

Students here are not encouraged to challenge authority or received wisdom. For some, that helps explain why China has never won a Nobel Prize. What is needed most now, some of China's best scholars say, are bold, original thinkers.

"The greatest thing we've done in the last 20 years is lift 200 million people out of poverty," said Dr. Xu. "What China has not realized yet, though, if it truly wants to go to the next level, is to understand that numbers are not enough.

"We need a new revolution to get us away from a culture that prizes becoming government officials. We must learn to reward real innovation, independent thought and genuine scholarly work."
http://www.nytimes.com/2005/10/28/in...versities.html





Kansas Fight on Evolution Escalates
Jodi Wilgoren

Two leading science organizations have denied the Kansas Board of Education permission to use their copyrighted materials as part of the state's proposed new science standards because of the standards' critical approach to evolution.

The rebuke from the two groups, the National Academy of Sciences and the National Science Teachers Association, comes less than two weeks before the board's expected adoption of the controversial new standards, which will serve as a template for statewide tests and thus have great influence on what is taught.

Kansas is one of a number of states and school districts where the teaching of evolution has lately come under assault. If adopted, its change in standards will be among the most aggressive challenges in the nation to biology's bedrock theory.

The copyright denial could delay adoption as the standards are rewritten but is unlikely to derail the board's conservative majority in its mission to require that challenges to Darwin's theories be taught in the state's classrooms.

In a joint statement yesterday, Ralph J. Cicerone, president of the National Academy, and Michael J. Padilla, president of the teachers' group, said: "Kansas students will not be well prepared for the rigors of higher education or the demands of an increasingly complex and technologically driven world if their science education is based on these standards. Instead, they will put the students of Kansas at a competitive disadvantage as they take their place in the world."

In the statement and in letters to the state board, the groups opposed the standards because they would single out evolution as a controversial theory and change the definition of science itself so that it is not restricted to the study of natural phenomena. A third organization, the American Association for the Advancement of Science, echoed those concerns in a news release supporting the copyright denial, saying, "Students are ill served by any effort in science classrooms to blur the distinction between science and other ways of knowing, including those concerned with the supernatural."

Though the complaints of the National Academy and the teachers' group focus on just a handful of references to evolution, their copyrighted material appears on almost all 100 pages of the standards, which are an overview of science subjects taught in kindergarten through high school. In Kansas, as in most states, local school districts decide on curriculums and choose textbooks, but the state standards guide those decisions.

"In some cases it's just a phrase, but in some cases it's extensive," Steve Case, the chairman of the board's standards-writing committee, said of the differences required by the copyright denial. "You try to keep the idea but change the wording around; the writing becomes horrifically bad."

Dr. Case, a research professor at the University of Kansas who opposes the proposed standards, said removing the copyrighted material could take several months. But Steve Abrams, the board's president and leader of its 6-to-4 conservative majority, said it could approve the standards on Nov. 8 as planned, with a caveat directing a copyright lawyer to edit out direct references to the groups' materials.

"The impact is minimal - it won't change the concepts," said Dr. Abrams, a veterinarian. "They obviously don't have copyrights on concepts."

The copyright skirmish is not a surprise: the two science groups took similar steps in 1999, when the Kansas board stripped the standards of virtually any reference to evolution, a move that was reversed when conservative members were ousted from office. (Critics of evolutionary theory regained a majority last year.)

Sue Gamble, a board member who opposes the changes, acknowledged that the science groups' dissent would do little to halt the standards' adoption but said it could lead to a backlash.

"Nothing is going to stop these six members from doing what they're going to do," she said of the board's conservative majority, four of whom are up for re-election in 2006. "It won't make any difference, but I think it will make a difference next year in the election."
http://www.nytimes.com/2005/10/28/sc.../28kansas.html





Elsewhere in the SEC

University of Florida

Independent Florida Alligator—

The University of Florida’s homegrown network-monitoring software has become a point of contention for students who say the program prevents them from legal downloading activities and infringes on their rights.

ICARUS, which is largely responsible for the prevention of peer-to-peer software usage on campus, has outraged a number of students who claim it violates their rights.

But despite protest, the patent-pending program may soon be available to universities nationwide.

In creating ICARUS, UF’s initial inclination was to develop a program that would solve network congestion, said Mark Hoit, the interim associate provost for information technology.

“Based on that bandwith needed, we looked at the Web traffic and determined that a lot of it was due to illegal file sharing,” Hoit said.

Zachary Harper, who is part of the facebook.com group STOP ICARUS, said he feels UF should permit the usage of legal peer-to-peer, or P2P, file-sharing programs like BitTorrent.
http://www.theplainsman.com/vnews/di.../43694a77e6226





FCC Delays Vote On Telecoms Mergers Vote
Jeremy Pelofsky

The U.S. Federal Communications Commission said it postponed until Monday a meeting to vote on Verizon Communications' $8.6 billion purchase of MCI Inc. and SBC Communications Inc.'s $16 billion acquisition of AT&T Corp.

The FCC had tried to schedule votes several times on Friday, but sources close to the matter said the commissioners and staff were still reviewing and negotiating conditions the agency may require before clearing the deals.

The agency plans to take up the mergers at a public meeting that is scheduled to start at 11 a.m. (1600 GMT) Monday. An FCC spokesman declined to comment on the reason for the delay.

FCC Chairman Kevin Martin had proposed approving the deals without any conditions. The agency is split with two Republicans and two Democrats so Martin must convince at least one Democrat to support his decision or reach a compromise.

One seat on the commission has been vacant since March when then-FCC Chairman Michael Powell stepped down and President

George W. Bush has yet to name anyone to fill the position.

