Why 4G may lead to bigger smartphone bills

Cisco is predicting that smartphone networks will get faster and faster. But you pay more as a result.

NEW YORK (CNNMoney)

The average American will use 6.2 GB of data on their mobile devices each month in 2017, according to the latest annual Visual Networking Index released by Cisco (CSCO, Fortune 500). To put that into context, Americans used just 752 MB Americans on average last year.

If data plans stay the same five years down the road, the average user's smartphone bill could grow by $40 a month.

The wide-spread roll-out of 4G, the lightning-fast wireless networks that all four of the major carriers are in the process of deploying across the country, is expected to be the main culprit. 4G is capable of speeds comparable to your home broadband service, and it's roughly 10 times faster than 3G. By 2017, Cisco predicts that the average smartphone connection speed will grow more than three-fold.

The faster the connection, the more stuff people consume on their mobile devices -- particularly large video files, which will be the primary driver behind the download explosion, Cisco says. Streaming video services such as Netflix (NFLX), Hulu and Google (GOOG, Fortune 500)-owned YouTube are expected make up two-thirds of downloads in five years.

Related story: Video and mobile are breaking the Internet

The number of 4G devices is relatively small now. Just 1% of devices were connected to 4G networks last year -- but those smartphones and tablets accounted for 14% of global mobile traffic. By 2017, Cisco estimates that 10% of the world's devices will have 4G connections, and they will make up almost half of all traffic.

Clearly, people who have (or plan to buy) 4G-capable phones will download like crazy. That has vast implications for wireless carriers -- and your wallet.

Today's mobile-data-per-user average sits just below the entry-level 1 GB data tier that Verizon (VZ, Fortune 500) has put in place and well under the 3 GB tier that AT&T (T, Fortune 500) offers. But if Cisco is right that we'll all be consuming 6.2 GB-per-month on average in five years, those same Verizon or AT&T customers would have to pay $40 a month more in their cell phone bills to cover all that data.

Related story: Why your cell phone bill is going up

The companies haven't exactly been shy about stating the rationale behind switching to tiered and shared data plans. As customers rack up more and more gigabytes on their 4G devices, they pay more.

But if those plans don't change, carriers with data caps or tiers are going to have a revolt on their hands. For the time being, Sprint (S, Fortune 500) and T-Mobile continue to offer unlimited data service for mobile customers

"As you have more people using bandwidth-intensive applications on the networks, carriers are putting data caps in place," said Thomas Barnett, manager of Cisco's Visual Networking Index team. "But carriers will need to evolve their tiers for cell service to remain affordable -- while still getting those top users reined in."

AT&T and Verizon declined to comment on whether they'd consider raising their tiers as average use ticks higher in the future.

But those tiers have clearly been very effective. American mobile customers offloaded half of their traffic to Wi-Fi networks last year. In other words, the prospect of paying more has forced customers to think twice about when they need to use a 3G or 4G network.

By 2017, Cisco forecasts that 66% of smartphone and tablet traffic will be over Wi-Fi. So that may be a way for consumers to keep watching Netflix on their phone or tablet without paying an arm and a leg to their carrier.

First Published: February 5, 2013: 9:12 PM ET

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China moves to curb rising income inequality

Growing income inequality is a problem for China's communist government.

HONG KONG (CNNMoney)

The lengthy document, posted on the government's website, contains a broad set of promises to combat growing inequality and corruption.

But the plan, which had been delayed for months, is measured in its recommendations and contains only a few specific deadlines.

The minimum wage will be boosted in most parts of the country to 40% of the average salary by 2015, the government said. Higher property taxes will also be considered, as well as an estate tax and new limits on salaries at government-owned businesses.

The government will seek more contributions from state-owned enterprises, which will be asked to increase returns to the treasury by 5% to help finance social welfare programs. State-backed enterprises in China typically control huge swaths of market share and receive favorable loans and treatment from Beijing.

The blueprint also contains a pledge to narrow the huge difference in income between citizens living in rural areas and those in fast-growing urban areas, where wages are typically much higher.

Yet the impact of the reforms could be muted, especially given the size of the problem, which analysts view as one of the most pressing challenges facing the country's government.

"To carry out an intensified reform for income distribution is a complex and difficult project," the government said. "It cannot be done overnight."

