♪ emily: i'm emily chang in san francisco this is "bloomberg technology." the u.s. has reached a deal that will allow zte after paying a record fine to management changes. we will discuss the next steps for trade talks between united states and china. plus amazon is attempting another home device breakthrough. customerstract more now that alexa is on board? microsoft traveled to the coast of scotland to set up a data center like you have never seen before.

we will take you down under. emily: first the trump administration has reached a deal to get zte back in business. the key, zte has to pay a fine totaling $2.3 billion. it also agrees to management changes eliminating a key sticking point. this is as the two countries tried to avert a trade war. the deal has caused a bipartisan backlash with senators warner and rubio railing against it on the basis of national security. the south dakota senator asked them up earlier. -- them up earlier. stealing our intellectual property, using it in their those are all things are country has been -- this

company has been guilty of, historically. we have to approach it in a very measured and cautious way because clearly china has intentions on surpassing and replacing the united states as the technological leader of the world and we should not help them do that. emily: selena, talk to us about this zte deal. >> this is a lifeline for the company. they will have to pay a massive fine. they want to change their management and allow u.s. compliance officers into the company to monitor what is going on. regardless of these changes, this is a win for zte. the company will not have to shut down. they will have access to critical key components that they need to make their components. they may still have a lot of trouble and potentially lose market share in telecom. this is as well as the smartphone space. a month ago we reported that key clients were pulling out of deals. they may continue to do that as a result of these management

changes. they may still he spooked out by the long-term trajectory of this company. emily: we have this tweet from mark warner. we have this from sender marco rubio. >> rubio has been repeating the same line.

it is a nice and easy thing to say that you will put compliance officers into the company, but zte is a massive company. there are still a lot of questions about whether they will be able to clamp down on the security concerns. what this whole thing shows is that the fear of lawmakers extends beyond the singular company. it is a question of technological dominance. china wants to be dominant. they will continue the ip staff and they forced licensing agreement. this will situation has done nothing to stop these -- the situation has done nothing to stop the greater issues. mily: what about the concerns with the chinese government? there have been discussions

about disagreements with chinese phone manufacturers. several years ago, there were tons of u.s. companies striking deals with hardware makers so it get their ownld software on various phone devices. we are seeing that lawmakers are responding to what facebook said. they are asking twitter, google, what agreements did you have with these hardware companies? stored justta locally on the phones, or did it go back into chinese servers? these deals have been going on for many years, but lawmakers are just now scrutinizing these problems even , though they are not new. want ceos toers testify on capitol hill. let's talk about the future trade talks between the u.s. and china. chuck schumer said the president should be aiming his fire at china but instead he aims it at

allies like canada, mexico, and europe. comes to china, despite his tough talk the president , shoots blanks. what does this mean for the trade talks that are happening the chinese government holds sway over a deal between qualcomm, nxp, and more? perhaps as a result of this positive deal, investors think china will take fewer retaliatory measures. question, so far in these trade discussions, there have not been a lot of resolution about the impact of the forced licensing agreement. these are the broader questions that have yet to be addressed. going back to the facebook, twitter issue, we are now seeing other chinese companies get into the fray as well.

in this letter that the lawmakers wrote to the company, they threw tencent into the mix gowe have a lot further to in terms of the result of this. emily: thank you selina. the federal communications commission approved a plan to free up high-frequency airwaves for next generation networks and other services. the action sets rules on sharing -- action sets rules on sharing an operating a 24 gigahertz band that will be auctioned to multiple carriers in november. this could be a breakthrough for consumers. >> the easiest way to think about 5g is that it takes what you think about on a server or a device from an operating system and puts it on the network. you are going to have a network out in the world wireless network that will allow you to do services you have never seen before to consumers. emily: coming up, google is

making its ai ethics clear. the company says it's technology will not be used for harm. we will discuss. if you like bloomberg news check , us out on the radio, bloomberg.com, and sirius xm. this is bloomberg. ? emily: google just released its