The lack of a Republican majority for Martin has caused problems before. He was unable to launch a new review of media ownership restrictions because of a disagreement between Republicans and Democrats.

One source close to the matter said some of the conditions under consideration include freezing for two years or more the wholesale rates that SBC and Verizon charge competitors for leasing parts of their networks.

Other conditions could include forcing Verizon and SBC to offer high-speed Internet service without requiring customers to also sign up for local telephone service and ensuring a subscriber can surf where they choose on the Internet, said the source who declined to be identified.

Competing telephone companies have pushed for price controls for wholesale access to Verizon's and SBC's networks. Consumer advocates have urged that the two carriers be forced to offer customers high-speed Internet service without subscribing to local telephone service.

Consumer groups have warned that SBC and Verizon's acquisitions of AT&T and MCI, respectively, would doom competition for customers, lead to higher prices and result in poorer service.

SBC spokesman Michael Balmoris said "we're confident the FCC recognizes the benefits of our merger with AT&T, and we look forward to a favorable vote."

Verizon spokesman David Fish declined to comment.

The U.S. Justice Department's antitrust division approved the two transactions on Thursday on the condition they each offer long-term leases to competitors for extra lines into some buildings.
http://today.reuters.com/news/newsAr...archived=False





At SBC, It's All About "Scale and Scope"

CEO Edward Whitacre talks about the AT&T Wireless acquisition and how he's moving to keep abreast of cable competitors

SBC Telecommunications' financial performance of late hasn't been much to write home about. For the third quarter, it just reported flat earnings of $1.2 billion on revenue of $10.3 billion, up a scant 0.3% over the same period last year. But given the onslaught of competitors eating away like pigeons at SBC's (SBC ) bread-and-butter landline business, scant growth is better than the alternative. "Is [our] revenue growth great? No -- it's terrible," says CEO Edward Whitacre, who adds, "but it's a lot better than losing."

The truth is, Whitacre hates losing. He has always been primarily concerned with spurring the company to further growth, creating "scale and scope," as he likes to say, and generating market value. First, he bought Pacific Telesis and Ameritech in the late 1990s, and then AT&T Wireless last year (see BW Online, 8/ 31/05, "So Long AT&T? Not So Fast").

Now, with his acquisition of AT&T nearing approval -- it requires not only federal approval, which is expected any day now, but the sign-off from state regulators, expected in November -- Whitacre has created the largest communications company in the nation (see BW, 10/31/05, "Storm Warnings for Kevin Martin").

Competitive Verification. Such moves have prompted even his biggest rivals, including Verizon (VZ ) and Comcast (CMCSA ), to strike similar deals just to keep pace.

"It's kind of verification that maybe we're doing the right thing," Whitacre says of his competitors. Dapper in his coat and tie, and cheerful despite the swirl of market forces facing his company, the SBC CEO sat down with BusinessWeek Chicago Bureau Chief Roger O. Crockett in Chicago to talk about how his company stacks up against the competition. Edited excerpts of theirr conversation follow:

Given that we've entered a new era in telecom where the Internet rules, how would you describe your strategy now?
It's still about scale and scope. It's about owning the assets that connect customers. The assets that probably can't be duplicated except maybe by the cable companies. We have that, Verizon has that, BellSouth (BLS ) has some of that. The cable companies have it. It's the numbers of customers you can get to. So it's scale and scope.

How much do you expect to compete against Verizon?
Well, a lot in wireless. They're going to have essentially the same capabilities that Cingular [SBC's wireless joint venture with BellSouth] has in a lot of locations. So I would think Verizon is going to be a big competitor. I think the cable companies will be the biggest competitor across the footprint.

In what other areas will you compete with Verizon?
In voice. We're clearly going to be fierce competitors in the big enterprise space. I suspect we'll compete in the small- and medium-business space, and for the consumer too.

For the consumer? How?
As Voice over IP gets bigger, they will have the capability to come into our so- called geographical footprint, and we'll have the same capability to go into theirs. I suspect over time there will be a lot of that.

Do you have a timeline for when that competition will heat up?
Over the next four or five years, I would think it will pick up a lot.

Some analysts believe that the new SBC won't be able to fully utilize AT&T to win business in the south as long as SBC is in its joint venture with BellSouth. Do you agree?
No. BellSouth and SBC have a fiduciary duty to make that business do as well as we can. In order for Cingular to do good, it's going to want to utilize everything that it can. One of the things it's going to utilize is this relationship with AT&T.

Won't BellSouth be concerned about losing some of its business customers to you, its wireless-venture partner, once your merger with AT&T is approved?
Well, they might be. BellSouth already competes against us in the enterprise space. And sure, we'll go and compete for some of their enterprise customers, and we'll sure use Cingular Wireless in doing it. But they can do the same thing. I just don't think it's the deal everybody is making it out to be.

Is it a possibility that SBC would acquire BellSouth?
It sure would be nice, but it doesn't have much chance of happening because of market power, size, etc. I think it would be real hard to do. I don't think the regulators would let that happen, in my judgment.

Have you made an overture?
I wouldn't say we haven't done that in the past, but I'm not going to do it now. I've certainly thought about it a few times, and I'm sure Bell South has thought about it too.

How concerned are you about Internet upstarts like Google (GOOG ), MSN, Vonage, and others?
How do you think they're going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain't going to let them do that because we have spent this capital and we have to have a return on it. So there's going to have to be some mechanism for these people who use these pipes to pay for the portion they're using. Why should they be allowed to use my pipes?

The Internet can't be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! (YHOO ) or Vonage or anybody to expect to use these pipes [for] free is nuts!

What's your approach to regulation? Explain, for example, the difference between you and Verizon in how you are approaching regulatory approval for Telco TV [digital-TV service offered by telecoms].
The cable companies have an agreement with the cities: They pay a percentage of their revenue for a franchise right to broadcast TV. We have a franchise in every city we operate in based on providing telephone service.

