Op-Ed
Content
18 | Friday - Sunday, June 5 - 7, 2015
THE WALL STREET JOURNAL.
THE WALL STREET JOURNAL.
Friday - Sunday, June 5 - 7, 2015 | 11
CORPORATE NEWS
OPINION
Continued from page 15
would give T-Mobile a path to
boosting the capacity of its network.
T-Mobile has about 44.7 million
retail customers, which includes
mainstream and prepaid customers.
Dish has 13.8 million satellite TV
customers and 591,000 Internet subscribers.
Deutsche Telekom owns 66% of
T-Mobile and has for several years
been looking to either sell the company or merge it with another.
One significant uncertainty is Mr.
Ergen, who has held talks with companies across the wireless and satellite industries in recent years without completing a major deal. Dish bid
openly—and
unsuccessfully—for
wireless carriers Sprint Corp. and
Clearwire Corp. two years ago and
has earned a reputation as a deal
maker who is tough to get to closing.
Still, Dish has consistently expressed interest in entering the
wireless industry. It has been
amassing licenses to use wireless
airwaves for several years. Earlier
this year, it worked with two
smaller firms to bid $13.3 billion in
a government auction of wireless
airwaves, second only to AT&T’s
$18.2 billion.
T-Mobile has transformed itself
from the weakling of the wireless industry into its fastest-growing carrier. Under Mr. Legere, TMobile acquired regional
rival MetroPCS in 2013,
made strides in improving
the quality of T-Mobile’s
network, and was the first
carrier to do away with
two-year contracts. It also
began paying subscribers to
switch carriers and soon
began adding customers at
a rapid clip. In the first
three months of the year, it Charles
was the only major U.S.
carrier to add phone customers, and
T-Mobile is now on track to pass rival Sprint and become the country’s
third-largest wireless carrier by subscribers.
T-Mobile spent much of last year
in talks to be acquired by Sprint.
Those talks fell apart after federal
regulators—insistent on preserving
four national wireless carriers—repeatedly signaled they would block
a deal.
That opened the door for Mr. Ergen. In May, Mr. Ergen said, “We admire what John and his
team have done at T-Mobile,” referring to Mr.
Legere, the CEO, “and certainly we follow what they
do.”
A T-Mobile deal with
Dish could face far less opposition from regulators,
because the companies are
in different industries and
because a deal could in
Ergen theory create a stronger
wireless competitor. AT&T’s
similar combination with DirecTV is
expected to be approved. Regulators
would look to see if the combined
companies might need to shed some
spectrum, however.
On Tuesday, Mr. Ergen uncharac-
teristically agreed to sit down with
analysts and investors for a meeting
in the Denver area near Dish’s headquarters. While much was expected
of the meeting, analysts and investors said they came away with little
additional insight about Dish’s wireless plans. “Some attendees were
clearly disappointed that there were
no announcements,” J.P. Morgan analyst Phil Cusick said in a research
note Wednesday.
Mr. Ergen reiterated in the meeting that Dish has four options for its
wireless strategy: join with another
company to offer wireless service,
sell Dish’s spectrum or the whole
company, acquire another company
with a network, or wholesale the
spectrum. Analysts said Dish made
clear it has no plans to build a wireless network from scratch.
Mr. Cusick said Dish’s view is
that “spectrum values should increase as bandwidth shortages crop
up, so Dish has no urgency to act,
but again is open to the right nearterm deal if it comes along.”
Micromax Has FingeronIndian Market’sPulse
Continued from first page
and Huawei Technologies Co. have
pushed down prices and eroded
share of established brands like
Samsung Electronics Co. in many
markets, with decent-quality smartphones at a fraction of the cost. The
average selling price for smartphones world-wide fell to $299 last
year versus $427 in 2010, according
to data tracker IDC.
Now, Micromax and a handful of
rivals in India are upping the ante
by slapping together off-the-shelf
hardware from China, making
adjustments to follow fast-moving
consumer trends, and shipping out
a new model every few weeks.
While Apple Inc. launches only
two new iPhone models a year and
Xiaomi around four, Micromax
shipped more than 30 new smartphones last year ranging in price
from $50 to more than $300—as
well as a host of no-frills feature
phones. By comparison, Samsung is
estimated to have shipped fewer
than 20 new smartphone models
last year in its home market of
South Korea.
Recent Micromax offerings include the Canvas Fire, featuring
powerful speakers, the Canvas Juice,
which boasts long battery life, and
the large-screen Canvas Doodle—all
priced at less than $150.
The frenetic pace has made Micromax the smartphone equivalent
of “fast fashion” chains like Zara or
H&M, which refresh their shelves
regularly with inexpensive clothes
that reflect what is on fashion-show
runways.
It also catapulted Micromax past
Samsung to become the top smartphone seller in India during the quarter ended December, with a 22%
market share versus Samsung’s 20%,
according to research firm Canalys.
Samsung, from which Mr. Taneja was
poached, regained the top spot
during the latest quarter after it
released several new mid-to-lowpriced models for India, although
Micromax was the top handset vendor when feature phones were included.
Micromax now sells around three
million handsets a month, 65% of
them smartphones, and had revenue
of around $2 billion in the year
ended March, said Vikas Jain, one of
Micromax’s four founders. The
Fast-Fashion Phone Maker
India’s Micromax churns out about three ph
phones
ones a month at
all kinds of price points.
Micromax phone prices:
$105
Unite 2
This phone allows
users to flip to
the scripts of 21
different Indian
languages
Canvas Juice 2
This phone was designed
with a big battery to give
users more talk time.
