>> from pier three in san francisco welcome to "bloomberg west.” here is a check of top headlines. french police are surrounding -- three villages northeast of harris looking for the "charlie hebdo" suspects. here is former nsa director, general keith alexander. >> i think actions like this will become more frequent and law enforcement in the intelligence agencies are going to be expected to do more. they can't do it without tools. we have to come up with a reasonable way to do it.

i think the question you are asking is the heart of what we are going to do in the future to actually stop terrorist acts like this. whether it is domestic, whether it is home-grown, or whether this had some part from another set of actors around the world. >> the lights at the eiffel tower were turned off in tribute to the 12 people killed. france also held a moment of silence. back in the u.s., stocks rallied for a second straight day. the s&p 500 and dow up about 1.8%. some speculators guessing the european central bank will pump further stimulus into the market. are you sick about hearing about patent battles? so are the battlers. patents fell 17% last year. fewer than that's according to a 5000. tech advocacy group. tech companies still fighting most of those battles. 63% of patent cases last year involved hardware, software, and networking companies. and apple is raking in more

money from its app store. apple says it sales are up 50% last year, generating over $10 million in revenue for developers. they have created more than one million jobs in the united states since 2008. samsung electronics is forecasting a 37% drop in fourth-quarter profits and a 12% drop in revenues. smartphone sales continue to stall. dig a little deeper and maybe there is a silver lining here. samsung is still the world's largest smartphone maker with 8% market share. that is down in the third quarter. samsung semiconductor business is booming with $15 billion in the new fabrication plant for semi conductors. samsung has made a huge push into the internet of things. the co-ceo spoke earlier this week at ces.

>> in 2017, 90% of all samsung products will use these devices. that includes mobile devices and televisions. >> has samsung found new revenue streams as its cell phone business is contracting? joining us is brian blair. glad to see you are surviving ces. apparently razr is not surviving. that is the first casualty. you look great. i think it is really interesting, samsung is reducing the number of phones they sell as they try to remain the most important company in cell phones. >> look at that apple model, apple has just one phone. they really have three a few

think about the different sizes. -- if you think about the different sizes. there is something to be said about simplicity. at one point nokia -- it is a lot of work to manage the components and makeup too many skews. i think it is smart to bring it down to fewer overtime if they want to be competitive with apple and a lot of these chinese players have been eating their lunch for the last nine months. >> you can see the market share coming down quarter by quarter. gradually. it is still impressive and every other cell phone maker would like to have that kind of market share. i was doing some back of the envelope calculations on the numbers they put out last night. they're operating profits are tiny compared to apple. they might not sell the most phones but they make the most -- but they don't make the most money. >> they don't. one of the reasons for that is

the -- a lot of samsung's business has been at the mid tier. as you have seen more competition from xiaomi and yahweh over these past few years, samsung has had a come down in price. a lot of their phones are really expensive to make still. they are not getting the same profit margins apple is when selling $800 plus phones. the high-end iphone 6 plus with 120 gigabytes is almost $1000. you get a much higher margin on the selling prices. >> i have always looked at the way they run their semiconductor process. they have announced a huge capital list expenditure project. i've always thought of that as the canary in the coal mine for them, where they are going in the direction or letting the other cell phone makers what they want so samsung can design their phones around that. is it possible we see a change of focus where the chip will be

the main thing, not device themselves? >> they need that ship business -- chip business to be strong in the years ahead because of this decline we are seeing in their smartphone business. they were the exclusive manufacturer of apple's eight series chips. it's only been since 2013 and apple negotiated an agreement and took a lot of that business away. they are trying to get that back. the volumes are obviously substantial from just apple alone, who a couple of years ago was 70% of their business. they have to find some new areas of growth. the internet of things connected appliances is a huge trend for them. they are showing a huge competitor to the oculus rift. in addition to foundry and the internet of things and this

virtual reality thing, i think samsung is looking for new areas of growth. they think it is internet of things but it would be nice if the foundry business could be a grower for them as well. what does a chip cost? what are the revenues on an iphone chip? what do they get for an internet of things chip? making random guess. $85 for an iphone? >> i think of it like $30. it is probably $5 for an internet of things chip. you bring up a good point, big discrepancy in the average selling price. the difference is if we do see connected devices throughout homes over the next two years, the number will be bigger than this 1.5 billion units smartphone market. the asp's are small but the opportunity is substantial for the next several years.

