Aurelia Butler

At BT’s general meeting last month, outgoing chief executive Philip Jansen told investors in Britain’s largest telecoms operator that its users were getting “terrific value for money” on mobile and broadband deals. “Customers are definitely getting more for less, and prices here in the UK are among the lowest in Europe,” he said. Jansen’s comments reflected efforts by his industry to capitalise on growing demand for its services. Telecoms companies say yearly bill increases are not only comparatively cheap but also help fund much-needed investment. But as millions of billpayers contend with rises of up to 17.3 per cent this year, the biggest in Europe, on the back of record-high price growth, that argument is coming under greater scrutiny from consumer groups and regulators. These annual increases typically add 3.9 per cent to the annualised rate of consumer or retail price inflation in December or January, and can take effect mid-contract. Natalie Hitchins, head of home and products and services at Which?, the consumer rights group, said there was “little evidence to justify” the inflation plus 3.9 per cent model, criticising it as an “extra premium” that risked exacerbating the cost of living crisis.Ernest Doku, head of commercial for broadband and mobiles at price-comparison company Uswitch, said it lacked “data-driven justification”.And the Competition and Markets Authority, the UK watchdog, last year criticised the “anti-consumer” nature of in-contract price rises and said there was “unlikely to be a direct connection between RPI [retail price index] or CPI [consumer price index] and telecoms providers’ actual costs”. Some analysts, though, point to the growth of in-contract price rises as evidence of companies seeking to sustain billions of pounds of investment in full-fibre and 5G networks at a time of weak revenue and earnings growth, which have led their shares to slide. “During this period of tremendous cash investment, they’re trying to make as much extra money as possible from this situation and do their best for shareholders,” said Robert Grindle, analyst at Deutsche Bank Research. “Operators could have chosen not to apply [the inflation-plus price mechanism], and they didn’t.” Telecoms operators have imposed unplanned and frequent price changes for many years. But in September 2020, when inflation was close to zero, BT announced a supplementary charge of 3.9 per cent on top of CPI from March 2021, citing higher costs and customers’ increasing use of data. The UK CPI, which reached a 41-year-high of 11.1 per cent last October, stood at 10.1 per cent in January. It gradually subsided to reach 6.8 per cent in July, according to Office for National Statistics. RPI follows a similar trend but at a higher level, reaching 13.4 per cent in January and 9 per cent in July, it said.Its move was quickly replicated by most competitors, including Vodafone, Virgin Media O2 and later Three, and some “virtual” mobile operators such as Talkmobile, which have wholesale agreements to use others’ infrastructure. Research by Which? last month found that only one in 20 consumers was able to calculate changes to their monthly bill by estimating future CPI correctly. The consumer group said last week it had asked Ofcom to “urgently investigate concerns” that Virgin Media was breaking the law by lifting broadband bills by “unlimited sums whenever it chooses”. Customers are typically charged for ending their contract early, but Doku said they should “be able to leave without penalty, or be able to have contracts that are fixed for the duration”.Ofcom, which regulates wholesale but not retail telecoms prices, in February began investigating whether companies have been transparent enough with customers about bill increases, noting that operators faced “a range of cost rises”. In research released in February, it found that understanding of in-contract prices was low.UK consumers are likely to face in-contract increases of about 8.2 per cent next spring, based on Bank of England estimates for CPI. That is because the probe and a subsequent public consultation will not conclude before operators fix their pricing for 2024-25. However, in recent years, consumers have enjoyed an overall drop in monthly broadband and mobile prices due to discounts offered by companies to entice new customers. In a report released in December, Ofcom noted that average mobile prices in 2022 were 34 per cent lower compared with 2016, and that the UK ranked bottom among six countries including the US, France and Italy for mobile costs.

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According to a study by Assembly Research, a research company, commissioned by Virgin Media O2, average monthly household spending on telecoms services has fallen by almost one-fifth since 2017.The report also found that the telecoms industry was investing up to £2.5bn a year in mobile networks, and about £3.8bn into fixed broadband. It estimated that combined capital expenditure accounted for nearly 70 per cent of total investment made by some of the largest industry players.Karen Egan, analyst at research group Enders Analysis, said companies opting for identical price rises was “not an example of tacit collusion but rather the copying of a good idea” because none “wants to stand out as having higher increases, yet it is incredibly difficult to make slightly lower increases a point of differentiation”.

