Philippa Kaur

The covid-19 pandemic has, thanks to Zoom, killed off many work trips. But not all of them. Some in-person meetings far afield are coming back. And so is business flying. Plenty of obvious edicts of air-travel etiquette are effortlessly acquired, along with air miles, merely by flying frequently. As a sophisticated traveller, you probably know the drill by heart. Still, air-rage incidents are up markedly compared with pre-pandemic times—by 50% in America and a whopping 200% in Britain. Some people could do with a refresher.Many rules of aeroplane decorum apply to all travel. But as a business traveller, you represent not just yourself but also your employer, whose logo you may well be sporting on your jacket or laptop bag. So hewing to them is critical. They begin to apply before you board the aircraft. Arrive at the gate early and in style—do not run for your life only to be panting embarrassingly or even worse, hold the plane and make 200 people wait for you while you are browsing gadgets at Duty Free. Queue-cutters and pushers have their own place in hell.Once on board, remember the basics. Do not keep your headphones on when spoken to, make a fuss when you are told that chicken tikka is finished or, heaven forbid, perform any personal grooming in public. Bare feet on the seat or bulkhead are a no-no. Aggressive typing on your laptop is, too. Manspreading and “galley yoga” in the flight attendants’ work area are to be avoided. Be wary of booze. Alcohol’s effects are more pronounced 30,000 feet above ground, even in a pressurised cabin, because of lower oxygen levels. If you tend to feel nauseous when cabin pressure changes during take-off and landing, avoid the vodka during the flight. Unruly, entitled passengers tend to be boozing passengers—and vice versa. You don’t want to become a TikTok sensation, and nor does your employer. Cabin crew, trained to be courteous and professional, should be matched in tone. Economy class is the trickiest. As airlines are packing more seats on planes in coach, legroom is scarce and your own meal tray is encroaching on your space. This does not excuse putting your feet up on tray tables, slamming back your seat when you recline or handing the flight attendants rubbish while they are distributing food. Overhead bins are meant to be shared. So are armrests. You have no control over who sits next to you but you have agency. If you find yourself elbow to elbow with Chatty Cathy, it is alright to say “excuse me” and slip on your noise-cancelling headphones. You should probably avoid working on anything remotely sensitive. As your company’s chief of security no doubt regularly reminds you, some people are nosy. Even those who aren’t may inadvertently sneak a peek at your spreadsheet. Take the time to think about strategy or read that management book you have been meaning to for months. Corporate dress codes may have relaxed but opt for transatlantic athleisure only if you have time to change before heading to your meeting after you land. Boarding the red-eye in pyjama bottoms is not OK. Elasticated waistbands are acceptable. Yoga pants and flip-flops are not; they clash with the spirit of work—especially if colleagues and clients might be on the same flight. And you never know whom you might run into at the luggage carousel.For those lucky enough to work for firms with fat travel budgets, business class helps attenuate these problems. You can work more freely and never need to kick the seat in front of you to let the passenger in the row ahead know they are reclining too comfortably (which, incidentally, you shouldn’t do in economy either). Even so, remember you are not alone. Do not violate other passengers’ personal space with your body, voice (just because you are a senior vice-president at Goldman Sachs does not mean others want to listen to your phone conversation while you board) or odour (splash on your hypnotic sandalwood cologne in moderation).Most of these challenges are eliminated if you fly first class. You get a personal suite, à la carte dining, vintage champagne and, on some flights, doorstep baggage pick-up, check-in and drop-off by airline employees (though even that probably doesn’t excuse flip-flops). Or so this guest Bartleby is told. When she suggested corroborating it herself for the purposes of research, her request was regrettably denied. You will have to work this part out on your own. Fasten your seatbelt, and enjoy the flight. ■ More

