>> live from pier 3 in san francisco, welcome to "bloomberg west." we cover innovation, technology, and the future of business. i'm emily chang. coming up, we will take a look at samsung as profits in the smartphone market share slide. can the world's largest smartphone maker whether competition from chinese company and apple? lead story, the t-mobile has been making waves in the wireless industry for its turnaround and now the uncarrier is proving to be a popular acquisition target. profits, aported

french company has made a takeover bid. is offering $15 billion in cash for a state in t-mobile which would be financed with debt and equity. it has the support of leading international banks for this purchase. the news sent shares of t-mobile soaring and sprint plunging. sprint have been pursuing a t-mobile.f i spoke with the outspoken ceo john legere about sprint's deal, listenore the iliad bid, closely to some clues he gives about t-mobile's future. >> in q1 we announced contract earlym, the launch of termination fees and that caused an aggressive spike. among other things we did today, we raised our guidance for

subscribers for the year now saying we will be between 3 million and three point $5 million, evidence we fill our momentum will continue drug the throughout year -- the rest of the year. >> you are enabling more customers do have contracts, does that mean they are are buying less expensive phones? and are you selling more low animated -- low and middle tier phones? carrierncarrier movement is focused on solving pain points for customers. no contract. customers love it. the industry has adapted. international data roaming for free, tablet freedom, early termination fees is another aspect of contract freedom and

something we can do very profitably. 93% you are seeing is that of our phone sales last quarter were smart phones. we are selling the highest end devices and we will be the biggest beneficiaries of any new device that comes out because the switching tool is noting they are most likely targeting a switch. and what better to cause a switching pool to make decisions device.iconic there are some variables that are great for the fastest network in the u.s. >> if a new iphone comes out, how many new customers do you think you will get as a result? >> obviously i have given guidance for the forecast. going to comment specifically on how many. i am going to point out to you t-mobile, because of its timing of launching the iphone, we have the lowest percentage of our base that are customers with iphones.

when a new phone comes out, the whole base is waiting for an upgrade. we are the least susceptible to this big event that is going to the place and expect to be biggest beneficiary. 33% of customers are likely to switch, a big base of change. where do you think customers are going to go? about that and a lot of other things that are causing this momentum in our business. it sounded like you backed away a little bit from the idea of sprint-t-mobile deal is the only way. is that just me? >> i backed away. first of all, it you know me better than to see me back away from anything. i have been very consistent. i will not comment on any specific transaction for the company, never have. i have been consistent than in the long term, if i really want

to bring long-term competition and lead the industry in the united states, scale is important. one of the accelerants could be a transaction of some type. i've always said we have multiple options to look at that. i haveshort term, pointed out this company is hitting on all cylinders and we've got great runway. we will consider multiple options to look at things that accelerate the uncarrier. i have been consistent all along. >> we know if it happens, you are the guy in charge, or what to do. how else do you add scale? , with anow my opinion transaction, without a transaction, i am in favor of charge ofe being in anything. that is my position on that. listen, i have said many times there are multiple players and

multiple options for the company . i am not going to comment on any specific one, how do you get scale and spectrum and capital? one way is to move aggressively, the way we are, to raise capital. and then various accelerants exist internationally, domestically, and i think you should be clear, there is great interest in t-mobile. we will consider any option that exist for the shareholders. >> my interview with ceo john legere who is a huge fan of himself running things and being in charge. to the sex toy he said in the interview, i want to bring in what he saidsect in the interview, i want to bring in cory johnson. you know about this french company, iliad, tell us about this company and why they would want -- >> you said john legere likes to

control things, so is xavier neil. you can think of him as the french version of john legere. he has long hair. disruptive,ed this successful wireless company from nothing and that within two years has 12% of the market share. martin saying, why did god do this to us, he has triggered some price wars. plans forring price three euros a month. he has a lot in common with john legere. long-haired, strong personalities. of course the interview happened before we reported this bid from iliad. i want to take a look at some of the things he said. he said i have always said we've had multiple options. we will consider options to look

at things that accelerate the uncarrier. there are multiple players, multiple options for the companies, variant -- various accelerants exist. i think it is clear there is great interest in t-mobile. now we know a week ago iliad came to t-mobile with this bid. it sounds to me like john legere is open to it. >> multiple accelerants internationally. someone that can give them money to build out faster. the problem is, iliad is a smaller company than t-mobile. smaller revenues. ,hey made this incredible save they said they have $10 million in synergy, that is the operating expense for t-mobile. aggressive action of

a guppy trying to swallow a fish. >> who is in charge? what happens with the leadership? this is a story we will continue to follow. ow is the worlds largest smartphone maker facing a crisis due to growing competition from chinese companies? we break down the numbers behind samsung electronics and we will look at the uncertainty surrounding the company's family dynasty, next on "bloomberg west ." ♪