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Still, the impact of the inflation plus 3.9 per cent model on operators’ performance is likely to remain marginal in the long term. Enders Analysis forecasts that UK mobile operators’ revenue growth will slow from 7.5 per cent in the three months to June 2023 to 6 per cent over the full year and 3 per cent in 2024, with some customers set to re-sign at lower prices once contracts expire.But analysts and consumer groups continue to question how fair mid-contract price rises are at a time when consumers are squeezed. Usman Ghazi at Berenberg Bank said companies could take a more “discretionary” approach towards charging customers. He cited the example of Dutch telecoms operator KPN, which said that price increases applied from July would be 6.4 per cent, lower than the 2022 rate of CPI.“When customers are really feeling the pinch, then it’s probably not justifiable. And the only justification would be that a policy has been put in place to deviate from that,” Ghazi said.BT said its pricing strategy was key to absorbing rising costs, adding: “If we didn’t have the [pricing] mechanism, we’d potentially have to pause or delay ongoing investments.”Virgin Media O2 said it applied increases only to data usage and that “an inflation-only metric would provide no additional headroom for . . . continued network investment”. The company added that it rejected Which?’s “baseless allegations” around price rises. Three said its prices were among “the most competitive in the market” because its latest price increase applied only to a small proportion of customers who had joined since November 2022. Vodafone was contacted for comment. More

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BEIJING (Reuters) – China’s bankers and business executives have become increasingly reliant on domestic capital in recent years as foreign funding has dried up, but a popular way to unlock that cash may very well involve “throwing eggs”.The term refers to Guandan, a poker-like card game that has been around for decades, but has gained fresh life among venture capitalists a few years ago as they awoke to its popularity among wealthy local government officials in eastern regions.”Officials like this game, so we play along,” said Yang Yiming, an investment banker whose job involves canvassing government funding for projects linked to semiconductors and defence.The growing interest in business circles has spawned a craze for the game nationwide, driven partly by financial constraints stemming from souring ties with China’s biggest trade partner, the United States.This month U.S. President Joe Biden barred some investment in semiconductors and set controls on other sensitive sectors, aiming to curb trade and funding that could give rival Beijing an edge in technology.Total U.S.-based venture-capital investment in China plummeted to $9.7 billion last year from $32.9 billion in 2021, PitchBook data shows.Domestic private capital has also dwindled as President Xi Jinping signalled his preference for a bigger state presence in the economy by launching crackdowns over the last few years in areas from technology to real estate and private tutoring.As investment prospects darken, financiers increasingly view the game as a way to build ‘guanxi’ or connections with officials who hold the purse strings on local projects, especially those overseas investors might consider too risky.”In finance, information is currency,” said Yang, for whom a game of guandan has become a standard gambit before wining and dining local officials.”During a game which can stretch for hours, we are bound to chit-chat, and sometimes useful information gets passed around after people feel comfortable and trust you.”Yu Longze, a broker based in Beijing, said his boss this month ordered all staff to learn the game.Like bridge, the classic staple, the game is played among four players paired up in teams. Using two decks, players must throw down poker and other special card combinations to clear their hands before opponents.”From observing someone’s playing style, you can tell if he is smart, aggressive or a team player. This can help you decide if you want him as a business partner,” said a businessman surnamed Huang, who runs a private clubhouse where the game has become a favourite pastime of officials and company executives.But not everyone treats guandan as a business tool.Many players say they simply enjoy the mental stimulation from a game that is cheap, convenient to play and allows them to socialise – aspects that, taken together, explain its appeal to all walks of life.Customers ranged from retired people to young professionals seeking to build new social ties, said Hua Min, who this year opened the first bar dedicated to hosting guandan games in Beijing, the capital. Li Keshu, a lawyer, said playing with his friends in a park helped get through the social isolation and economic frustration of the COVID-19 years, when China threw up strict barriers against infection.”It’s cost-free. Unlike ‘Texas Hold’em’ or mahjong, this game doesn’t need to be played with money to be fun. On the contrary, money spoils the friendship and the game.”While the players Reuters spoke to said they do not gamble, Chinese officials have been censured in the past for receiving bribes through the playing of card games or the traditional tile pastime of mahjong.In April, the ruling Communist Party’s anti-graft watchdog censured one of its officials in the eastern province of Anhui for playing guandan during a training course, among other misdeeds.In a sign that Beijing is not perturbed by the growing interest in the game, however, China’s national sports authority has organised the first nationwide guandan competition this year. More

