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Samsung kills Galaxy Note 7 production; Google faces probe in Korea

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View


Samsung kills Galaxy Note 7 production; Google faces probe in Korea

TOP NEWS

* Samsung Electronics Co. Ltd. is permanently ending production and sales of its Galaxy Note 7 smartphone worldwide, Yonhap News Agency reports. Galaxy Note 7 users in South Korea can get either a full refund or exchange their handsets for a different model or brand, while U.S. customers can get a full refund or switch to the Samsung Group unit’s Galaxy S7 or Galaxy S7 Edge. The decision comes shortly after the company asked its retail partners worldwide to halt all sales and exchanges as it addressed new reports of devices catching fire.

* The Korea Fair Trade Commission will scrutinize Alphabet Inc. unit Google Inc.'s contracts with phone manufacturers regarding its Android operating system to determine whether the company breached competition rules. KFTC Chairman Jeong Jae-chan said the antitrust watchdog would investigate whether Android device manufacturers were forced to pre-install Google's proprietary apps, according to Financial News.

PAN-ASIAN NEWS

* Microsoft Corp. named Tara Bal as its new communications director for the Asia-Pacific, where she will oversee South Korea, Southeast Asia, Australia and New Zealand. According to Marketing Interactive, Bal was previously communications head for Asia-Pacific and Japan at NetApp Inc., a California-based data management firm.

JAPAN

* Independent music label network and rights agency Merlin Network Ltd. opened a new office in Japan as part of an expansion into Asia's digital music market. Haji Taniguchi, former president of Avex Music Publishing Inc., will head the Tokyo office as general manager.

* Japan's Ministry of Internal Affairs and Communications will take spillage countermeasures on TV radio waves in 2017, The Nikkei reports. As high-definition 4K and 8K broadcasting expands, the possibility of damage caused by wave spillage is also expected to increase. The Ministry will set standards on signal strength to prevent any negative effects on mobile phones and GPS.

* Nippon Broadcasting System Inc. and anime pay TV channel provider Animax Broadcast Japan Inc. will start live-streaming programs using a Twitter Inc. app, The Nikkei reports. The content will also be made available on Animax's website.

SOUTH KOREA

* South Korean public service broadcaster Arirang TV launched its HD feed on Sky plc in the U.K. and Ireland, Broadband TV News reports. The HD channel is supported by Orange SA's media solutions provider unit Globecast.

* Hong Kong-based channels group Celestial Tiger Entertainment will launch the Celestial Movies channel in South Korea, Variety reports. The Chinese-language movie channel will be fully subtitled in Korean and aired through SK Broadband's linear service B tv and through its OTT services B tv Plus and Oksusu. L.A.-based Saban Entertainment, Astro unit Astro Overseas Ltd. and Lionsgate Entertainment jointly own CTE.

* South Korea's terrestrial TV networks will resume supplying video-on-demand content to cable TV operator CMB and region-specific cable TV system operators as they decided to start negotiating service extension options, Digital Times reports. The networks previously suspended VOD supply due to disagreements over setting costs per subscriber.

CHINA, HONG KONG AND TAIWAN

* Bliss Media, a Shanghai-based movie distributor, issued a statement in response to a lawsuit filed by U.S. studio Das Film that alleges breach of contract for the movie "Smart Chase." Bliss said the two companies terminated contracts before the movie was shot, therefore Bliss was free to replace Das Film with another production company.

* Samsung China is recalling 190,984 Galaxy Note 7 phones sold in the country, two days after being summoned by China's General Administration of Quality Supervision, Inspection and Quarantine, Caixin News reports. Customers can choose to receive compensation to buy another Samsung model, or request a refund.

* Shanghai-based business cloud service provider Qiniu introduced U.S.-based data centers to meet demand from a growing number of Chinese clients doing businesses in North America. The data centers allow stored information in the region to be processed locally to boost speed.

SOUTHEAST ASIA

* Tata Communications Ltd., the communication business arm of Indian conglomerate Tata Group, is looking to set up cloud data centers in Malaysia and the Middle East in the next six to 12 months, The Economic Times (India) reports.

