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Overhauling the internet’s infrastructure would create jobs and reduce poverty

Almost nothing is growing these days, with one exception: internet use.

Over the past few weeks, we’ve seen the sort of uptick in broadband usage that you’d expect to see over the course of years.

Italy, Spain and the UK have all had high double-digit increases in traffic. In the US, data usage via the cable company Comcast is up 32 per cent nationwide, and by over 60 per cent in locked-down cities. Verizon had a 75 per cent increase in gaming traffic in just one week in mid-March.

No wonder network latency, or the time it takes for data to travel, is a major issue. New York, San Diego, San Jose and Houston are all experiencing declines in download speeds. Just try watching a Netflix or Amazon video after dinner and you’ll see what I mean.

With bricks and mortar businesses closed, and ecommerce booming, there’s little doubt that the transition to a digital economy will be dramatically sped up by coronavirus. The richest and most powerful tech companies, from Amazon to Google, will undoubtedly be even stronger post-crisis than before.

Meanwhile, entire sectors of the economy, including retail, commercial real estate, and many parts of the travel and tourism sector, won’t come back anytime soon — if they come back at all.

These areas were among the strongest job creators in recent years. In the last US jobs report, issued before the virus hit, restaurants were the second fastest growing category. But now we’ve come through a second record week of unemployment claims, and Congress is busy trying to craft yet another multitrillion dollar stimulus package.

Legislators are rightly discussing support for everything from greener forms of transport such as passenger rail, to highway and bridge repair. As everyone knows, America’s infrastructure is woefully inadequate, and money for major public spending programmes has never been cheaper. But there’s also a case to be made for a public works programme that would make high-speed fixed broadband an essential infrastructure, just like water or electricity.

Let me be very clear: a major infrastructure spending programme isn’t a substitute for short-term emergency aid. Millions of individuals and small businesses will need debt write-offs (and not just loans), as well as grants and other cash infusions over the next few weeks and months.

Even so, unemployment is likely to remain elevated for a year or more, until a vaccine can be developed and normal travel and labour patterns resumed.

A broadband infrastructure programme would kill several birds with one stone.

For starters, a “big dig” to install broadband fibre, the most robust and resilient kind of broadband connectivity, would focus on the kind of work that can be done soonest in the midst of a pandemic, namely large scale, protected, outdoor projects.

It could employ and deliver needed services to some of the most vulnerable Americans. Only about half of those with incomes of $30,000 or less have broadband at home. Nearly 68 per cent of those live in rural areas. Others include urban poor who can’t afford the $72 national average cost for the internet (it’s more than $100 in many cities).

Many people who cannot work from home are falling into poverty, and children who cannot access virtual curricula are falling behind in school. This is nothing less than a national security issue. The internet is almost the only thing that has kept the economy and society functioning over the past few weeks. Imagine if it went down the next time around.

There are several challenges to installing universal broadband in the US. Coverage is currently provided via a patchwork of local monopolies.

In addition, a dysfunctional political economy is at work: state politicians in hock to large companies can prevent cities or rural areas from accessing public funds to hire competitors to build out networks. In recent years, private companies in the telecoms and tech sectors have also opted to do share buybacks rather than invest in costly infrastructure.

But money shouldn’t be an issue here. Even before the coronavirus crisis, the Federal Communications Commission had allocated $20bn to broadband expansion, on top of hundreds of millions from the Department of Agriculture. More cash will very likely be allotted in a future stimulus bill. This could be used to prompt telecoms providers to keep workers on the job and employ more to build new services and improve existing ones.

Money could also be given to local municipalities to build their own systems, like the 1935 Rural Electrification Administration programme that transformed America’s heartland and increased productivity for decades.

Costs should be shouldered by the private sector too. Public debt may seem not to matter now, but it will someday. Facebook, Amazon, Apple, Netflix and Google — the so-called “FAANG” companies — are the heaviest generators of internet traffic, and have far higher profit margins than telecoms. Already brimming with cash, they will emerge from the crisis even richer and more dominant than before.