SYDNEY (Reuters) – Asian shares crept higher on Monday as China announced new measures to support its ailing markets, though the mood was cautious ahead of readings on U.S. jobs and inflation could decide whether interest rates have to rise again. Beijing on Sunday announced it would halve the stamp duty on stock trading in the latest attempt to boost the struggling market and revive investor confidence.The help was needed given profits at China’s industrial firms fell 6.7% in July from a year earlier, extending this year’s slump to a seventh month.Chinese blue chips shed 2% last week to hit its lows for the year so far, and all eyes will be on the official PMI for August out on Thursday. MSCI’s broadest index of Asia-Pacific shares outside Japan firmed 0.2%, having eked out minor gains last week to break a three-week losing streak. Japan’s Nikkei rose 0.9%, underpinned in part by the persistent weakness of the yen.S&P 500 futures edged up 0.1% and Nasdaq futures 0.2%, extending last week’s modest rise.The market did manage to weather a slightly hawkish outlook from Federal Reserve Jerome Powell, who reiterated they might have to raise rates again but promised to move “carefully”.”We take this to mean that the FOMC does not intend to hike at the September meeting,” wrote analysts at Goldman Sachs.”We continue to expect that the FOMC will ultimately decide that further policy tightening is unnecessary, making the hike at the July FOMC meeting the last of the cycle.”Futures imply around an 80% chance of a steady outcome at the Sept. 20 meeting, and a 54% probability of a hike by year end.DOWNSIDE RISK ON JOBSMuch will depend on the flow of U.S. data which had been running hot until a batch of manufacturing surveys last week pointed to a slowdown both at home and abroad.That raised the stakes for this week’s ISM survey on manufacturing, along with reports on payrolls, core inflation and consumer spending.Median forecasts are for payrolls to rise 170,000 in August with a steady jobless rate of 3.5%.Analysts at JPMorgan (NYSE:JPM) cautioned that job gains could be depressed by the entertainment industry strike in Hollywood and are tipping an increase of just 125,000.Figures on EU inflation this week may also be instrumental in whether the European Central Bank decides to hike next month. The market is evenly split on whether there will be another rise in the 3.75% rate, with ECB President Christine Lagarde on Friday emphasising that policy needed to be restrictive.This was a common theme among western central banks with Bank of England Deputy Governor Ben Broadbent over the weekend saying rates might have to stay high “for some time yet.”The odd man out was Bank of Japan Governor Kazuo Ueda who on Friday reiterated the need for policy to stay super loose.That divergence kept the yen under pressure and early Monday the dollar was firm at 146.50, within a whisker of Friday’s near 10-month top of 146.64. The euro was close to its highest since October last year at 158.27 yen.The single currency has had less luck on the dollar, which gained broad support from higher Treasury yields, and stood at $1.0801 having slipped for six weeks in a row.Yields on U.S. two-year notes were up at 5.090% after touching their highest since early July on Friday.High yields and a strong dollar have been a headwind for gold which was idling at $1,915 an ounce. [GOL/]Oil prices drew some support from a sharp rise in U.S. diesel prices, though concerns about Chinese demand remains a drag. [O/R]Brent edged up 33 cents to $84.81 a barrel, while U.S. crude rose 39 cents to $80.22 per barrel. More

BUENOS AIRES (Reuters) -Argentina’s economy ministry on Sunday announced a series of benefits for workers and pensioners intended to soften the blow of a severe economic crisis which has seen inflation spiral and the government devalue the country’s currency.The government will give nearly 7.5 million pensioners a package of 37,000 pesos (around $105 at the current official exchange rate) over the next three months, Economy Minister Sergio Massa said in part of a series of messages on his Instagram account.Massa, who is also the ruling party’s presidential candidate for the Oct. 22 elections, will face ultra-libertarian outsider Javier Milei whose support from disillusioned voters propelled him to victory in a primary vote this month.Massa said workers will receive 400 billion pesos in loans, while self-employed workers will be offered six months of tax relief and those on food benefits will receive additional stipends.He also announced a suspension of export taxes for some industrialized regional goods such as wine, rice and tobacco, as well as funding for fertilizers to help farmers whose last harvest suffered from a historic drought.The government, helped by bank financing, will also offer $770 million in funding to help boost export sales and companies have been ordered to provide bonuses to some 5.5 million workers who earn below 400,000 pesos per month, Massa said, equivalent to $1,140 at the official rate but roughly $500 at the informal parallel exchange rate.”The goal is that every economic sector receives some state support,” Massa said.The move comes two weeks after the government devalued the peso by nearly 20%, accelerating annual inflation which already was hovering around 115% as Argentines saw their purchasing power dwindle further.Massa said the devaluation resulted from a request from the International Monetary Fund as it renegotiates a $44 billion loan program with the South American government.Polls for the October elections have narrowed giving an equal share of the vote to Massa, opposition candidate and former security minister Patricia Bullrich and Milei, who has pledged to dollarize the economy and shut the central bank.Experts believe the vote could pass to a run-off in November. Meanwhile, tensions have risen and a series of lootings have taken place across the country.($1 = 350 Argentine pesos) More