>> welcome back to "bloomberg west." i am emily chang. largesthas become the smartphone maker and growing its market cap to nearly $200 billion. it has used clever marketing and a variety of products including high to low and smart phones, tablets, to dominate in mobile. there are signs samsung's reign

may be coming to an end. it reported its first quarterly profit drop in nearly three ands, net income fell 11% the mobile division reported a 30% drop in operating profit. it's worldwide smartphone market quarter asin the the company faces increasing competition from low-cost chinese competitors like lenovo. just issues with mobile that have investors questioning whether samsung can remain on top. the chairman of samsung group has been in the hospital since may after a heart attack leaving plenty of questions about future leadership. cory johnson joins us with more from new york. we have so much to talk about this hour. what is your take on the numbers we saw from samsung today? interestingsome things going on in the cell

phone business, the smartphone business right now. t-mobile is such an important part of that. what we see is not just the entry of an important lower-cost cell phone, but lower-cost smartphones. there become important not just in china, where they have had t-mobile, by saying to customers, you can get a no contract, you just pay for the phone. you don't have to submit to a long-term contract means that customers in big markets like the u.s. are looking at the actual cost of their phone and they don't want to pay $600 like the iphone and the samsung galaxy cost. that could create a new opening to take the market share away from apple and samsung. when we talk about samson, we are not just talking about samsung electronics. it is a company that does all kinds of stuff and all kinds of

arenas you might not know about. let's look at the giant that is samsung electronics. part apple, part into a, samsung electronics is a bold -- part tronics --ung samsung electronics has over 200,000 global employees. you know about their success and smart phones and tablets, but the mobile i.t. division including pcs, wearables, and networking equipment accounted for 54% of revenue last year. -- success or goes beyo the success story goes beyond that. the company makes mobile chips and has apple as one of its biggest customers. an led lighting packages as

well. it is the top flatscreen makers for tvs and has made large-format displays. just forplays are not television. samsung has taken this a digital know how to appliances claiming to be the number one maker of refrigerators, commanding 10% of the total u.s. appliance market. cory johnson, our editor at large. for more on the state of samsung 's business and whether it can keep hold of its dominance, i want to bring in a special panel we have today. ryan is the director of mobile device tracking. well.s with us as benedict, i will start with you. do these numbers show that samsung, who can reach everyone, that is not the case anymore? isthe android business unstable and uncertain at the moment. there is a strand that says it

is going to look more like the pc market where the components are underneath, samsung and most have been unable to create value added services. you have a commodity product and a lot of price pressure. so the question everyone has been asking, at what point do cheap competitors from chinese eat into that? that is starting to happen. what you may also see if apple comes out with a larger screen phone and the way ios8 allows you to customize, apple may take a larger share of the high-end market. it is a threat from both ends. >> samsung has a couple of higher end devices coming out as well. i wonder, is it the right strategy, ryan? you have been doing so much work on market share. how are they looking? onese pressure from the

below are taking effect. to continue to focus on maintaining a position at the high end to compete for the flagship but the market share is going to be driven by the low end. they have to focus their strategies on these areas. their marketing investment, which has taken them to the top, has been focused on the flagship . if that continues, that will help, but they have to change that has somewhat gone stale now and try to compete and differentiate. that is going to be challenging. >> is it you said that samsung is dominant but paranoid? >> there are a lot of ways to describe samsung. people talk about similarities but nokia products, is more government. country,rator, every over $10 billion in marketing and sales commissions to support that. question was always that what

point does the inherent , you don't have any value added, when does that catch up with you? samsung has spent two or three years at the top of the market. they have not managed to create sustainable value on that, why your next phone should be a samsung rather than a sony orlando -- or it lenovo. it was not to have they were going to do that. that company came out of nowhere in china and finally apple, we hope, is coming out with a new iphone. cory, what do you think about samsung's strategy? does it need a dramatic shakeup in the sense they have been making devices for everyone. should that change? >> samsung did a lot of things their to differentiate

devices, having crazy announcements of their phones. i was here in new york when they were at radio city music hall and they had a tap dancing child on the stage to somehow illustrate how their phone was going to be great. that to the point of what makes these phones special, the more samsung, there has been tension between samsung and google about what would be different about their phone, if theand one wonders day will come when there is a or ang map or an apple map map from somebody else, microsoft or somebody, on the samsung phone. will they break away from the android operating system in little ways to get less a google on the phone and have something that is unique to samsung? and do they have skills in that. they have the resources to start to do that kind of thing. you saw a huge spend in research and development that help add to

the operating disappointment or the question is, what are they going to do with that. might it be unique to samsung? >> cory johnson, benedict evans, ryan reith, we are going to continue this conversation after a quick break, talking about samsung's future. ♪