If there was ever a time for a digital tax on the data wealth that these companies currently harvest for free, it’s now.

If we allow another financial crisis to pass without forcing the richest companies to do their part for the national interest — and that means more than delivering toilet paper — we will see a further erosion of trust in both the public and private sector. That is something that we truly cannot afford.

Companies take defensive measures as clients pull back on ad spending

Even at the beginning of March, Udo Mueller, the founder of one of Europe’s biggest outdoor advertising groups, was describing the market reaction to coronavirus as “hysteric”. 

“In every average influenza wave in Germany, 25,000 people are dying,” the chief executive of Ströer told analysts. “And now we have 140 people infected in Germany from 80-something million people. I don’t think that in two or three months, anybody [will be] talking about it any more.”

Just a few weeks on, the coronavirus pandemic has dealt a devastating blow to the so-called “out of home” sector, a once resurgent industry dependent on busy roads, packed urban centres and transport hubs.

Mr Mueller has been forced to backtrack, with the crisis forcing Cologne-based Ströer to scrap its 2020 guidance and tell investors it would consider revisions to dividend payouts. Other operators have taken drastic action, cancelling dividends and drawing on revolving credit lines.

The defensive measures are likely to be the start of a wrenching period with a significant portion of the world’s population largely confined to their homes. 

Advertisers are pulling back on the $40bn they were predicted to spend on ads across big cities and transport systems in 2020. Douglas McCabe at Enders Analysis said widespread quarantine measures had effectively “put a pause button [on the] entire outdoor advertising sector”. 

Known as the oldest form of marketing, outdoor advertising was seen as a steady-but-dull business that drew its heritage back to the shop signs of the ancient world. But groups such as Ströer, JCDecaux and Clear Channel Outdoor are now at the front line of the marketing industry’s battle to weather an unprecedented shock to the global economy.

While the precise impact is impossible to predict, overall ad spending fell by about 11 per cent globally during the last “advertising recession” of 2019, according to figures by GroupM, the media buying agency. 

Analysts at Macquarie Research note that about a fifth of global expenditure is generated by sectors, such as leisure and travel, that have been devastated by coronavirus. If those clients halve planned spending while others shave 10 per cent from campaign budgets, the overall hit would be about 18 per cent, they estimate.

Outdoor-focused companies will bear the brunt and are already scrambling to manage costs and shore up their balance sheet.

Clear Channel, whose share price has tumbled 75 per cent in a month, said last week that it was tapping $150m from its revolving credit facility.

JCDecaux, the world’s biggest out-of-home advertising group, last month unveiled sweeping measures which included cancelling the payment of dividends, cutting discretionary spending and reducing employee hours. The French group also withdrew guidance predicting a 10 per cent hit to revenues, issued at the beginning of March. 

“We are now facing a global recession which is likely to be worse than the downturn during the 2008 financial crisis with the advertising market being hit badly,” said Jean-François Decaux, co-chief executive. 

The family-owned group is also looking to renegotiate rental deals with airports, port authorities and train stations where it runs more than 1m advertising panels. Speaking in early March, Mr Decaux said the rent on many airport contracts represents more than 70 per cent of revenues.

Digital technology has been the big growth driver for the industry in recent years, with expensive investments in high-tech billboards allowing eye-catching adverts to be sold and rotated much faster than physical posters.

But relatively new entrants are now exposed, especially in the UK, the world’s most digitised outdoor advertising market. 

In 2018 media group Global bought a portfolio of outdoor advertising companies to secure almost a third of the UK market, including the London Underground contract. 

Global declined to comment on whether the company would try to renegotiate its rental agreements in the wake of train station closures and reduced traffic. A Transport for London spokesperson said: “We will in due course work with our advertising agents to assess the impact of these measures.”