THREE YEARS AGO, as lockdowns forced consumers to move much of their spending online, a golden age for e-commerce appeared to be dawning. Optimistic investors, convinced that shoppers would keep buying on the internet, lifted valuations of e-merchants to frothy heights. Retailers old and new raced to expand delivery networks.Today those heady days look like a distant memory. On August 3rd Amazon, the world’s largest online retailer, reported 11% year-on-year growth for the second quarter of the year, excluding its cloud-computing division. That was better than expected—and provoked a roughly 10% jump in the company’s share price. Yet it was a fraction of the 42% sales growth that Amazon reported for the same quarter in 2020, and slower than the giant’s pre-pandemic trend. The same day Wayfair, an online purveyor of furniture that surged amid covid-19, reported its ninth consecutive quarter of declining sales.A slowing economy is only partly to blame for the reversal. After spiking in early 2020, the online share of retail spending in America has remained stagnant at around 15%, roughly what it would have been had the pre-pandemic trend continued uninterrupted (see chart). The story is much the same in Britain, France and Germany, according to figures from Euromonitor, a market-research firm.In certain categories, including clothing and furniture, e-commerce penetration in America has tumbled from its pandemic peak, according to TD Cowen, an investment bank. Consumers have flocked back to physical stores to inspect their dresses and dressers in person. The share of American grocery shopping online, which jumped from 4% in 2019 to 7% in 2020, is still edging up—but at a statelier pace. Last year it reached 9%. Many shoppers, it seems, still cherish the human interaction of the till or the butcher’s counter. Few appreciate the squashed or under-ripe produce that arrives in the delivery van, or luck-of-the-draw substitutes for ordered fare that was out of stock. Retailers, for their part, struggle with the tricky economics of selling groceries online. Grocery is a business with wafer-thin operating margins of between 2% and 4%, according to Bain, a consultancy. Adding the cost of personnel picking products from store shelves and drivers ferrying them to customers quickly turns it into a loss-making endeavour. Relying on automated fulfilment centres instead of stores helps only a little; Ocado, a British online grocer following that strategy, oscillates between losses and the slimmest of profits.One solution, notes Stephen Caine of Bain, is to boost margins by selling advertising; plenty of advertisers are happy to pay to show off their wares to e-shoppers. Last year Amazon generated $38bn of sales that way, some 9% of its total, excluding cloud computing. Yet most retailers, Amazon included, rely on added delivery fees to make online grocery delivery stack up. That, in turn, slows adoption. Fully 47% of Americans would do more of their grocery shopping online if delivery fees were lower, according to one survey by McKinsey, another consultancy.For now, much of the growth in online grocery shopping will be in kerbside pickup, reckons Mr Caine, with customers collecting pre-picked goodies from stores to save on delivery fees. Amazon’s $14bn acquisition of Whole Foods, a posh supermarket, in 2017 was an admission that physical stores would remain central to the grocery business for the foreseeable future. Brick-and-mortar retailers, with their vast store networks, continue to dominate the category. Walmart, the mightiest of them all, sells 17% of Americans’ groceries, according to GlobalData, a research firm. Amazon’s share is less than 2%.Meanwhile, competition in more mature areas of e-commerce is heating up. Shein, a Chinese online fast-fashion retailer popular with Gen Z shoppers in the West, is expanding into things like electronics and furniture. This year it launched a marketplace for third-party sellers. Its mobile app already has a third as many monthly active users in America as Amazon’s. Temu, a tendril of Pinduoduo, a rising e-commerce star in China, has also grown rapidly since launching in America last year.Another challenge comes from TikTok, a Chinese-owned short-video app beloved of youngsters. To monetise its users’ hours of scrolling, TikTok lets businesses squeeze ads and live demonstrations into their feeds, with links to purchase products without leaving the app. This model of “shoppable entertainment”, as TikTok calls it, has fuelled the success of Douyin, its sister app in China. Douyin now sells more clothes and accessories than Tmall, the Chinese e-commerce platform operated by Alibaba, a local tech champion.TikTok harbours similar ambitions in the West. Last October it was reported to be readying its own fulfilment network in America. Rumours are swirling that it will soon begin purchasing products from China and selling them to consumers itself; an experiment is already under way in Britain. TikTok’s aspirations would be thwarted if the American government bans it outright on national-security grounds, which many politicians are calling for. In that event, Reels, a TikTok lookalike offered by Meta, a homespun tech giant, could perhaps take the place of the disruptor.A final challenge to the West’s e-commerce incumbents is brands’ growing appetite for selling directly to consumers. Euromonitor reckons that direct-to-consumer sales now account for 16% of e-commerce, a share that has quadrupled over the past eight years. More access to shoppers’ data helps brands to speed up innovation, notes Michelle Evans of Euromonitor. By cutting out the middleman, it also often improves