$153
$266
$0
Canvas Selfie
With a 13-megapixel front-facing camera and
an
flash, this phone was built for flattering selfies
sel
100
200
Sources: Star Mobitel (prices); Junho Kim for The Wall Street Journal (photos)
closely held company had a profit
margin before interest and taxes in
the high single digits, he said. Recent investor interest values Micromax at between $3 billion and $6
billion, said a person familiar with
the company.
To be sure, some of Micromax’s
handset tweaks are minor. And
there is no guarantee the company
won’t be dethroned by the next
fleet-footed local rival—or Chinese
smartphone makers like Xiaomi that
are targeting the Indian market.
But Micromax says its nationwide sales network gives the company an edge with users who prefer
to buy phones in brick-and-mortar
stores, and its understanding of the
diverse Indian market is hard for
outsiders to replicate.
“The Indian sauce is very different from what you eat globally,”
said Mr. Jain.
Micromax was founded in the
late 1990s, originally writing software for online retailers. In 2008 it
pushed into mobile phones, attracted by the increasing availability of inexpensive, off-the-shelf
hardware sets peddled by companies like Taiwan’s Mediatek Inc. By
combining affordable chipsets with
competitively priced hardware—
some of it developed with suppliers—Micromax was able to undercut global handset makers’ prices
by as much as 50% and reduce the
time needed to roll out new models
by months.
Meanwhile, big-name software
companies such as Google Inc.,
Microsoft and Mozilla Corp. began
helping with development as well,
hoping to get a piece of India’s fastgrowing
smartphone
market.
Micromax has phones that are cobranded with Android and Windows.
Mozilla, for its part, teamed up
with Micromax rival Intex Technologies India Ltd. to create what the
companies claim is the world’s
cheapest smartphone, a $33 phone
that uses Mozilla’s Firefox operating
system.
Micromax says it can now take a
phone from concept to store shelves
in about three months, four times as
fast as when it first started in the
handset business several years ago.
The company tries to have models priced at $10 increments so that
even customers with limited budgets feel there is plenty to buy, said
Mr. Jain.
Micromax tracks phone trends
300
Note: Prices as quoted in a New Delhi store,
using a exchange rate of $1 = 64 rupees
THE WALL STREET JOURNAL.
with product teams that monitor
consumers, the Internet and
industry events. They have spotted—and
proposed—everything
from phones with BlackBerry-like
keyboards or leather covers to
selfie-optimized phones with multiple flashes and a 13-megapixel frontfacing camera.
Micromax executives and managers say they watch phone users in
India and abroad and brainstorm for
new phone ideas. During one brainstorming session an executive
stepped out to give his driver some
instructions; he came back with an
idea for a phone that would automatically translate text messages
from English to other Indian languages for staff that can’t read English. Micromax launched a phone
with that function in May.
At another session a participant
mentioned that his children were
listening to music on their phone
speakers all day. That idea begot the
Canvas Heat phone series, featuring
louder, front-facing speakers.
Micromax also gets ideas from
its suppliers: There are always a
dozen or more representatives from
Chinese or Taiwanese partners at its
headquarters, says Mr. Taneja.
Marianas
$75 Million
BY KATE O’KEEFFE
The U.S. government fined a Pacific island casino operator $75 million for what it called “willful and
egregious” violations of anti-moneylaundering rules going back to 2008.
The Treasury’s Financial Crimes
Enforcement Network, or FinCEN,
Wednesday hit the Tinian Dynasty
Hotel & Casino on the Northern Mariana Islands, a U.S. commonwealth,
with the civil fine, which was the biggest ever issued against a casino by
FinCEN and the fourth largest ever
imposed on any entity by the agency,
said spokesman Steve Hudak.
The penalty is a sign that FinCEN
is acting on its warnings to casinos to
step up their efforts to prevent
money laundering. The previous top
penalty against a casino was a $10
million fine imposed on Atlantic
City’s Trump Taj Mahal casino in
March.
The Tinian Dynasty Hotel & Casino is located on Tinian, one of 14
islands that form the Northern Mariana Islands, located north of Guam
and about three-quarters of the way
from Hawaii to the Philippines.
Along with Puerto Rico, the Northern Mariana Islands are one of two
commonwealths of the U.S.
FinCEN harshly criticized the casino, saying it had no program in
place to detect money laundering,
and that it helped customers carrying
out suspicious transactions, even offering advice on avoiding U.S. laws.
“Tinian Dynasty’s actions presented a real threat to the financial
integrity of the region and the U.S.
financial system,” said FinCEN Director Jennifer Shasky Calvery.
A representative for Tinian Dynasty declined to comment.
FinCEN said the casino’s VIP
manager told an undercover agent
posing as a representative of a Russian businessman that his client
could bring in large amounts of cash
and that the casino wouldn’t file any
reports on the transactions.
During a 2013 search of the casino, law enforcement agents found a
stack of more than 2,000 unfiled currency transaction reports, or CTRs,
according to a statement from FinCEN. Like banks, casinos must report
currency transactions of more than
$10,000 in cash by any person in a
single day. “When asked about these
CTRs, the casino’s chief auditor said
that he assumed that filing them was
a low priority because nobody ever
noticed that they were not being
filed,” the statement said.
The casino is also facing a related
federal criminal case in Northern
Mariana Islands District Court that is
scheduled to go to trial June 30. It
follows a grand jury’s indictment for
anti-money-laundering violations
from September 2009 to April 2013.