For those groups that do survive, there is also a bigger question on the horizon: will ad spending flow back to out of home sites if public behaviour is permanently altered by the crisis?

Brian Wieser, global president of business intelligence at GroupM, said there was a need to “look beyond the period directly in front of us”. If there were “waves of people working from home” in future, that would lessen the relative appeal of the outdoor advertising, he said.

The pandemic may be a prompt for consolidation. “We will see some market contraction that will create, obviously, some opportunities,” Mr Decaux told investors in March. “It is clear that our balance sheet is there to help us to take advantage of opportunities when they may come.”

Last week Clear Channel announced the sale of its stake in Chinese subsidiary Clear Media for $253m to a consortium including JCDecaux, a sign that the French group is trying to expand despite the crisis.

An executive at one prominent outdoor advertising group insisted “it wasn’t all doom and gloom”, pointing out that Americans were still driving past billboards on highways and in supermarket car parks. But he added: “This is the biggest single shock to the business world that most of us have seen in our lifetimes.”

Gust of demand filling industry’s sails may be the last before a prolonged slump

Self-isolation aboard a $590m superyacht furnished with a cinema and wine cellar sounds a tolerable — even pleasant — experience. When billionaire David Geffen posted his view of the Caribbean sunset on Instagram, not all of his 84,000 followers offered commiserations.

Fellow billionaires have joined the DreamWorks Pictures co-founder in isolating — and even home schooling — on superyachts for months. For those without their own superyacht, a charter costs an average $150,000 a week. This gust of demand filling the industry’s sails may be the last before a prolonged slump.

The pandemic has left the travel industry as a whole — from airlines to cruise ships — fighting for survival. Luxury travel, including private jets and yachts, is an exception as the wealthy flee to safer places. Charter companies remain open for business. The number of yachts in the US surged last month. Business in the Bahamas and the Caribbean has taken only a limited hit.

One of the reasons is that superyacht marinas have largely remained open. A coronavirus disaster on the Diamond Princess cruise ship has closed most cruise ports. Nine cruise ships carrying about 8,000 passengers are still stranded at sea. 

Cruise ships are riskily crowded places, as are the ports they frequent. PortMiami in Florida, the world’s busiest, has up to 50,000 passengers passing through daily. In contrast, yacht marinas have just a handful of families travelling through them on any given day. Superyachts can set to sea with a minimal crew, making them ideal for social distancing.

Yet these months may be the last of the good times for the industry. After the two stock market crashes in 1929 and 2008, yacht sales plunged. Prices more than halved. Unfinished orders faced mass cancellations as banks stopped financing yachts and shipyards.

Superyachts are depreciating assets with steep operating costs. Fuel, insurance and dockage fees are about $1m a year. When maintenance and crew salaries are included, operational costs come out to about a 10th of the price of the yacht. Those are too high to support a profitable charter business in a sharp downturn. They also limit the second-hand market. You may be able to dodge coronavirus aboard a superyacht. But you cannot avoid the hit it delivers to asset values.

Airbus slashes production of most popular passenger jet

European aircraft maker’s rates will not return to pre-crisis levels this year as customers seek to defer deliveries

Airbus has sharply reduced production of its most popular single aisle passenger jet and will not return to previous levels this year and beyond as airline customers seek to defer deliveries in one of the worst aviation downturns in recent memory.

As well as cutting production of the A320 single aisle family to well below the 60 a month achieved before the crisis, the European aircraft maker is expected in the coming weeks to reduce the rate of its twin aisle aircraft, the A350 and A330 wide-bodies, according to people with knowledge of the situation. 

Investors watch production rates closely as a guide to future financial performance.

Airbus said it was monitoring the Covid-19 situation worldwide. The company was “in the process of assessing the implications of the pandemic on its operations and the potential mitigation measures that could be implemented”, it said in a statement.