>> i am emily chang. this is "bloomberg west." our coverageuing of the challenges facing samsung electronics. we are back with benedict evans and director of mobile tracking ryan reith. we were speaking in the break about samsung's soul. movehat samsung can do to

the needle, what they can do to sell more phones. benedict, you know, what is samsung's identity? >> samsung has been extremely effective at producing this very wide range of handsets. ist it is not able to do reduce a sense of loyalty. it is not creating any sense of identity and why your next phone should be a samsung as opposed to one from its competitors other than the fact it is everywhere and it is subsidized. so as you start seeing more competition coming from cheaper chinese manufacturers, and in parallel you see samsung starting to run out of ideas of how to differentiate the high-end assets -- >> samsung has a relationship so, google to maintain,

ryan, what do you think there challenges are? >> one is to continue to be a good hardware oem. get athey're just hardware and not software, it is that problem of identity. tosamsung is not willing concede to this. you have seen them start to developermsung conference. they are looking to build the services. as you login, you are prompted to go into samsung services for their music and such. that is their approach to try to build a following. that is not easy to do. >> do you think their phones are good? are the new features moving the needle or are they gimmicks? onthere are no bad phones the market. it is about whether they are great and unique. they are not really. they're just perfectly good entering -- android phones. that is the challenge. , partner atevans

andreessen horowitz, ryan reith, we're going to talk about more coming up. still ahead, more on samsung and t-mobile. ♪

>> you are watching "bloomberg west," where we focus on the future of business. we are continuing our look into samsung and also talking about t-mobile and iliad and its bid for t-mobile following my interview with t-mobile ceo john legere. i am back benedict evans again with andreessen hora with partner benedict evans and the i am back with the andreessen hora with partner benedict evans and ryan reith. we were talking about this, what do you make of iliad bidding and the personalities and those companies? >> 15 years, every operator

outside of the u.s. said that is really expensive and the service is terrible. if only we could do a a sick level standard, though -- do a basic level standard, we would clean up. it is harder to do that, you can see it with t-mobile. they are trying to do what any normal operator would do, the spectrum allocation they have makes that difficult. is easier to compete outside the u.s. you have this question, would it be better for u.s. consumers if sprint and t-mobile were one operator? you would have two strong guys instead of two weak guys. turninghave xavier niel the french market upside down, which was uncompetitive. he did that with the help a lot of very aggressive support from the regulators.

and roaming deals. he comes here and vice t-mobile. he does not change the market dynamics at all. but he can shake things up, it is not clear quite how easy it is to do that without much rotter spectrum. >> deutsche -- broader spectrum. >> deutsche telekom is looking to dean iliad's noncompetitive. >> deutsche telekom is an important part of t-mobile, essentially they put the company together. it is going to be necessary for any deal to happen to acquire the company. they clearly favor the sprint offer. i go back to the notion iliad of where they're going to get the money to do a deal like this. it is not clear. .-mobile has a ton of debt it is not like they can leverage it more. than is a smaller company

t-mobile. deutsche telekom saying they are not partnering with these guys. they have not engaged with them in any way. they prefer the sprint deal. >> fonts from you guys? -- thoughts from you guys? is a pirate.l he fought his way into the market and turned it upside down. he looked at the u.s. market and said this is ripe for a pirate. john legere think he is a pirate. everybody thinks highly of him, and highly of xavier niel. ofchanging the ownership t-mobile change how it will be able to compete? you don't get deutsche telekom, which owns 66% of the company, it can't happen. there is no way. this could be the quickest deal killer of all time. >> i would agree. it feels like the guppy trying

to swallow the fish. it is one of those things trying to bring attention. >> you could say the same thing about -- he swallowed his japanese mobile operator. >> the difference is the debt. go into this right now and say i'm going to add on the debt than t-mobile does not have, because t-mobile has that dad. >> the guppy swallowing the fish. i will leave you with that. benedict evans and ryan reith of idc, thanks so much. i want to turn back to our look and samsung, apple have spent hundreds of million dollars over three years battling in courts over the world patents. who is winning that war and is in there any hope for peace in sight? david, when i talk about apple and samsung, eyes roll.

