The Business News Source

Anyone who can remember the Thatcher era, will remember that the great mantra at the time was that we were moving to a service sector economy. With steel works and mines closing we witnessed great swathes of devastation cut across many parts of the country. Indeed with steel works, mines and ship builders the closure would render entire communities with 90 percent unemployment.

Over time many of these local economies recovered as incentives to open service based businesses were introduced. Ten years later the economy boomed on the back of ‘being the means to service’ rather than ‘being the means to produce’.

Theories abounded that the ‘new economy’ would mean that the UK would be insulated from any future economic shocks. Indeed the UK seemed to have found secret of economic immunity - small business became the ‘new black’ and we all got on with our lives raking in cash.

Except for one thing, it was really a mirage. The service sector economy was based on a house of cards. People weren’t really getting that much richer, they just had access to more debt. As markets were flooded with easy credit, sewn with reckless abandonment by a new generation of banks and money lenders of all kinds, people just borrowed and spent more, convinced that their primary asset, their house would keep increasing in value forever, and anyway the cost of repayment was marginal with interest rates so low, so who cared?

So now, as the financial world and hence the economy starts to unwind we’re seeing the service sector economy start to collapse like a house of cards - caught in yet another ‘perfect storm’.

With a rash of banks announcing halved profits over the next ten days we’ll see them being picked off one by one as the results roll in. Over on the house price front we’ve seen yet another report of the tenth consecutive drop in prices with the number of sales reaching 1930’s proportions.

This has far reaching consequences; with estate agents closing at a rate faster than 40 offices a week across the country, they are increasing fees to sell stagnant housing - so with your house in free fall you’re now going to have to pay more for the pleasure of losing money. Of course this won’t save the estate agents and so there’ll be a lot of ex-estate agents looking for jobs - somewhere.

The restaurant trade is suffering badly, as people splash out on a takeway rather than splash out on a more expensive restaurant meal. Pubs are suffering massive decline - blaming the smoking ban - but in reality admitting that they can’t compete with low cost supermarkets.

The city of London is off course going through a massive hemorrhage at the moment with as many as 100,00 high earners being thrown onto the job market. Many of these jobless will not ‘sign on’ as unemployed, either because of stigma, or because the payments they’ll receive aren’t going to even begin to cover their exposure.

As these individuals cut back it will be the service sector economy that suffers most - ironically the precipitated demise of the service sector economy will fueled by the demise of the service sector itself. It’s happening already and it’s happening faster than we realize - when the steel works closes, it creates headlines, when your local bank cuts back on staff or your restaurant cuts staff who notices? As with all things there will be a point where it becomes apparent .. so we suggest you look for the signs now. Check out the empty shops on your high street … and be very scared.

With the announcement that HMV are selling their Japanese business to DSM Investments for $140 million stock in the company jumped 6.5 percent to 130 on  Monday, after making steady gains through the previous week.

With all eyes on sales in its Waterstones division after the launch of Harry Potter, noting that over the atlantic ocean in the USA Harry Potter was a lifeline to Borders bookstores.

With dividends due in September and a turn around plan in place, HMV seems well placed to ride out the retail storm. Though realities of on line music downloads hitting Music retailers still present challenges to the current business model.

By the end of last week HMV was being touted as the most shorted stock on the London Stock Market. The weekend news was full of gloom about the company. It seemed that HMV was, just like Superman, trapped and doomed - then we switch to the next week and suddenly - just like Superman the company bounds free in an instance. Whilst we may not fully be seeing the creation of a new superhero stock, certainly HMV seems to have bounded free in an instant.

