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October 23, 2014
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Millions of data points flying in tight formation

As modern aircraft join the fleet for longer hauls on point-to-point routes, passenger experience becomes the important competitive differentiating factor. In multiple recent surveys, incentives such as inflight entertainment (IFE) system capability, onboard connectivity, or “bring-your-own-device” (BYOD) options have gained prominence in the passengers’ choice of a carrier. As a consequence, avionics providers are feverishly looking in to bring innovative concepts to the skies.

While in the air, airlines have the uninterrupted attention of millions of high-income people for hours on end, which makes this the best time and place to deliver e-commerce solutions. The airlines can capture the user’s profile and past purchases from loyalty programs or their Amazon, BestBuy, or IMDB logins, and suggest items that they are more likely to buy, or movies that they are more likely to watch. The day when the age-old duty-free cart is replaced by an interactive catalog that draws inspiration from the e-commerce experience is not far away. Passengers can read and write reviews, see different pictures and product videos, and compare prices with the airport shop at the destination. Passengers pay through a secure connection, with a credit card or PayPal, or even in exchange of frequent-flyer miles. The best part is their purchases will be ready for them as they land. Also, with integrated e-commerce and m-commerce, passengers can access the product catalog through the IFE system, a mobile phone, laptop, or tablet.

While the luxury cruises reap huge profits by offering gambling over international waters, airlines could now consider offering such services over international air space. Many casino games have gone digital, so why not bring those games to certified and secure onboard servers? We have enhanced the gaming experience with custom graphics acceleration and frame-fusion for a pseudo-3D effect, and also improved the user experience and reliability for casino products. Airlines can introduce digital casino gaming between passengers as well, and keep them engaged and entertained, especially on long-haul flights. 

Today, aircraft operators pay a flat fee for the music and movies they provide on board. Every month, someone has to decide what movies to offer, in what language, along with what popular music to load in the virtual juke box. No matter what passengers actually watch or listen to, the fee is the same. But with intelligent devices, flight entertainment systems could track actual usage. These systems could then be able to answer questions like what films are the most popular, on which route, and in what language? Music and videos could be uploaded specifically based on predicted usage, and fees could be paid based on actual consumption. So if a passenger watches the first 10 minutes of a movie, the airline only pays a part of the content fees to the production house. This pay-as-you-use model can potentially disrupt the current content monetization model, and encourage the best content to be available on board. This would result in savings for the aircraft operator while definitely increasing customer satisfaction.

But rather than stopping at optimizing entertainment by aircraft or by route, why not take personalization to the next level by taking advantage of big data available on the ground? With new NoSQL database technology like MongoDB, it is now possible to assemble vast amount of data from a variety of devices and applications for just-in-time processing. Through its own systems, aircraft operators already have the passenger’s itinerary and personal information such as nationality and language. If, in exchange for a better experience, customers would also volunteer additional preferences from their Facebook page, Netflix queue, or Spotify playlists, a completely personalized flight experience could be created for every passenger at every seat of every flight. Beyond movies they want to see or music they prefer, passengers could also access destination related information, travel video, or news broadcasts. They could see movies that were filmed there or become familiar with local music or food. This service could be delivered on an aircraft seat or on a custom app for the passenger’s device. The more information shared and collected, the more personalized the service would become and the more options could be offered.

 

October 23, 2014
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How 3 First-Time Founders Turned One-Third Of Their Employees Into …

Divide cofounders Alexander Trewby, Andrew Toy and David Zhu outside of Google’s Mountain View headquarters.

On May 19, Google acquired a startup for $US120 million in cash and stock, making it one of the largest New York exits of 2014.

One-third of the company’s 70 employees became millionaires. Everyone kept their jobs. And the founders are leading Google’s Android enterprise group.

But most people have never heard of the company, Divide, or its CEO, Andrew Toy, age 36. The acquisition was reported, but no price was disclosed and it read like a fire sale.