Last month, China's statistical agency said the nation's Gini coefficient, a commonly used measure of income inequality, was 0.47 in 2012. That figure ranks China near the United States, but well behind many of the world's developed economies.

Some analysts contend China's official statistics understate the magnitude of inequality, and others warn the gap between rich and poor is already wide enough to potentially inspire social unrest in the country.

Related: Foxconn's China workers to get more union rights

China's government has pledged to make corruption a top priority, but a recent wave of scandals involving graft and embezzlement have embarrassed the country's top leadership.

Account after account of officials and executives who have used their power for personal gain have surfaced in recent months, sparking outrage on social media sites popular in China.

The series of scandals have complicated the handover of power taking place at the highest levels of government. Xi Jinping, already installed as party boss, will assume the presidency in March and has pledged to tackle corruption.

Related: Economy central for China's new leadership

In several speeches since he took over the reins of the Communist Party in November, he has warned that corruption could lead to "the collapse of the Party and the downfall of the state."

Yet the plan released Tuesday, heavy on populist language, offers few specifics on steps the government will take to fight corruption.

First Published: February 5, 2013: 11:50 PM ET

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Mr. BRIC stepping down at Goldman

HONG KONG (CNNMoney)

O'Neill, currently chairman of Goldman Sachs' asset management operation, was first to identify Brazil, Russia, India and China as emerging investment magnets, and his reputation grew as an evangelist for the group.

He proclaimed in 2001 that those emerging economies, China's in particular, would drive markets for the next decade. The financial crisis notwithstanding, he was broadly correct.

Goldman (GS, Fortune 500) confirmed the departure in a staff note from Lloyd Blankfein and Gary Cohn that praised O'Neill for his 20 years of service to the investment bank. The memo did not specify an exact departure date, or give a reason for the retirement.

More than a decade on, O'Neill remains bullish on China, telling Fortune last month Chinese stocks are likely to rebound in 2013.

"I see things to worry about in India and Brazil, but if anything, China is doing better than I expected," he said.

Related: Mr. BRIC is still bullish on China

Asked about trouble in India and Brazil, O'Neill cited political and monetary problems.

"The Indians just sort of assume they can grow at 8% without doing anything. Contrary to China, they find it really difficult to change policies. India badly needs to allow more foreign investment to boost productivity," he said.

"Brazil's basic problem has been that their currency became far too overvalued. That added to their second problem, that the noncommodity sector of their economy is not very competitive," O'Neill said. "Unless they can do something to boost their noncommodity industries, Brazil might continue to struggle. But I add that they've done things to reduce the strength of their currency this year that are risky but quite impressive."

-- Fortune's Stephen Gandel contributed to this report.

First Published: February 6, 2013: 12:48 AM ET

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Standard & Poor's says it will face Justice Dept suit over subprime ratings

Shares of S&P parent McGraw-Hill fell sharply on news of the looming suit.

NEW YORK (CNNMoney)

The ratings agency said in a statement that the Department of Justice "has informed the company that it intends to file a civil lawsuit against S&P focusing on its ratings in 2007 of certain U.S. collateralized debt obligations," investments based on pools of mortgages.

S&P called the potential lawsuit "entirely without factual or legal merit." The firm said that it "deeply regrets" the fact that its ratings "failed to fully anticipate the rapidly deteriorating conditions in the U.S. mortgage market," but that it relied on the same data as U.S. government officials and other analysts who failed to predict the housing bust.

News of the looming lawsuit was reported earlier by The Wall Street Journal. A spokeswoman for the Department of Justice declined to comment.

S&P is a division of McGraw-Hill (MHP, Fortune 500), shares of which dropped sharply on the news, closing down 13.8%. Shares of fellow ratings agency Moody's (MCO) fell 10.7%.

A Moody's spokesman declined to comment. A spokesman for Fitch, the other of the big three ratings agencies, said the firm has "no reason to believe Fitch is a target of any such action."

Related: U.S. credit ratings test is yet to come

Analysts have long pointed to ratings agencies as key culprits in the financial crisis.

Wall Street firms and other investors rely on the agencies to analyze risk and give debt a "grade" that reflects the borrower's ability to pay the underlying loans. The safest investments are rated "AAA."

Some investors, including pension funds and insurance companies, operate under guidelines that require them to hold a certain percentage of highly rated securities in their portfolios.