Now, all of a sudden, without any additional payment, the cable companies are putting telephone communication down their pipes and we're putting TV signals. If you want us to get a franchise agreement for TV, then let's make the cable companies get a franchise for telephony.

If cable can put telephone down their existing franchise I should be able to put TV down my franchise. It's kind of a "what's fair is fair" deal. I think it's just common sense.

What if the regulators don't agree?
Then there won't be any competition -- there will be a cable-TV monopoly.

I know you're a competitive person. Who are your biggest competitors?
Our big competition in the future is with the cable companies. Verizon's going to be a player, and certainly I want to compete. And I want our shareowners to do better than anyone else.

How have you managed to turn losses into growth?
We've worked our asses off. We've bundled, we've got new products.

How do you feel the business is performing overall?
I'm not real pleased now. It's not a good industry for stock holders because of all the uncertainty. But we're growing revenues again.

Portions of our business are pretty strong. We're doing pretty good on the data side, on the Internet side, on the broadband-pipe side, on the wireless side. So I'm feeling better than I've felt in a long time.

Edited by Patricia O'Connell

http://www.businessweek.com/@@n34h*I...5/b3958092.htm





Telefónica of Spain to Buy British Mobile Phone Concern
Heather Timmons

Telefónica of Spain agreed Monday to buy the British mobile phone company O2 for $31.5 billion in a deal that could spur greater competition in Europe's more established markets.

"My view is that Telefónica is in aggressive acquisition mode," said Satyajit Chatterjee, a credit analyst with Société Générale in London, referring to the price offered for O2.

With the O2 deal, Telefónica swings its attention fully back to Europe from Latin America, where it paid $5.85 billion for the wireless assets of BellSouth last year, and where it has established a broad presence with billions of dollars in acquisitions since the 1990's.

Telefónica also spent 3.6 billion euros earlier this year to acquire 69 percent of Cesky Telecom, the Czech Republic's largest telecommunications company.

Telefónica offered 200 pence, or $3.54, a share for O2, a 22 percent premium to the company's closing price Friday. Shares of O2 jumped 41.5 pence Monday, or 25 percent, to 205.75.

The board of O2 gave its support to the hastily negotiated offer, which was put together in just a week. Unless a counterbid emerges, the deal will close in January.

The merged company would bring together 25 million O2 customers in Britain, Germany and Ireland with Telefónica's 145 million customers, most of them in Spain and Latin America, and would create Europe's second-largest telecommunications company by market value, behind Vodafone.

Analysts think Telefónica, with its deep pockets, could bring more competition to Britain and Germany, Europe's largest mobile phone markets, by cutting prices.

O2, which was spun off by the fixed-line company BT of Britain in 2001, has been considered an attractive takeover target for some time because of its strong brand presence and fast growth. The company earned £341 million ($602 million) in operating profit in the year ended in March, up 114 percent from the year before.

Deutsche Telekom and Royal KPN of the Netherlands considered buying O2, and said in August that those talks had ended. At the time, the two companies had been expected to offer 160 to 170 pence a share.

Monday's deal forces Deutsche Telekom to decide whether to put forward a higher bid for O2.

Deutsche Telekom will "have to make up its mind if it is going to pass, or think long and hard about what it wants to pay for O2," Robert Grindle, a telecommunications analyst at Dresdner Kleinwort Wasserstein, said.

"The bar has been raised substantially."

Telefónica's chairman, César Alierta, said O2 was a "high-quality asset on its own," and its acquisition would have a positive financial impact in its first year.

The deal would bring Telefónica one of the "highest-growth mobile operators in Europe," he said, and give the Spanish company economies of scale.

The management of O2 would stay in place and receive two seats on the Telefónica board. The company would continue to be run from Britain.

Many cash-rich telecommunications companies like Telefónica have been pondering acquisitions in recent months, but many have been content to return money to shareholders instead.

Some investors and analysts warned Monday that the deal, with its premium of more than 20 percent, could signal a return to the ambitious mergers of the late 1990's, which left the telecommunications industry saddled with debt and forced several players into bankruptcy.

Telefónica is financing the deal with a £18.5 billion loan from Citigroup, the Royal Bank of Scotland and Goldman Sachs.
http://www.nytimes.com/2005/11/01/bu...ss/01tele.html





Sprint Launches Music Service, Fast Network
Sinead Carew

The No. 3 U.S. mobile service, Sprint Nextel Corp., on Monday introduced a wireless music download service using phones from Samsung Electronics Co. Ltd.and Sanyo Electric Co. Ltd..

Sprint Nextel also said it expects a new high-speed data network it is building to have coverage for 130 million people by the middle of the month. The network can send music and video at speeds similar to some home broadband networks.

Sprint Nextel and its bigger rivals, Cingular Wireless and Verizon Wireless, already sell phones that can store and play music users transfer from their computers, but this is the first U.S. service that lets customers buy songs on the go.

Cingular Wireless and Verizon Wireless have said they plan to launch similar services next year.

Wireless service providers hope such services will boost revenue by getting customers to use their handsets for more than phone calls. Music is seen as one of the next big things in phones, most of which already sport cameras and Web browsers.

Sprint Nextel said it would send full songs to consumers' handsets for $2.50 each under the new service, two and a half times Apple Computer Inc.'s 99 cent price tag for songs bought on computers through its popular iTunes music service.

Consumers can also play the songs they buy through Sprint on their computer and also copy them onto a compact disc.

Sprint and some of its rivals believe consumers would pay a premium to buy music while on the move, many analysts have been skeptical about whether this would work.