margins. Shopify, a Canadian e-commerce platform, has built a booming business selling tools to make it easy for companies to build online shops. On August 2nd the firm reported an Amazon-trouncing 31% year-on-year growth for the second quarter. Well-known brands like Nike, a sportswear heavyweight, are among those to have embraced the trend. Direct-to-consumer sales have risen from 17% to 42% of its total revenue over the past decade, with more than half of those sales generated online. Upstart brands such as Allbirds and Casper, makers of shoes and mattresses, respectively, have also shunned traditional wholesale arrangements, harnessing the web to sell to customers directly. More recently, though, the newcomers have been opening physical outposts for consumers to touch and feel products. The digitally native brands, too, may be preparing for a world without much more e-commerce. ■ More

BIG LAW enjoys a long life. More

“THE FUTURE of the VW brand is at stake.” When Thomas Schäfer, the mass-market marque’s newish boss, gave a presentation to his management team in early July, he did not sugarcoat its problems. High costs, falling demand, growing competition—the list goes on. “The roof is on fire,” he warned, echoing one of the most noted alarm calls in recent business history—from Stephen Elop, who in 2011 compared his company to a “burning platform” shortly after taking the helm at Nokia, then the world’s largest maker of mobile phones.In the case of Nokia, the wake-up call did not help. A few years later the firm was dismantled and its mobile-phone business sold to Microsoft, which has since closed it down. Could mighty VW, its mightier parent group, which owns nine other brands, or even Germany’s mightiest industry as a whole really suffer a similar fate? And if it did, what would that mean for Europe’s biggest economy? An imminent implosion of the car industry seems unlikely. In 2022 Volkswagen was the world’s largest carmaker by revenue, giving it plenty of cash to support its biggest brand. On July 27th it reported that sales rose by a healthy 18% in the first half of 2023, year on year, to €156bn ($174bn). BMW and Mercedes-Benz, Germany’s two other big automotive concerns, are in decent nick. Yet disaster is no longer inconceivable. German industrialists are feeling real angst about the future. In July an index of business confidence from Ifo Institute, a think-tank, fell for the third consecutive month. German bosses echo Mr Schäfer’s list of concerns and add other gripes, from bunged-up bureaucracy to the delicate geopolitics of trade with China. Carmakers are more exposed to these challenges than most industries, as they are having to negotiate several transformations at once. They must electrify their fleet, for instance, and learn to develop software. As these trends play out, more of the value added is likely to come from elsewhere. Industry insiders admit that factories will have to shrink or even close down, as will many suppliers, especially those which make parts for internal combustion engines and gearboxes. Germany’s car industry must also tackle its growing China problem. Having benefited from the Asian giant’s rapid growth in recent decades—in the second half of 2022 Germany’s three big car companies made around 40% of their revenue there—they are now suffering from a reversal of fortunes. Volkswagen has just cut its global delivery forecast owing chiefly to slowing Chinese sales. Geopolitics are liable to make things worse. And Chinese rivals have started expanding abroad, particularly in Europe. Last year, for the first time, China exported more cars than Germany: around 3m and 2.6m vehicles, respectively.Driven to extinction?All these problems are coming together in Wolfsburg, home to Volkswagen’s headquarters—and thus the roof in Mr Schäfer’s metaphor. According to press reports, orders for the group’s EVs are between 30% and 70% below plans, depending on the marque. The firm still has to sort out its software problems: in May it again shook up the management team of Cariad, its digital unit. In China’s fast-growing market for EVs, the VW brand is an also-ran, with a market share of 2%. The consequences of carmakers’ potential demise depend on how big you think the industry is. Carmaking directly employs fewer than 900,000 people in Germany, two-thirds of them at the car firms and the rest at their suppliers. That is just 2% or so of Germany’s total workforce. Nearly three-quarters of passenger cars sold under a German brand are now made abroad. Last year a mere 3.5m vehicles left local factories—about as many as in the mid-1970s.Worried industry insiders point to alternative measures. More than half of the EU’s carmaking gross value added is produced in Germany, miles ahead of France, which is second with 9%. Cars account for 16% of German exports of goods. And although the economic importance of Germany’s car industry peaked at 4.7% of the country’s gross value added in 2017, the share was still at 3.8% in 2020, the last year for which data are available, calculates