Divide is a mobile productivity app that allows employees to carry one device instead of two to work. Once downloaded, the app splits a phone into two modes: work, which can be controlled and monitored by a corporate IT department, and personal, which IT departments don’t have access to, for regular enjoyment.

How does a $US120 million acquisition slip through the cracks?

Google is characteristically secretive, enforcing strict NDAs during acquisitions. It also isn’t required to report acquisition prices under a few hundred million dollars, because they aren’t meaningful to the $US55 billion company’s bottom line.

Enterprise startups are also largely ignored by the press, which favours buzzy consumer apps like Uber.

So wildly successful exits like Divide’s sometimes fly under the radar. New York startup TXVia, for example, was sold to Google for more than $US100 million in 2012, but that amount has never been reported either.

Google declined to let Business Insider speak with Toy about Divide or the acquisition. Instead, we spoke with other Divide insiders, as well as friends and family members of Toy.

They helped us piece together the story of how first-time founders built a massive enterprise startup that became one of the largest, and quietest, New York City tech exits of the year.

A Standout CEO

Andrew Toy was born in Hong Kong, but he has an accent that’s hard to place. It’s British, with a slight Australian twang. His father moved from Australia to China before Toy was born, to become an architect, and the Toys joined a largely British expatriate community there.

It felt odd to Toy and his siblings, who looked Chinese like their father, that they were a minority in their Hong Kong school.

“We were always aware we stood out and were different, and that stuck with us,” Andrew’s younger brother, Chris, tells Business Insider.

When Andrew Toy was seven, his father gave him a book on the programming language C++. Toy taught himself to code, and soon he was creating video games for him and his brother to play.

“We didn’t have the latest game systems, so Andrew created games for us,” Chris recalls. “We were taught to solve problems.”

Most of Toy’s classmates wanted to return to England when they graduated from high school. Toy’s parents hoped he’d go on to study finance or become a doctor. Instead, Toy pursued his love of technology and went to Stanford to get a degree in computer science. Chris later followed Andrew to the US.

Toy graduated from Stanford in 2000 and joined a mobile workflow startup in Silicon Valley, Jarna. He impressed managers even though he was young.

“I have met some bright people in my life, and Andrew belongs at the very, very top of these,” his manager said of Toy on LinkedIn. “He knows how to communicate his ideas in a very clear and concise way even when it gets very technical.”

Toy moved to New York City a few years later, to join Morgan Stanley’s mobile research-and-development team. The mobile revolution was still ramping up, but Toy could see it would become the next major platform. At Morgan Stanley, he worked alongside his future Divide cofounders, Alexander Trewby and David Zhu, in the remote-computing division.

After Morgan Stanley, Toy went to Viacom to learn more about business development and sales as the company’s VP of mobile technology. He reported directly to the CTO.

When Chris, who is three years younger than Andrew, graduated from Northwestern, the two became roommates in Manhattan. They lived together for the next eight years and regularly swapped business ideas during their morning commutes.

“There were probably 1,000 ideas, at least,” Chris recalls. Some were ridiculous, but when Andrew Toy stumbled upon the idea for Divide, the chats turned serious.

In the late 2000s, BlackBerry was the device of choice for corporations and their employees. Unlike the iOS or Android platforms, the phones came with security that software IT departments could control. But BlackBerry’s software wasn’t open source like Android’s, and it couldn’t be manipulated by developers to fit a corporation’s needs.

iPhone and Android devices were rapidly gaining popularity with consumers. Employees started bringing two devices to the office: work-assigned BlackBerrys and smartphones for personal use. Taking note of this Bring Your Own Device, or BYOD, trend, Toy and his former Morgan Stanley colleagues envisioned an alternative software product that would fix the two-phone problem.

The ‘Utterly Disheartening’ Call From Google

Toy, Trewby, and Zhu left their jobs to cofound Divide’s predecessor. They launched the company, called Enterproid, which stood for “enterprise” and “Android,” in January 2010. The founders raised a $US500,000 debt round, primarily from their former bosses and managing directors at Morgan Stanley.