The writer is chief executive of Gavekal, a Hong Kong-based financial services companyProperty prices are falling. Large real estate developers have fallen into dire straits. A big financial conglomerate has missed interest payments on products sold to investors. For many investors, such recent events in the country all feel like the remake of a 2008 movie few enjoyed.The gloomiest foretell the unfolding implosion of the Chinese economy with years of over-building, white elephant projects and unproductive infrastructure spending finally coming home to roost.Given that a systemic crisis in China would reverberate around the world, this has raised alarm and triggered calls for Beijing to intervene more forcefully to revive the Chinese economy. The curious thing, though, is that such doom and gloom is not reflected in what the market is signalling.Let me start with the performance of banks. In most financial crises, the share price performance of banks starts signalling trouble months before a systemic crisis unfolds.For example, the S&P Composite 1500 Bank index fell 66 per cent between Jan 2007 and July 15 2008 before Lehman Brothers collapsed in September that year. Similarly, European banks, as measured by the MSCI EMU bank index, shed 35.4 per cent between January 1 2010 and August 1 2011 — before sovereign bonds yields on the eurozone’s periphery started to blow out, unleashing the euro crisis.

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With this in mind, over the past 12 months, Chinese bank shares (as measured by the FTSE China A-Share bank index) have actually gained 2.4 per cent (without accounting for dividends). This means that, over that period, Chinese banks have actually outperformed US banks by 12.6 per cent in dollar terms. So what does one call an emerging market systemic financial crisis in which local banks are up on the year, and outperforming US banks by double digits? There are really only two possible answers: unprecedented or non-existent.Here is something else that is unprecedented in an emerging market financial crisis: the massive outperformance of Chinese government bonds relative to US Treasuries, considered a traditional haven investment. Up until the Covid-19 lockdowns, the returns on Chinese government bonds and US Treasuries were roughly the same on any meaningful timeframe. But Covid obviously saw very different policy choices implemented in both China (longer lockdowns) and the US (extreme fiscal stimulus and central bank balance sheet expansion). Consequently, since January 1 2020, long-dated Chinese government bonds (as measured by the BAML indices) have returned 17.1 per cent, while long-dated US Treasuries have delivered returns of negative 13.4 per cent. Bringing us back to our question above: what does one call an emerging market systemic financial crisis in which local government bonds outperform US Treasuries by more than 30 percentage points in less than three years? Unprecedented, or non-existent.Of course, one may elect to dismiss the messages coming out of the Chinese equity markets (which, although disappointing this year, have yet to take out their October 31 2022 lows), the government bond moves or even the foreign exchange shifts as the hand of Beijing on prices could easily skew signals. But looking further afield from China, we still have commodity prices grinding higher. For example, iron-ore, possibly the most China-sensitive of all commodities, is up 50 per cent from its October 31 2022 low and has actually been rising over the past few weeks even as the negativity on the Chinese economy has amplified. The past year has also seen the share prices of China-sensitive western companies such as LVMH, Hermès, Ferrari and others do particularly well. In fact, most luxury goods producers are trading at, or close to, all-time highs. This would seem counterintuitive if China really were facing a systemic meltdown.The rampant negativity also overlooks some important bright spots in the Chinese economy. For example, Macau tourist arrivals have lately soared back to normal levels, and this in spite of severe staff shortages across all the major casinos. Domestic tourism is broadly picking up. Car sales in China are still up this year despite a small decline in June and July. Alibaba just reported a return to strong sales growth in its second-quarter results. Yet more signs of an economy that is not imploding. That is not to deny that China’s economy faces genuine challenges, or that Chinese economic growth is slowing, both cyclically and structurally. But in short, there seems to be a strong disconnect between the price behaviour of most China-related assets, whether at home or abroad, and fears of an unfolding systemic crisis. More