In the years preceding the meltdown in 2008, large numbers of mortgage-backed securities received AAA ratings, only to fail as the housing market collapsed. Critics say that because the major ratings agencies are paid by banks and other issuers of securities rather than investors, they succumbed to a conflict of interest in giving their seals of approval to dubious investments.

"Credit rating agencies allowed Wall Street to impact their analysis, their independence and their reputation for reliability," U.S. Senator Carl Levin said in a 2010 hearing. "And they did it for the money."

A 2011 Senate report on the financial crisis said the agencies "weakened their standards as each competed to provide the most favorable rating to win business and greater market share."

First Published: February 4, 2013: 3:47 PM ET

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China trouble deepens for Yum Brands

Yum Brands has a reputation problem in China after an investigation into tainted chicken at KFC.

HONG KONG (CNNMoney)

Yum (YUM, Fortune 500) shares were down more than 5% in after-hours U.S. trading Monday after the company warned that slower sales in China will have a significant impact on its 2013 earnings.

The reputation of the global fast food powerhouse, which operates thousands of KFC restaurants in China, has suffered in the wake of an investigation by Chinese food regulators.

The inquiry was launched after media reports alleged that excess antibiotics and hormones were found in some chicken products sold at KFC locations. The revelation set Chinese consumers on edge and sparked calls for a boycott.

Same-store sales in China declined 6% in the fourth quarter, the company said, a trend that accelerated in the final two weeks of December, when negative publicity turned sales "sharply negative."

The company suggested Monday that problems will persist well into the new year, leading to a mid-single-digit decline in earnings per share in 2013.

"Due to continued negative same-store sales and our assumption that it will take time to recover consumer confidence, we no longer expect to achieve EPS growth in 2013," CEO David Novak said in a statement.

China is an increasingly important market for the parent company of Taco Bell, KFC and Pizza Hut. Yum has placed big bets on future growth in the world's second largest economy; it operates more than 4,200 KFC restaurants in China, as well as about 800 Pizza Huts.

Related: Burger King finds horse meat at European supplier

Prior to the investigation into tainted KFC chicken, western fast food companies had enjoyed a reputation for safety in China, where consumers have been subjected to a spate of food scares.

Regulators traced the bad chicken to two poultry suppliers in KFC's supply chain and have issued a series of recommendations that Yum said it will implement.

Even with the setbacks, Yum will proceed with an aggressive expansion of its operations in China, including 700 new restaurants in 2013 alone.

"Although we cannot predict how long it will take to restore sales, we are steadfast in our belief that the power and popularity of the KFC brand in China will ultimately drive a full sales recovery," Novak said.

First Published: February 4, 2013: 9:55 PM ET

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Texas to California businesses: Move here!

Texas Governor Rick Perry, right, wants to lure businesses from California, after its governor, Jerry Brown, pushed through a tax hike.

NEW YORK (CNNMoney)

Perry has launched a high-profile battle for California companies, running radio ads in California touting the Lone Star State's low taxes and favorable business climate. The ads will be heard in San Francisco, Sacramento, Los Angeles, San Diego and the Inland Empire area east of Los Angeles.

"Building a business is tough, but I hear building a business in California is next to impossible. This is Texas Gov. Rick Perry, and I have a message for California businesses: Come check out Texas," starts the 30-second spot.

Perry notes that his state has won the Best State for Business title from Chief Executive magazine for eight years running. He noted that the cost of doing business in California is 6.3% above the national average and Texas' is 4.6% below it.

This is not the first time Texas has looked to raid California for businesses. The governor has made several scouting trips and has written letters to California companies in the past. And, according to the governor's office, nearly three dozen California companies have relocated or expanded in Texas during California Gov. Jerry Brown's term.

Texas isn't the only one knocking on California companies' doors. Several states have courted Golden State businesses in recent years, particularly during California's budget turmoil.

California officials, however, aren't that concerned. Business relocations account for only .03% of annual job losses and the state is doing well economically, according to the Governor's Office of Business and Economic Development.

"I can understand why Rick Perry is interested in California. We were the national jobs leader for most of the last year with 257,000 new private sector jobs," said Kish Rajan, the office's director. "Real job creation comes from California's history as a national leader in start-ups and the expansion of homegrown businesses."

But Perry sees a new opening with California's recent tax hikes, which he says "increases California's already excessive income and sales tax." He pointed out that Texas has no state income tax and a low business tax cut.