By then, the three lived on different continents. Trewby had moved to England with his family, Zhu had moved to Hong Kong, and Toy remained in New York. But they were used to remote collaboration from their Morgan Stanley days. Plus, being spread all over the world made their startup a true 24/7 operation. Each found different ways to cope with the time difference.

“David and I had babies, which was conducive to staying up all hours of the night,” Trewby says. Toy, his brother says, often worked US and Hong Kong hours combined.

“Every entrepreneur works hard, and I had seen Andrew work hard plenty of times, but Enterproid was a whole different [level],” says Chris, who doesn’t recall his roommate and brother sleeping.

Enterproid had bunk beds in its London office where employees could work out of or escape to the top bunk to take a phone call. Trewby’s is currently in the Google London office.

Enterproid’s global offices also had culture-inducing quirks. In London, for example, the teams worked out of bunk beds that resembled Trewby’s work setup in his old Manhattan apartment. A desk took the space of the bottom bunk, while the top bunk was generally used to get a modicum of privacy when someone needed to take a phone call in the crowded office. (Trewby’s Enterproid bunk bed is now featured in Google’s London office.)

Trewby’s team also had regular 4 o’clock tea. In New York, Toy installed a different food perk: a cotton-candy machine.

Over the next few months, Enterproid created an enterprise-friendly operating system to compete directly with Android and iOS. The goal was to get device makers, such as HTC and LG, to build it into their devices and sell the phones with the pre-uploaded Enterproid software in stores. But the team soon learned that securing deals with hardware makers would take a lot of time and money, so they began fundraising again.

Rich Miner, founder of Android and partner at Google Ventures, helped the Divide team and invested in them.

Toy, friends say, takes a mathematical approach to everything from dating to fundraising.

“He saw the exact right amount of [venture capital] firms and used a massive spreadsheet with logs of how to handle each situation,” a friend says. This person estimates Toy met with 40 different VCs. Many weren’t familiar with the mobile enterprise space and passed; others said they planned to speak to an enterprise expert, Android founder Rich Miner, before making a decision. Miner was a partner at Google Ventures.

The first VC to take a chance on Enterproid was Owen Davis at NYC Seed. Davis introduced the team to Genecast Ventures, which led the $US1.3 million seed round in fall 2010. BOLDStart Ventures and High Peaks Venture Partners participated.

Toy’s team moved into a small office at 32nd Street and Sixth Avenue in Manhattan.

Although Miner and Google Ventures passed on Enterproid’s seed round, Miner asked to set up a call with Toy, Trewby, and Zhu. The founders were ecstatic.

“We thought, ‘Great! We’re about to get acquired! That was sort of easy,’” Trewby tells Business Insider. Toy and Trewby flew to Hong Kong, where an official office had just been set up, and together they called Miner. Parts of the freshly unpackaged phone were still in plastic wrap.

The call didn’t go well.

“Rich told us, ‘This is going to fail, abysmally,’” Trewby recalls. “It’s going to take way too long [to onboard hardware companies]. You’re going to run out of money trying, and Google is going to crush you.”

Rich Miner told us, ‘This is going to fail, abysmally … Google is going to crush you.’

Miner advised the team to create an app instead of partnering with hardware companies. That way the software could be downloaded to any device, allowing clients to get up and running within minutes, and it’d keep the product experience consistent across Android and iOS devices.

“We were utterly disheartened,” Trewby recalls.

But they listened to Miner, and Trewby now calls the harsh feedback a “saving grace.” The company spent the next few months building an app.

Starting From Scratch

The reimagined Divide app, after the founders took Rich Miner’s advice to start over.

With the new app, Divide began closing deals with corporations and mobile carriers. ATT, Verizon, and Vodafone all agreed to start selling Enterproid to business clients as an app in a suite of enterprise tools.