The U.S. wireless music download market is expected to be worth $1.5 billion in five years, compared with $104 billion for the total U.S. mobile services market in 2004, according to Ovum.

"Music could certainly be much bigger if pricing was more in line with what you find on the Internet," Ovum analyst Roger Entner said.

Sprint's Chief Operating Officer Len Lauer said he is "confident" the service will be a success, citing strong demand in Asia and Europe for services with similar fees.

Sprint is also looking at adding features that would integrate music more closely, including the option of having a favorite song play as the user turns on their phone.

"We will be offering services next year with more integration of music into the user interface," he said.

Sprint Nextel, which also streams radio channels to phones using content from Sirius Satellite Radio Inc., would also like to let its customers easily buy a song they have have just heard on Sirius, Lauer said, but he would not say if agreements are being made for such a service.

The new music service uses software from privately-held Groove Mobile, on Sanyo's MM-9000 and Samsung's MM-A940.

The phones run on Sprint's the high-speed network, based on EV-DO technology. Sprint plans to expand to cover 150 million people, or half the U.S. population, by early 2006.

Verizon Wireless has been selling services based on this technology to consumers since February and to business users since 2003 and Cingular plans to have a high-speed network in about 20 markets by year end.

Sprint said it would charge $15 to $25 a month for unlimited use of data services such as video and digital radio, with more video clips included in higher-priced plans. Verizon's high- speed service also starts at about $15 a month.

Cingular, a venture of SBC Communications Inc. and BellSouth Corp., in September began selling a Motorola Inc. <MOT.N> phone that runs Apple's music-playing iTunes software, but the phone has met a lukewarm reception.

Verizon Wireless is a venture of Verizon Communications and Vodafone Group Plc.

Sprint shares were up 38 cents, or 1.6 percent, at $23.62 in afternoon trading on the New York Stock Exchange.
http://today.reuters.com/news/newsAr...archived=False





To Battle the Telephone Giants, Small Internet Providers Choose Wi-Fi as a Weapon
Matt Richtel and Ken Belson

With cable providers and the Bell telephone companies dominating the market for residential high-speed Internet service, smaller Internet access providers are desperately trying to find a new way to connect with consumers. They say they may have found it in wireless technology that avoids the need to build expensive underground networks.

The most prominent example is EarthLink, once a leader in dial-up Internet service. The company made a big leap into the wireless market this month when it won the right from Philadelphia to provide inexpensive Wi-Fi Internet connections citywide. Last week, the company also won an exclusive franchise to build a wireless network for the city of Anaheim, Calif.

The wireless option is attractive because it does not require building or leasing costly underground lines, and the cost of Wi-Fi equipment and installation is falling rapidly, said Donald B. Berryman, president of a new division of EarthLink, called EarthLink Municipal Networks.

"There is so much going on" in the wireless market, Mr. Berryman said. "We see this as a huge opportunity to grow our business."

As part of the agreement with Philadelphia, EarthLink obtained public rights-of-way to build a wireless network covering the city's 135 square miles. The company will pay the construction costs, which Mr. Berryman said could be as little as $10 million, compared with the hundreds of millions of dollars EarthLink would have to spend to lay copper or fiber cables for a conventional broadband network.

EarthLink is not alone in betting on Wi-Fi. Many smaller telecommunications players are bidding for Wi-Fi contracts with big cities like Minneapolis and New York, which are eager to attract new businesses, give residents alternatives to the cable and phone companies and make it possible for lower-income residents to get an Internet link.

In smaller cities like Grand Haven, Mich., and Rio Rancho, N.M., start-ups like Azulstar Networks have struck out on their own, obtaining right-of-way agreements. In San Francisco, Google is considering building a free citywide network. Google would make money by selling advertising that reached the Wi-Fi users.

The Philadelphia network, which EarthLink hopes to complete by next year, will operate in a mesh of Wi-Fi access points, or hot spots, like those found in airports and cafes. High-capacity data connections to the Internet will be beamed from central offices to smaller Wi-Fi antennas on streets, in parks and atop buildings. The antennas, which have a range of about 600 feet, are positioned so that the signals overlap to prevent dropped connections when users move from one hot spot to another and to ensure that signals reach inside buildings.

Even with municipal Wi-Fi contracts, smaller Internet providers face an uphill battle against the likes of Comcast and Verizon, which have huge marketing budgets, bundles of products that include voice, video and television, and the ability to sharply cut prices.

And wireless networks are far from perfect. Though several times faster than dial-up services, they are still slower than conventional cable or D.S.L. broadband connections. They are also vulnerable to privacy and security problems. In hilly cities, coverage can be spotty. And heavy network use can slow connection speeds.

"It's an opportunity for the EarthLinks and AOL's of the world to generate new revenue," said Patrick Zerbib, an industry analyst at Adventis, a telecommunications consultancy. "But it's unclear whether the new Wi-Fi business can offset the decline in their other businesses."

Even so, the Bells and cable companies are fighting wireless incursions into their territory. They see the municipal projects - or anything that circumvents their expensive and extensive in-ground networks - as a threat. They are lobbying state and federal lawmakers to curtail publicly funded networks, arguing that publicly sanctioned services could deter the Bells from investing in their own networks.

But for providers like EarthLink, there's little choice but to forge ahead. On Oct. 20, the company said the number of its dial-up customers fell 8.1 percent in the third quarter, compared with the same period in 2004.

EarthLink, however, said it expected the Philadelphia project to give the company a lift. Mr. Berryman said EarthLink would charge Philadelphians about $20 a month to use the service. Under the company's agreement with the city, low-income residents will be offered discounted service at $10 a month (the city will determine eligibility for the discount).

The speed for the service, at around 1 megabit per second to download information, is about a quarter the speed of most cable broadband connections.