Nils Jannsen of the Kiel Institute, a think-tank. According to other estimates, this is about a percentage point more than other carmaking powerhouses such as Japan and South Korea.Moreover, zeroing in on narrow industry numbers misses the sector’s true importance for Deutschland AG. “It’s an operating system of sorts,” explains Oliver Falck, who runs the Ifo Centre for Industrial Organisation and New Technologies. “Important parts of the German economy and its institutions rely on it,” he says.For starters, direct suppliers are not the only ones to depend on Volkswagen and its peers. More recent numbers are hard to come by, but according to a study in 2020 by Thomas Puls of IW, another think-tank, and others, global demand for German cars accounted for more than 16% of the value added of Germany’s metal bashers and plastics makers. They also estimated that such global demand indirectly paid for another 1.6m jobs, bringing the total number of people supported by the car industry to 2.5m, more than 5% of the German workforce. German investment and innovation are tied to the country’s carmakers. The car industry accounted for 35% of gross fixed capital formation in manufacturing in 2020, according to IW. In 2021 the sector was the source of more than 42% of manufacturing research and development and paid for 64% of all R&D conducted by other firms and research institutions, based on numbers from the Stifterverband, an association mostly of research foundations. According to IW, carmakers accounted for nearly half of corporate patent filings in 2017, up from a third in 2005.The car industry is also central to Germany’s much-vaunted social model. One important element is regional equality. Car factories were often built in otherwise economically weak areas, of which Wolfsburg is the prime example. The sector shores up many of these regions. According to one recent study, 48 of Germany’s 400 cities and counties are heavily dependent on jobs in the car industry. Wolfsburg leads the pack: 47% of the city’s workers toil in the sector. Should carmaking fade, Germany would face “many local crises”, says Wolfgang Schroeder, one of the authors of the study and a fellow at the WZB, a research outfit.Without a strong car industry, Germany’s generally placid industrial relations would become much rougher. Union leaders such as Roman Zitzelsberger, who heads IG Metall in Baden-Württemberg, the state that is home to Mercedes-Benz, Porsche and Bosch, a giant car-parts supplier, freely admit that it is the organisation’s “backbone”. IG Metall’s some 2m members make it the world’s single biggest trade union. About a third of them work in the car industry. Union membership at some companies in the sector reaches 90%. This strength, in turn, helps IG Metall negotiate good wage deals which then radiate out to other firms and industries where it is less entrenched.The car industry also undergirds Germany’s model of co-determination, where workers are guaranteed representation on corporate boards. Volkswagen is again the prime example. The sector’s powerful works councils provide IG Metall with access to important resources, from money to information. Employee representatives make up half the firm’s 20-member supervisory board, giving them access to regular updates about the company’s condition and the ability to veto strategic decisions. (Another two members are political appointees from the state of Lower Saxony, which owns 12% of the group.)If this arrangement were to fall apart, it would alter the balance of Germany’s labour market, reckons Sebastian Dullien, an economist at the Hans-Böckler-Stiftung, a trade-union think-tank. “To exaggerate only a bit, it will make a big difference whether Volkswagen manages its transformation or whether it is replaced by Tesla,” he says, referring to the American EV pioneer, which has just announced that it intends to expand its plant near Berlin to what will be Europe’s biggest car factory. Over time, says Mr Dullien, manufacturing jobs in Germany would no longer be exceptionally well paid relative to service ones and manufacturing jobs in other European countries.Harder to measure, but no less profound, would be the psychological effects of a diminished German car industry. The reputation of German industry and its engineering prowess, already knocked by Volkswagen’s “Dieselgate” emissions-cheating scandal of 2015, would take another hit. In a paper published last year, Rüdiger Bachmann of the University of Notre Dame and others calculated that because the company was found fiddling with emissions readings, sales of other German brands in America fell by 166,000 cars, costing them $7.7bn in forgone revenues, or nearly a quarter of their total in 2014. If Germany’s car industry were to evaporate, in other words, this would “leave a huge economic crater in the midst of Europe”, says Mr Schroeder of WZB. Germany’s politicians are, of course, desperate not to let that happen. After Dieselgate, their support for the sector is less wholehearted. But subsidies such as tax breaks for company