Dell also teamed up with Divide. Chris Toy, who occasionally worked from the Enterproid office, remembers the team high-fiving in celebration when that deal closed. But signing big companies can be stressful for a startup, since it tends to lead to thousands of employees downloading an app all at once.

A friend once asked Toy how he dealt with the onboarding issue, and the flood of bug reports that inevitably followed.

“Just call the product ‘beta,’” Toy replied.

More validation for Enterproid came in late 2011, when Toy’s startup won Qualcomm’s second ventures competition. Qualcomm participated in an $US11 million Series A round of financing soon after. And this time, Miner chose to invest. “He said, ‘You guys listened,’” Trewby recalls.

Divide’s founders accepting the QPrize from Qualcomm’s competition in 2011. Alexander Trewby is holding the check.

Having strategic investors like Qualcomm, rather than a traditional venture capital firm on board, was helpful for recruiting clients. “The Ciscos and Dells might not know what Sequoia Capital is, but they’re certainly aware of Qualcomm and Google,” Trewby says.

In 2012, Enterproid launched an iOS app and continued to pick up steam. A slew of well-funded competitors, like VMWare, entered the BYOD space. In 2013, Enterproid secured more money from Qualcomm and Google and raised another $US12 million.

Enterproid also changed its name to “Divide.” Friends had complained that “Enterproid” was hard to pronounce and reminded them of “hemorrhoid.”

A friend who worked for Nasdaq helped Divide get a great marketing spot.

By 2014, Divide was on pace to generate somewhere between $US10 and $US20 million in annual revenue. The company grew just to shy of 70 people.

Many of the partnerships that Divide had secured, whether with Google or Qualcomm, sparked merger conversations.

“Our merger and acquisition options were with software houses, like Dell, Cisco, IBM, HP and Juniper,” Trewby explains. “Those are also companies we wanted to sell our product to and integrate our technology with. So when we’d meet with them, we never quite knew which hat we were wearing. You didn’t know if you were flirting with them because you wanted them to buy your company or resell your product.”

Eventually, the acquisition talks with Google turned serious. Miner didn’t participate in the discussions; another Google Ventures startup, Nest, had just been purchased for more than $US1 billion, and the spotlight was on his firm.

Still, the deal came together relatively quickly with the help of an internal evangelist in Google’s Android department. Divide had two requests if it was going to get bought: All employees had to keep their jobs and the Divide product needed to continue operating. Google agreed to both concessions, and within a few weeks the paperwork was signed.

A Celebratory Stouffer’s Lasagna

Trewby remembers the day of the acquisition and how nervous he felt to break the news to employees. He, Toy, and Zhu had a plan to tell all 70 employees in all three offices at once.

Whenever Andrew Toy has something big to celebrate, he buys a Stouffer’s microwave lasagna and feasts.

Each founder led their team to Google’s headquarters in their respective cities. It didn’t seem odd, since Google was already one of Divide’s partners. There, the teams jumped on a Google hangout where everyone could see one another.

“It was a tense moment,” Trewby says. “We didn’t know if we were about to get beaten up by employees in a corner, or they’d throw beanbags at us. We thought maybe they’d think, ‘What?! You sold too early!’ Or ‘Oh no, not Google! We hoped someone else would buy us.’”

It was a tense moment. We didn’t know if we were about to get beaten up by employees in a corner, or they’d throw beanbags at us.

Instead, employees in all three offices erupted in applause.

No champagne was popped as the employees celebrated the acquisition. None of Divide’s cofounders drink. But Trewby says there was a better alternative.

“The real champagne corks were the individual conversations we got to have with everyone, letting them know their futures at Google, the roles they’d have there, and various attributes of their employment contracts,” Trewby says. “That was more pleasurable than pouring champagne.”

Selling a startup to Google in London is relatively rare. The following week, Trewby met the Queen.

In New York, Toy’s celebration was modest. His mother was in town from Hong Kong, and Chris brought over a cheap bottle of champagne for dinner, coercing his big brother into to choking down a sip.