Because of that, Mr. Berryman does not expect these connections to displace the cable and phone companies. Instead, he said, EarthLink wants to get faster Internet connections to people with dial-up access or no connections at all.

The Bells and cable companies, however, are setting their sights on those customers, too. Verizon and SBC, for instance, now sell broadband service for as little as $14.95 a month, 25 percent less than EarthLink plans to charge in Philadelphia. Meanwhile, Cablevision and other cable companies are bundling their digital phone and television services with superfast data lines.

Some companies say they wonder whether cheap wireless broadband makes financial sense. T-Mobile, which operates the world's largest collection of Wi-Fi hot spots, did not bid on the Philadelphia project because it felt it would have a hard time making money on it.

Despite the financial challenge, some fledgling providers are moving ahead. The start-up Azulstar has been selling wireless Internet connections for the past year in Grand Haven, which covers about six square miles. Customers can get a connection for $19.95 a month, just a few dollars more than SBC's lowest-priced plan, which is faster. With an encrypted password, customers can log on to the Internet almost anywhere in the city, according to Azulstar's chief financial officer, Les Lewis.

Mr. Lewis declined to say how many subscribers Azulstar had signed up, but he said that wireless providers could compete with the Bells and cable companies by offering Internet phone and other services.

"It's not just going to be an Internet connection, but it's going to be like electricity where people develop more than light bulbs," he said.

NeoReach Wireless, a subsidiary of the MobilePro Corporation, which is based in Bethesda, Md., took a different tack. The company has created a wholesale wireless network that other companies can lease. The local cable provider, Cox Communications, is considering becoming a customer in Tempe, Ariz., said John T. von Harz, a vice president at NeoReach.

For some companies, building a wireless network is a means to an end, not an end in itself.

Google, for example, recently bid on a Wi-Fi project in San Francisco. Its executives said the company wanted to help start-ups and other companies move into the Internet access business.

Google also wants to see if it can support, or at least subsidize, its Wi-Fi business by getting local companies to pay a premium to advertise to people who are logged on to a Google hot spot. A person sitting at a cafe surfing the Web on a laptop, for instance, might receive ads for a nearby business.

Despite Google's ambition, Chris Sacca, the head of the company's municipal Wi-Fi effort, said it was "very hard to say" whether wireless networks would spawn a new generation of providers capable of challenging the phone and cable giants.

For independent Internet providers facing the Bells and cable companies, the only choice may be to take the plunge and find out.
http://www.nytimes.com/2005/10/31/te...gy/31wifi.html





Wireless Demand Helps Verizon Beat Estimates
Ken Belson

Verizon Communications said yesterday that it earned a better-than-expected $1.9 billion in the third quarter, helped by strong demand for its broadband and wireless products.

Verizon also received approval from the Justice Department yesterday for its purchase of the long distance carrier MCI, a major hurdle toward completing its deal. Verizon must still get approval from the Federal Communications Commission and several state regulators.

The earnings came in at 67 cents a share, and compared with a profit of $1.8 billion, or 64 cents a share, a year earlier. Analysts surveyed by Thomson Financial expected profit of 64 cents a share.

Sales grew 5.4 percent, to $19 billion from $18.1 billion.

Like its peers, SBC Communications and BellSouth, Verizon has been losing local phone customers. But it has been making up the difference by selling its other customers more long distance services, high-speed data transmission and now television, which has been introduced in some markets in Texas.

The cellphone division, Verizon Wireless, is also the strongest in the industry. Sales at Verizon Wireless, which added 1.9 million customers in the quarter, rose 14 percent, to $8.4 billion. Customers at Verizon Wireless, which is jointly owned by the Vodafone Group, used more data services with their cellphones in the quarter.

Revenue from data services now makes up 8.4 percent of sales thanks to the introduction of networks that allow for faster connection speeds. The company said customers had been sending more text messages and pictures and downloading more games and ring tones.

Even so, the average amount that customers spend a month dipped 2.8 percent from the third quarter last year, to $50.13.

The strong performance at Verizon Wireless continues to ignite speculation that Verizon will buy out its partner, Vodafone. When asked by investors on a conference call when that might happen, Verizon's chairman, Ivan Seidenberg, said that he was interested in expanding fast- growing businesses, whether they were wireless or otherwise.

Verizon expects to spend $2 billion over three years to integrate its businesses with MCI, and another $1.5 billion to $2 billion on capital investments related to MCI. Verizon said it planned to reduce the number of workers at MCI by 7,000 as well.

Verizon's shares rose 17 cents, to $30.76 yesterday.
http://www.nytimes.com/2005/10/28/te...28verizon.html





High Court Won't Hear Wireless Radiation Appeal
Jeremy Pelofsky

Class-action lawsuits against wireless telephone providers and manufacturers over radiation emissions will be able to go forward, after the U.S. Supreme Court on Monday declined to hear an appeal by the companies.

The high court rejected hearing an appeal by companies like Nokia and Cingular Wireless challenging a decision by a U.S. appeals court that reinstated the lawsuits that argued manufacturers knew about and hid the risks of radiation emissions wireless phones posed to users.

Wireless phones are radios that emit frequency radiation and in the United States the Federal Communications Commission must approve any device that sends out such radiation.

Exposure to high levels of radiation can cause adverse health effects, but it is less clear the impact on a wireless phone user who is exposed to low levels of radiation when a phone is held to an ear directly.

Health advocates have expressed concerns about radiation causing problems ranging from headaches to tumors. But the wireless industry has pointed to U.S. government statements that scientific evidence so far has not shown any health problems associated with wireless phone use.

Five class-action lawsuits were filed in state courts seeking damages, including money for wireless users to buy a headset or reimburse those who had already had purchased one.