for ai applications. the company's ceo called them concrete standards. the company will not develop ai for weapons or technologies that cause overall harm or , surveillance technology that violates human rights. we have our reporter that covers google. what does this charter say? >> this is a broad reaching set of standards here. we have been expecting this charter for several weeks. it includes things like algorithms to make sure they have minimal bias, whether racial, sexual or political. , they are also saying they will not build ai applications for weapons. however, they are threading the needle by saying we will continue to work with the government on things like cybersecurity and search-and-rescue. they are not abandoning government work, they are

setting standards that will appease their staff. they have been upset with their work. emily: is this a response to the staff we pulled about google working with the government? >> yes. google signed a deal in september which is part of project maven. it's a department of defense effort to use artificial intelligence with drone footage. a lot of the staff did not find out about the project until several months later. 4000 employees signed a petition saying they do not want to be a part of that. emily: what are their concerns you go >> -- what are they are concerns? >> their concerns are wide ranging. people don't want to work with the military, they don't want google to be in the business of war. there is the concern of the potential use of ai and autonomous weapons. that is a concern that is here and that the google folks and

even some folks at alphabet have signed onto letters saying they believe ai should never be used with autonomous weapons. emily: what military uses do we see with google ai currently? >> they are looking to sell things as simple as gmail to the department of defense. they are talking about cloud services. search includes ai. gmail includes ai. that is why they need to get ahead of this and put out this big sensible. -- big principles. there is a lot of wiggle room what doesyou define, a weapon, and work that could be a surveillance system. emily: this comes off the back of a shareholders meeting where they rejected a proposal to tie executive pay to progress and -- progress on diversity. what do these principles have to say about bias and algorithms?

what do they have to say about things like privacy, for example? >> they really reflect the fact that engineers and tech workers are taking a bigger stand around ethical engineering. google has been talking about this for a long time. it was rare to have a current google employee yellow before executives and bring this proposal. the shareholders rejected it. there is a pretty vocal contingent in the company that is expressing concerns about ai use. about military, surveillance, the effect of automation, and on the workplace. emily: what do these principles mean for other tech companies like amazon and microsoft, that are also working on a i and have a relationship with the government? >> microsoft two years ago put out something similar about ai. the aclu has criticized amazon with its use on facial recognition technology.

google is a rare company in many ways where they had given their staff these vehicles for complaining for protesting. that hasn't quite happened at amazon or microsoft. emily: how do we expect the employees to receive these guidelines? will this appease some of the folks that were really upset? >> right now some employees have been saying we don't want to do any military work at all. some are willing to have these conversations. some are can comfortable with surveillance. emily: thank you so much. some stories we are watching, go -- an indonesian ride-hailing service was offered a billion

dollars in new funding. this is to ensure its first international forays are successful. the company has not decided whether it wants the cash, but the funds would accelerate the firm's overseas expansion. coming up as a fight for the pentagon cloud heats up amazon , introduces a new partnership that could land it the top spot. we have all the details. be sure to follow our network at tictoc on twitter. this is bloomberg. ♪

emily: cloud computing companies are competing for the pentagon's cloud.

it is a one or take all award for a multibillion-dollar cloud to be able toract deploy u.s. forces worldwide. right now many companies are in disarray saying this tactic for one winner puts amazon in the lead. earlier this week, amazon's cloud computing platform announced a new partnership. how does this partnership with aws help you? >> we have been working with aws for quite a while. and the government regulated space, there are usually more security requirements. they have been a leader inside the government space providing the infrastructure we need to run. we have been rolling out sap

capabilities and capital. has been a natural working affinity. we have built a good experience base with them. we can go to a customer and bring in s.a.p. capability and their infrastructure for them relatively rapidly. emily: if aws wins this contract with the department of defense, what does s.a.p. bring to it? >> the dod contract is an interesting situation and there is a lot of press around it. there are many cloud initiatives currently going on and we are working with the full panoply of providers. many -- as well as many of the smaller players. whoever wins this contract will get a portion of work and maybe potential preference in