Tinian Dynasty is owned by a
Northern Mariana Islands-incorporated entity called Hong Kong Entertainment (Overseas) Investments Ltd., according to a Hong
Kong stock exchange filing by Chinese Strategic Holdings Ltd., which
said it was in talks to take over the
casino. It was unclear who controls
Hong Kong Entertainment. Tinian
Dynasty declined to comment, and
Chinese Strategic didn’t respond to
requests for comment.
—Rick Carew
contributed to this article.
China’s Linked Struggles for Power
BY JOSHUA EISENMAN
AND OZZIE CHUNG
The Chinese military is expanding disputed islands under its control in the South China Sea, alarming its neighbors. How worried
should the world be that supreme
leader Xi Jinping is making China
into an expansionary power? The
history of the People’s Republic
offers some useful clues.
Leadership transitions within
the Communist Party have often
been settled by internal power
struggles. And even after one man
emerges on top, he still has to
jockey to move opponents out of
important positions and install his
own allies. The domestic turmoil
repeatedly spilled over into foreign conflict, and that may be
happening again today.
‘The quickest way
to establish authority
is to start a war.’
The first border clashes between China and India took place
in August 1959. That coincided
with Defense Minister Peng Dehuai’s open challenge to Mao Zedong over the failure of the Great
Leap Forward and the effectiveness of his People’s War military
strategies. Soon afterward, Peng
was stripped of his military rank
and his Party membership.
In 1962, Mao, now facing a
challenge from his chosen successor, Liu Shaoqi, initiated a conflict
with India that rallied the military
to his side. Mao regained control
and four years later, Liu and his
supporters were purged.
Seven years later, Mao faced a
mounting threat from Defense
Minister Lin Biao, another chosen
successor. China launched a border attack on the Soviet Union
that stoked nationalist fervor and
again restored Mao’s leadership
over the military. Two years later,
Lin was dead and his supporters
eliminated. In each case, the
threatened leader bolstered his
political position by initiating an
international conflict before purging his rivals.
Like Mao before him, Deng
Xiaoping used international conflict and internal purges to consolidate his position. After Mao died
in 1976, Deng supported the arrest
of the late leader’s wife, Jiang
Qing, and later unseated Mao’s
third chosen successor, Hua Guofeng. To defeat Hua, Deng touched
off a border war with Vietnam in
1979—a conflict that revealed the
impotency of People’s War tactics
on the battlefield.
China’s military was embarrassed, but Deng scored a tactical
victory. After a poor showing
against Vietnam, he pulled Chinese forces back, deposed Hua as
paramount leader and replaced
scores of Maoist generals with his
own allies.
According to Gen. Liu Yazhou,
the war secured Deng’s authority:
“We should understand the [1979
China-Vietnam] war from a political perspective. The meaning of
the war lies far beyond the war.
[Deng’s] reforms required authority. The quickest way to establish
authority is to start a war.”
A decade later factional struggles again split the Party after reformist Party Secretary Hu Yaobang was forced to step down.
The conflict contributed to the
eruption of nationwide demonstrations and clashes that culmi-
UIG/GETTY IMAGES
Fines
T-MobileExploresMergerWithDish U.S.
Casino on
PROCESS OF ELIMINATION Mao Zedong, left, would bolster his political position
by initiating international conflicts before purging his rivals.
nated in the brutal crackdown on
Tiananmen Square on June 4,
1989.
The outcome was a ruthless
purge of liberals in the Party and
military that ensured the position
of the hardline faction. Lacking a
ready target abroad, the victorious
rightists portrayed the protests as
an “overseas plot” and launched a
crackdown on foreign influences
that rolled back China’s nascent
political opening.
In the wake of these bloody
conflicts, the Party sought to
make its power transitions more
routine. Leaders at the ministerial
level are now forced to retire at
68 and the country’s president is
limited to two five-year terms.
During their time in office, both
Jiang Zemin and Hu Jintao
worked as power “balancers” between two or more factions.
This “rule by committee” approach to decision-making succeeded in limiting intraparty con-
flict. But the collegiality diverted
competition from ideological empire-building into patronage networks. China devolved into the
kleptocracy that Xi Jinping inherited in 2011.
Rather than balancing among
party factions, Mr. Xi is consolidating power at their expense in a
manner reminiscent of Mao and
Deng. He has rallied domestic support through confrontations with
China’s neighbors, purged party
and military rivals through an unprecedented anticorruption campaign, and taken control of the
“leading small groups” initially
created to spearhead collective
leadership.
To assert his authority over the
army, Mr. Xi has donned a military
uniform, gushed jingoist rhetoric,
advocated the concept of “Asia for
the Asians,” and expanded island
reclamation in the South China
Sea. Such bellicosity has precipitated crises with Japan over the
Diaoyu Islands, Vietnam over the
Paracel Islands, and the Philippines over the Spratly Islands.
These aggressive moves help
Mr. Xi gain the support and assert
his authority over the military,
which remains a central actor in
Chinese politics. Meanwhile, his
continuing crackdown on corruption, bureaucracy and foreign influence is reminiscent of the techniques of the late 1960s and 198990: Between January and April of
this year, 10,125 Chinese officials
were disciplined for graft—2,508
in April alone.
Like Mao and Deng, Mr. Xi’s
power consolidation is likely to
bring China political stability in
the short run. But what happens
when his term is up in 2022?
Having smashed the rice bowls
of so many powerful leaders and
packed the Politburo with loyal allies, Mr. Xi is unlikely to retire
completely. He may upset established party norms and seek to remain in office. More likely, he may
select a successor and control the
Party from behind the screen.