people are tired of the story. why should we care? iswhat we should care about a deeper story. this is something we spoke about in the past. the apple and user experience is largely a world that is coming to its final and tired end. i'm going to have to jump in. we have ring problems with your audio. we will continue this conversation after this quick break, our a deep dive into samsung right here on "bloomberg west." ♪

continuing our deep dive into samsung and its future, i want andeturn to david martin our discussion about patents. i will repeat my question, people think patents are boring.

they are tired of the story. why should we still care? we should care is because the feature-based patents, which are the basis of these litigations, have been blown up by the supreme court ruling in the alice acase. so the utility of the function, or the user feature set, that world is largely blowing up. thankfully we are done in many instances with the risk of the ongoing nature of these tiresome wars. and this part of the war is probably over. >> what is next in terms of apple and samsung's relationship? partners in many ways, but huge competitors. >> the question is going to be where do things go from the standpoint of the next iteration

of what mobile devices are going to look like. various people are looking at the fact apple and samsung are going to have to deal with higher resolution of screens, greater function in terms of the technology rather than the application and feature space. that is a space where apple is going to do a lot of acquisitions and samsung is going to lean on its partnerships in a shed to come up with better ways to get toiature antenna -- in asia come up with better ways to get miniature antennas. will beight, we watching that, especially keeping a close eye on the relationship between these companies. david martin, thanks so much. i want to talk about samsung and its leadership structure, the the group has led since 1938 but now their dynasty may be threatened. the powerful patriarch tom a lee kun hee, is answering --

isriarch, lee kun hee, entering the hospital for the third month. comes asble handover samsung faces increasing pressure for the company to unravel its complicated ownership structure. so who are the players in the first family? joining me is sam grobart who has visited there headquarters as well as the director of congressional affairs and trade for the korea economic institute. want to start with you. i want to know about this dynasty. what is their leadership structure as it stands today and what is the succession plan? >> samsung is controlled by lee in the hospital. he is the son of the company's founder who started the company in 1938 and of course his son lee jae yong is the heir

apparent to a collection of companies, a true conglomerate comprising 74 business units that range from the electronics we talk about two life insurance, ship building, and many other businesses as well, all organized in a complex structure across holdings that allow the family to maintain control well actually not owning very much of the company. lee the right person to lead samsung? a couple ofas advantages. he was involved with companies like google and helped push the smartphone side of the business ahead. he has worked in the partnership side of the business. forward, given the changes in ownership likely to take place, now that there are bands i'm cross -- bans on crosses shareholding, he is alliances to

maintain control of the company. looking at its structure right now, it is hard to see who else might step into the shoes. >> what are the chances it is not jae lee? >> it seems highly unlikely. has been groomed for this position. he has risen in the company. he is the son of the current chairman. that carries amount of weight within the company. the chairman looms large over samsung. if this is his choice, that is probably what is going to happen. >> i want to talk about some and we touched on earlier, samsung's business structure. can you explain how it works with respect to samsung? >> essentially they go back to essentially an earlier era. they were designed to help

industrialize south korea. as part of that, you have the equivalent of a u.s. conglomerate that with a different structure in the sense that it is family controlled see don't have the corporate ownership shareholders would have been the audit states, and this really helped south korea develop. it has allowed the government to work with the companies, and much of that ended in the 1990's, especially the financial crisis. it served the company well today. seems to be under threat. there was a headline that called a time bomb. why? >> the challenge with the chaebol, you have a situation built ae kun hee company that was strong into a

globally competitive company. the challenge going forward is may havee lee jae yong skills needed to lead the company, is family leadership the best strategy? businessok at other structures and politics and other things, depending on generation of generations -- generations and generations of family tends to be dangerous. you need to take and move in the person who has all of the skills necessary to run the company. lee jae yong may have those skills, but if he does not, you need somebody who does. >> what is the south korean inernment's position on this terms of a sense about the future of the family dynasty and the future of chaebol? >> my understanding, having spent some time in korea, the chaebols are moving through a transition period. there is a younger generation