some areas. the reality is that the department is looking to embrace commercial technology across the board more than it has historically. cloud infrastructure is part of that. you have to put an application on top of the cloud to make it do something. i suspect that even though there will be a winner in this, the acquisition is being debated in congress with some oversight and down into the department as well. when all is said and done, there will be multiple providers in the cloud in the space. even the secretary of defense recently mentioned that probably only 10%-20% of the actual work would go to this contract provider. it is obvious to me that we will be working with all of the providers at some time. emily: what you make of the concerns of the rivals oracle and microsoft saying that giving this contract to one vendor is unfair?

>> i don't know if it's unfair necessarily but it is the department's indicated direction right now. this contract will only represent a small part of what ultimately is the cloud infrastructure. the department of defense is probably among the largest conglomerates in the world. it would be very difficult to specify one player particularly when there are a number of initiatives going on. the winner may have some natural advantages. if you look at the structure of the way the dod works, the money comes at much lower levels. they make a lot of these purchasing decisions. i suspect there will be standards more around how we integrate and interoperate among all the providers. and how do we enable and encourage

more innovation and competition? ultimately that is what needs to happen. emily: one of the biggest -- what are going to be the biggest challenges of moving this part of the government to the cloud? >> in general, the cloud is an enabler like many technologies, they enable something. it needs to be married to a need. how we bring that use case to the customer but how we innovate even further from there. the department of defense has acquired capabilities for a long time and standard ways that date back decades. part of this is creating acquisition paths that make it easier for them to reach out and get it. we are seeing that already.

if we are talking in a couple of years, we will have significant movement here. we are working with six to eight customers in the defense space working on initiatives right now. they are not waiting for a grand acquisition. they are really moving. back in 2009, the cio of the federal government pronounced that we were looking at cloud first and we are seeing that now. emily: what are the security concerns that emerge with the dod that is in the cloud? >> when you look at, there is always been a debate on security. the cloud brings a set of standard capabilities around security to upgrade patches and new protecting capabilities that are harder to do in distributed environments.

i can speak from personal experience. we often hear equifax was blamed on one patch not being applied. when you hear about tens of thousands of servers connected, this is a larger problem. the cloud allows us to do it from a central location. the cloud brings security, improvement in general. there may be more perceived weaknesses because we are putting a lot of things in one place but in reality it is a more secure infrastructure. move in departments these areas, like utilities, we will find we will find people have a more secure environment. emily: thank you. coming up, as the competition for your living room heats up, amazon doubles down.

we will bring you the next alexa-incorporated products. and several big tech companies are hovering at all-time highs, but they are also facing data scandals and increasing regulatory risk. this is bloomberg. ♪

emily: this is "bloomberg technology." i'm emily chang. amazon has unveiled its newest piece of hardware featuring alexa. cue the amazon fire tv cube. it can power your home entertainment system and offers the basic alexa features, like answering questions. amazon is truly doubling down to dominate your living room. joining us now with more, the amazon vice president of product development in new york. thank you so much for joining us. you have combined the fire stick with the echo in a square design. why?

>> it is more than combining the products. what we looked to do was simplify the home entertainment experience for our customers. they have a lot of choices, ways to watch tv, cable boxes, your tv, your sound bar. what we wanted to create was a product that could manage all of that in a simple device that is easy to use, and that's what the fire tv cube is. emily: how much do you think incorporating alexa here will improve fire tv sales? sandeep: it provides a richer experience for our customers. one of the things that we found with voice across our products is that it is a natural way to interact with the world, especially with entertainment, to find shows, to switch channels. it is just the right way to do things. emily: so, what do you think in the future people will use the platform for most, kitchen or living room? sandeep: i think it is natural in the living room, to be able