Toy, a new millionaire, did what he always does to celebrate a big achievement: He heated up a Stouffer’s microwave lasagna and had a feast.

* * *

Divide’s closing dinner with Genecast’s Gil Beyda, Divide’s Alex Trewby, David Zhu and Andrew Toy, and High Peaks’ Brad Svrluga in September.

Andrew Toy now lives in Mountain View, and is managing a stealth Android enterprise product for Google as its project management director. Alexander Trewby still lives in London, where many of the Hong Kong Divide employees will be relocating. He is Google’s partner development manager. David Zhu is an engineering manager for Google in Hong Kong.

While Divide had its struggles, an investor says the company “never stared death in the face.”

Or as one friend put it: “Andrew had the pain of really good success.”

Running and selling Divide may have looked easy to outsiders because of Toy’s cool confidence. Friends describe the CEO as a “terrier” and a “destroyer” who cuts through the choppy waves of entrepreneurship better than most founders.

“When you’re running a startup, your boat is moving up or down,” Toy’s friend, who’s also a tech CEO, explains. “But you can’t tell that with Andrew, because he’s just driving through it.”

Toy was also raised to believe that smart people who work hard are often rewarded.

“Andrew believed in himself absolutely,” Chris Toy says. “He believes in me absolutely. And he believes in his friends absolutely. He believes, if you look at something and you deserve it, go get it. If you put in hard work, plan, and be analytical and smart, good things will come.”

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October 23, 2014
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Cities hope to boost broadband with new coalition

Leaders from 32 cities in 19 states this week launched the Next Century Cities coalition to promote next-generation broadband Internet to attract businesses and jobs and to help reduce the digital divide among their residents.

Included in the 32 cities are Kansas City, Mo., and Kansas City, Kans., the first Google Fiber sites in the nation to receive Google’s 1 Gbps connections, starting in 2012. Even with the flurry of tech activity that has followed Google Fiber in those two cities, neighborhood and nonprofit groups are concerned that fast Internet connections aren’t reaching nearly enough of the area’s poor residents.

“The digital divide is a much harder issue to deal with than many people realize,” said Deb Socia, executive director of Next Century Cities, in a telephone interview Wednesday. “Kansas City is working hard on the problem and I know they are concerned about it, as are many other Next Century Cities.”

Google won’t say how many customers in the two cities are connected to Google Fiber, although it has announced 7,000 miles of fiber optic cable-related construction there. Despite that robust rollout, a recent independent survey sponsored by the The Wall Street Journal found just 15% of residents in six low-income Kansas City, Mo., neighborhoods had some form of Google Fiber service, compared to 54% of residents in nearby middle- and higher income neighborhoods.

Google’s Erica Swanson, head of community impact programs, said in a recent blog that Google and others face a “long-term, complex problem” to address the digital divide, which requires working with local partners over time.

It isn’t clear what specific solutions will come out of the new Next Century Cities coalition. In a statement at the launch event in Santa Monica, Calif., on Monday, the group said it will assist cities in developing and deploying next-generation Internet.

“Participating cities will work with each other to learn about what works and what doesn’t so that every community has access to information that can help them succeed,” the statement read.

In the interview, Socia was full of practical ideas that could come into play. She said cities need programs that are neighborhood-based to offer poorer residents three things: computer hardware, Internet connectivity and “relevance training,” the last referring to offering residents “a reason why they need the Internet, why it matters.”

In a program that Socia helped run in Boston called Tech Goes Home, she said residents were taught Internet relevance by showing them ways to save money with access to the Internet, including Internet calling to foreign countries. “Since many residents came from foreign countries they can save 30 cents a minute on calls to home, enough to pay for the cost of Internet service,” she said.

In the three years running Tech Goes Home in Boston, Socia said 13,000 families were given relevance training and assistance in getting computers and Internet access at a cost of $325 per family. Three months after the training, 90% had Internet access. Tech Goes Home has expanded to Chattanooga, Tenn., she said.

