Newspapers Overnight Online 01-22-2014 | Sci

U.S. multinationals, including IBM, Cisco Systems and Qualcomm, are looking to settle price-gouging investigations and restore trust with Chinese regulators in the wake of reports that U.S. government agencies directly collect data and tap networks of the biggest domestic technology companies.

All U.S. IT firms are "on the defensive" in China, said Scott Kennedy, director of the Research Center for Chinese Politics and Business at Indiana University. "They are all under suspicion as either witting or unwitting collaborators in the U.S. government's surveillance and intelligence gathering activities."

Former National Security Agency (NSA) contractor Edward Snowden's revelations about U.S. government surveillance may cost U.S. technology firms billions of dollars in lost sales, analysts say. The U.S. cloud computing industry alone may lose as much as $35 billion in worldwide sales over the next three years, the Information Technology & Innovation Foundation (ITIF), a Washington, D.C.-based non-profit think-tank, estimates.

"The ability of U.S. companies to sell abroad has been seriously compromised by foreign customer concerns about the relationship between the U.S. intelligence community and the tech sector," said Daniel Castro, a senior analyst at ITIF.

Nowhere is the so-called 'Snowden Effect' expected to have greater impact than in China, says Sanford C. Bernstein analyst Toni Sacconaghi. "U.S. technology companies face the most revenue risk in China by a wide margin, followed by Brazil and other emerging markets," he wrote in a research note this month.

EARNINGS IMPACT

IBM, which reported a 22 percent drop in third-quarter China sales, led by a 40 percent decline in hardware revenues, may be a bellwether for the 'Snowden Effect' when it reports fourth-quarter results later on Tuesday.

Revenue at the Armonk, N.Y.-based company is expected to contract 3.7 percent in October-December from a year earlier, to $28.2 billion, though net profit is seen rising 6 percent to $6.5 billion, according to Thomson Reuters SmartEstimates.

The mutually antagonistic relationship between Washington, D.C. and Beijing, alongside China's drive to promote indigenous champions and the deep ties between big U.S. tech firms and the government, further complicate the outlook.

On Saturday, China's Commerce Ministry condemned the $1.1-trillion spending passed by the U.S. Congress last week for including a cyber-espionage review process for federal purchases of technology from China.

The 2nd U.S. Circuit Court of Appeals in New York granted Apple an "administrative stay" of the court order appointing the monitor, Michael Bromwich, while the company seeks permission for a longer stay during its appeal.

In a brief order, the 2nd Circuit said a three-judge panel would hear Apple's motion for a stay pending appeal as soon as possible. It gave the government until January 24 to file opposition papers. The government did not oppose the request for an administrative stay.

The robot idea is one of four finalists for the new Tate IK Prize. The winning project will become a reality by the summer.

"We wanted ways to use technology to increase our audience reach and new ways to connect people with art," said Jane Burton, the Tate's head of creative content.

Another finalist proposes reproducing the gallery as a version of the popular Minecraft videogame.

The visitor to the Tatecraft gallery could delve into game versions of some 25 works such as Atkinson Grimshaw's "Liverpool Quay by Moonlight", exploring shops and alleys, interacting with avatars, finding diaries and hearing snippets of conversation - all clues toward solving the game.

The projects were designed around a 20-room British art collection ranging from 1545 to the present. A panel of six high-profile figures in technology and art, including Wikipedia founder Jimmy Wales, picked the four finalists from 51 entries.

The winner, to be announced on February 6, gets a prize of 10,000 pounds ($16,400) and a budget of 60,000 pounds for the project.

Members of the public have a chance to cast votes, adding up to a seventh vote, by midnight on Friday, January 24. (To see the presentations and vote: www.tate.org.uk/ikvote)

FORBIDDEN SPACE

Matt Locke and Kim Plowright got the inspiration for their idea, #TateText, after the museum removed its traditional curator commentary from artworks.

Online conversation in no way resembles the curator's academic language, Locke said. "In the past four or five years, it is fascinating the different ways that people talk online, the kind of vernacular that people use."

They plan a 10-week, story-telling campaign via tablets and mobile phones to create an audience for sharing snippets on the artworks such as facts and history, human interest stories and fiction, collecting the most interesting texts for a website.

Evan Boehm's idea - a combination of animated film and game - came after he saw a boy running under an Anthony Caro sculpture.

In the animation, a mother takes her rambunctious eight-year-old son on a visit. At least one piece in every room offers viewers a chance for in-depth interaction, such as shaping a form in the style of sculptor Henry Moore. The more interest the viewer shows, the more information she provides.