to control your tv, to turn it on when you come home, say, "turn on the tv." in the home, the family room, the tv room is still where people come together. they watch shows together, communicate together. it's a natural place to have this sort of interaction for our customers. emily: i'm curious about the future of voice-activated shopping. when you're in the kitchen, you notice the things you are running out of. when you are in the living room, you can see products on the screen and perhaps make more informed decisions. what are you learning about voice-activated shopping as you go? sandeep: well, it is still early days. i don't think i can say much right now. again, products like this, we are just starting to get these out into the world. we are starting to learn what customers are doing, how they want to use them, how they want to use it to improve their lives and make it easier. over the next several months, years, as we do more with

products like this, very focused on entertainment in the living room, and see how customers use them. emily: so, you know, competition for the living room continues to heat up. we've talked about how google home is number two to echo. making great progress. what's to keep another tech company like a google from owning this space? sandeep: at the end of the day, it is what the customer wants and what the customer likes, what resonates with the customer. amazon, our fire tv products, have continued to lead in the marketplace, and that's because they resonate with our customers. they like what we are doing. they like the value. they like the experience. products like the echo cube do well with our customers, and they enjoy using them, and that's really what it's about. it's about creating a great customer experience that makes a difference. it's part of being customer obsessed.

emily: meantime, amazon is moving full speed ahead with new content deals, announcing the rights to stream 20 premier league games exclusively. will we see more deals like this? sandeep: i think we continue to expand our content type, source s. selection and option for customers is always great, adding more ways to watch the shows you want to watch. i'm a big fan of premier league. i watch that every week, so having that available in more places is a win-win for everyone. emily: somebody is watching premier league in the morning in my house every weekend. talk to us about what the incorporation of alexa looks like in the future. i know that you are still learning, but what -- how is what we are seeing paving the way for future applications? sandeep: i think the cube is a great example of learning from products like echo, bringing it to the tv space, solving a problem for customers in the home.

they love the fire tv. they love the way it brings streaming content and over the air content, but they have a hard time managing the cable boxes, the tv's. we wanted this to fit into the world they already live in, and that's really what bringing alexa to this story is, making their lives easier in the way they are already living and already dealing with complexity. as we go more and more and do more things like that, you will see great products that continue to solve issues that people have in their daily lives. emily: voice search already exists on other tv set-top boxes. what will set amazon apart in this space, specifically, from the competitors out there? sandeep: it's a lot more than search. that's one aspect of it. but today the venue for finding content, searching for content are so broad. there's premier league. we have great content partners like hulu and netflix. it's not only about searching,

but getting the content. if i want to watch bloomberg, i don't have to launch the app for try and find it. i just tell alexa, watch bloomberg, and that's what really sets it apart, the ease-of-use, the ease of access, the flexibility to do what the customer wants it to do. emily: now i'm sold. sandeep gupta, amazon vice president of product development. coming up, taking a deep dive into data. why microsoft thinks the future of data centers lies at the bottom of the ocean. this is bloomberg. ♪

dramatic music ♪] emily: an underwater data center, no longer the impossible fantasy of "mission impossible." it is now a reality thanks to

microsoft. it deployed an underwater data center off the coast of scotland. it features 12 racks of 864 servers, housed in a large tank and lowered 170 feet -- 117 feet to the seafloor. microsoft claims with more than 50 should -- 50% of people worldwide living 20 miles off coastlines, this could mean faster web load times and be friendlier to the environment. here to tell us more, ben cutler. what are the advantages of a data center under water versus on land? ben: emily, we see three potential advantages here, one of which is greater sustainability, faster deployment of new data centers to serve our customers, and the ability to be more responsive to customers by being closer to them. emily: so, what with the benefits of an underwater data center be for me here off the coast of san francisco? ben: as you said, if you look at the world, more than half the population is close to the coast.