who look at them as overly complex, not transparent, too much in bed with government leading to corruption and inefficiency. it may have been good to have in those years from the 1940's to get korea up and running to industrialize the nation, but this kind of coziness between government and business what appeared to be less than democratic sometimes. there is need for reform and transition out of this also find -- ossified system. the opinion of people who work inside the company? they don'tustrated have a shot at the top leadership positions? >> i have never gotten that impression from the people i spoke to. there is reverence for the lee family for what they have done for the company. the company is so vast you can rise and be the boss of a huge

amount of territory, if you're thering mobile, it is equivalent of running your own company. there is not necessarily a desire to move on into the upper echelons, which have been occupied by lee family members. there seems to be no impetus to change that. >> troy, what is the future of samsung? watching ag to be lot of what happens in the industrial goods sector. are they able to transition into smart refrigerators, dishwashers , these types of products? how are they able to diversify the company? perhaps more importantly, we understand mobile is a very fast moving industry. we have seen nokia rise to the top and follow. faceng is going to challenges, but the question beyond leadership is how does the government transition work? ,amsung is about to go public

it is essentially the holding company for the samsung group. that will lead to governance changes. how this will work in the future. thanks soangarone, much. sam grobart, you are sticking with us. we will have more of this special on samsung, from jay-z, coming up. ♪

>> welcome back to "bloomberg west." i am emily chang. samsung has spent heavily on marking and liens on hollywood. oscar fans will recall its win wheith ellen's selfie. we are joined with jon erlichman.

still with us is cory johnson in new york and sam grobart. has not left anything to chance. they have pulled out all of the stops getting the biggest stars in hollywood to promote them. >> it is very true. it is a strategy that involves spending a lot of money, but it goes beyond that. spending money does not always get what you want. they made a choice a few years ago to say, how are we going to change the view of our company? a difficultter category, the category of cool. they enlisted a well-known ad firm here in l.a. thingback to the next big campaign, started to poke fun at apple, and you are right. they have enlisted a lot of a-list talent. people are always skeptical when they see celebrities endorsing products, but maybe less so with samsung than alicia keys pushing

for blackberry. the other thing they have done is after they started to get more consumers adopting their products in the u.s., and they spent more than $440 million on the alex he marketing efforts -- marketingaxy efforts, they took a different approach. >> you've got the selfie ellen degeneres took at the oscars, where brad pitt and angelina jolie and julia roberts were also in the photo, the selfie david ortiz and the boston red sox took with president obama. apparently, that was planned. sam, what do you make of these guerrilla marketing tactics? >> samsung is taking that approach and marrying it to just a ton of money. 2013, the company spent more than $14 billion globally on its advertising and marketing efforts including $4 billion in

which isng alone, quadruple what apple spent in the same year. of course apple is a much better known brand and a stronger brand than samsung, so they need to spend that money. if they can couple that with appearances with celebrities and so forth, in fact, their campaign taking on apple was a big success and really did rattle apple as far as the advertising and marketing strategies were concerned. on some level, this is working. this is happening, but it is backed by an extraordinary amount of cash. there is jay-z, who partnered with samsung on a now been released. jon, what kind of van packed -- on an album release. jon, what kind of impact that have? >> a lot of people target jay-z. was it successful or not? he took some heat for that.

i don't think they are going to back away from what they have been doing. if you spend a lot of money and you try something that is seen as creative and it is working for the most part, do you move away from it? and the fact apple seems to be and is spending more money on marketing itself. getll right, i do want to to the bwest byte before we go. one number that tells a lot. sam, what is the number? >> the bwest byte is 150,000. the number of phones gathered together by chairman lee kun hee in front of 2000 employees in 1995. he was disappointed with the quality of their mobile phones and he gathered the phones together and he set them on fire. on the fires burned, he had bulldozers come in and raze the pile and turned to the employees

at the manufacturing facility, he turned to the employees and said if you make poor quality products like these ever again, i will do the exact same thing. that story is known throughout the company as a legend, a part of the lore on samsung. the way to make a statement. can you imagine that happening at apple? >> sort of. we have seen this in the past with the "e.t." game. they brought out millions of copies to a landfill problem. yes, we should do that with our bad shows. toss the tv into the bay. not that we have bad shows. johnson, our editor at large, sam grobart, jon erlichman, thank you. that does it for this special edition of "bloomberg west," looking at the challenges facing samsung and its future.

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>> from bloomberg world headquarters in new york, i'm mark crumpton and this is "bottom line." today, a new report looks at whether the nation's biggest banks and a fitted from a too big to fail government subsidy. plungegentine bonds after the country default. armour ceo of under discusses the company's new ad campaign targeting women. to our viewers in the united states and those of you joining us around the world, welcome. we have full cove