A U.S. district court judge dismissed the five lawsuits on the grounds that state regulation of wireless phone emissions was preempted by the FCC, but the U.S. Court of Appeals for the 4th Circuit overturned that decision and reinstated the cases.

"The court was satisfied that the issues had been treated responsibly by the Fourth Circuit," said Harley Thomas Howell, a lawyer at Howell & Gately who represents those who sued the manufacturers.

Nokia spokeswoman Arja Suominen said the company was disappointed by the decision, but declined further comment. Cingular, the largest U.S. wireless carrier, declined to comment.

The wireless industry is worried about being required to adhere to numerous different emissions requirements imposed by states, something the service providers and manufacturers argue would wreak havoc on the industry and consumers.

"This court's intervention is necessary to prevent the balkanization of network standards ... which will, if uncorrected, undermine the ability of consumers to use an FCC-approved wireless telephone in every state of the union," they said in their appeal to the court.

Other companies that joined in the appeal include Motorola Inc. and Qualcomm Inc. Cingular Wireless is a joint venture of BellSouth Corp. and SBC Communications Inc.

As a result of the top court's action, one lawsuit will go forward in federal court while the four other lawsuits will advance in state court.

Nokia shares closed up 53 cents, or 3.25 percent, to $16.82 on the New York Stock Exchange.
http://today.reuters.com/news/newsAr...T-WIRELESS.xml





Dell Cuts Third-Quarter Forecasts
Philipp Gollner

Dell Inc., the world's biggest personal computer maker, posted preliminary third-quarter earnings below expectations amid weaker sales to U.S. consumers and in Britain.

Dell, whose shares fell as much as 5.1 percent in after-hours trade, also said it would take charges of about $450 million in the third quarter for costs of repairing some computer systems for customers, cutting jobs and restructuring units.

The company in August missed analysts' second-quarter revenue growth forecasts because it lowered prices aggressively on its entry-level U.S. personal computers.

Dell, based in Round Rock, Texas, said it expects fiscal third-quarter profit per share of 39 cents before one-time items, missing analysts' average estimate of 40 cents per share, according to Reuters Estimates.

The $450 million charge cuts net income by a further 14 cents per share to 25 cents.

The company said it expects to report revenue of $13.9 billion, below its earlier forecast of $14.1 billion to $14.5 billion and analysts' $14.3 billion estimate. U.S. consumer and British unit sales "fell short of expectations," Dell said.

"They were seeing some weakness in desktop and strength in notebooks, but not enough to offset the weakness in desktop," analyst Shaw Wu of American Technology Research said after Dell's announcement. "Dell's problem is that it's not differentiated enough" from competitors.

Dell had earlier forecast third-quarter earnings per share of 39 cents to 41 cents before items.

Shares of Dell were down 3.8 percent at $30.67 in extended trade on Inet. They have slumped 24 percent in the past three months on concern over its U.S. personal computer business. The stock has underperformed the Nasdaq composite index by 20 percent in that period.

The company said $300 million of the charge was due to repairing systems that included a part from a vendor that did not perform to Dell's specifications.

The problem affects "a small percentage" of older OptiPlex desktop systems used by businesses, Dell said. Charges also cover the costs to cut an unspecified number of jobs in Texas and the U.K., spokesman Jess Blackburn said by phone. A "very limited" number of jobs were cut in the Asia-Pacific region, he said.

"It's a very small percentage of our overall workforce that was impacted," Blackburn said, adding that the cuts were made last week.

The technical problem involves potentially faulty capacitors on Dell's GX270 and GX280 desktops used by business customers, Blackburn said. He declined to name the company that supplied the capacitors, which are on the computers' motherboards, the chassis on which computer components are assembled. No recall has been announced, he said.

"The cost is associated with the labor to do the field work" to replace the motherboards, he said. "There's no safety risk, no data loss, but there's frustration that the system may not power up."

The head of U.S. consumer business, Michael George, also is leaving the company to become chief executive of Liberty Media Corp.'s QVC Inc. unit, Liberty Media announced on Friday.

(Additional reporting by Duncan Martell in San Francisco)
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Microsoft Acquires File-Sharing Service
Antone Gonsalves

Microsoft Corp. on Thursday said it has acquired file-sharing service FolderShare, a move that's part of the software giant's recently announced strategy of making its products available as Web services. Financials details were not disclosed.

FolderShare, owned by Austin, Texas-based, ByteTaxi Inc., allows subscribers to create a private peer-to-peer network to synchronize files across multiple devices and access or share files with other people. The service, which is available at no charge and requires a software download, is marketed as an easier way to share files than through email, uploading to a Web site or burning them to CDs or DVDs.

On Tuesday, Microsoft chairman Bill Gates told a San Francisco news conference that the company was developing a new wave of "live software" that would be available over the Web as a service. Microsoft is betting that it can make money by offering software supported by advertising instead of licensing. The company would continue to also sell packaged software.

Microsoft is feeling the pressure from growing companies that are offering software as a service, like Google Inc. and Yahoo Inc. on the consumer side, and Salesforce.com and NetSuite Inc. on the business side. The software giant's first products under its new strategy include Windows Live, which is being tested and would include FolderShare.

Windows Live combines a portal that features search, email, instant messaging, online maps and Internet telephone with other applications. In announcing the service, Gates said it would automatically update files and preferences across any number of devices users chose to use for access.

“I’m thrilled with the acquisition of FolderShare and the opportunity to offer this technology with Windows Live software and services," Blake Irving, corporate vice president of the MSN Communication Services and Member Platform group at Microsoft, said in a statement. "FolderShare technology will help customers access their information anytime, anywhere and on multiple devices, unifying their overall experience.”

