WEBVTT - Trump Admin Looks to Save Spirit Airlines 0:00:02.759 --> 0:00:10.600 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.640 --> 0:00:14.600 Bloomberg Intelligence podcast. Catch us live weekdays at ten am. 0:00:14.640 --> 0:00:17.279 He's done on Apple, Cocklay and Android Auto with the 0:00:17.320 --> 0:00:21.080 Bloomberg Business App. Listen on demand wherever you get your podcasts, 0:00:21.400 --> 0:00:23.120 or watch us live on YouTube. 0:00:23.720 --> 0:00:26.040 The White House is pretty busy these days, not only 0:00:26.079 --> 0:00:29.760 dealing with the Warren Iran, but they're also playing a 0:00:29.760 --> 0:00:34.840 big role here in Spirit Airlines, embattled in its second 0:00:34.840 --> 0:00:36.280 bankruptcy in about one year. 0:00:36.880 --> 0:00:37.960 Who wants to own an airline? 0:00:38.000 --> 0:00:38.400 I don't know. 0:00:39.440 --> 0:00:42.040 Well, maybe the US government is going to own a 0:00:42.040 --> 0:00:43.040 stake in the airline. 0:00:43.159 --> 0:00:44.400 Let's bring in George Ferguson. 0:00:44.440 --> 0:00:49.159 He is our senior aviation aerospace defense analysts here at 0:00:49.159 --> 0:00:50.200 Bloomberg Intelligence. 0:00:50.479 --> 0:00:50.839 George. 0:00:51.040 --> 0:00:53.800 The reporting right now is the White House is close 0:00:53.840 --> 0:00:57.400 to reaching a financial rescue package for Spirit, and we're 0:00:57.440 --> 0:01:00.480 hearing that disagreement would offer up to five undred million 0:01:00.480 --> 0:01:03.960 dollars in financing an exchange for warrants to purchase stock. 0:01:04.200 --> 0:01:06.919 Is this kind of out of the Great Financial Crisis 0:01:07.000 --> 0:01:09.120 playbook of bailing out a company? 0:01:09.480 --> 0:01:12.440 It sort of seems out of almost the pandemic playbook, 0:01:12.520 --> 0:01:15.039 right and the pandemic. We decided we couldn't let any 0:01:15.080 --> 0:01:19.039 airlines fail and so came in to support them. Not 0:01:19.080 --> 0:01:21.160 sure why we need to do it here, you know, 0:01:21.200 --> 0:01:24.240 I think that the market has certainly recovered, the airline 0:01:24.240 --> 0:01:28.320 markets recovered since then. I think that there's probably too 0:01:28.360 --> 0:01:32.119 much capacity right now in the US market, and that's 0:01:32.200 --> 0:01:36.479 that's why some airlines are having problems generating profits. Spear 0:01:36.680 --> 0:01:39.720 at the tip of that spear having the most problems 0:01:39.720 --> 0:01:42.920 generating profits, and so it seems to me that we 0:01:42.959 --> 0:01:46.720 again need to cut down a capacity. So, you know, 0:01:46.959 --> 0:01:50.440 having some some airlines leave the business is probably the 0:01:50.640 --> 0:01:52.680 sort of the right way to fix it. But I 0:01:52.720 --> 0:01:54.240 guess the white House fields differently. 0:01:54.400 --> 0:01:55.960 That's kind of where I want to go, George. I mean, 0:01:56.000 --> 0:01:58.600 what's the what's the marketplace telling us here? It just 0:01:58.600 --> 0:02:02.240 seems like, well, not one of these big three airlines. 0:02:02.640 --> 0:02:04.920 It's just a tough business. I mean, is there a 0:02:05.040 --> 0:02:09.280 market for some of these more regional, lower cost airlines. 0:02:10.520 --> 0:02:13.600 I think there is, right, but the market has definitely 0:02:14.160 --> 0:02:17.520 turned I think against sort of most harshly against these 0:02:17.520 --> 0:02:20.920 low cost carriers, right because I think, really, you know, 0:02:21.000 --> 0:02:22.560 right now, the sort of the state of play in 0:02:22.560 --> 0:02:26.240 the US airline businesses, you need a strong loyalty program, 0:02:26.720 --> 0:02:28.359 so you need to be able to put a credit 0:02:28.400 --> 0:02:32.760 card in the hands of your loyal flyers. They're using 0:02:32.800 --> 0:02:37.120 that credit card for dinners, groceries, everything else. You're selling 0:02:37.200 --> 0:02:41.519 the credit card company miles, which is boosting your profits, 0:02:41.520 --> 0:02:45.520 which you can use to support the flying business. And 0:02:45.560 --> 0:02:47.400 then the big full service carriers, you know, they get 0:02:47.480 --> 0:02:50.360 they also have the premium I think there's a lot 0:02:50.400 --> 0:02:53.400 of premium travelers, a lot of baby boomers who've retired 0:02:53.480 --> 0:02:56.000 business travelers who will pay more for the front of 0:02:56.040 --> 0:02:59.639 the airplane and the back of the airplane seems very competitive. 