Just over a week ago, the group withdrew 2020 guidance and suspended its dividend. Analysts said they did not expect Airbus to return to a rate of 60 for several years. “Manufacturers are always very careful about changes in production rates in either direction,” said Sash Tusa of Agency Partners. “They will not change unless they can sustain the rate for two to three years.”

The move comes as US rival Boeing this week announced plans for job cuts and signalled that it expected a significant shift in future aircraft demand, with any recovery likely to take years.

The decision by the world’s two biggest aircraft makers to retreat after a decade of increasing output is expected to spark a chain reaction of production cuts and job losses throughout the aerospace supply chain.

The industry has been hard-hit by the global grounding of aircraft in the fight against coronavirus. Roughly half the world’s fleet of 26,000 aircraft has been put into storage, according to aerospace consultancy Cirium.

Airbus has not taken a final decision on the scale of longer-term production, but the group is in daily discussions with customers about the shape of future demand, one person close to the subject said. Production is also being strained by issues in the supply chain, where measures to prevent the spread of the disease have hit output.

The company could update the market at its virtual annual meeting on April 16. If the situation continues to be volatile, it may hold off until the first-quarter results on April 29. 

In February Airbus had laid out its plans to increase single aisle production from the current 60 to 63 by the end of next year and 67 a month by 2023. It also set wide-body production rates at nine to 10 a month for the A350 aircraft and a total of 40 A330s were expected to be delivered this year. Those targets have now been abandoned.

Suppliers told the Financial Times they expected Airbus to update them on the new rates around mid-April. “We are waiting for Airbus,” said one. Another said substantial rate cuts were “inevitable”.

Guillaume Faury, Airbus chief executive, has emphasised the need to work “in sync” with suppliers to ensure operations could continue even at a lower rate, in an effort to preserve capability and skills for the eventual rebound, according to people close to the subject. 

The company is in daily conversations with suppliers such as Rolls-Royce, whose engines power Airbus’s A350 midsized jet and the A330 wide-body family, and Safran, the French aero-engine maker whose LEAP-1 turbine sits on the A321 neo.

Both are already preparing for stoppages in their own supply chains, which would threaten their ability to continue producing at the record rates reached before the crisis.

Philippe Petitcolin, outgoing chief executive of Safran, told analysts recently that in certain areas the group had just two weeks’ stock and engine production could be brought to a halt if key suppliers were unable to deliver. 

Rolls-Royce, meanwhile, has been hit by the shutdown of a key supplier in Italy, which makes castings for specialised turbine blades.

Rolls-Royce has closed its UK civil aerospace facilities for at least a week to implement safety measures aimed at minimising the spread of coronavirus. The factories are due to come back on stream on Monday. However, productivity is expected to be significantly lower than before the closure, said two people with knowledge of the subject. “It is not going to go back to the way it was,” one employee said.

Once Airbus announces its new rates, Rolls-Royce is expected to update the market on its expectations for this year, and on the £1bn free cash flow target it set in 2017.

The group, which sells engines at an average loss of £1.2m each, generates cash and profit on the number of hours its engines fly on wing — a system known as power by the hour. With so many aircraft grounded, Rolls-Royce’s cash target is in doubt.

Purchases of the Gulfstream planes are a cost-saving measure, says bank

Goldman Sachs is buying two corporate jets for the use of chief executive David Solomon and other top bankers, after officials concluded that the aircraft would help meet the group’s goal of saving $1.3bn over the next three years.

The Gulfstream planes, which cost tens of millions of dollars apiece, were ordered in November.

“We have long made private aircraft available to senior executives who travel extensively to see clients, and that travel was arranged through a fractional ownership arrangement with NetJets,” Goldman said. “A detailed analysis demonstrated conclusively that it would be more cost effective to own the aircraft directly.”

Since accepting the top job in 2018, Mr Solomon has sought to turn round a bank that has endured years of subpar returns.