In some cities, Socia said the nonprofit group Mobile Beacon has helped connect other nonprofits, schools and libraries with 4G wireless for $10 a month. Mobile Beacon offers a portable wireless hotspot, about the size of a hockey puck, for $39. The service offers unlimited data to connect to one computer, laptop or tablet at the $10 a month rate. On its home page, Mobile Beacon notes that 62 million Americans still don’t have access to the Internet.

When Next Century Cities was first established, some press accounts described it as a group of cities determined to work around restrictive state laws that make it difficult for cities to create their own broadband infrastructure. As such, Next Century Cities has given the appearance of a lobbying group focused on attacking large telecom providers that backed restrictive state laws and haven’t worked hard enough to build fast broadband with access to all.

“We are not anti-telecom, we are pro-city,” Socia said in response to such concerns. “Our only goal is to expand next-generation broadband. Some cities are working with incumbent telecom providers and some are even working with Google.”

She said the Next Century Cities group includes some cities that want next-generation broadband to be defined as affordable or free connections to homes at a minimum 5 Mbps or 10 Mbps, but she added, “a lot of cities are looking at 1 Gig service.”

Despite what Socia said, the political fight to get more widespread broadband is undeniable. In a recent blog post, Next Century Cities stated: “Towns and communities struggle with limited budgets, laws that restrict their opportunity to build/support a network that fits their needs and even market pressures … We are at a crossroads. Too few communities have the Internet infrastructure to deliver on the promise of America. Too few commentators and policymakers recognize that truly next-generation Internet is indispensible in the 21st Century.”

Federal Communications Commission Chairman Tom Wheeler made a video appearance at the Next Century Cities launch event and has offered support to cities working to promote broadband. Meanwhile, some conservatives aligned with telecom interests in Congress have objected to such federal involvement by the FCC, according to various reports, including one from Motherboard.com.

Given the inherently political nature of the digital divide debate, it is no surprise that Next Century Cities has urged more cities than the original 32 cities to join the cause. “Together, we can help every city become a next century city,” the group’s blog concludes.

Here is the entire list of 32 inaugural cities and communities in Next Century Cities: Ammon, Idaho, Auburn, Ind., Austin, Tex., Boston, Mass., Centennial, Colo., Champaign, Ill., Chattanooga, Tenn., Clarksville, Tenn., Jackson, Tenn., Kansas City, Kans., Kansas City, Mo., Lafayette, La., Lexington, Ky., Leverett, Mass., Louisville, Ky., Montrose, Colo., Morristown, Tenn., Mount Vernon, Wash., Palo Alto, Calif., Ponca City, Okla., Portland, Ore., Raleigh, N.C., Rockport, Maine, San Antonio, Tex., Sandy, Ore., Santa Cruz County, Calif., Santa Monica, Calif., South Portland, Maine, Urbana, Ill., Westminster, Md., Wilson, N.C., and Winthrop, Minn.

October 23, 2014
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Hungary plans new tax on Internet traffic, public calls for rally


BUDAPEST (Reuters) – Hungary plans to impose a new tax on Internet data transfers, a draft 2015 tax bill submitted to parliament late on Tuesday showed, in a move that could hit Internet and telecoms providers and their customers hard.

The draft tax code contains a provision for Internet providers to pay a tax of 150 forints (60 US cents) per gigabyte of data traffic, though it would also let companies offset corporate income tax against the new levy.

Within hours of the tax provision being published over 100,000 people joined a Facebook group protesting the levy, which they fear providers will pass on to them. Thousands said they would rally against the tax, which they said was excessive, outside the Economy Ministry on Sunday.

Prime Minister Viktor Orban’s government has in the last few years imposed special taxes on the banking, retail and energy sectors as well as on telecommunications providers to keep the budget deficit in check, jeopardizing profits in some sectors of the economy and unnerving international investors.