Either of these approaches will
provoke factional struggle and
belligerence reminiscent of the tumultuous times of 1962, 1969,
1979, 1989 and 2011. Policy makers
in the U.S. and around the region
may get a breather in the short to
medium term if Mr. Xi does succeed in consolidating power. But
they should ready themselves for
2020, when an impending power
transition means Beijing is likely
to become more bellicose.
Mr. Eisenman is assistant professor at the LBJ School of Public
Affairs at the University of Texas
at Austin and senior fellow at the
American Foreign Policy Council,
where Mr. Chung is a researcher.
An Open Letter on the U.S. Export-Import Bank
BY JEB HENSARLING
The 80-year old Export-Import
Bank will begin to wind down on
June 30 unless Congress renews it
again. Republicans in the House and
Senate need to let it expire—and as
chairman of the House Financial
Services Committee, I am helping
lead the charge to see that we do.
Ex-Im arranges taxpayer-backed
financing to foreign businesses
and governments that agree to buy
selected U.S. products. This financing largely benefits a handful of
American Fortune 100 companies,
including General Electric, Boeing,
and Caterpillar. The companies
keep the profits if sales go well;
taxpayers bear the risk of loss if
not. The bank is a small-scale example of a larger and more dangerous threat: the shrinking of the
free-market economy and the rise
of a progressive welfare state—
with its attendant cronyism,
public-private partnerships and
spreading government economic
controls.
Commercial activities today are
increasingly driven neither by customer wants nor by entrepreneurial judgments but by bureaucratic
directives and political preferences. Businesses, workers,
investors and consumers, the notion goes, don’t have the knowl-
edge to make rational choices on
their own. Instead, government experts—typically unelected and unaccountable—are necessary to
push the economy toward
politically favored and less risky
outcomes.
But when governments decide
who wins and loses, success increasingly depends less on how
hard you work and more on who
you know in Washington.
The results? Stunted economic
growth, anticompetitive directives
pushed by special interests at the
expense of the commonweal, and
corrosive public cynicism.
The Democratic Party promotes
this approach to economic policy
making. This may seem surprising,
since much of its members’ rhetoric fixates on corporate greed. Yet
many Democrats support corporate welfare in order to control
what they subsidize. And so almost every Democrat in Congress
supports renewing the Ex-Im Bank.
It helps advance their agenda.
At the deepest level, the progressive welfare state subverts the
moral logic of freedom. It severs
the link between incentive, effort
and reward that is central to justice. When government redistributes their earnings to corporate
entities seeking privileges and special benefits, the American people
see a toxic confluence of power
and money and unfairness that
outrages and frightens them. Social trust breaks down.
Corruption and cronyism are
not bugs in a government-driven
economy; they are intrinsic features. Thus, it’s no surprise to
learn that Ex-Im’s inspector general is investigating more than 30
cases of fraud involving the bank.
Where is the justice in
risking the taxes of average
Americans to fatten the
coffers of a moneyed elite?
Last month former Ex-Im employee Johnny Gutierrez pleaded
guilty to accepting bribes on 19
separate occasions. In 2009 Congressman William Jefferson was
convicted of taking bribes in an
Ex-Im related deal, leading to a 13year prison sentence.
The Ex-Im Bank defends itself,
first, by claiming credit for supporting American jobs. But when
the bank’s financing purportedly
supports jobs at Boeing—which
last year alone accounted for 40%
of Ex-Im’s total $20 billion in financing—Delta Air Lines and the
Air Line Pilots Association point
out they are harmed because foreign carriers benefit from unfairly
subsidized prices.
Ex-Im also claims it has generated profits for taxpayers. But according to the Congressional Budget Office, using fair-value
accounting methods, Ex-Im will
cost the taxpayers $2 billion in
losses over the next decade.
Where is the economic justice
in risking tax dollars paid by average Americans to fatten the coffers
of a moneyed elite? With more
than $90 billion in revenue last
year, Boeing surely can finance the
sales of its fine aircraft to foreign
buyers on its own balance sheet or
arrange the financing elsewhere.
Ex-Im Chairman Fred Hochberg
recently claimed the bank is crucial for U.S. exports and jobs. Yet
Commerce Department and Ex-Im
data show that almost 99% of all
U.S. exports are financed without
the bank’s help.
To Republicans who feel we
must assist U.S. exporters, I could
not agree more. But consider: The
Manufacturing Institute reports
that U.S. corporate taxes accounted for more than half of the
structural cost advantage foreign
competitors have over U.S. manufacturers. The U.S. Chamber of
Commerce’s Institute for Legal Re-
form notes that the U.S. has the
highest liability costs as a share of
the economy—2.6 times the average of eurozone countries. Thanks
to the escalating regulations from
the Environmental Protection
Agency, the Dodd-Frank Act, etc.,
the burden on all employers has
never been greater.
The most effective way to assist
exports is through fundamental
tax, tort and regulatory reform.
This is where, and how, the Republican Party must lead.
Our party must quit any support of corporate-welfare dependency with its safety net of subsidies for the privileged. Most
Americans don’t look to Washington for privileges or bailouts. They
want only to be treated equitably
and fairly by their government.
If Republicans can’t stand up to
corporate interests in this skirmish, how will we ever stand up to
the myriad special interests warring against adoption of a simplified, pro-growth tax code? How
will we earn the moral authority to
reform the social welfare state unless we first reform the corporate
welfare state? Let the Democrats
own corporate welfare by themselves.