With their robots, Tommaso Lanza, Ross Cairns and David Di Duca aim for something different from reproducing the normal visit to the Tate.

Worried Koreans on Tuesday packed into branches of one of the banks hit by the theft to ensure their money was safe, while lawyers said 130 people joined a class action suit against their credit card providers in what is expected to be the first of multiple litigations.

"Of course I'm angry. Anyone might know when I pay my credit card bills, let alone my phone number and where I live. I might as well keep all my money in my closet," said one card user, Lee Young-hye, outside a bank branch.

The biggest breach of personal privacy ever in South Korea has further highlighted the vulnerability of credit card information after tens of millions of U.S. cardholders' details were stolen from retailer Target Corp during the holiday shopping season.

South Koreans on average have more than four credit cards, something that has contributed to one of the highest levels of personal debt relative to the size of the economy in the developed world.

The data security breach affected around 15 million cardholders, according to official estimates, by far the largest in a series of such scams against financial firms in South Korea going back to 2011. Some previous attacks involved hackers believed to originate from North Korea, but this one seems to have been an inside job.

Financial regulators said a contractor with the Korea Credit Bureau, a private firm that manages the credit information of millions of Koreans for financial services providers, simply loaded details of 105.8 million accounts held by KB Kookmin Card Co Ltd, Lotte Card Co Ltd and NH Nonghyup Card onto a portable hard drive.

The technician was allegedly working on forgery-proofing credit cards when he committed the theft in February, June and December last year, according to regulator Financial Supervisory Service (FSS), citing the prosecutor's office leading the investigation.

The man then sold the information to at least two people including a loan marketer and a broker, the FSS said. The contractor and at least one other person have been arrested.

VICTIMS SUE, DEMAND ANSWERS

The first class action lawsuit was filed against the three credit card companies late on Monday, a day after the FSS revealed the full scale of the theft, according to the law firm representing them.

The Office blog had just been redesigned before it was targeted by the hackers who posted a screenshot of their work on their Twitter feed.

Previous attacks were used to post pro-Syrian government messages and criticisms of the firm.

Microsoft has not yet commented on the latest attack. Twitter warning Several articles appeared on Microsoft's site with the title, "Hacked by the Syrian Electronic Army", before being removed, reported tech news site The Verge.

After the attack the SEA addressed a tweet to Microsoft which said: "Changing the [content management system] will not help if your employees are hacked and they don't know about it."

The group had previously used Twitter to warn the company that more attacks may happen after some of Microsoft's social media sites were compromised earlier in the year.

It said: "We didn't finish our attack on @Microsoft yet, stay tuned for more."

After that incident the company shut down its affected accounts for "maintenance".

In a statement issued at the time it said "no customer information had been compromised".

"What the SEA does is not very sophisticated. But it works and people need to be much more vigilant," said security analyst Graham Cluley.

"This is embarrassing for Microsoft but will it mean people won't buy Microsoft software? Probably not."

The company also confirmed that at the time of the earlier attack a small number of employee email accounts had been accessed by the SEA.

Screenshots of conversations between Microsoft executives were tweeted by the group.

His foreign efforts began to bear fruit on Monday with the implementation of a deal to curb Iran's nuclear program in exchange for some relief from international sanctions, but it came in the teeth of opposition from hardliners in Tehran, the conservative allies of Supreme Leader Ayatollah Ali Khamenei.

Some say that by securing Khamenei's consent to the nuclear deal, Rouhani has depleted his political capital with the man who has the final say on all state matters, leaving nothing for domestic reforms.

"It is a tactical flexibility. Khamenei has given Rouhani a free hand only on the nuclear issue, but not beyond that," said a former senior official on condition of anonymity.

"Criticism of the deal by hardliners was part of Khamenei's strategy, aimed at reminding Rouhani who was the boss and that he needed Khamenei's support to overcome the resistance."

Khamenei has been adept at ensuring that no group, even the conservatives, gains enough power to challenge his authority, so Rouhani's diplomatic triumph is likely to put him on a shorter leash on internal reforms and improvements in human rights.

These are "two fields in which nothing has changed", one gloomy pro-reform politician said.

Although Rouhani announced the release of 12 prominent political prisoners before he addressed the United Nations General Assembly in September, rights activists say there has been little else to cheer since he took office in August.

Reformist presidential candidates Mirhossein Mousavi and Mehdi Karroubi, whose defeat in 2009 sparked mass protests against what they said were rigged elections, remain under effective house arrest. They have never been charged.