0:03:00.120 --> 0:03:04.440 They're using those loyalty programs and that premium revenue to 0:03:05.120 --> 0:03:07.600 you know, subsidize the back of the airplane to a degree. 0:03:07.919 --> 0:03:10.480 So again telling me that there's just too much basic 0:03:10.880 --> 0:03:15.079 economy capacity, having Spirit leave the market would be one 0:03:15.080 --> 0:03:18.079 way to get rid of some of that basic economy capacity. 0:03:18.560 --> 0:03:22.120 We're seeing airlines start to reduce capacity as well because 0:03:22.160 --> 0:03:26.240 of the higher costs from fuel. Does that bring us back, 0:03:26.639 --> 0:03:28.080 bring us more back into balance. 0:03:30.440 --> 0:03:32.720 It's a beginning for it's the beginning of that of 0:03:32.720 --> 0:03:35.720 that process, absolutely right. And so Spirit had its problems 0:03:35.800 --> 0:03:38.640 before the Iran wars. So again that's why I think 0:03:38.680 --> 0:03:41.960 it's more a you know, the market really does have 0:03:42.000 --> 0:03:46.400 too much capacity. I think now for however long we're 0:03:46.400 --> 0:03:50.000 going to see these much higher fuel prices, the market 0:03:50.440 --> 0:03:52.360 has even more excess capacity. 0:03:52.440 --> 0:03:52.600 Right. 0:03:52.680 --> 0:03:55.960 So look, if we if we return to you know, 0:03:56.080 --> 0:03:59.520 two dollars a gallon jet fuel, I think a lot 0:03:59.520 --> 0:04:02.120 of these airlines that are starting to take some capacity 0:04:02.160 --> 0:04:05.000 out would take those park planes, put them back in service, 0:04:05.320 --> 0:04:08.600 and we'd be off to the races. But at these 0:04:08.680 --> 0:04:12.800 higher fuel prices, the airlines have to push through price increases. 0:04:13.160 --> 0:04:16.520 And you know the economics of that is when something 0:04:16.680 --> 0:04:20.360 costs more less is demanded and the airlines are seeing it, 0:04:20.680 --> 0:04:23.680 they can't get fares to rise enough to cover that 0:04:23.760 --> 0:04:27.840 increased fuel price. With this levelcity capacity in the marketplace, 0:04:28.160 --> 0:04:31.560 and we saw United, we saw Delta, we saw Alaska, 0:04:31.600 --> 0:04:35.279 all announced cutting back at least growth plans. Nobody's cutting 0:04:35.360 --> 0:04:39.560 in to you know, capacity levels that they flew last year. 0:04:39.839 --> 0:04:43.440 Starting to cut growth plans more more probably has to happen. 0:04:43.480 --> 0:04:46.600 Georgia United airlines at some numbers and they reduce their 0:04:47.120 --> 0:04:49.560 for your guidance, now, this looks like an earning sestment 0:04:49.760 --> 0:04:52.880 like I would put out between seven and eleven dollars 0:04:52.920 --> 0:04:55.480 a share. You can drive a seven forty seven through that, George, 0:04:55.720 --> 0:04:58.720 does that just reflect the uncertainty they have and kind 0:04:58.760 --> 0:04:59.760 of their whole p and L. 0:05:00.920 --> 0:05:04.560 Yeah, I mean it's a wide range. And you know, 0:05:04.680 --> 0:05:07.359 United has really gone to the less is more on 0:05:07.400 --> 0:05:10.400 the guidance world. So every other airline will give us 0:05:10.400 --> 0:05:13.760 a sense of what the cost available seat mile could be, right, 0:05:13.760 --> 0:05:16.440 they'll talk to us about where operating margins could be. 0:05:17.000 --> 0:05:20.280 United for the last I think it's about a year now, 0:05:20.600 --> 0:05:23.040 they just throw an EPs at us, a wide EPs, 0:05:23.040 --> 0:05:25.560 and they're like, yeah, you guys, go figure it out. 0:05:25.600 --> 0:05:30.000 So they're the poster child for less is more in 0:05:30.120 --> 0:05:33.000 the guidance world. And yeah, that's what they gave us 0:05:33.040 --> 0:05:33.600 this time too. 0:05:33.720 --> 0:05:35.400 It's kind of how they figured they're going to play 0:05:35.440 --> 0:05:35.719 the game. 0:05:35.800 --> 0:05:35.960 Right. 