Mr. Hensarling is a Republican
congressman from Texas.
THE WALL STREET JOURNAL.
THE WALL STREET JOURNAL.
Friday - Sunday, June 5 - 7, 2015 | 11
CORPORATE NEWS
OPINION
Continued from page 15
would give T-Mobile a path to
boosting the capacity of its network.
T-Mobile has about 44.7 million
retail customers, which includes
mainstream and prepaid customers.
Dish has 13.8 million satellite TV
customers and 591,000 Internet subscribers.
Deutsche Telekom owns 66% of
T-Mobile and has for several years
been looking to either sell the company or merge it with another.
One significant uncertainty is Mr.
Ergen, who has held talks with companies across the wireless and satellite industries in recent years without completing a major deal. Dish bid
openly—and
unsuccessfully—for
wireless carriers Sprint Corp. and
Clearwire Corp. two years ago and
has earned a reputation as a deal
maker who is tough to get to closing.
Still, Dish has consistently expressed interest in entering the
wireless industry. It has been
amassing licenses to use wireless
airwaves for several years. Earlier
this year, it worked with two
smaller firms to bid $13.3 billion in
a government auction of wireless
airwaves, second only to AT&T’s
$18.2 billion.
T-Mobile has transformed itself
from the weakling of the wireless industry into its fastest-growing carrier. Under Mr. Legere, TMobile acquired regional
rival MetroPCS in 2013,
made strides in improving
the quality of T-Mobile’s
network, and was the first
carrier to do away with
two-year contracts. It also
began paying subscribers to
switch carriers and soon
began adding customers at
a rapid clip. In the first
three months of the year, it Charles
was the only major U.S.
carrier to add phone customers, and
T-Mobile is now on track to pass rival Sprint and become the country’s
third-largest wireless carrier by subscribers.
T-Mobile spent much of last year
in talks to be acquired by Sprint.
Those talks fell apart after federal
regulators—insistent on preserving
four national wireless carriers—repeatedly signaled they would block
a deal.
That opened the door for Mr. Ergen. In May, Mr. Ergen said, “We admire what John and his
team have done at T-Mobile,” referring to Mr.
Legere, the CEO, “and certainly we follow what they
do.”
A T-Mobile deal with
Dish could face far less opposition from regulators,
because the companies are
in different industries and
because a deal could in
Ergen theory create a stronger
wireless competitor. AT&T’s
similar combination with DirecTV is
expected to be approved. Regulators
would look to see if the combined
companies might need to shed some
spectrum, however.
On Tuesday, Mr. Ergen uncharac-
teristically agreed to sit down with
analysts and investors for a meeting
in the Denver area near Dish’s headquarters. While much was expected
of the meeting, analysts and investors said they came away with little
additional insight about Dish’s wireless plans. “Some attendees were
clearly disappointed that there were
no announcements,” J.P. Morgan analyst Phil Cusick said in a research
note Wednesday.
Mr. Ergen reiterated in the meeting that Dish has four options for its
wireless strategy: join with another
company to offer wireless service,
sell Dish’s spectrum or the whole
company, acquire another company
with a network, or wholesale the
spectrum. Analysts said Dish made
clear it has no plans to build a wireless network from scratch.
Mr. Cusick said Dish’s view is
that “spectrum values should increase as bandwidth shortages crop
up, so Dish has no urgency to act,
but again is open to the right nearterm deal if it comes along.”
Micromax Has FingeronIndian Market’sPulse
Continued from first page
and Huawei Technologies Co. have
pushed down prices and eroded
share of established brands like
Samsung Electronics Co. in many
markets, with decent-quality smartphones at a fraction of the cost. The
average selling price for smartphones world-wide fell to $299 last
year versus $427 in 2010, according
to data tracker IDC.
Now, Micromax and a handful of
rivals in India are upping the ante
by slapping together off-the-shelf
hardware from China, making
adjustments to follow fast-moving
consumer trends, and shipping out
a new model every few weeks.
While Apple Inc. launches only
two new iPhone models a year and
Xiaomi around four, Micromax
shipped more than 30 new smartphones last year ranging in price
from $50 to more than $300—as
well as a host of no-frills feature
phones. By comparison, Samsung is
estimated to have shipped fewer
than 20 new smartphone models
last year in its home market of
South Korea.
Recent Micromax offerings include the Canvas Fire, featuring
powerful speakers, the Canvas Juice,
which boasts long battery life, and
the large-screen Canvas Doodle—all
priced at less than $150.
The frenetic pace has made Micromax the smartphone equivalent
of “fast fashion” chains like Zara or
H&M, which refresh their shelves
regularly with inexpensive clothes
that reflect what is on fashion-show
runways.
It also catapulted Micromax past
Samsung to become the top smartphone seller in India during the quarter ended December, with a 22%
market share versus Samsung’s 20%,
according to research firm Canalys.
Samsung, from which Mr. Taneja was
poached, regained the top spot
during the latest quarter after it
released several new mid-to-lowpriced models for India, although
Micromax was the top handset vendor when feature phones were included.
Micromax now sells around three
million handsets a month, 65% of
them smartphones, and had revenue
of around $2 billion in the year
ended March, said Vikas Jain, one of
Micromax’s four founders. The
Fast-Fashion Phone Maker
India’s Micromax churns out about three ph
phones
ones a month at
all kinds of price points.
Micromax phone prices:
$105
Unite 2
This phone allows
users to flip to
the scripts of 21
different Indian
languages
Canvas Juice 2
This phone was designed
with a big battery to give
users more talk time.