In November, Reporters Without Borders said 10 reformist journalists and bloggers had been detained since June, while another 10 were given jail terms totaling 72 years. The authorities have closed or suspended publication of at least three newspapers in the same period.

"Rouhani should also speak out publicly against serious violations by security and intelligence forces, and act on campaign promises to ease controls on freedom of information, including heavy censorship," Middle East director at Human Rights Watch, Sarah Leah Whitson, said in a report on Tuesday.

Josip Perkovic was arrested on New Year's Day as the Balkan state acted to resolve an extradition dispute that had overshadowed its accession to the European Union last July. A Zagreb court ruled on January 8 he should be extradited to Germany.

"The Supreme Court has dismissed as unfounded the appeal by Josip Perkovic against his extradition," it said on its website.

Perkovic can still appeal to the Constitutional Court and demand that his extradition be delayed.

Also in January, police arrested a second former secret service chief from the Yugoslav period, Zdravko Mustac, wanted by Germany for the same crime.

But a different Zagreb court ruled that Mustac should not be extradited because the statute of limitations has passed for a murder committed more than 25 years ago.

Some, though not all, legal experts believe Perkovic's case differs from that of Mustac, because Croatia twice investigated the allegations against him in 1997 and 2005.

Despite clearing Perkovic on both occasions, the experts say the investigations mean that the statute of limitations does not yet apply in his case.

Perkovic had worked for the Yugoslav federal secret service, the UDBA, when Croatia was part of the communist federation.

Perkovic helped set up Croatia's national intelligence agency as it seceded from Belgrade in 1991, when Yugoslavia broke up in bloodshed, and held senior security posts through the 1990s.

Germany wants him and Mustac in connection with the 1983 murder of a Yugoslav dissident in Bavaria that it blamed on UDBA. Perkovic has denied wrongdoing and said he was ready to testify before a Croatian court.

Perkovic and Mustac were among 10 Croatians arrested on European arrest warrants as an amended extradition law took effect on January 1 to bring the country into line with most of the rest of the EU.

Shortly before joining the EU on July 1, in a move that irked its EU partners, Zagreb changed its laws to prevent the extradition of suspects in crimes committed before 2002, when new EU extradition rules took effect.

The government said at the time that it wanted to protect veterans of Croatia's 1991-95 independence war from facing potential prosecution elsewhere in the EU. It denied any connection with the Perkovic case and pointed out that some EU member states have the same 2002 time limit.

Vitter, a conservative Republican, made his announcement in a YouTube video.

"I believe that as our next governor I can have a bigger impact addressing the unique challenges and opportunities that we face in Louisiana - helping us fully reach our full potential," Vitter said.

He was elected to the U.S. House of Representatives in 1999. He moved to the Senate after 2004 elections and was re-elected in 2010, his website said. His current term expires in 2016.

In 2007, Vitter admitted to "a very serious sin" after he was linked to a Washington escort service and apologized for the sex scandal.

Improved profitability at Nokia Solutions and Networks (NSN) due to cost cutting have helped cushion the company's declining handset business in recent quarters.

But with major projects in South Korea and Japan coming to an end, the NSN business, the bulk of Nokia's entire business after the handsets sale, is expected to report a 19 percent fall in fourth-quarter sales to 3.2 billion euros and a 17 percent fall for the whole of 2013 to 11.4 billion euros. Results are due on Thursday.

The decline for NSN would follow a 26 percent fall in third-quarter sales and come as scale has become increasingly crucial to competing against the industry leader for wireless networks, Ericsson, and China's Huawei, particularly due to high research and development costs.

NSN's chief Rajeev Suri, in an interview with Reuters in November, confirmed the company was now prioritizing revenue growth even if it meant a trade-off in profit.

Analysts said NSN must demonstrate that shift in coming quarters, and that markets will accept a dip in margins as long as they don't fall too far below 8 to 10 percent.

NSN's fourth-quarter adjusted operating margin is still likely to be high. The company forecast it will be around 12 percent, plus or minus 4 percentage points, compared with 8 percent in the third quarter.

That's higher than most rivals such as Ericsson, which reported an 8 percent operating margin last quarter as NSN's restructuring program launched in late 2011 cut a quarter of its workforce and took the business out of low-margin projects.

"It is possible that we won't be seeing such high margins this year, but I'd rather see them starting to grow again," said Inderes Equity Research analyst Mikael Rautanen.