cars, which make it worthwhile for employees to forgo a part of their salary in exchange for a high-end vehicle, are not going away. More than two in three new cars in Germany are bought by companies; many end up being driven mostly on personal trips.In Lower Saxony the car industry may well be too big to let fail. Volkswagen operates factories in five places besides Wolfsburg. Altogether, the firm employs about 130,000 people there. The state’s politicians need only look next-door at Thuringia to see what might happen if its economy floundered—which it inevitably would were Volkswagen to crumble. The far-right Alternative for Germany party now leads Thuringian polls with 34%.Riding into the sunsetSuch considerations are drowning out voices pointing out that extending life support for carmakers could be counterproductive in the long term. Mr Bachmann thinks German politicians need to put a bit more faith in market forces to fill the economic space that might open up as German carmaking wanes. Germany’s oversized car industry, once a strength, increasingly holds the country back, argues Christoph Bornschein of TLGG, a consultancy. “Cars are the biggest manifestation of Germany’s total focus on mechanical engineering,” he says. As Volkswagen’s ongoing problems with its software unit show, an economic system that is optimised to churn out expensive mechanical wonders that run like clockwork will struggle to reinvent itself in an increasingly digitised world.Once the car industry is no longer that dominant, there would be more space for alternatives. Fewer subsidies would flow into the sector, and more capital into startups. Fewer young Germans would study mechanical engineering and more opt for computer science instead. And researchers would put more effort into, say, developing mobility services instead of filing one more car-related patent.The freewheeling approach has worked for Eindhoven. The Dutch city, once as dominated by Philips, a one-time electronics giant, as Wolfsburg is by Volkswagen, now hosts thousands of small companies. Most of these supply ASML, a manufacturer of advanced chipmaking equipment that has emerged as one of Europe’s most valuable companies. Espoo, still home to the rump Nokia, which today makes telecoms networking gear, also now boasts a thriving startup ecosystem. Admittedly, carmaking is much more deeply rooted than the ephemeral production of electronics such as mobile phones. As such, especially if the decline is gradual, the sector will adapt. Big suppliers such as Bosch or Continental will work more for foreign carmakers such as Tesla (in the Californian firm’s early days, Bosch is said to have provided 80% of its value added). Smaller suppliers will specialise and provide services, as many Mittelstand firms have done before. And Germany is likely to stop producing cheaper cars and focusing even more on making smaller numbers of higher-margin luxury ones. Volkswagen may even turn itself into a contract manufacturer, assembling EVs for other brands, much as Foxconn puts together iPhones for Apple.Some in and around the industry are already imagining a future without Volkswagen, at least as it exists today. The business “needs to stop building its strategies only around the car”, says Andreas Boes of ISF Munich, another research outfit. Mr Boes leads a group of youngish car-industry executives and experts which recently published a “Mobilistic Manifesto”. Instead of making cars ever more comfortable, so people spend more time in them and can be sold additional services, firms should aim to organise society’s ability to go from A to B as a whole, he suggests. Volkswagen and its fellow German carmakers have always helped people move around. There is no reason why they shouldn’t keep doing it in clever new ways. ■ More

LAST NOVEMBER something strange happened in Mountain View. A thick fog enveloped the headquarters of Alphabet, the parent company of Google. Not the meteorological sort—this stretch of Silicon Valley is reliably sunny. It was a fog of confusion. Its cause was ChatGPT, an artificially intelligent conversationalist created by OpenAI, a startup backed by Microsoft. The effect was, by all accounts, panic. ChatGPT was giving uncannily humanlike answers to questions put to it by users. And answering questions is the bread and butter of Google’s lucrative search business. Were OpenAI and Microsoft, which in February launched an enhanced version of its Bing search engine, about to eat Google’s lunch?Eight months on the mist has mostly cleared. On July 25th the company reported another set of solid quarterly results. Revenues rose by 7% year on year, to $75bn. It continues to create piles of cash: in the 12 months to June it raked in $75bn of operating profit. Bing has taken no discernible bite out of Google’s share of global monthly search queries, which remains above 90%. Most important, Google has put to rest any notion that it has fallen behind technologically. In May Sundar Pichai, chief executive of both Google and its corporate parent, unveiled more than a