Under his leadership, Goldman has expanded its foray into mass-market banking and launched a charm offensive towards investors, holding the first investor day in its 150-year history and pledging that returns on tangible equity will be nearly one-third higher by 2022.

The target would be met, Goldman said, in part through a rigorous programme of cost-cutting for which it set a target of $1.3bn in savings over the next three years.

The bank disclosed last month that Mr Solomon was granted a $27.5m compensation package for his work in 2019, making him Wall Street’s second-best paid bank boss.

Among his other initiatives, he has encouraged casual dress at work and moved high-ranking executives to a lower floor of the bank’s Manhattan headquarters to promote more mingling with the rank and file. 

The jet orders, which were first reported by Bloomberg, may sit uneasily with Mr Solomon’s effort to rehabilitate the image of a company that in some quarters had become a byword for Wall Street greed.

Writing in the Financial Times last year, he laid out a plan for Goldman that embraced the theme of making business more profitable and more sustainable at the same time.

“If business in partnership with government cannot adapt the global economy to avoid the worst impacts of climate change and generate inclusive growth that lifts people out of poverty and expands the middle class,” Mr Solomon wrote, a few weeks after the Goldman jets were ordered, “the negative consequences will be vast”.

Global deal to reduce production hangs in balance ahead of Opec+ meeting

US and Canadian officials are discussing the imposition of tariffs on Saudi Arabian and Russian oil imports if the two members of the Opec+ group do not quickly reach a deal to end their price war.

Jason Kenney, the premier of Alberta — Canada’s biggest oil producing province — told the Financial Times he had held discussions with Washington about tariffs, as a global deal to reduce production appeared to be hanging by a thread.

US President Donald Trump has called on rival oil producers to cut production by as much as 15m barrels a day but said on Friday that tariffs “are one tool in the tool box” if Saudi Arabia and Russia do not quickly reduce supplies, threatening a deepening schism with Washington’s key Middle East ally.

Mr Kenney said “prospective import tariffs on oil coming into North America” were under discussion with Washington, even as he signalled Alberta would be open to participating with Opec in cuts to oil supplies.

Sonya Savage, Alberta’s energy minister, would dial into the online Opec+ meeting this coming week, he said. 

“Opec+ started this fire and they have to put it out. We’re not going to surrender our industry and we’re prepared to go the distance here,” he said.

Canadian provinces have autonomy over oil production policy, but joint tariffs with the US would require federal approval from Ottawa.

US officials confirmed the Department of Energy was studying whether tariffs would be a viable way to force Saudi Arabia and Russia’s hand, though the discussions are preliminary and among several other options. 

The White House declined to comment. 

“The US seems more likely to show up to next week’s Opec+ virtual meeting with credible threats of reprisals than commitments to reduce production,” said Clearview Energy Partners, a Washington consultancy.

President Trump has pushed Saudi Arabia and Russia to get a deal to remove as much as 15 per cent of global oil supplies, but the two countries remain at loggerheads, with an online Opec+ meeting now pushed back from Monday until later in the week after the two sides traded barbs.

Russian President Vladimir Putin said on Friday that a cut to global oil production of 10m barrels a day was possible, but only if all major producers including the US joined in. But he jeopardised the potential for a deal when he accused Saudi Arabia of launching the price war to hurt US shale producers, in an apparent attempt to drive a wedge between Riyadh and Washington.

Saudi Arabia’s energy minister Prince Abdulaziz bin Salman and foreign minister Prince Faisal bin Farhan both attacked the statement on Saturday, with the latter saying they were “fully devoid of truth” and accusing Russia of “falsifying facts”.

An Opec official said “the Saudi-Russia relationship now looks a challenge”.

The prospect of a deal drove oil prices up around 40 per cent over Thursday and Friday, recovering from an 18-year low below $25 a barrel to above $30 a barrel. They remain down by more than half since the beginning of the year. 

The price slump has threatened the future of US and Canadian oil producers who generally require higher prices to turn a profit.