* Philippine president Rodrigo Duterte is threatening to break up the country's telco duopoly if Globe Telecom and PLDT Inc. fail to improve their services, The Manila Times reports. Duterte warned that he may bring in competitors from China unless complaints about slow internet speeds are addressed.

* The Indonesian Commission for the Supervisory of Business Competition, known as KPPU, suggested that telcos PT XL Axiata Tbk and PT Indosat Ooredoo merge, Kompas reports. KPPU, which suspects a cross-ownership between the two operators, found the two companies set very similar tariffs outside Java.

* Thailand's National Broadcasting and Telecommunications Commission threatened to suspend the licenses of the 166 cable and satellite TV operators who have yet to pay their fees, Post Today reports. The NBTC reportedly said the accumulated fees amount to 104 million Thai baht.

* Thailand's Securities and Exchange Commission blacklisted all board members of Nation Multimedia Group Plc, Krungthep Turakij reports. As a result, TRIS Rating Co. Ltd. downgraded the group's credit rating to BB+, citing the group’s power vacuum and inability to pay off debts.

* Yustinus Prastowo, executive director of the Center for Indonesia Taxation Analysis, known as CITA, said the Indonesian telco industry faces a potential loss of 14 trillion Indonesian rupiah if network sharing regulations are implemented, Indotelko reports. He claimed that the new regulations will trigger unhealthy business competition.

* Thai telecom investment company Intouch Holdings Plc invested an undisclosed amount in Social Nation Inc., a U.S.-based advertising tech startup, Prachachat reports. Social Nation will reportedly use the funds to further develop virtual reality advertising and 360-degree video advertising. Intouch is the parent company of Thai telco AIS.

* Malaysian telco Telkom International Sdn Bhd, known as Telin Malaysia, added GTEL Network Sdn Bhd as its dealer partner to help penetrate the local market, according to Indotelko. Telin Malaysia, a subsidiary of Indonesian state-owned telco PT Telekomunikasi Indonesia Tbk, targets three market segments in Malaysia: plantation workers, travelers and conventional outlets.

AUSTRALIA AND NEW ZEALAND

* Telstra Corp. Ltd. chairman John Mullen took a swipe at Vodafone Group Plc's Australian unit during Telstra's annual general meeting, saying one of its competitors is trying to establish regulations that would close a "competitive gap," iTWire reports. This comes after the Australian Competition and Consumer Commission launched an inquiry into whether it should regulate mobile roaming services in the country.

* Sydney-based advertising firm oOh!media is acquiring Australian digital display network Executive Channel Network for A$68.5 million, The Australian Financial Review reports. ECN airs advertising, news and other information in elevators and lobbies across 280 locations in the country. The deal is expected to be completed in the coming weeks.

* Australian gambling operator Tabcorp Holdings Ltd. increased its bid to remain in competition with Racing Victoria and Seven West Media Ltd. joint venture Racing.com for racing broadcast rights in Australia and New Zealand. According to SBCNews, Tabcorp is willing to pay A$26 million for racing content rights in Western Australia for six years, which is approximately 10 times the amount of its current deal.

INDIA AND SOUTH ASIA

* The Bangladesh Telecommunication Regulatory Commission demanded the immediate suspension of IPTV and VOD services in the country, The Daily Star reports. The regulator is threatening legal action against internet service providers that do not heed the order.

* Indian mobile operator Tata Teleservices was awarded spectrum in the 1,800-MHz band in the Mumbai and Maharashtra service areas for 24.4 billion and 15.9 billion Indian rupees, respectively. According to Telecompaper, the spectrum license is valid for 20 years.

* Mumbai-based studio Dharma Productions will start making advertisements through Dharma 2.0, a separate in-house division, The Economic Times (India) reports. One of its first clients is Indian telco Reliance Jio, a unit of Reliance Industries Ltd.

FEATURED NEWS

Hires and Fires: Asia-Pacific Media & Comm moves through Oct. 10: Alibaba, NBN, AIS: S&P Global Market Intelligence presents a monthly rundown of executive and board changes in the Asia-Pacific media and communications industries.