Related: The truth behind Mickelson's taxes

Perry even reminded golfer Phil Mickelson, who recently complained about taxes in California, about that fact. "Hey Phil....Texas is home to liberty and low taxes...we would love to have you as well !!" Perry tweeted last month.

Are you looking to leave California because of the recent tax increase? If so, email tami.luhby@turner.com. You could be profiled in an upcoming story.

First Published: February 4, 2013: 4:02 PM ET

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Stocks: Will Dow stay above 14,000?

Click the chart for more stock market data.

NEW YORK (CNNMoney)

But in the coming week, only a handful of economic reports and corporate earnings will trickle through to guide them.

U.S. manufacturing will be in focus, with factory orders, productivity, unit labor costs, ISM services and wholesale inventories on tap. Overall, economists surveyed by Briefing.com are expecting disappointing numbers.

The sector has stalled over the last year, vacillating between barely expanding and contracting. That's because demand has pulled back in recent months on slow economic growth overseas and worries over the federal budget mess in Washington.

The slowdown hurt manufacturing jobs, the latest report from the Bureau of Labor Statistics showed.

After generating nearly a quarter million jobs since the recession ended, the industry has seen zero job growth since the middle of last year.

Worldwide manufacturing has also shown a mixed picture in recent months. Activity in China, which is considered a barometer for global growth since it is the world's biggest exporter, revealed positive signs of a pick up last month, but reports hinted at continued weakness in export markets.

Investors will also get more data on how Americans are faring with their finances this week, with a consumer credit report out on Thursday.

Related: Fear & Greed Index

In corporate news, several key tech companies will report earnings this week, including Sony (SNE), Sprint Nextel (S, Fortune 500) and AOL (AOL).

Yum! Brands (YUM, Fortune 500), Time Warner (TWC, Fortune 500)and News Corp (NWS) are also on tap.

Despite the Dow's big gains on Friday, stocks ended last week only modestly higher. The Dow gained 0.8%, the S&P 500 increased 0.6% and the Nasdaq climbed 0.9%.

First Published: February 3, 2013: 12:07 PM ET

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Super Bowl showdown: SodaStream v. Pepsi and Coke

SodaStream says it was rejected from airing an ad during the Super Bowl that called out big soda companies, claiming that 500 million plastic bottles would be used during game time alone.

NEW YORK (CNNMoney)

Apparently, they never get to hit the air.

SodaStream (SODA) learned that the hard way. The home soda maker had prepared to air an ad during the NFL showdown that took on soft drink giants Coca-Cola (CCE, Fortune 500) and Pepsi (PEP, Fortune 500). In the ad, SodaStream touts its reusable bottle by showing Pepsi and Coke deliverymen in such a rush to get into the supermarket that dozens of soda bottles pop and create a sticky mess. The ad then cuts to a man using a SodaStream, with a voice over saying, "With SodaStream, we could have saved 500 million bottles on game day alone."

But the ad won't be aired. SodaStream claims television network CBS (CBS, Fortune 500) rejected it for directly attacking two big beverage companies who are also its big advertisers. Pepsico is sponsoring this year's halftime show and has said it will air ads during commercial breaks, as has Coke.

CBS did not respond to requests to comment on the story. Pepsi and Coke also did not return requests.

"Our ad confronts the beverage industry and its arguably outdated business model," SodaStream's CEO Daniel Birnbaum said in a statement. "One day we will look back on plastic soda bottles the way we now view cigarettes."

Birnbaum said plastic bottles cause untold damage to the environment, and the ad showed that there is a more eco-friendly alternative.

Advertisers are paying big bucks for Super Bowl commercials this year. The price of a 30-second spot hit a record high of at least $4 million, blowing past last year's record of $3.5 million.

Related: Why football is still a money machine

Each year, many viewers tune in just to see the spots rather than the big game. Some ads create enough noise to be replayed and rehashed for days.

In years past, other rejected ads from Bud Light to PETA, have turned their airtime loss into publicity by posting the would-be commercials online for millions to see.

SodaStream doesn't want to miss out either.

Though its commercial won't air on TV, the company posted it online under the headline, "Watch the SodaStream commercial they wouldn't let you see during the big game." The ad has gotten more than 2 million views on YouTube.

"We understand that the...ad may be uncomfortable to the big soda companies, but we are proud of the ad and the truth that it brings to the American consumer," Ilan Nacasch, SodaStream's chief marketing officer, said.