0:05:36.680 --> 0:05:39.359 Let's talk about Boeing, which narratives cash burn in the 0:05:39.360 --> 0:05:41.560 first quarter because of rising deliveries. 0:05:41.760 --> 0:05:42.880 How did these summers look to you? 0:05:43.920 --> 0:05:46.680 Yeah, I mean they looked as expected, all right, and 0:05:46.720 --> 0:05:51.440 so look, you know, the progress towards the recovery at 0:05:51.440 --> 0:05:56.520 Boeing continues, lowering cash burns always great. The defense business 0:05:57.000 --> 0:06:01.080 showed a profit, which was nice. Global Services continues to 0:06:01.640 --> 0:06:05.680 ring the bell, you know, eighteen percent margins. We love 0:06:05.720 --> 0:06:08.040 that business. It's a little bit of a black box. 0:06:08.040 --> 0:06:09.800 You don't always know what's going on there, but I 0:06:09.800 --> 0:06:14.680 hope it just keeps going. And the commercial airplane side, 0:06:14.720 --> 0:06:17.640 Spirit Aerosystems got folded in at the end of the year, 0:06:18.200 --> 0:06:21.000 and we would have expected a better result at a 0:06:21.000 --> 0:06:25.280 commercial airplane until Spirit got rolled in. And so there's 0:06:25.320 --> 0:06:29.039 some work to do down at Spirit. Bowing said, go figure. 0:06:28.720 --> 0:06:32.960 They were buying fuselages for more than Spirit can make 0:06:33.000 --> 0:06:34.760 them for or less than Spirit can make our force. 0:06:34.920 --> 0:06:37.720 Stay with us. More from Bloomberg Intelligence coming up after this. 0:06:41.360 --> 0:06:45.080 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:06:45.160 --> 0:06:48.239 weekdays at ten am Eastern on Apple Coarcklay and Android 0:06:48.279 --> 0:06:51.560 Auto with the Bloomberg Business App. Listen on demand wherever 0:06:51.640 --> 0:06:54.960 you get your podcasts, or watch us live on YouTube. 0:06:55.440 --> 0:06:56.480 Let's talk a little tech here. 0:06:56.520 --> 0:06:58.920 Why not? It's always in the news. Ed Ludlow, He's 0:06:58.960 --> 0:07:02.360 in town, usually based there in Silicon Valley Peer three. 0:07:02.400 --> 0:07:05.159 I think it is at Bludlow b Tech co host 0:07:05.279 --> 0:07:07.440 Joints us here in our studio, ed, do I need 0:07:07.480 --> 0:07:10.960 to pay attention to this Anthropic Mythos model being accessed 0:07:11.000 --> 0:07:15.080 by authorized users? I'm not a Mythos user, but how 0:07:15.120 --> 0:07:16.080 should I think about it? 0:07:16.720 --> 0:07:20.040 You should pay attention. How confused are you all this 0:07:20.160 --> 0:07:21.400 by the ongoing story? 0:07:22.200 --> 0:07:22.320 Well? 0:07:22.440 --> 0:07:24.200 I thought it would like people couldn't use it in 0:07:24.240 --> 0:07:26.120 the government, but the government is also coming out with 0:07:26.200 --> 0:07:27.880 rules on how to use it. 0:07:27.960 --> 0:07:30.880 I really sympathize with everyone that's reading about this and 0:07:30.920 --> 0:07:34.480 listening to us talk about it. It's so complicated, But okay. 0:07:34.560 --> 0:07:37.480 There is a community of people who are hang out 0:07:37.480 --> 0:07:41.120 on discord, which is a platform for programmers, and one 0:07:41.160 --> 0:07:45.080 of these people, a single individual, was a contractor who 0:07:45.120 --> 0:07:49.000 had a contractor relationship with Anthropic and therefore had credentials 0:07:49.400 --> 0:07:53.720 to access Mythos. Mythos is a general purpose AI model, 0:07:54.040 --> 0:07:58.640 but it's very good at detecting vulnerabilities in source. 