dozen AI-powered products at I/O, an annual event for software developers. These included AI tools for Gmail, Google Maps and Google Cloud. Investors found it reassuring—not least after a rushed launch in February of Bard, Google’s chatbot, during which the AI helper made a factual error. Since then the firm has launched AI products and features left and right. On July 12th it brought out NotebookLM, an AI-assisted note-taking tool trained on a user’s documents. On the same day Nature, a scientific journal, published a paper by Google researchers describing an AI model that matched human doctors’ responses to questions about the right treatment for patients. A day later it expanded a now less error-prone Bard, proficient in more than 40 human languages and over 20 computer ones, to the EU. Work on an AI model to eclipse ChatGPT, codenamed Gemini, is proceeding apace. Having nearly fallen below $1trn in November, Alphabet’s market value is back up to $1.7trn. Crisis over? In the short run, probably. Like all heart-in-mouth moments, though, the chatbot panic invites broader questions: about the current state of one of the world’s biggest firms, its future and—as Google turns 25 in September—about the demands of different stages of corporate life. The view from the top Alphabet is, without a doubt, one of the greatest business successes of all time. Six of its products—Google search, the Android mobile operating system, the Chrome browser, Google Play Store for apps, Workspace productivity tools and YouTube—boast more than 2bn monthly users each. Add those with hundreds of millions of users, such as Google Maps or Google Translate, and, by one reckoning, humans collectively spend 22bn hours a day on Alphabet’s platforms.The ability to command so much attention is worth a lot of money to the people who want a slice of it, namely advertisers. Since going public in 2004 Google’s revenue, 80% of which comes from online ads, has grown at an average annual rate of 28%. In that period it has generated a total of $460bn in cash after operating expenses, virtually all of it from advertising. Its share price has risen 50-fold, making it the world’s fourth-most-valuable company. Given these eye-popping numbers, it may seem churlish to ask why Alphabet isn’t doing better. In fact, the question is warranted, and is being asked by Mr Pichai, his underlings and investors alike. The company finds itself at a delicate juncture—not only, or even primarily, because of AI. The core digital-ads business is maturing, with sales growth no longer consistently in double digits and increasingly tied to economic cycles. At the same time, finding new sources of material growth is difficult for a company that brings in $300bn in annual revenues. This quest is further complicated by investors calling for greater cost efficiency and capital discipline, which in turn requires a shake-up of its free-wheeling corporate culture. Consider the cash cow. Throughout the 2010s digital advertising seemed invulnerable to the business cycle. In good times advertisers spent like there was no tomorrow. In worse ones they diverted some of their non-digital marketing budgets online, where Google and other giants like Facebook (now Meta) offered to target adverts more precisely than a TV commercial or a page in a glossy magazine could. Now, as the online share of total ad spending touches two-thirds, businesses have smaller non-digital ad budgets to eat into. Insider Intelligence, a data firm, expects global sales of digital ads to increase by 10% or less annually in the next few years, down from a rate of 20% or so in the past decade (see chart 1). A slowdown last year offered a glimpse of the future, spooking investors. Nor can Google easily capture a bigger slice of the slower-growing pie. Trustbusters already believe its share is too high and have sued Google in America for abusing its search monopoly. Google’s arrangement with Apple, whereby it pays a reported $15bn a year to be the default search engine on the 2bn or so iDevices, has also come under scrutiny. Although search remains immensely lucrative, with operating margins of nearly 50%, according to Bernstein, a broker, how people look for things on the internet is changing. Most product searches these days start not on Google but on Amazon, the e-commerce giant. According to Google’s own executives, 40% of teenagers and young adults seek recommendations for things like restaurants or hotels on TikTok, a short-video app, or Instagram, a similar app from Meta. Google may entice some of these “search-nevers”, as Mark Shmulik of Bernstein calls them, to its platform, as YouTube is doing already with a TikTok lookalike called Shorts. Yet videos are unlikely to monetise as nicely as the search box. Then there are the chatbots and other “generative” AIs that, having been trained on a web’s worth of texts, images and sounds, can serve up simulacra of human-generated content. Mr Pichai’s insistence that Alphabet is an “AI-native” company rings true. Most observers believe that deep pockets and ample talent will allow Google to solve the technology’s teething problems, such as the bots’ tendency to “hallucinate” (make stuff up) or the high cost of serving up responses (which egg-headed Googlers are busy tackling). That still leaves open the question of how much money bot-assisted products, for all their expected ingenuity, will actually make. Set aside search, and Google’s knack for creating extraordinary products is matched by its inability to monetise them. There is no reason to think that its AIs More