$153
$266
$0
Canvas Selfie
With a 13-megapixel front-facing camera and
an
flash, this phone was built for flattering selfies
sel
100
200
Sources: Star Mobitel (prices); Junho Kim for The Wall Street Journal (photos)
closely held company had a profit
margin before interest and taxes in
the high single digits, he said. Recent investor interest values Micromax at between $3 billion and $6
billion, said a person familiar with
the company.
To be sure, some of Micromax’s
handset tweaks are minor. And
there is no guarantee the company
won’t be dethroned by the next
fleet-footed local rival—or Chinese
smartphone makers like Xiaomi that
are targeting the Indian market.
But Micromax says its nationwide sales network gives the company an edge with users who prefer
to buy phones in brick-and-mortar
stores, and its understanding of the
diverse Indian market is hard for
outsiders to replicate.
“The Indian sauce is very different from what you eat globally,”
said Mr. Jain.
Micromax was founded in the
late 1990s, originally writing software for online retailers. In 2008 it
pushed into mobile phones, attracted by the increasing availability of inexpensive, off-the-shelf
hardware sets peddled by companies like Taiwan’s Mediatek Inc. By
combining affordable chipsets with
competitively priced hardware—
some of it developed with suppliers—Micromax was able to undercut global handset makers’ prices
by as much as 50% and reduce the
time needed to roll out new models
by months.
Meanwhile, big-name software
companies such as Google Inc.,
Microsoft and Mozilla Corp. began
helping with development as well,
hoping to get a piece of India’s fastgrowing
smartphone
market.
Micromax has phones that are cobranded with Android and Windows.
Mozilla, for its part, teamed up
with Micromax rival Intex Technologies India Ltd. to create what the
companies claim is the world’s
cheapest smartphone, a $33 phone
that uses Mozilla’s Firefox operating
system.
Micromax says it can now take a
phone from concept to store shelves
in about three months, four times as
fast as when it first started in the
handset business several years ago.
The company tries to have models priced at $10 increments so that
even customers with limited budgets feel there is plenty to buy, said
Mr. Jain.
Micromax tracks phone trends
300
Note: Prices as quoted in a New Delhi store,
using a exchange rate of $1 = 64 rupees
THE WALL STREET JOURNAL.
with product teams that monitor
consumers, the Internet and
industry events. They have spotted—and
proposed—everything
from phones with BlackBerry-like
keyboards or leather covers to
selfie-optimized phones with multiple flashes and a 13-megapixel frontfacing camera.
Micromax executives and managers say they watch phone users in
India and abroad and brainstorm for
new phone ideas. During one brainstorming session an executive
stepped out to give his driver some
instructions; he came back with an
idea for a phone that would automatically translate text messages
from English to other Indian languages for staff that can’t read English. Micromax launched a phone
with that function in May.
At another session a participant
mentioned that his children were
listening to music on their phone
speakers all day. That idea begot the
Canvas Heat phone series, featuring
louder, front-facing speakers.
Micromax also gets ideas from
its suppliers: There are always a
dozen or more representatives from
Chinese or Taiwanese partners at its
headquarters, says Mr. Taneja.
Marianas
$75 Million
BY KATE O’KEEFFE
The U.S. government fined a Pacific island casino operator $75 million for what it called “willful and
egregious” violations of anti-moneylaundering rules going back to 2008.
The Treasury’s Financial Crimes
Enforcement Network, or FinCEN,
Wednesday hit the Tinian Dynasty
Hotel & Casino on the Northern Mariana Islands, a U.S. commonwealth,
with the civil fine, which was the biggest ever issued against a casino by
FinCEN and the fourth largest ever
imposed on any entity by the agency,
said spokesman Steve Hudak.
The penalty is a sign that FinCEN
is acting on its warnings to casinos to
step up their efforts to prevent
money laundering. The previous top
penalty against a casino was a $10
million fine imposed on Atlantic
City’s Trump Taj Mahal casino in
March.
The Tinian Dynasty Hotel & Casino is located on Tinian, one of 14
islands that form the Northern Mariana Islands, located north of Guam
and about three-quarters of the way
from Hawaii to the Philippines.
Along with Puerto Rico, the Northern Mariana Islands are one of two
commonwealths of the U.S.
FinCEN harshly criticized the casino, saying it had no program in
place to detect money laundering,
and that it helped customers carrying
out suspicious transactions, even offering advice on avoiding U.S. laws.
“Tinian Dynasty’s actions presented a real threat to the financial
integrity of the region and the U.S.
financial system,” said FinCEN Director Jennifer Shasky Calvery.
A representative for Tinian Dynasty declined to comment.
FinCEN said the casino’s VIP
manager told an undercover agent
posing as a representative of a Russian businessman that his client
could bring in large amounts of cash
and that the casino wouldn’t file any
reports on the transactions.
During a 2013 search of the casino, law enforcement agents found a
stack of more than 2,000 unfiled currency transaction reports, or CTRs,
according to a statement from FinCEN. Like banks, casinos must report
currency transactions of more than
$10,000 in cash by any person in a
single day. “When asked about these
CTRs, the casino’s chief auditor said
that he assumed that filing them was
a low priority because nobody ever
noticed that they were not being
filed,” the statement said.
The casino is also facing a related
federal criminal case in Northern
Mariana Islands District Court that is
scheduled to go to trial June 30. It
follows a grand jury’s indictment for
anti-money-laundering violations
from September 2009 to April 2013.