as we look toward the future and we have more interactive applications, the ability to get quicker response back and forth to the data center should provide a better experience, for example, if you are playing a videogame or on the commercial side. as we move the crowd closer to our customers, for factories, autonomous driving vehicles, things like this, it should provide better responsiveness and better capabilities. emily: so, talk a little bit about -- you have plenty of data centers above ground. talk about the pros and cons of an on the ground data center, like the one you have in cheyenne, wyoming, and this project natick. ben: when we think about project natick, it is easier to cool things in the water. over time, we have gradually reduced the amount of energy we use for cooling. we can drive the cost down almost to zero. another thing that's important, if you look around the world in the 21st century, we think that one of the biggest research constraints we have is water. if you look at the cooling systems, whether of a building or other data center, they use a lot of water to cool.

the idea of putting something in the ocean that uses seawater rather than tap water or drinking water to cool may make it possible to take dennis centers -- data centers many places we don't go today, particularly in the developing world. emily: where and when might we see this in mass production? ben: this is a research project right now. what we are really trying to do is understand, does this concept work, particularly this idea that we are going to operate a data center where it has no human contact for several years, do the economics work out. if it does, i think we may have a new tool that we have available to our product group to deploy in different places around the world. emily: what about maintenance? it would seem pretty expensive to fix a piece of faulty hardware underwater. ben: absolutely. so, the idea here is what we call fail in place. we over provision it. we have more servers than we

think we will need for five years. we will still have the full capabilities we want. there's definitely a trade-off. if you look at a lot of industries over time, we go to greater and greater automation. 100 years ago, many phone calls were connected manually, whereas today we have these small buildings, biggest operate, no one goes in them -- they just operate and no one goes in them. you had to handcrank cars to start the engine. there are much more automated. this sort of thing helps reduce cost and bring greater value to our customers. emily: should we be concerned about negative environmental impacts here, and how is microsoft addressing that? ben: i think that we do our research to really understand what we are doing and whether it is safe before we go to commercialization. one of the things people worry about here is, you're putting this in the ocean, is it heating the ocean, is it going to hurt the fish. we look at this very carefully. we do real measurements. let me give you an analogy. imagine you're standing on a

bridge and slowly pouring a cup of warm water into a river. if we measure the temperature where it hits the river, it will be relatively warm, but it rapidly mixes as it goes down the river, till pretty soon it is imperceptible. the ocean is similar. we have these large ocean currents. when we measure the temperature coming out of the data center, it is about one degree warmer than the water coming in and that rapidly mixes. the first phase one project we did a few meters downstream, the water is only a few thousand degrees -- a few thousandths of a degree warmer. we will be measuring it very carefully. emily: we have heard this data center can store 5 million movies. what are you actually storing down there? ben: it is for experimental purposes. it is used right now only internal for microsoft, so there is no customer data there. the early experiments we will be doing our to really understand,

is it behaving the way we expect it to? later, anybody in microsoft who has some workload they want to run can run it there. emily: this data center -- i know it is just the beginning, but it is fairly small. less than 1000 servers. some data centers have 80,000 servers. can this really scale and make a dent in the world's -- the storage that is needed in today's world? ben: when we set about this project, we were very focused on the economic aspects of this. the particular size we chose here, which is physically about four times larger than the first we did, is about the size of a shipping container. we can ship it by truck, rail, or ship, using typical logistic capabilities that are out there today. for a larger data center, you would have multiple on the seabed, so it is very scalable, up to potentially very large data centers. emily: all right. ben cutler, microsoft research, thank you so much for joining

us. fascinating. airbnb has frozen a major portion of its home listings at the behest of local regulators in japan. the company said it would compensate travelers who find themselves stranded. it warned hosts it would be list those that had not registered would delist those that had not registered for licenses as required. lawmakers with the cloud to regulate facebook after it revealed it had data sharing partnerships with chinese device makers. we will discuss next. this is bloomberg. ♪