Economy Minister Mihaly Varga defended the move on Tuesday, saying communications technology has changed the way people use telecom services and therefore the tax code needed to be changed. His ministry said it expects the tax to generate annual revenue of 20 billion forints.

However, fixed-line Internet traffic in Hungary reached 1.15 billion gigabytes in 2013 and mobile internet added 18 million gigabytes, which would generate revenue of 175 billion forints under the new tax according to consultancy firm eNet.

Traffic has probably grown since, eNet partner Gergely Kis told Reuters, so the tax could hit Internet providers by more than 200 billion forints, if left unaltered.

The entire internet service sector’s annual revenue came to 164 billion forints at the end of 2013, according to the Central Statistics Office (KSH).

The government’s low estimate of revenue suggests it will impose a cap on the amount of tax any single Internet provider will have to pay, and in view of the public reaction the ruling Fidesz party asked the government to set a maximum level on the tax payable by individuals.

“The Fidesz parliament group insists that the data traffic tax be paid by service providers, therefore we propose changes to the bill,” Fidesz parliament group leader Antal Rogan said in an emailed statement.

“We think it is practical to introduce an upper limit in the same fashion and same magnitude that applied to voice-based telephony previously.”

Under the current tax code private individuals’ tax payments are maximized at a monthly 700 forints ($2.9) while companies cannot pay more than 5,000 forints a month.

A government spokesman was not immediately available for comment.

STOCK HIT, INTERNET USERS UNITE

Analysts at Equilor Securities said on Wednesday that the Internet service market leader, Deutsche Telekom’s subsidiary Magyar Telekom could expect to pay about 10 billion forints if there was no limit on the proposed tax.

“Although corporate taxes offset this amount Magyar Telekom has paid only 200-300 million forints worth of such tax in recent years because its parent company used tax breaks,” Equilor noted.

“The company could theoretically pass on the burden to its clients but that requires a business policy decision so it’s too early to say much about that. The tax could, however, boost uncertainty about a resumption of dividend payments at Magyar Telekom.”

Magyar Telekom recently said it would pay no dividend for 2014 in order to keep its debt in check.

The company said the “drastic” new tax threatened to undermine planned investments in broadband network infrastructure, and called for the proposal to be withdrawn. It said industry players were not consulted about the idea.

Magyar Telekom shares were down 2.9 percent at 1221 GMT (0821 EDT), underperforming the blue chip index, which was down 0.3 percent.

The Association of IT, Telecommunications and Electronics Companies said in a statement on Wednesday that the tax would force them to hike prices, which would reflect in consumer prices in general and hinder economic growth.

“The real losers of the Internet tax are not the Internet companies but their clients, users, and all Hungarians who would now access the services they have used much more expensively, or in an extreme case, not at all,” the Association said.

Balazs Nemes, one of those who began the Facebook page protesting the move, said: “In more developed nations, broadband Internet access is considered part of human rights.

“Only the darkest dictatorships want to control the Internet either financially or with raw power,” he said.

“We pay VAT, the Internet service providers pay corporate taxes, so what justifies making web use a luxury when we do basic things like arranging medical appointments, university applications or banking online?”

(1 US dollar = 240.75 Hungarian forint)

(Reporting by Marton Dunai and Gergely Szakacs; Editing by Hugh Lawson)

October 23, 2014
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Silicon Valley’s Cybersecurity and Spying Headaches

Silicon Valley companies have to tread carefully while expanding
to growing overseas markets, as foreign countries remain suspicious of their
involvement in government surveillance and the U.S. is getting tougher on tech exports to nations like China and Russia. 
 

As the birthplace of Internet technology, U.S. companies make billions of dollars each year selling software to foreign governments. But when dealing with nations that are not NATO allies, the U.S. government must approve sales of “dual-use” technology, like encryption software that could be repurposed for military use.  

Sales of encryption software, such as security systems for Wi-Fi networks, are limited out of fear the software could be used for hacking or
censorship
, or sold to hostile groups that would misuse it. The U.S. loosened restrictions on software sales in the 1990s as the Cold War
thawed, but the Commerce Department still requires companies to get a license
before selling to nations like China and Russia.