Microsoft planned to continue operating FolderShare for new and current subscribers.

The acquisition was the second announced on Thursday. The Redmond, Wash., software maker said it had acquired Switzerland-based Media-streams.com AG, which builds Internet telephony applications that integrate with Microsoft's Outlook and Exchange email software.
http://www.techweb.com/wire/software/173402814





Microsoft Says Profit Rose 24%
John Markoff

Microsoft rode a wave of global strength in the personal computer market to report growth in profit and sales in the first quarter of its 2006 fiscal year, slightly exceeding analysts' expectations.

Microsoft, the world's largest software publisher, said Thursday that quarterly revenue was $9.74 billion, 6 percent higher than $9.19 billion in the quarter last year. Earnings rose 24 percent, to $3.14 billion, or 29 cents a share, from $2.53 billion, or 23 cents a share, a year earlier.

The results in the most recent quarter, which ended Sept. 30, included a charge of 2 cents a share stemming from the antitrust settlement that the company reached with a rival, RealNetworks. The year-earlier quarter included a charge of 3 cents a share as a result of an antitrust settlement with Novell Inc.

Excluding the charge, Wall Street analysts had expected the company to earn 30 cents on revenue of $9.78 billion, according to Thomson Financial.

Despite Microsoft's continued strong financial performance, the stock has remained largely stalled over the last four years. On Thursday the shares declined 26 cents, to $24.85, in Nasdaq trading, and in after-hours trading, after the results were released, they fell further.

Several analysts said a 17 percent increase in global shipments of personal computers for the September quarter, which was reported recently by the International Data Corporation, was a crucial factor in Microsoft's growth. Microsoft said it expected revenue growth of 10 to 12 percent for the full year.

"I think we're going to see very strong reports for both Dell and H.P.," said Mark Stahlman, a financial analyst at Caris & Company in New York. "All the evidence suggests that PC's, including servers, are selling surprisingly well."

Despite its strengths, Microsoft issued its typically cautious forecasts that were below analysts' expectations for the current quarter. The company forecast earnings per share of 32 to 33 cents a share on revenue of $11.9 billion to $12 billion; analysts had forecast earnings of 35 cents a share on revenue of $12.29 billion.

While the company's traditional businesses - like its Windows desktop and its server and Office business - continued to show strength, Microsoft again lost money in new businesses like home and entertainment, mobile and embedded devices, and business solutions, which aims at small businesses.

Although its mobile software business showed a loss, revenue in the segment increased to $75 million from $49 million.

The company said that its brightest segment continued to be its server and tools business aimed at corporate customers, which grew 12.8 percent in the quarter.

The desktop Windows business grew 7 percent. Including the Office business, the three core businesses grew by an average of 8 percent in the quarter.

The gap between the industry's 17 percent growth and the smaller growth of the desktop Windows business caused several analysts to speculate that Microsoft might have experienced some erosion of market share in the quarter.

"I wonder if it isn't the impact of Apple and other players," said Brendan Barnicle, a financial analyst at Pacific Crest Securities in Portland, Ore.

Microsoft's executives pointed to a significant new product pipeline that the company believes will expand its business both in the second quarter and in 2007.

"Over all, it was a good quarter," said Chris Lidell, Microsoft's chief financial officer. "There is clearly a big product pipeline coming up."

He pointed to the xBox 360 game player and to the new version of the SQL Server database program and the Visual Studio software development system, available in November, as well as the desktop operating system, Windows Vista and Office 12, which will be available next year. The company said it expected to sell 4.5 million to 5.5 million xBox game consoles in the first year.

But Mr. Lidell said that he did not expect early profits in the home and entertainment business. Analysts said the company was investing heavily in the introduction of a new system, which is coming before a similar next-generation system from the Sony Corporation.

The home and entertainment business declined steeply from a year ago, however. Mr. Lidell said that was to be expected as consumers waited for the next-generation xBox introduction, which is planned for Nov. 22.

Revenue in the closely watched MSN business, which includes its advertising-based search service, declined to $564 million from $588 million during the last two quarters.

Several analysts on the company's financial earnings conference call pointed to the decline in light of strong earnings and revenue growth shown by its two principal search competitors, Google and Yahoo. Mr. Lidell said the company was counting on new advertising recruitment technology to bolster the declining search business.

Microsoft, based in Redmond, Wash., also said that it intended to accelerate its stock buyback program, repurchasing an additional $19 billion worth of shares no later than December 2006.
http://www.nytimes.com/2005/10/28/te...gy/28soft.html





LG Abandons Tube TVs in Europe
Lucas van Grinsven

LG Electronics, South Korean maker of products from fridges to cell phones, said on Friday it had almost completely stopped selling tube TVs in the European market as it bets the future on thin televisions.

The firm is currently selling its remaining stock. In the future, it will restrict itself to the top end of the market for cathode ray tube (CRT) TVs, such as a new range of ultra-slim CRT TVs built with thinner glass tubes, LG Electronics' European chief James Kim told Reuters in an interview.

"We will sell those at a 15 to 20 percent premium. But otherwise we have said, 'As an early innovator, let's forget CRT. We don't sell CRTs anymore'," Kim said.

LG's main supplier of glass tubes, LG.Philips Displays, could not immediately specify the consequences for its two remaining production sites in France and the Czech Republic, but the 50-50 joint venture LG has with Philips Electronics is preparing another restructuring because of falling demand.

"The market is much weaker than we estimated earlier this year. We cannot avoid more restructuring to bring capacity in line with lower demand," a spokesman said.

Market researchers estimate that demand for CRT TVs in Europe will drop around 20 percent this year, more than twice the decline that LG Electronics forecast at the beginning of the year, as consumers switch their preferences to liquid crystal display and plasma screen TVs.