MOTORING’S SOUNDTRACK use to be generated by the petrol engine and car radio. Near-silent battery power and snazzy infotainment systems have provided an aural void—and a high-tech way to fill it. Carmakers are giving their electric vehicles’ occupants, and anyone within earshot, an alternative set of sounds to enliven the journey.Listen to this story. Enjoy more audio and podcasts on More

IN THE EARLY 1980s AT&T Corporation, then America’s telecoms monopoly, was the darling of Wall Street. As big tech of the day, it was the mightiest company in the S&P 500, accounting for 5.5% of the blue-chip index’s total market value. Today its largest descendants, AT&T and Verizon, can only dream of their parent’s former glory. The two companies make up less than 0.7% of the index—and falling. Their combined market capitalisation of $250bn is roughly half what it was at the start of 2020; the S&P 500 is up by more than two-fifths since then (see chart). Factors beyond the undynamic duo’s control, such as rising interest rates or the recent discovery of a network of old lead-sheathed telephone cables, which injected uncertainty over their potential liability for the toxic assets, are partly to blame. Yet much of AT&T’s and Verizon’s malaise is of their own making. The two telecoms incumbents are finding just how difficult it is to be a mature firm in a saturated market, especially if you also have a mountain of debt to manage. Their core business of selling mobile and broadband subscriptions is stagnating. On July 25th Verizon said that these revenues grew by less than 1% in the second quarter, year on year. The next day AT&T announced that its equivalent figure rose by just 2.4%. What has long been a cosy industry is turning more competitive. A merger in 2020 between T-Mobile and Sprint created a 5G powerhouse that is offering equally fast mobile connections at lower prices. And on July 26th DISH Network, a satellite-TV firm, unveiled a partnership with one of today’s tech titans, Amazon, to provide mobile services for $25 a month to members of Amazon’s Prime loyalty scheme.Previous big bets have backfired. AT&T’s disastrous $200bn foray into media, including the purchase of Time Warner and DirecTV, has been unwound. But its effects on morale and on the balance-sheet, weighed down by net debt of more than $130bn, continue to be felt. Verizon has been less spendthrift, though it still splurged $53bn in 2021 on 5G spectrum—an investment which was deemed necessary at the time to compete with T-Mobile but which has yet to produce a return, as early hype over 5G has dissipated. Its effort to build a wholesale business, by allowing cable providers such as Comcast and Charter to piggyback on its networks, created new competitors, which are offering bundles of internet and TV at a steep discount.That leaves the two incumbents with few options. One is to protect margins. Both Verizon and AT&T are touting their premium plans. On July 24th Verizon raised the price of its wireless home broadband by $10, to $35 a month. Both companies are also cutting costs, including by shutting down retail outlets, which helped each trim operating expenses by 2.5% in the first half of 2023, year on year. A more radical move would be to follow some European peers, such as TIM in Italy, and spin off their fixed networks. This would raise capital, lower fixed costs and allow management to focus on faster-growing segments such as wireless broadband. Such a deal would, though, be at odds with the industry’s trend towards convergence, whereby cable companies are becoming more like telecom providers, and vice versa, in a battle for consumers. Offering both home and mobile connections, especially in a bundle, makes consumers stickier, reduces churn and increases long-term profitability. That at least is the thinking. To investors, it seems increasingly wishful. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

Power is a fact of corporate life. It also affects behaviour. Research suggests power makes people less likely to take the advice of others, even if those others are experts in their fields. It makes them more likely to gratify their physical needs. In a test conducted by Ana Guinote of University College London, powerful people were likelier than less powerful folk to choose tempting food, like chocolate, and ignore worthier snacks like radishes. In conversations, the powerful are bewitched by themselves: they rate their own stories as more inspiring than interlocutors’. Listen to this story. Enjoy more audio and podcasts on More