0:07:58.360 --> 0:07:59.800 Code, so it's like a chat GPT. 0:08:00.560 --> 0:08:04.400 It's the underlying model, but its primary competence is that 0:08:04.520 --> 0:08:06.640 it can go through really big bodies of code. Take 0:08:06.640 --> 0:08:09.320 for example, bank banks are built on lots of software, 0:08:09.800 --> 0:08:12.280 and it can quickly go through that software code base 0:08:12.360 --> 0:08:15.920 and say ah, I've found a flaw and I know 0:08:16.040 --> 0:08:18.160 how it could be exploited, and if I wanted to, 0:08:18.480 --> 0:08:21.280 I being the model, I could exploit it. So what 0:08:21.360 --> 0:08:24.640 we know is that this contractor with some a merry 0:08:24.680 --> 0:08:28.720 band of fellows and colleagues from this community got access 0:08:28.760 --> 0:08:31.760 around April seventh. It was supposed to be a very 0:08:31.800 --> 0:08:34.280 limited release to the biggest tech companies and banks, so 0:08:34.280 --> 0:08:37.120 a group of maybe forty entities, so it was supposed 0:08:37.120 --> 0:08:39.880 to be closed off. They did not use it for 0:08:39.920 --> 0:08:43.120 anything malicious. Actually, the other thing the model is really 0:08:43.120 --> 0:08:46.160 good at is making websites, so it's just very good 0:08:46.160 --> 0:08:50.120 at generating software. The concern is they should not have 0:08:50.200 --> 0:08:54.199 had access. They were unauthorized. How could that have possibly happened? 0:08:54.240 --> 0:08:57.080 And this is good old fashioned kind of hacking. They 0:08:57.480 --> 0:09:00.120 did use credentials, that's so important. I keep underscoring that 0:09:00.320 --> 0:09:04.240 this person had access but shouldn't have used it. 0:09:04.360 --> 0:09:07.160 Maybe companies should hire full time staff rather than use 0:09:07.200 --> 0:09:09.280 contractors who have no loyalty to the company. 0:09:09.360 --> 0:09:09.800 Just the thought. 0:09:09.840 --> 0:09:12.079 But they also used logic and were like, where do 0:09:12.200 --> 0:09:15.720 we think that the code for the model itself is hosted? 0:09:16.200 --> 0:09:18.560 And they went through the internet slewth thing is the 0:09:18.559 --> 0:09:21.840 word we've used in the story and found it, and 0:09:21.920 --> 0:09:24.319 so it's completely bizarre. The net result is that Anthropic 0:09:24.960 --> 0:09:28.480 has confirmed that this has happened, they didn't do anything 0:09:28.679 --> 0:09:31.840 malicious with it, and that it was within the sort 0:09:31.880 --> 0:09:36.080 of closed confines of this contractors. They could have, but 0:09:36.160 --> 0:09:38.679 they could have. And so here's the hypothetical. What if 0:09:38.720 --> 0:09:42.640 a bad actor, this could be a state level piece 0:09:42.679 --> 0:09:46.920 of espionage, It could be a malicious group of hackers. 0:09:46.960 --> 0:09:49.720 What if they got access through the same mechanisms and 0:09:49.800 --> 0:09:51.040 did something actually bad with it. 0:09:52.559 --> 0:09:54.760 I mean, it's one thing to hack some code back 0:09:54.800 --> 0:09:58.000 in the day. It's another thing to get access, as 0:09:58.040 --> 0:10:02.920 you were saying, to this type of technology, which I 0:10:03.000 --> 0:10:07.320 don't think we as users, certainly the regulators in Washington, 0:10:07.320 --> 0:10:10.839 I can't imagine know exactly how powerful this can be. Yeah, 0:10:11.200 --> 0:10:14.600 I mean you could paint some really dire scenarios. 0:10:14.800 --> 0:10:17.080 The reason I'm sympathetic with the audience is that we 0:10:17.200 --> 0:10:20.920 use blanket terms like cybersecurity. Cybersecurity is a good thing, 0:10:21.120 --> 0:10:26.040 you know, it's the defense against potential catch up, right, 0:10:26.080 --> 0:10:29.080 and so like, let's make this really simple. It's a model. 