Check the reports:

HMV Group has now sold its considerable interests in Japan, a move that pulls the retailer from an incredibly important music market.  According to deal terms revealed Tuesday, HMV is selling its 62-store footprint to Daiwa Securities Group and Sumitomo Mitsui Financial Group for ¥17 billion (£71 million, $144 million, €106 million).  The all-cash deal is expected to close by September, and will allow the beleaguered HMV to pay down debt and focus on core markets.   "The sale enables the group to focus on the markets where it has market-leading positions,” chief executive Simon Fox said.  "The proceeds will be used to pay down the group’s debt, which is an important step towards meeting our medium-term leverage targets."

and then

LONDON  - Music retailer HMV was on song Tuesday, helped by buoyant equity markets and company bosses picking up shares not far from all-time lows. Chief executive Simon Fox paid £198,000 for 183,233 shares at 108.23p each, taking his stake in the group to 249,194.  Meanwhile, non executive chairman Carl Symon forked out almost £27,000 for 25,000 at 107.5p a pop. He now owns 101,392 shares in total.

Execs investing in companies is always seen as a positive move by the markets - so perhaps there is more to Simon Fox’s turn around plan than the market initially thought.

and then …

An outlet of music and book retailer Fopp is set to reopen in the city after the chain was bought by HMV. The high street giant vowed to maintain Fopp’s "unique identity and trading culture" after it struck a deal to buy six stores, including one in Edinburgh.

Next we’ll be hearing that HMV are removing DRM from their download site. [they are].

The retail market is a tough place at the moment, even more so for record stores - let’s hope that Harry Potter sales can sprinkle some magic into HMV’s performance.

Start the clocks. This time next year should see the completion and launch of the final phase in the completion of the high speed London to Paris rail link after years of limping through the UK at the speed of a suburban line train.

Eurostar have announced that 14th November 2007 will see the launch of a 186mph service between the two cities, that cuts under the channel and reduces the time for centre to centre by 25 minutes to 2 hours 15 minutes.

With reduced check-in times and stations in the city centre, the service will easily beat airlines for the business traveller eager to grab an English Breakfast, lunch in Paris and still be back for a pint at the pub.

Eurostar joining forces with other European high-speed networks, cutting journey times by up to two hours to Amsterdam, Cologne and Zurich.

The new service will depart from London’s revamped St Pancras station instead of today’s Waterloo, which will be mothballed.

According to the London Times Eurostar will also promote the ‘Green’ credentials of train travel.

Eurostar will promote itself as the green alternative to air travel. It has published a study, which shows that, per passenger, a Eurostar train emits ten times less carbon dioxide than a typical aircraft flying between London and Paris.

Fares will be in place to match the current low cost airlines.

Finally the UK has a train service it can be proud of, whilst the rest of Europe has an extensive subsidised high speed network, the UK allowed a flawed privatisation to keep the UK in the poor mans league. The completed service will be a welcome addition to greener alternatives.
 

In an action that sees BT trying to keep some control of the UK Internet, it announced the reduction of wholesale access prices for broadband yesterday.

As the competition in the UK heats up it is BT, as well as more colourful companies like Bulldog that have suffered over the past few years. BT has been constrained by regulatory forces from dropping prices below competitors in order to allow for competition. The final ignonimity for BT was that it was forced to provide access for those companies to its switches (exchanges) so that they could connect directly to customers and effectively by-pass BT altogether – called local-loop-unbundling LLU.

Under the Telecommunications Strategic Review, BT made a commitment that it would not lower the prices of its wholesale broadband offerings until the UK achieved 1.5 million LLU lines. The pricing proposals are in line with additional commitments made to Ofcom to ensure pricing stability in the broadband marketplace.

From May 2007, service providers will see the rental charge for the most highly used wholesale broadband product – BT IPstream – reduced by 9 per cent, with the price coming down from £8.40 per line per month to £7.63. This price is expected to be reduced further in the second round of changes planned for January 2008.

There will also be further savings for service providers at high density exchanges. The current rebate scheme that applies at 561 of these exchanges is set to be revised to cover 1,016 exchanges. The level of this rebate is also set to increase from £1.10 to £1.24 from May 2007. The rebate reflects the lower cost of providing broadband in these areas.

The increase in the rebate – combined with the lower rental price - will reduce the net monthly rental price (i.e. rental less rebate) in these exchanges from £7.30 to £6.39. This is a reduction of 12.5 per cent. Further increases to the rebate are also planned from January 2008.

At the same time BT will begin trials of 24Mb/sec ADSL which should roll out across the beginning of 2008.