[ALSO: Chinese Hackers Defy Apple's New Security]


The department signaled it may be stricter with those limits recently when it levied
a $750,000 penalty against Wind River Systems, a subsidiary of Intel, for
unauthorized sale of encryption software to foreign governments and users in places like China, Hong Kong and Russia. Wind River made those sales without pre-approval from the government between 2008 and 2011, but the Commerce Department was lenient with its penalty because the company voluntarily disclosed the deals in April 2012, according to a department press release.

Rules forbidding software sales to
foreign governments who are not close U.S. allies are violated routinely, but a
penalty like the one issued to Wind River is unique and shows enforcement will be stricter, says
Richard Matheny, a partner at the global law firm Goodwin Procter.

“The Department of Commerce just tossed a pebble into a lake with this penalty, and
that ripple effect is going to be increased due diligence and compliance,” Matheny
says.

Compliance can be tricky for Silicon Valley companies, Matheny says, because encryption
software is in so many programs that a business’ legal section might not
be keeping up with the technical side when it reports to the government about its
exports.

“Encryption is everywhere – like business automation software, in short-range
wireless for your Xbox and in mobile apps,” he says. “Encryption finds its way
into things that don’t have a national security concern.”

This renewed pressure from the government comes as the U.S. tech industry is reeling
from a year of international backlash against its involvement with the National
Security Agency’s efforts to monitor phone and Internet records. Former NSA
contractor Edward Snowden leaked agency documents to the press last year that showed Silicon Valley companies were being forced by court orders to share Internet
records with the government in the name of national security.


Companies
including Google, Facebook and Yahoo have in turn pressured the government to reform
spying laws
to ease the international community’s resulting criticism and distrust, which they claim has been harming their businesses. For example, fears about surveillance have helped fuel campaigns for greater privacy laws in
the European Union that could make it hard for companies like Google to compile
data for advertising.

[MORE: Silicon Valley's Done With American Legislative Exchange Council]

The overall regulatory response to NSA reports “is a little less than the press
would suggest,” says Stewart Baker, former general counsel for the NSA. “There have been plenty of sales that have been delayed, customers that have
expressed concerns that may not have expressed concerns before.”

Politicians in some countries, like Russia, are insisting that U.S. tech companies
build data centers on their nation’s territory, supposedly to ensure the
information does not fall into the hands of the NSA. Tech companies are unlikely
to be forced into that corner, however, since the real motivation for such a proposal is “a power play by the security agencies of other countries,” Baker
says.

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“That is more about making sure the local government can also intrude on their
customers’ privacy than it is about protecting privacy,” he says. “They are
taking advantage of the concerns.”

China is on track to become the world’s largest economy by the 2020s, so
companies including Apple have been trying to expand there, while Facebook also is trying to grow internationally and gain more customers
from the increased use of mobile phones in emerging markets. Facebook and Apple each publish transparency reports about government and law enforcement requests for information in attempts to disclose censorship efforts in nations where they do business. But China’s vast online censorship has made it difficult for social media companies to expand user bases there because of restrictions on access to their services.

Mutual distrust between the U.S. and China also makes it difficult for hardware companies from both nations to sell some components to the other. China-based telecom Huawei found this out when it scaled back its sales in the U.S. after accusations from Congress that it was installing spy technology in gear to aid the Chinese military. The Obama administration additionally has accused China and Russia of sponsoring
hackers to steal trade secrets from U.S. companies, meaning the government likely will be more vigilant of any software that could give online thieves
an edge.

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But as the world is becoming more connected, there is a high demand for U.S. technology. A growing number of mobile phones in African nations are helping new users access the Internet, and China’s 618 million Internet users represent only 45.8 percent of its population.

To profit from that kind of opportunity, U.S. tech companies are likely ready to jump through any hoops to comply both with the security concerns of the government and the privacy demands of customers.