Nordea Markets analyst Sami Sarkamies said Nokia's challenge will be to find new business to make up for a decline in sales in Asia, where a year ago it was busy building out high-speed wireless broadband networks. Asia, including Greater China, accounted for around 41 percent of NSN's 2.59 billion sales in the third quarter.

Wales said TPO had pulled off the difficult feat of creating an inspirational business that had solid commercial foundations.

"Its big vision is to generate massive sums of money for good causes," he said in a telephone interview on Monday. "But when I worked though the numbers and looked at the business model, it made a lot of sense to me."

TPO is a so-called mobile virtual network operator (MVNO), which means it relies on an existing operator's network, in this case EE, the British joint venture between France's Orange and Deutsche Telekom.

It launched a pay-as-you-go operation in November 2012 and followed in April 2013 with a contract offering unlimited voice, mobile and data for 14.99 pounds ($24.61) a month. Ten percent of revenue is directed to any good cause chosen by the customer and the company also pledges to pay 25 percent of its profits to charity.

Mark Epstein, chief executive and one of the company's founders, did not reveal customer numbers, but said there had been a rapid increase in take-up since it introduced its unlimited deal, from which hundreds of good causes were benefiting.

TPO, which is not yet profitable, does not spend huge sums on marketing, Epstein said, relying instead on word-of-mouth and promotion by the organizations it helps.

Wales, who launched online encyclopedia Wikipedia 13 years ago, said he would help TPO expand internationally, starting with the United States. He will be co-chairman of the company.

"We need to go global as quickly as possible," he said. "We will really push into other markets as soon as we can get deals done."

The United States and European Union both announced they were suspending some trade restrictions against the OPEC oil producer after the United Nations' nuclear watchdog confirmed that Iran had met its end of the November 24 agreement.

Tehran is expecting to be able to retrieve $4.2 billion in oil revenues frozen overseas and to resume trade in petrochemicals, gold and other precious metals.

The mutual concessions are scheduled to last six months, during which time six powers - the United States, Russia, China, France, Britain and Germany - aim to negotiate a final accord defining the scope of Iran's nuclear activity.

Western governments want to lay to rest their concerns that Iran could produce an atomic weapon and to end decades of hostility with Tehran that goes back to the Islamic revolution of 1979. Iran wants an end to painful U.S. and EU trade and financial sanctions that have severely damaged its economy.

The interim accord, struck after years of on-off diplomacy, marks the first time in a decade that Tehran has limited its nuclear operations, which it says have no military goals, and the first time the West has eased economic pressure on Iran.

"This is an important first step, but more work will be needed to fully address the international community's concerns regarding the exclusively peaceful nature of the Iranian nuclear program," the EU's foreign policy chief Catherine Ashton said.

"The iceberg of sanctions against Iran is melting," the head of Iran's Atomic Energy Organization, Ali Akbar Salehi, told Iranian state television.

The breakthrough is widely seen as a result in part of the election of Hassan Rouhani, a relative moderate, as Iran's president last year. Rouhani is expected to court global business this week at the World Economic Forum in Davos, although any future trade bonanza depends on the long-term success of nuclear diplomacy.

Israel, which has warned it might take military action, with or without U.S. backing, to prevent Iran developing nuclear arms, has called the deal a "historic mistake" that fails to ensure Tehran cannot build a bomb in secret.

Ashton, who coordinates diplomatic contacts with Iran on behalf of the six powers, said she expected talks on the final settlement to start in February.

The data was stolen by a computer contractor working for a company called the Korea Credit Bureau that produces credit scores.

The names, social security numbers and credit card details of 20 million South Koreans were copied by the IT worker.

The scale of the theft became apparent after the contractor at the centre of the breach was arrested.

Unprotected data Managers at the marketing firms which allegedly bought the data were also arrested.

Early reports suggest that the contractor got hold of the giant trove of data thanks to the access Korea Credit Bureau enjoys to databases run by three big South Korean credit card firms. The contractor stole the data by copying it to a USB stick.

Regulators are now looking into security measures at the three firms - KB Kookmin Card, Lotte Card, and NH Nonghyup Card - to ensure data stays safe. A task force has been set up to investigate the impact of the theft.

The three bosses of the credit card firms involved made a public apology for the breach.

In a statement the Financial Services Commission, Korea's national financial regulator, said: "The credit card firms will cover any financial losses caused to their customers due to the latest accident."

Another official at the FSC said the data was easy to steal because it was unencrypted and the credit card firms did not know it had been copied until investigators told them about the theft.