"By the fourth quarter, CRT TVs will still be 73 percent of the volume of the TV market but less than half of the value," said analyst Bob Raikes at Britain-based market researcher Meko.

The biggest reason for the market decline is that retailers are not interested in tube TVs, except for the very basic and cheap models that do not take up much shop floor space.

"There's no premium market left for CRT. It's all about cost," Raikes said.

Become No 2 Or 3

LG's move to abandon the CRT market is part of its strategy to focus on premium, higher-priced products in mobile phones, TVs, fridges and washing machines in an attempt to boost its ranking from fourth or fifth biggest in the European market to second or third.

If premium products generate around 30 percent of sales in the consumer electronics market, Kim said, LG's aim is to be above that mark with closet-sized fridges with integrated TVs, steam washing machines and 3G cell phones shaped like racing cars that can analyze your breath after a few alcoholic drinks.

In 2004, Kim's first year in Europe, sales more than doubled to 3,847 billion won from 1,788 billion in 2003, helped by an aggressive push into the European mobile handset market. First- half 2005 European sales of the world's No. 4 mobile phone maker were up 17 percent at 1,950 billion won.

This fourth quarter it will, for the first time, launch cell phones that will be sold through independent retail outlets, rather than through telecoms carriers deals.

Only by testing consumer preferences in this retail market can LG continue to gain market share, said Kim, who ran the firm's global cell phone business before he came to Europe.

LG's market share gains slowed in recent quarters after years of 60 percent annual growth. It needs to grab at least 10 percent of the global cell phone market, versus its current 7.4 percent, if it wants to survive and deliver healthy profits, Kim added.

Unlike Europe's top consumer electronics maker Philips, LG is still investing in its own production facilities. LG is in talks to open a second plant in Poland that will employ up to 3,000 staff and may involve $100 million of investments.

If discussions with Polish authorities are concluded successfully, the plant where LG plans to assemble 3.5 million flat-screen televisions and 500,000 refrigerators every year will be based near the university town of Wroclaw.

LG Electronics earlier this month started production at a new TV and monitors plant in the Polish town of Mlawa, but LG expects demand to rise so fast that it will need to expand capacity.
http://today.reuters.com/news/newsAr...archived=False





Apple Sells A Million Videos In New Service

Apple Computer on Monday said its iTunes online service has sold a million videos in under 20 days, sending shares up almost 5 percent.

iTunes, the most popular online music store, began selling about 2,000 music videos and episodes of ABC's "Desperate Housewives" and "Lost" for $1.99 (1.12 pounds) on October 12.

The debut coincided with the launch of a new generation of Apple's iPod digital music player that can play video on its 2.5-inch color screen.

Technology, media and Wall Street analysts are eyeing Apple's performance for validation that a market for legal downloading of videos exists.

Topping the list of big sellers were music videos by Michael Jackson, Fatboy Slim and Kanye West, as well as episodes of ABC shows.

"Selling one million videos in less than 20 days strongly suggests there is a market for legal downloads," Steve Jobs, Apple CEO, said in a statement. "Our next challenge is to broaden our content offerings."

At the service's launch, Walt Disney's ABC was the only nonmusic programming provider aside from Jobs' Pixar Animation Studios, which is also providing short films for the service.

Sources have said Apple is in discussions to lure more U.S. television networks to provide programming.

Apple shares gained $2.63, or 4.8 percent, to $57.10; Shares of RealNetworks, which operates a rival online music service, gained 37 cents, or 4.9 percent to $7.87 on the Nasdaq in afternoon trade.
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Napster for Almost Nothing

The digital music specialist posts a narrower loss than expected, but it's still a loss.
Rick Aristotle Munarriz

Remember when music fans associated Napster(Nasdaq: NAPS) with getting the latest digital tunes for free? The rebellious peer-to-peer network peaked with tens of millions of users swapping MP3 tracks before the crunch of legal liability had Shawn Fanning's file-sharing revolution cashing out at the hands of a major label.

No, you can't get free tunes on Napster anymore. It's in its third incarnation, existing now as a fast- growing subscription service for paying -- yes, paying -- members. However, shareholders can get pretty close to living in those early freeloading ways. That's because the stock, trading for less than $4 a stub these days, has a balance sheet blessed with $2.96 per share in cash and a small stake in Sonic Solutions(Nasdaq: SNIC).

Unfortunately, though, there is no free lunch. Napster's balance sheet was packing $3.90 per share in greenery at this time last year. And mounting losses as the company continues to nurture its pay-for-music service may keep the dowry dwindling until the company joins its peers in profitability.

Yes, online music rivals like RealNetworks(Nasdaq: RNWK) and Apple Computer(Nasdaq: AAPL) are in the black. Other companies doling out digital downloads, such as Microsoft and Yahoo!(Nasdaq: YHOO) have rich enough margins in their bread-and-butter businesses to keep the digital music party going for as long as they want.

Will Napster turn the corner before its sugar daddy of a balance sheet runs dry? That remains to be seen. Yesterday, Napster posted a hearty 151% spike in fiscal second-quarter revenues. The company did post a loss for the period, but it should be noted that it was a narrower loss (both sequentially and year over year), and the results came in well ahead of the market's grim expectations.

You have to like many of the deals that the company has been brokering lately. Napster has partnered with everyone from BellSouth(NYSE: BLS) to XM Satellite Radio(Nasdaq: XMSR) to college campuses to grow its reach beyond the obvious outlets. Now if only the company could either wind its way toward becoming a free cash flow entity -- or at least spend its money smarter so its balance sheet isn't left hemorrhaging. If it could do that, it would be music to even a value investor's ears.
http://msnbc.msn.com/id/9911454