Africa and Middle East video spotlight: YouTube debuts hub for African TV series: In this monthly feature, S&P Global Market Intelligence provides a roundup of news related to over-the-top, video-on-demand and other online video initiatives in different African and Middle Eastern markets.

Tech Time: Alphabet units, others form AI partnership: In this feature, S&P Global Market Intelligence presents a bi-weekly global roundup of the latest developments in technology.

The Daily Dose: Apple, Samsung set for Supreme Court; Salesforce.com may not bid for Twitter: Apple and Samsung will face off at the U.S. Supreme Court today, while Salesforce.com may not bid for Twitter after facing opposition from investors and executives.

The Daily Dose Europe: Bolloré ups Vivendi stake; Vodafone launches Vodafone Pay in UK: Bolloré Group raised its holding in Vivendi above the 20% threshold, while Vodafone launched Vodafone Pay in the U.K., in partnership with PayPal.

Q&A: Virtual reality exec: ‘Mixed reality will become the standard’: S&P Global Market Intelligence sat down with Anthony Karydis, founder and CEO of Mativision, to discuss the impact of virtual reality and augmented reality on the future of the industry.

Trump-Clinton II: Second-most-watched second debate since 1992: The contentious second presidential debate between Democratic candidate Hillary Clinton and Republican nominee Donald Trump on Oct. 9 drew 66.5 million viewers.

FEATURED RESEARCH

Economics of Internet: State of Malaysian online video: Subscription: As with many Asian markets, Malaysia's demand for internet access exceeds the capabilities of its infrastructure. However, video-on-demand subscriptions continue to grow.

Global Multichannel: Sky future-proofing through OTT platform expansion: By buying in to digital platforms to alleviate the risk from disruptive services closely connected to its core entertainment business, Sky plc is laying a necessary foundation for global growth.

Economics of Advertising: Print ad revenue for business publications to fall below $2B in 2016: For the first time in over three decades, print advertising revenues from the business publications sector is expected to drop below the $2 billion mark in 2016 at $1.99 billion, down 3.4% year over year.

Nozomi Ibayashi, Myungran Ha, Frances Wang, Wil Hathaway and Ed Eduard contributed to this report. The Daily Dose has an editorial deadline of 7 a.m. Hong Kong time. Some external links may require a subscription.


Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

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Technology, Media & Telecom
Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Highlights

The segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 20 2019 — The U.S. broadband-only home segment logged its largest net adds on record in 2018, validating Comcast Corp.'s and Charter Communications Inc.'s moves to make broadband, or connectivity, the keystone of their cable communication businesses.

The size and momentum of the segment also put in perspective the recent high-profile online-video video announcements by the top two cable operators as well as AT&T Inc.'s WarnerMedia shake-up and plans to go toe-to-toe with Netflix in the subscription video-on-demand arena in the next 12 months.

We estimate that wireline broadband households not subscribing to traditional multichannel, or broadband-only homes, rose by nearly 4.3 million in 2018, topping the gains from the previous year by roughly 22%. Overall, the segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

For perspective, broadband-only homes stood at an estimated 11.3 million a mere four years ago, accounting for 13% of residential cable and telco broadband subscribers.

The once all-powerful, must-have live linear TV model, which individuals and families essentially treated as a utility upon moving into a new residence, increasingly is viewed as too expensive and unwieldy in the era of affordable, nimble internet-based video alternatives. This has resulted in a sizable drop in penetration of occupied households.

As a result, continued legacy cord cutting is baked in and broadband-only homes are expected to continue to rise at a fast clip, with the segment's momentum in the next few years compounded by Comcast's, Charter's and AT&T's ambitious moves into online-video territory.

Note: we revised historical broadband-only home estimates as part of our fourth-quarter 2018, following restatements of historical telco broadband subscriber figures and residential traditional multichannel subscriber adjustments.

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Q4'18 multichannel video losses propel full-year drop to edge of 4 million

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Q4'18 multiproduct analysis sheds more light on video's fall from grace

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Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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