>> if there was that difference they would have to sell 600% more of those chips than the phone chips they are selling right now. is the center of samsung going to be chips, not devices? >> it could shift to chips. they are hoping it is going to be both. they are showing connected dishwashers there. they are showing a lot of connected appliances. think of it in this way, you have maybe one or two smartphones in your home. maybe four if you have kids. how many different appliances and things do you have that can become connected? it is probably 50 connected activities versus four phones. if we do have connected devices throughout our homes over the next five years, then the internet of things will be bigger than smartphones and it will be a substantial opportunity for samsung. >> i need someone to load my dishwasher, not run it with a chip for me. you mentioned the oculus rift

thing and i saw that a few months ago and it was really the oculus device they said was made by samsung. it wasn't any sort of special samsung stuff. did you see anything that was ridiculous over at the samsung booth? >> the connected dishwasher is one thing i find. -- find interesting. i wouldn't call it ridiculous but i do wonder about the utility of connecting some of these devices. i'm not sure that my refrigerator -- my fridge could be good. i haven't seen anything that ridiculous. everybody is doing curved screens and they are beautiful but i'm not sure it is an enhanced experience that will drive huge demand over the next several years. a lot of these panel companies are making a bet that that is the next big thing. the oculus rift and samsung's version of it, it sounds ridiculous until you actually use it. when you try this, it's really amazing how good it is. it is a truly immersive

experience. obviously facebook feels the same way. >> i did try that in new york and it is pretty crazy. they have a thing that was meant to look like a mongolian -- i put the oculus rift on. i looked at the people in front of me, one was making soup and one was playing music. as i turned my head there was someone behind me and some of -- someone next to me. is that what they were doing? >> it is startling. the one i saw had a game inside you look behind you and it feels very real. until you try this, i think it is hard to understand why this could be big or why facebook paid billions of dollars for it. you quickly become a believer. >> thank you very much. the day is set for one of the federal communication commission's toughest decisions. we will talk with one of the

five commissioners who will determine how the u.s. will regulate the open internet. that is next on bloomberg west. ♪

>> i am cory johnson and this is "bloomberg west." the federal communications commission chairman tom wheeler announced the date for the latest proposal of an open internet. he also said he may be in support -- the stock -- take a -- on the strong open internet rules president obama has been suggesting. take a listen to what wheeler had to say. >> for the last 20 years, the wireless industry has been monumentally successful.

hundreds of billions of dollars of investment as a title to regulated company. there is a way to do title to write. >> do you have clues about what that might look like in a proposal? he will give it in a few weeks and you can't talk about it yet. >> the big issue right now it is an important issue. but he has not shared the specifics with us. >> the timing will be what you -- what? >> i expect to see the proposal in early february. and that i anticipate the commission will vote. >> you can tell us right now if you want. >> i'll pick again. [laughter] >>

it's fairly amazing. the reaction we have had on “bloomberg west,” the reaction john oliver had, i think it shows how much people are passionate by what they get on the internet. do you think people understand the issues? >> it is important to everyone in our civic lives and our internet economy, this is the envy of the world. we are getting a lot of attention right now, but that is a good thing. >> you see where all this stuff became popular in the late 90's, now resulting in a hold of them kind of product. i wonder what you so when you go to the electronic show. >> it is gadget the heaven. >> are you a gadget geek? >> i will own up to it. we have football fields worth of new devices and technologies. all you hear over and over again is mobile, mobile, mobile. as somebody who thinks about the airwaves all the time, what i hear is spectrum, spectrum

spectrum. >> let's talk about spectrum. there is an auction going on right now that was expected to be good. it has already raised $45 billion. in the history of spectrum, before this only $50 billion has ever been raised. why this amazing success? like a spectrum that can go through buildings or is not in the best urban areas? >> we have more mobile phones van we have people -- than we have people. more than half adults have tablets or even readers and those devices are using our airwaves like never before. some of the most important infrastructure in this country is invisible. >> in particular with this action -- auction, it goes for how much longer? >> i believe in the next few weeks.