Global demand for oil has plunged by almost 40 per cent, Mr Trump noted on Friday, the biggest drop in history as measures to slow the spread of the coronavirus hit economic activity. 

Independent US oil producers have pushed the White House to force Saudi Arabia and Russia to end the price war that has deepened the slump, including proposing tighter sanctions on Russian energy, bans on foreign oil imports, and targeting the Saudi-owned Motiva refinery in Texas.

President Trump on Friday alluded to a suspension of US military aid to Saudi Arabia, when he said “we provide military assistance to countries for pretty much free . . . and they don’t even like us”.

Treasury said it can license transactions for foreign policy or national security purposes

The US purchased ventilators from a company under its own sanctions regime as part of an aid package Russian president Vladimir Putin sent to New York to help fight the coronavirus epidemic.

Russia’s delivery of medical supplies on a giant AN-124 cargo plane included ventilators made by Kret, a subsidiary of Rostec, the Kremlin’s defence conglomerate, which is on a US Treasury blacklist

The US Treasury’s Office of Foreign Asset Control told the FT that “the humanitarian deliveries received from the Russian government appear non-sanctionable under Russia/Ukraine related sanctions authorities administered by Ofac”. 

“To the extent that such sanctions apply, Treasury has authority to license US persons to engage in transactions that are consistent with US foreign policy and national security interests,” Ofac said.

Footage of workers at New York’s John F Kennedy airport unloading boxes stamped with manufacturer Kret’s logo was played repeatedly on Russian state television on Thursday, the day after the plane landed — an embarrassing image for the US amid suggestions it may consider easing its sanctions on Moscow during the pandemic. 

An air traffic controller thanked the AN-124’s pilot for “all the assistance you’re bringing in”, while US President Donald Trump said the aid was “a very nice gesture” by Mr Putin.

“I'm not concerned about Russian propaganda,” Mr Trump said. “He offered a lot of high quality stuff that I accepted. That may save a lot of lives. I'll take it every day.”

The US sanctions normally prohibit all American people and companies from dealing with entities on its Specially Designated Nationals list. Kret was added to the SDN list in 2014 for its manufacture of “electronic warfare and intelligence equipment” as well as several important military systems and components.

“Both countries have provided humanitarian assistance to each other in times of crisis in the past and will no doubt do so again in the future,” US state department spokesperson Morgan Ortagus said on Wednesday. “This is a time to work together to overcome a common enemy that threatens the lives of all of us.”

Russia said that some of the goods in the shipment were paid for by the Russian Direct Investment Fund, a sovereign wealth fund that is under more limited US Treasury sanctions restricting its debt financing, although it is not on the blacklist. RDIF said that it did not pay for the Kret ventilators. The US said that it paid for the shipment in full and denied that RDIF split the cost.

Even as coronavirus cases in Russia continue to rise — growing to 4,149 on Friday, with 34 deaths — Mr Putin has sought to project Russia’s power abroad by offering aid to more stricken countries.

Russia’s defence ministry has delivered at least 15 planeloads of medical supplies, as well as 100 virologists and eight medical teams, to Italy, which is home to some of the biggest supporters in the EU for ending western sanctions against Moscow. 

Mr Putin also sent aid to Serbia on Friday, which president Aleksandar Vucic said was a sign that “the Russian leadership is thinking about Serbia and the friendly Serbian people”.

Rostec said that Kret supplied medical facilities in Russia’s regions with 5,700 respirators and had no commercial contracts to sell them. “Making decisions to send state aid is the prerogative of the president and the cabinet,” Rostec said.

Mr Putin’s critics attacked him for sending other countries the aid instead of focusing on Russia’s domestic needs.

“Russia really sold the US masks and medical supplies when doctors and nurses across the country don’t have masks and are infecting each other,” opposition leader Alexei Navalny tweeted. “Putin has gone mad.”