0:10:29.559 --> 0:10:31.640 A user can say to the model, here is a 0:10:31.720 --> 0:10:34.080 very big body of code, the code of a bank, 0:10:34.559 --> 0:10:38.679 go through it and find vulnerabilities. Now, the Fed and 0:10:38.720 --> 0:10:42.640 the Treasury want those banks to do this proactively so 0:10:42.679 --> 0:10:46.000 they can find the flaws and patch them to d risk. 0:10:46.120 --> 0:10:47.520 So it's a race to see who can get to 0:10:47.559 --> 0:10:47.959 it first. 0:10:48.000 --> 0:10:50.160 But what if there were a bad actor? So this 0:10:50.280 --> 0:10:52.760 is the hypothetical, and it is a hypothetical. There's no 0:10:52.840 --> 0:10:55.679 evidence that there is yet a malicious actor out there 0:10:55.679 --> 0:10:59.599 that has access to this. It's so complicated. But the 0:11:00.040 --> 0:11:02.600 into is that the model can go through lots of 0:11:02.679 --> 0:11:06.280 code much more quickly, in more detail, and find things 0:11:06.320 --> 0:11:09.160 that an army of humans cannot do at least as quickly. 0:11:09.360 --> 0:11:10.959 That's the basics of what we're talking about. 0:11:11.120 --> 0:11:11.720 Stay with us. 0:11:11.880 --> 0:11:14.240 More from Bloomberg Intelligence coming up after this. 0:11:18.080 --> 0:11:21.760 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:11:21.840 --> 0:11:24.959 weekdays at ten am Eastern on Apple, Cocklay and Android 0:11:24.960 --> 0:11:28.280 Auto with the Bloomberg Business app. Listen on demand wherever 0:11:28.320 --> 0:11:31.440 you get your podcasts, or watch us live on YouTube. 0:11:31.920 --> 0:11:33.760 All right, here's a headline. When I read this morning, 0:11:33.800 --> 0:11:36.680 I'm like, are we back in the nineteen nineties, Deutsche 0:11:36.760 --> 0:11:40.080 Telecoms seeks to build number one carrier T Mobile deal. 0:11:40.120 --> 0:11:41.480 I mean, this is the stuff we were doing back 0:11:41.520 --> 0:11:44.040 at Salomon Brothers and Credit Swiss, back in the day 0:11:44.160 --> 0:11:47.120 when telecoms were just buying and selling each other left 0:11:47.120 --> 0:11:48.480 and right, and spending money which. 0:11:48.280 --> 0:11:50.600 We as opposed to being a utility business. 0:11:50.280 --> 0:11:52.320 Exactly what we like to fund those people because they 0:11:52.320 --> 0:11:53.560 are capital intensive. 0:11:54.400 --> 0:11:55.920 So it's teching him. John Bler. 0:11:56.280 --> 0:11:58.120 He knows what's going on out there. He covers all 0:11:58.120 --> 0:12:01.839 the telecoms for a Bloomberg Intelligence. Hey, John, did this 0:12:01.880 --> 0:12:04.640 surprise you this morning to see that Deutsche Telecom is 0:12:04.800 --> 0:12:06.520 maybe thinking to buy the whole thing out there in 0:12:06.559 --> 0:12:07.080 T Mobile. 0:12:07.600 --> 0:12:11.560 I think the timing was a little surprising, Paul, I 0:12:11.600 --> 0:12:13.680 didn't expect it, sort of out of the blue. It 0:12:13.760 --> 0:12:19.480 came midday yesterday Bloomberg reported that taught the Deutsche Telecom 0:12:19.600 --> 0:12:22.920 was considering this move, and as you said, it's kind 0:12:22.920 --> 0:12:25.720 of back to the future with this mega merger. Here. 0:12:26.360 --> 0:12:30.000 Keep in mind, Deutsche Telecom is the parent of T Mobile. 0:12:30.559 --> 0:12:33.319 They own fifty three percent of the company and have 0:12:33.520 --> 0:12:36.560 for a while. They have fifty six percent I think 0:12:36.559 --> 0:12:40.160 of the voting rights here, So what they're really after 0:12:40.360 --> 0:12:44.040 is Europe is a much more mature market than the US, 0:12:45.080 --> 0:12:48.160 and so T Mobile has been a real profit engine 0:12:48.320 --> 0:12:51.560 for them, and I think they're looking to sort of 0:12:51.640 --> 0:12:54.920 boost their profits by bringing in T Mobile into the 0:12:54.960 --> 0:12:56.880 fold as one hundred percent holding. 