>> do you see the carriers -- because the spectrum is the beginning of the capital expenditure for the carriers. what you get the feeling from carriers and what they want to see? >> given that it becomes apparent that more spectrum in the marketplace is important to power those devices and carriers are willing to spend quite a bit of money in order to have the spectrum they need. >> it is interesting to see as they have other mergers and things -- when you see the spectrum, you have another auction coming up which is thought to be the big valuable one. the repurpose of the television spectrum. i'm always struggling with ways to explain to people who call -- who don't follow the world of spectrum. can you explain it? >> this is a traditional auction. we sell off licenses for our airwaves. in 2016 we are slated to hold an auction for the 600 megahertz band. that has traditionally been the television spectrum.

>> that is the beachfront property. that is the place people want to be, spectrum's that can go through buildings and connect phones in the offices. >> it goes really far and it doesn't require the construction of many towers. that low band spectrum is super valuable. in the aftermath of this auction, which features some higher band spectrum, i think it has become apparent that the 600 megahertz option will be really big. >> and we fault to the government to raise all that money. >> we have an elegant solution the congress helped us come with. that involved offering any incentive to any broadcaster who chooses not to be in the business of broadcasting to return their license to the fcc and my colleagues, and then we will take those licenses and repackage them and offer them up to the wireless carriers interested in purchasing them. as an incentive to the broadcasters we will pay them a cut of those proceeds. >> it will be a cut of the

proceeds -- is that expect to be complicated? it is expected to be a complicated process. how is that looking from the broadcasters who want a chunk of that? >> i think in the aftermath of this big auction, i think many broadcasters are going to take a look at the possibilities for revenue in that 600 megahertz auction. >> as we say in this industry, $45 billion eight nothing. who are the beneficiaries and where will it go directly? >> congress actually assigned purposes for that money. i think there are two that are noteworthy. it aids deficit reduction and this is really important, it helps constructs of the call the -- construct something called the first responders network authority, which is designed for police and firefighters having access to high-quality spectrum and every community in this country so they can communicate when the unthinkable occurs. >> great stuff jessica, from the fcc. what happens in vegas stays in

vegas. i'm glad you decided to join us here. we will be right back. ♪

>> a former wired editor chris anderson says joan development for companies like amazon, google, and facebook are leading a consumer resolution. emily chang left us for studio 1.0 this week. she started off by asking what the timelines of package deliveries and drones might be. >> how likely is it that drones are going to be delivering my amazon packages? >> your amazon packages to your home? that is a ways off. >> how long? >> a decade? but delivering to a center where you can pick up a package -- warehouse to warehouse, we can do that today.

delivering to rural areas as easy as well. >> is there any reason it won't happen? >> regulation. in the united states it is not legal. >> i know the faa is considering changing the rules. how are those conversations going? >> they're going. the faa's mandate is the safety of the national airspace. it was designed around manned aircraft, relatively large aircraft, human pilots and passengers. what we have here is a completely different kind of problem. >> emily also asked chris anderson about buying parts from alibaba. >> this is where you buy wholesale parts from china and i need to buy electric motors for an autonomous blanket. -- blimp kit. 10 days later this great shows up at my doorstep. there are 5000 motors made it to my custom specs and i was stunned. i got chills that basically i

had gotten robots from china to work for me and they took paypal. >> that was emily chang with 3-d robotics ceo chris anderson. don't miss the latest edition of "studio 1.0" tonight. what a difference a few years makes for dells. dell came back to win seven ces awards this week. we will show you why next. ♪ >> let's take a look at this big day for stocks, all three agencies rallying. this is the second straight gain for major stock averages and all three of them wiping out there

decline in early 2015. ♪

>> if he is right, one day drones will be everywhere. his company manufactures self flying planes. his flight to ceo has been anything but direct. he has been a punk rocker. a particle physicist. editor of “wired” magazine. a three-time author joining me today is chris anderson. thank you for joining us. >> thank you.