Tinian Dynasty is owned by a
Northern Mariana Islands-incorporated entity called Hong Kong Entertainment (Overseas) Investments Ltd., according to a Hong
Kong stock exchange filing by Chinese Strategic Holdings Ltd., which
said it was in talks to take over the
casino. It was unclear who controls
Hong Kong Entertainment. Tinian
Dynasty declined to comment, and
Chinese Strategic didn’t respond to
requests for comment.
—Rick Carew
contributed to this article.
China’s Linked Struggles for Power
BY JOSHUA EISENMAN
AND OZZIE CHUNG
The Chinese military is expanding disputed islands under its control in the South China Sea, alarming its neighbors. How worried
should the world be that supreme
leader Xi Jinping is making China
into an expansionary power? The
history of the People’s Republic
offers some useful clues.
Leadership transitions within
the Communist Party have often
been settled by internal power
struggles. And even after one man
emerges on top, he still has to
jockey to move opponents out of
important positions and install his
own allies. The domestic turmoil
repeatedly spilled over into foreign conflict, and that may be
happening again today.
‘The quickest way
to establish authority
is to start a war.’
The first border clashes between China and India took place
in August 1959. That coincided
with Defense Minister Peng Dehuai’s open challenge to Mao Zedong over the failure of the Great
Leap Forward and the effectiveness of his People’s War military
strategies. Soon afterward, Peng
was stripped of his military rank
and his Party membership.
In 1962, Mao, now facing a
challenge from his chosen successor, Liu Shaoqi, initiated a conflict
with India that rallied the military
to his side. Mao regained control
and four years later, Liu and his
supporters were purged.
Seven years later, Mao faced a
mounting threat from Defense
Minister Lin Biao, another chosen
successor. China launched a border attack on the Soviet Union
that stoked nationalist fervor and
again restored Mao’s leadership
over the military. Two years later,
Lin was dead and his supporters
eliminated. In each case, the
threatened leader bolstered his
political position by initiating an
international conflict before purging his rivals.
Like Mao before him, Deng
Xiaoping used international conflict and internal purges to consolidate his position. After Mao died
in 1976, Deng supported the arrest
of the late leader’s wife, Jiang
Qing, and later unseated Mao’s
third chosen successor, Hua Guofeng. To defeat Hua, Deng touched
off a border war with Vietnam in
1979—a conflict that revealed the
impotency of People’s War tactics
on the battlefield.
China’s military was embarrassed, but Deng scored a tactical
victory. After a poor showing
against Vietnam, he pulled Chinese forces back, deposed Hua as
paramount leader and replaced
scores of Maoist generals with his
own allies.
According to Gen. Liu Yazhou,
the war secured Deng’s authority:
“We should understand the [1979
China-Vietnam] war from a political perspective. The meaning of
the war lies far beyond the war.
[Deng’s] reforms required authority. The quickest way to establish
authority is to start a war.”
A decade later factional struggles again split the Party after reformist Party Secretary Hu Yaobang was forced to step down.
The conflict contributed to the
eruption of nationwide demonstrations and clashes that culmi-
UIG/GETTY IMAGES
Fines
T-MobileExploresMergerWithDish U.S.
Casino on
PROCESS OF ELIMINATION Mao Zedong, left, would bolster his political position
by initiating international conflicts before purging his rivals.
nated in the brutal crackdown on
Tiananmen Square on June 4,
1989.
The outcome was a ruthless
purge of liberals in the Party and
military that ensured the position
of the hardline faction. Lacking a
ready target abroad, the victorious
rightists portrayed the protests as
an “overseas plot” and launched a
crackdown on foreign influences
that rolled back China’s nascent
political opening.
In the wake of these bloody
conflicts, the Party sought to
make its power transitions more
routine. Leaders at the ministerial
level are now forced to retire at
68 and the country’s president is
limited to two five-year terms.
During their time in office, both
Jiang Zemin and Hu Jintao
worked as power “balancers” between two or more factions.
This “rule by committee” approach to decision-making succeeded in limiting intraparty con-
flict. But the collegiality diverted
competition from ideological empire-building into patronage networks. China devolved into the
kleptocracy that Xi Jinping inherited in 2011.
Rather than balancing among
party factions, Mr. Xi is consolidating power at their expense in a
manner reminiscent of Mao and
Deng. He has rallied domestic support through confrontations with
China’s neighbors, purged party
and military rivals through an unprecedented anticorruption campaign, and taken control of the
“leading small groups” initially
created to spearhead collective
leadership.
To assert his authority over the
army, Mr. Xi has donned a military
uniform, gushed jingoist rhetoric,
advocated the concept of “Asia for
the Asians,” and expanded island
reclamation in the South China
Sea. Such bellicosity has precipitated crises with Japan over the
Diaoyu Islands, Vietnam over the
Paracel Islands, and the Philippines over the Spratly Islands.
These aggressive moves help
Mr. Xi gain the support and assert
his authority over the military,
which remains a central actor in
Chinese politics. Meanwhile, his
continuing crackdown on corruption, bureaucracy and foreign influence is reminiscent of the techniques of the late 1960s and 198990: Between January and April of
this year, 10,125 Chinese officials
were disciplined for graft—2,508
in April alone.
Like Mao and Deng, Mr. Xi’s
power consolidation is likely to
bring China political stability in
the short run. But what happens
when his term is up in 2022?
Having smashed the rice bowls
of so many powerful leaders and
packed the Politburo with loyal allies, Mr. Xi is unlikely to retire
completely. He may upset established party norms and seek to remain in office. More likely, he may
select a successor and control the
Party from behind the screen.
