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AT&T + Time Warner:

Good for the people? Or Bad?

By Shlomo Maital


   AT&T has just announced it is acquiring Time Warner for $85 b. The deal must be approved by the FCC Federal Communications Commission and antitrust authorities.

   What is going on here?

   Frank Biondi, former head of media giant Viacom, describes it succinctly. AT&T has 125 cell phone customers and a large number of cable TV customers. It is essentially a US ‘media and communications’ distribution company, one of the biggest. AT&T was once huge, was broken up by an aggressive anti-trust judge, and is now reforming and again becoming a giant player.

   Time Warner, including HBS and CNN, is a ‘content’ company. It creates the content, like the hit series Game of Thrones, that AT&T distributes.

   So, Biondi says, AT&T is buying, for $85 b. (14 times the value of Manchester United, for instance) “access to creative talent”. Because today the value in communications is not in the infrastructure and distribution, but in what you put onto this infrastructure. AT&T is buying a seat at the creativity table.

     Will AT&T favor, like a monopoly, content its own companies create? Probably not. If AT&T customers want to watch something else, and AT&T fails to provide it, they will lose millions of customers in the blink of an eye.

     I think that what is interesting about this mega-deal is this:   Ideas have become hugely valuable and creative talent is now the focus of competitive strategy.   If you are creative, if you have ideas, the AT&T+Time Warner deal says: The future is yours.

Nobel Prizes 2016

By Shlomo Maital


This year’s Nobel Prize winners:

       Medicine/Physiology: Yoshinori Ohsumi, Japanese cell biologist. He discovered how cells recycle their wastes – an amazing and complex process that keeps cells from choking on garbage. Ohsumi asked a question that intrigued him, but that interested few others…

       Economics: Oliver Hart (Harvard) and Bengt Holmstrom (MIT): contract theory. Especially “incomplete contracts”.   See Hart’s American Economic Review 2001 article on financial contracting — enlightening, especially for Venture Capital.

       Physics:   David Thouless, F. Duncan Haldane, J. Michael Kosterlitz.   Their mathematics (based on topology) revealed insights into ‘extreme state’ matter (e.g. very low temperatures, super-cooled, etc.), and may lead to important new products, perhaps in semiconductors and computing.

       Chemistry:   Jean-Pierre Sauvage, J. Fraser Stoddart, Bernard Feringa:   synthesis of molecular machines. These tiny machines, the size of a single molecule, can do actual mechanical work. Also may lead to important innovations one day.

       Note the common denominator: Willingness to ask really good questions, questions others aren’t asking,   ability to take risks in research, tackle very challenging hard problems, and in some cases, defy the establishment by choosing a research direction others think is a dead end.

   And the Peace Prize? To Colombian President Santos, and the peace agreement that ended 50 years of senseless civil war. We learn from Colombia what we already know, from Britain’s Brexit vote – beware of referendums, you cannot be sure what they will yield.   Colombia will revote its peace agreement, narrowly defeated in a referendum, and gain approval. But Britain? Britain will leave the EU, for certain, a result very few expected, with major consequences for Europe and the world.  

Hope for Alzheimer’s Cure?

By Shlomo Maital


Prof. Dan Michaelson

My family physician recently told me that about half of the elderly aged 85 and over have Alzheimer’s.   That should make Alzheimer’s a top priority for research money. But it is far from it.

Today’s Hebrew daily Maariv reports on a major breakthrough. Tel Aviv U. Prof. Dan Michaelson, along with his doctoral student Anat Bam-Cogan, have found a drug that can combat Alzheimer’s in mice. Here is the story:

     There are apparently quite a few ‘varieties’ of Alzheimer’s, just as there are types of cancer. Michaelson notes that 413 clinical trials, that tested 244 anti-Alzheimer’s drugs over the past 13 years, all failed!   Why? Maybe because Alzheimer’s is many diseases, not just one, he reasoned.

     Michaelson decided to tackle one type, related to specific genes ApoE3 and ApoE4.   Lab mice that have this defective gene develop Alzheimer’s. Michaelson tested the theory that the key protein that the defective ApoE4 gene makes fails to attach itself to fat cells properly, leading to the Alzheimer “plaque”. He contacted a biotech company Artery, and got from it a protein (peptide) that helps ‘stick’ fat cells to the protein. And it worked.   The peptide fixed the Alzheimer’s mice’s   cognitive problems and repaired the plaque in their brains.

     This is still a very long way from a drug that will help, or even cure, Alzheimer’s in humans. But it is a big step in the right direction.   We await more news from Dr. Michaelson, with hope.

Govt. Pays Taxes to Corporations: Why??

By Shlomo Maital


     Once corporations paid taxes to governments. It made sense. Companies benefit from services and infrastructure, so they should pay taxes, like everyone.

       But then, countries discovered they could play a win-lose game by offering corporations tax breaks (like Ireland’s 12.5% corporation tax) to lure them to come. We win, you (other countries, e.g. U.S.) lose.   Soon many countries were offering such tax breaks. And corporations grabbed every one. Legally. It is almost true that governments now pay taxes to corporations.

       Writing in the Oct. 5 New York Times (“Dealbook”), Russ Sorkin cites a study just released, that found that “73 per cent of Fortune 500 companies” (that is, 365 of them!) maintained “subsidiaries in offshore tax havens”. Apple alone holds $214.9 billion abroad and would owe $65.4 billion in taxes if it brought that money back to the U.S.

       The study shows how companies set up small subsidiaries, small enough to avoid reporting offshore profits; “27 companies reported 16,389 total subsidiaries (!) and 2,836 tax haven subsidiaries to the Federal Reserve – but only a small fraction of those were reported to the Securities Exchange Commission”.

         A furor arose over Donald Trump’s failure to pay income tax. But compared to the legal tax avoidance of companies sending money offshore, it’s a drop in the bucket.

         America could use a big dose of capital investment. But the money that could pay for it is sheltered abroad. How much? 58 Fortune 500 companies alone would owe $212 b. in federal taxes, if they were taxed properly.

         My questions: Who created these loopholes in America’s tax law? And why can’t legislators fix them?   Are Republicans so enamored by wealth that they approve this? Are Democrats so helpless they can’t take on tax reform?

             The Europe Union is trying to collect $14.5 b. in taxes from Apple. Apple CEO Tim Cook calls this effort “total political crap”.  

             The place to start is simply to require transparency. Nobody really knows how much money is sheltered abroad. Start by making companies report offshore holdings. And then – figure out how to make them pay taxes on them, no matter where they are.    


Blog entries written by Prof. Shlomo Maital

Shlomo Maital
October 2016