0:12:57.440 --> 0:13:01.240 Is this something that regulators in Germany and here in 0:13:01.320 --> 0:13:02.800 the US would be okay with? 0:13:03.320 --> 0:13:06.200 That is the big question mark scorelet. It's going to 0:13:06.200 --> 0:13:09.439 be really interesting to see how the current administration here 0:13:09.480 --> 0:13:13.240 in the US reacts to it. I can't speak to Germany, 0:13:13.360 --> 0:13:16.480 but I do believe here in the US they may 0:13:16.600 --> 0:13:20.160 look at it and say, gee, do we really want 0:13:20.200 --> 0:13:24.199 a foreign entity holding one hundred percent of T Mobile 0:13:24.960 --> 0:13:29.840 which has US license spectrum licenses across a broad swath 0:13:29.920 --> 0:13:33.960 at different frequencies, and it's you know, they would have 0:13:34.280 --> 0:13:40.920 obviously control over the customer relationships, call it eighty five million, 0:13:40.960 --> 0:13:44.240 I think at T Mobile. So I don't want to 0:13:44.280 --> 0:13:48.400 second guess the administration and how they're going to react 0:13:48.440 --> 0:13:51.719 to it, but my sense is there might be some 0:13:51.800 --> 0:13:56.920 pushback there. The US may even seek some sort of 0:13:56.920 --> 0:14:03.000 a deal with Deutsche Telecom to you know, favorable terms, 0:14:03.040 --> 0:14:06.080 if you want to think of it that way, to 0:14:06.240 --> 0:14:09.000 clear the path for getting the deal done in. 0:14:09.000 --> 0:14:11.559 The Bloomberg News reporting today on this story. US congress 0:14:11.559 --> 0:14:14.120 and Jim Jordan, chairman of the House Judiciary Committee, said 0:14:14.440 --> 0:14:16.840 Tuesday that the US government would look at the details 0:14:16.840 --> 0:14:19.400 of any deal. Quote, A foreign company taking over TA 0:14:19.440 --> 0:14:22.160 Mobile will get our staff's attention end quote. He said, 0:14:22.200 --> 0:14:25.680 So there's certainly gonna be something from the congressional side here. 0:14:25.960 --> 0:14:28.800 Would do you think that would Deutsche Telecom's full ownership? 0:14:28.800 --> 0:14:32.320 Would that mean anything to Charlie Pellett, who's a Tea 0:14:32.400 --> 0:14:34.600 Mobile customer? And are you a T Mobile customer? 0:14:34.680 --> 0:14:35.040 Scarlett? 0:14:35.040 --> 0:14:37.360 And Scarlett's a T Mobile customer and. 0:14:37.440 --> 0:14:40.880 Scarlet, so I'm a Verizon customer, but I do have 0:14:40.920 --> 0:14:44.480 a single line with T Mobile. It is a great network. 0:14:45.320 --> 0:14:48.240 I look at a combination in the scale that comes 0:14:48.400 --> 0:14:53.400 with it, and I see potential for investing more heavily 0:14:53.480 --> 0:14:57.480 in the network. I think they would have access to 0:14:57.880 --> 0:15:02.520 greater source of funds, they would have greater leverage over 0:15:02.840 --> 0:15:06.840 suppliers potentially, so they would get better deals on equipment, 0:15:07.640 --> 0:15:12.960 lowering their cost capital. So from that standpoint, Paul, I 0:15:13.000 --> 0:15:17.560 think we could see real uplift in T mobiles network. 0:15:17.600 --> 0:15:20.320 They've been investing in it over the years and have 0:15:20.440 --> 0:15:23.440 done a very good job of building out five G 0:15:23.680 --> 0:15:28.480 coveraging capacity, but that's an ongoing process, right, so you 0:15:28.520 --> 0:15:33.160 would you know, you're constantly investing there, and you're constantly 0:15:33.320 --> 0:15:36.280 seeking more funds to be able to do more on 0:15:36.840 --> 0:15:40.680 that front, and I think a deal would favor that. 0:15:41.760 --> 0:15:45.080 So Charlie can rest assured that his service would probably 0:15:45.160 --> 0:15:47.080 get a lot better, not worse. 0:15:46.840 --> 0:15:50.280 Than the I like hearing that, John. 0:15:50.520 --> 0:15:53.320 Where does that leave the number one player in the 0:15:53.360 --> 0:15:55.800 telecom space here in the US, which is AT and T. 0:15:55.920 --> 0:15:59.440 It just reported earnings. Wireless service revenue did come up 0:15:59.480 --> 0:16:01.960 short in the last quarter, it. 0:16:01.960 --> 0:16:06.520 Did, Scarlet. I think investors should look beyond that. In 0:16:06.600 --> 0:16:09.400 two Q we're going to see a price increase across 0:16:09.440 --> 0:16:12.080 the base, which is going to lead to higher wireless 