First Published: February 3, 2013: 4:40 PM ET

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Hyundai wins Super Bowl auto ad wars

NEW YORK (CNNMoney)

The automotive website Edmunds.com analyzed Internet traffic during the Super Bowl to see which ads resulted in large traffic surges during the broadcast.

The big winner — at least in terms of immediate interest — was Hyundai, which saw a 738% increase in traffic to pages about its Santa Fe model after the company's ad hit the air.

The Santa Fe ad, which features the recently re-designed seven-seat version of the SUV, depicted a young boy and his mother gathering a group of friends to confront a group of bullies at a local park.

The Santa Fe spot far outstripped the next closest auto ad -- an Audi commercial featuring the S6 performance sedan. In that commercial, a young man who goes dateless to his high school prom ends up kissing the prom queen and getting a black eye from the prom king.

The Audi ad also seemed to result in a big jump in interest for the larger, more expensive Audi S8, although that car was not shown in the commercial.

Jeep's commercial, which solicited support for the USO and returning members of the U.S. military, led to only a modest bump in immediate interest in Jeep vehicles, according to Edmunds.com.

Related: Why football is still a money machine

Cars advertised shortly before the game resulted in even larger traffic surges, according to Edmunds.com. Interest in the just-introduced Mercedes-Benz CLA-class sedan rose over 1,500% after an ad ran during the pre-grame show. That is a brand-new model, however, and many consumers were likely seeing it for the first time.

The Hyundai Genesis, which was also advertised shortly before kick-off, received an 830% bump in web traffic.

First Published: February 4, 2013: 1:14 AM ET

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Dutch bank rescue shows Europe's problems continue

Dutch finance minister Jeroen Dijsselbloem said the rescue will increase government debt

LONDON (CNNMoney)

The Dutch government was forced to rescue SNS REALL to protect savers' deposits after the banking and insurance group racked up huge losses on real estate lending. Attempts to find a private buyer or investor failed.

"I therefore had to use the instrument of last resort, which is nationalization," said Finance Minister Jeroen Dijsselbloem, in a statement. "Nationalization would safeguard financial stability and prevent serious damage to the economy."

The government's intervention comes a day after two of Europe's biggest banks -- Santander and Deutsche Bank -- announced huge writedowns in a bid to reduce their exposure to the region's economic woes and move on from past mistakes.

More banks cleaned house Friday. Spain's second biggest lender BBVA reported a 44% drop in earnings in 2012 due to hefty real estate provisions and rival CaixaBank's earnings fell 78%. France's Credit Agricole announced a €2.7 billion impairment charge, including €852 million related to retail banking in Italy.

Related: Jury still out on eurozone - Draghi

While the investments of shareholders and subordinated creditors at SNS REALL will be wiped out, the rescue will still cost the Dutch state about €3.7 billion in capital injections and writedowns, pushing its budget deficit further above EU targets.

That will embarrass Dijsselbloem as he takes over as chairman of the group of finance ministers charged with policing fiscal policy among the 17 eurozone nations, and anger taxpayers who paid for a €40-billion bailout of the Dutch financial sector in 2008.

"I can well understand the aversion many people will feel because once again, a large sum of taxpayers' money is required," Dijsselbloem said. "This is why I want the private sector to contribute as much as possible."

A one-time levy of €1 billion will be imposed on Dutch banks in 2014 to help pay for the rescue.

Dijsselbloem said the EU needed to legislate to ensure that banks could be broken up more easily and that the cost of future rescues be borne largely by the private sector.

Related: Scandal at world's oldest bank

A working group led by European Central Bank governing council member Erkki Liikanen last October recommended separating investment and retail banking activities to protect taxpayers and savers.

But France has since countered with its own proposal that would stop short of forcing legal separation. So far, the EU has made only small steps toward a banking union -- agreement on a eurozone mechanism for winding up failing banks and protecting depositors is probably years away.

The EU, U.S. and U.K. are all discussing different ways to regulate banks to avoid costly bailouts in the future, leading some industry figures to warn that policymakers are creating unnecessary complexity, and potentially risk, with a confused approach.

UBS Chairman Axel Weber said last week the industry needed a global standard on the issue of separating customer deposits from trading activities.

First Published: February 1, 2013: 2:17 PM ET

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