Either of these approaches will
provoke factional struggle and
belligerence reminiscent of the tumultuous times of 1962, 1969,
1979, 1989 and 2011. Policy makers
in the U.S. and around the region
may get a breather in the short to
medium term if Mr. Xi does succeed in consolidating power. But
they should ready themselves for
2020, when an impending power
transition means Beijing is likely
to become more bellicose.
Mr. Eisenman is assistant professor at the LBJ School of Public
Affairs at the University of Texas
at Austin and senior fellow at the
American Foreign Policy Council,
where Mr. Chung is a researcher.
An Open Letter on the U.S. Export-Import Bank
BY JEB HENSARLING
The 80-year old Export-Import
Bank will begin to wind down on
June 30 unless Congress renews it
again. Republicans in the House and
Senate need to let it expire—and as
chairman of the House Financial
Services Committee, I am helping
lead the charge to see that we do.
Ex-Im arranges taxpayer-backed
financing to foreign businesses
and governments that agree to buy
selected U.S. products. This financing largely benefits a handful of
American Fortune 100 companies,
including General Electric, Boeing,
and Caterpillar. The companies
keep the profits if sales go well;
taxpayers bear the risk of loss if
not. The bank is a small-scale example of a larger and more dangerous threat: the shrinking of the
free-market economy and the rise
of a progressive welfare state—
with its attendant cronyism,
public-private partnerships and
spreading government economic
controls.
Commercial activities today are
increasingly driven neither by customer wants nor by entrepreneurial judgments but by bureaucratic
directives and political preferences. Businesses, workers,
investors and consumers, the notion goes, don’t have the knowl-
edge to make rational choices on
their own. Instead, government experts—typically unelected and unaccountable—are necessary to
push the economy toward
politically favored and less risky
outcomes.
But when governments decide
who wins and loses, success increasingly depends less on how
hard you work and more on who
you know in Washington.
The results? Stunted economic
growth, anticompetitive directives
pushed by special interests at the
expense of the commonweal, and
corrosive public cynicism.
The Democratic Party promotes
this approach to economic policy
making. This may seem surprising,
since much of its members’ rhetoric fixates on corporate greed. Yet
many Democrats support corporate welfare in order to control
what they subsidize. And so almost every Democrat in Congress
supports renewing the Ex-Im Bank.
It helps advance their agenda.
At the deepest level, the progressive welfare state subverts the
moral logic of freedom. It severs
the link between incentive, effort
and reward that is central to justice. When government redistributes their earnings to corporate
entities seeking privileges and special benefits, the American people
see a toxic confluence of power
and money and unfairness that
outrages and frightens them. Social trust breaks down.
Corruption and cronyism are
not bugs in a government-driven
economy; they are intrinsic features. Thus, it’s no surprise to
learn that Ex-Im’s inspector general is investigating more than 30
cases of fraud involving the bank.
Where is the justice in
risking the taxes of average
Americans to fatten the
coffers of a moneyed elite?
Last month former Ex-Im employee Johnny Gutierrez pleaded
guilty to accepting bribes on 19
separate occasions. In 2009 Congressman William Jefferson was
convicted of taking bribes in an
Ex-Im related deal, leading to a 13year prison sentence.
The Ex-Im Bank defends itself,
first, by claiming credit for supporting American jobs. But when
the bank’s financing purportedly
supports jobs at Boeing—which
last year alone accounted for 40%
of Ex-Im’s total $20 billion in financing—Delta Air Lines and the
Air Line Pilots Association point
out they are harmed because foreign carriers benefit from unfairly
subsidized prices.
Ex-Im also claims it has generated profits for taxpayers. But according to the Congressional Budget Office, using fair-value
accounting methods, Ex-Im will
cost the taxpayers $2 billion in
losses over the next decade.
Where is the economic justice
in risking tax dollars paid by average Americans to fatten the coffers
of a moneyed elite? With more
than $90 billion in revenue last
year, Boeing surely can finance the
sales of its fine aircraft to foreign
buyers on its own balance sheet or
arrange the financing elsewhere.
Ex-Im Chairman Fred Hochberg
recently claimed the bank is crucial for U.S. exports and jobs. Yet
Commerce Department and Ex-Im
data show that almost 99% of all
U.S. exports are financed without
the bank’s help.
To Republicans who feel we
must assist U.S. exporters, I could
not agree more. But consider: The
Manufacturing Institute reports
that U.S. corporate taxes accounted for more than half of the
structural cost advantage foreign
competitors have over U.S. manufacturers. The U.S. Chamber of
Commerce’s Institute for Legal Re-
form notes that the U.S. has the
highest liability costs as a share of
the economy—2.6 times the average of eurozone countries. Thanks
to the escalating regulations from
the Environmental Protection
Agency, the Dodd-Frank Act, etc.,
the burden on all employers has
never been greater.
The most effective way to assist
exports is through fundamental
tax, tort and regulatory reform.
This is where, and how, the Republican Party must lead.
Our party must quit any support of corporate-welfare dependency with its safety net of subsidies for the privileged. Most
Americans don’t look to Washington for privileges or bailouts. They
want only to be treated equitably
and fairly by their government.
If Republicans can’t stand up to
corporate interests in this skirmish, how will we ever stand up to
the myriad special interests warring against adoption of a simplified, pro-growth tax code? How
will we earn the moral authority to
reform the social welfare state unless we first reform the corporate
welfare state? Let the Democrats
own corporate welfare by themselves.
Mr. Hensarling is a Republican
congressman from Texas.