0:16:12.120 --> 0:16:17.320 service revenue. The one thing that AT and T has done, 0:16:17.320 --> 0:16:20.080 and I suspect for Rizing and T Mobile are doing 0:16:20.160 --> 0:16:24.520 exactly the same, is they're relying more on subscriber growth 0:16:24.600 --> 0:16:28.720 now to drive the revenue equation as opposed to driving 0:16:28.800 --> 0:16:33.080 up rates. So again positive for consumers. We're going to 0:16:33.160 --> 0:16:37.360 see fewer price increases, although, as I said just a 0:16:37.400 --> 0:16:40.720 second ago, AT and T is implementing a price increase 0:16:40.760 --> 0:16:43.960 on some of the older plans starting in two Q 0:16:44.240 --> 0:16:47.600 so that'll help to lift that wireless service revenue, but 0:16:48.400 --> 0:16:51.600 you don't have that dual engine of rate increases and 0:16:51.720 --> 0:16:53.560 subscriber growth at work. 0:16:53.840 --> 0:16:56.640 Stay with us. More from Bloomberg Intelligence coming up after this. 0:17:00.080 --> 0:17:03.720 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:17:03.840 --> 0:17:06.879 weekdays at ten am Eastern on Apple, Coarclay, and Android 0:17:06.920 --> 0:17:10.240 Auto with the Bloomberg Business App. Listen on demand wherever 0:17:10.280 --> 0:17:13.400 you get your podcasts, or watch us live on YouTube. 0:17:14.119 --> 0:17:17.440 Earnings out again for a lot of companies this week. 0:17:17.440 --> 0:17:20.920 This is a big week. Philip Marsh International Alison better 0:17:20.960 --> 0:17:24.080 than expected numbers. The stocks up about six point six 0:17:24.119 --> 0:17:26.360 percent today, so a big move for that stock. It's 0:17:26.400 --> 0:17:28.480 up about two percent year today. Let's break down the 0:17:28.520 --> 0:17:32.639 numbers from Philip Marsh, Ken Sha Bloomberg Intelligence, Senior Consumer 0:17:32.680 --> 0:17:37.160 Products Analyst joints us here Ken. What's driving Philip marsh 0:17:37.240 --> 0:17:38.280 businesses these days? 0:17:38.680 --> 0:17:42.520 Well? Philip Morris today a late any fears that some 0:17:42.560 --> 0:17:46.359 competitive activity with their oral nicotine products into the US 0:17:46.480 --> 0:17:49.399 is going to derail them hitting their numbers. They didn't. 0:17:49.440 --> 0:17:52.159 They beat their numbers handily. Top line up nine percent 0:17:52.280 --> 0:17:55.960 EPs up sixteen helped a bit by currency, but the 0:17:56.040 --> 0:18:01.159 underlying business is healthy cigarettes. Unexpectedly, or I should say 0:18:01.200 --> 0:18:04.760 as expected, volumes are down as the long term secular 0:18:04.760 --> 0:18:07.760 decline continues, but pricing was up eight percent over the 0:18:07.880 --> 0:18:12.359 year of a year smoke free products top line was 0:18:12.440 --> 0:18:17.520 up strong. Gross margins are about seventy percent. And so 0:18:18.000 --> 0:18:20.639 the big picture is that they're on plan with their 0:18:20.680 --> 0:18:23.960 transformation to move away from legacy cigarettes to these smoke 0:18:24.160 --> 0:18:27.600 free products which are on trend. And now that business 0:18:27.640 --> 0:18:30.520 smoke free is a scale business, a sixteen billion dollar 0:18:30.680 --> 0:18:35.680 business that's now being positioned I believe for separation at 0:18:35.680 --> 0:18:36.400 some point soon. 0:18:36.640 --> 0:18:39.840 Oh interesting, Yeah, I mean the kids. I hear zin 0:18:40.600 --> 0:18:42.680 like in social media posts from from younger folks. I'm 0:18:42.720 --> 0:18:45.080 not really sure because I think Zinfandel line, but that's 0:18:45.080 --> 0:18:45.440 not it. 0:18:45.800 --> 0:18:48.200 No, this is Zyn not Zinfandel. 0:18:48.400 --> 0:18:50.479 Okay, So yeah, talk a little bit more about that 0:18:50.520 --> 0:18:54.280 smoke free business and how a spinoff might be on 0:18:54.320 --> 0:18:54.720 the way. 0:18:55.040 --> 0:18:56.760 Why would Philip Worse want to do that? 0:18:57.160 --> 0:18:59.920 So there's smoke free business I mentioned is powered most 0:19:00.280 --> 0:19:05.880 by Icos. That's their heated tobacco device which uses its 0:19:05.920 --> 0:19:09.439 Marlborough and other branded plugs, if you will, units that 0:19:09.480 --> 0:19:12.240 you put into the device and it heats tobacco rather 0:19:12.240 --> 0:19:15.600 than burn it like a combustible cigarette, and thereby is 0:19:15.640 --> 0:19:20.600 smoke free and or less harmful alternative. The two other 0:19:20.680 --> 0:19:24.440 legs of the stew of smoke free or it's evapor 0:19:24.480 --> 0:19:27.440 product that's a closed system, meaning there's no plugs involved. 0:19:27.480 --> 0:19:29.480 It's just that once you use it, you're done. That's 0:19:29.480 --> 0:19:32.919 called viv that's a more economical version, and that's catching 0:19:32.960 --> 0:19:36.560 on well. And then you have the oral nicotine products 0:19:36.600 --> 0:19:39.760 that I alluded to before, which they have a sixty 0:19:39.760 --> 0:19:42.840 percent share in the US, a big share you know, 0:19:42.920 --> 0:19:47.160 outside the US in selected markets. It's still prohibitive prohibited 0:19:47.200 --> 0:19:50.800 in many European markets, but where it is legal, it's 0:19:50.880 --> 0:19:53.840 doing well, and that rounds out their smoke free business. 0:19:54.880 --> 0:19:58.240 It really is the fastest growing element to Filla Morris, 0:19:58.280 --> 0:20:02.000 this smoke free The company is providing the disclosure that 0:20:02.040 --> 0:20:05.879 analysts love. It's a double digit grower, it's got high margins, 0:20:06.240 --> 0:20:08.720 it's on trend, and I think they're going to market 0:20:08.760 --> 0:20:11.960 it that way probably, Like I said, I believe at 0:20:12.000 --> 0:20:15.120 the end of the year as a really attractive spinoff. 0:20:15.760 --> 0:20:18.640 So I'm just looking at the PGeo function which gives 0:20:18.640 --> 0:20:21.160 you the segment revenue, and smoke free is now forty 0:20:21.200 --> 0:20:25.439 percent of total sales there. That is just external talk 0:20:25.440 --> 0:20:29.520 to us about the competitive landscape for that smoke free products. 0:20:30.800 --> 0:20:34.639 They Phillip Morris, to their credit, was really out in front, 0:20:35.080 --> 0:20:39.199 well ahead of its competitors, namely British American Tobacco, Imperial Tobacco, 0:20:39.359 --> 0:20:42.960 Japan Tobacco, who have similar products a heated tobacco and 0:20:43.440 --> 0:20:46.840 you know an e vapor E cigarette products. They are 0:20:47.280 --> 0:20:51.520 way behind with Philip Moore to Philip Morris, so they 0:20:51.560 --> 0:20:54.360 have like a seventy five percent share of where they're 0:20:54.520 --> 0:20:58.679 where they compete with these products and the icos product. 0:20:59.000 --> 0:21:02.639 So they're way ahead. You know, they're not immune to competition, 0:21:02.840 --> 0:21:04.680 but they're so far ahead they're already coming out with 0:21:04.760 --> 0:21:08.639 second and third generation products. Whether competition is trying to 0:21:08.720 --> 0:21:09.080 catch up. 0:21:09.520 --> 0:21:11.920 Do we see any impact from the war in Iran 0:21:12.160 --> 0:21:14.639 on Philip Morris, whether it has to do with just 0:21:14.760 --> 0:21:17.640 costs overall or you know, transporting its products. 0:21:18.119 --> 0:21:20.920 They said there was a small impact, namely the duty 0:21:20.960 --> 0:21:24.440 free you know shops you see in airports with less travel, 0:21:25.240 --> 0:21:28.680 they had a downturn there. They said they did site 0:21:28.720 --> 0:21:31.040 some input costs, you know, distribute, They have some of 0:21:31.119 --> 0:21:34.080 their own distribution costs, transportation, things like that. It's a 0:21:34.119 --> 0:21:38.000 relatively small impact though, and you know, it's something worth 0:21:38.480 --> 0:21:40.480 keeping an eye on. But I don't think anybody changed 0:21:40.480 --> 0:21:44.119 their margin profile on the company just yet due to that. 0:21:44.400 --> 0:21:44.960