emily: activist hedge fund janus partners has named facebook one of its top positions. it reflects a bigger theme in tech stocks, the best-performing group in the s&p 500 this year, despite a strange relationship with the trump administration and the growing threat of more regulation. joining us to discuss, caroline hyde in london. dan in new york. the latest controversy in new york -- in facebook, that they shared information with chinese device makers. as you have talked about, the stock has recovered since pre-cambridge analytica. will investors care about this latest hiccup? >> if you look at the white-knuckle period over the lst months, zuckerberg navigated

it. there was significant nervousness you would see regulatory issues, major damage to the advertising franchise, and users leaving by droves. instead, we have seen it contained. we think maximum $1 billion to $2 billion of revenue is at risk this year in advertising. we have seen minimal defections. they have navigated the beltway in brussels with flying colors. you get this last chinese news. this is not the news you want to see. investors are a little more immune to this in trying to make sure it was on the phones and not the servers. i think you see the initial reaction, it looks like the bark is worse than the bite, at least so far what we see. emily: we spoke with u.s. congressman greg walden about this, who is very concerned. take a listen to what he had to say. greg: with each one of these revelations, it starts another cycle of what did you know and when did you know it and did you know it in time to have disclosed it, but didn't. that's not good for facebook, and facebook is a great american company. it's a great innovator. they have gotten to a place where they are under intense scrutiny now, and they have to get it right.

emily: and caroline, it sounds like the eu is planning to examine this as well? caroline: they are keen to re-examine so says one particular lawmaker in charge of enforcing europe's privacy laws. we just had the so-called gdpr brought in on may 25, which makes signing for and getting the user to agree to how we use the data and perhaps even remove their data entirely, the right to be forgotten, as it's known. andrew has been saying they want to re-examine some of this particular data and the use of it, potentially be provided to handset makers. we've had some other german regulators, a privacy regulator in germany saying this is absolutely alarming. this is why gdpr has come into place to begin with. emily: meantime, dan, i want to take a look at a chart in my library, looking at tech market

caps across the board. the momentum is just continuing. we've been talking about whether there was a bubble that was about to burst. it certainly doesn't look like it. will these companies sustain these market caps? if not, why not? dan: we still think we are in the sixth-inning of this playing out. apple likely hitting $1 trillion in the next few weeks. if you look at the multiples, you look at the fundamental stories -- in cloud, microsoft. e-commerce, streaming across amazon, netflix, other fang names. you see the v-shaped recovery in facebook. we are seeing a very healthy market, both with spending and consumers. numbers come up 10-15%. until we get into early to mid-2019, we still view this as a green light to own these tech names.

any of the macro-exogenous issues we have seen over the last few months, that's the opportunity to own these names during any of these white knuckle periods we have seen over the last two to three months. emily: caroline, there are some headwinds coming potentially for google, with indications that the eu is about to fine google as part of its big android investigation. what can you tell us? caroline: we could get a fine as soon as july. that's what the latest reporting is saying. it could be significant, if they decide to base the fine off the advertising revenues from mobile devices. this is all to do with android, all to do with the fact that google, when you buy an android phone with its android operating system, it will automatically have installed gmail, google maps, google search. they are saying this is anti-competitive to other search engines. they could also revisit the 2.4 billion euro fine they imposed last year around the shopping experience

that you get on google and the fact that you are unlikely to find competitors on it. they are saying perhaps google has not done enough to react to that yet, and therefore we could see fines even in excess of $3 billion. day by day, you could be fining google verse -- for the fact that they have not managed to tackle head-on the anti-competitive shopping online. emily: twitter is being added to the s&p 500. it's interesting if you look at the charts for square and twitter, which jack dorsey runs both of these companies. both of them up and to the right over the last year, despite headwinds. i have another chart here in the library, showing the company's turnaround at twitter. dan, what do you make of the fact that dorsey has somehow been able to pull this off?

dan: dorsey has had the golden touch. if you look at the twitter turnaround story, it has really been remarkable over the last 12 months. the monetization theme, what we've seen on user engagement. square, the success speaks for itself. there were a lot of bears who thought square's business model was just not sustainable. when you look at what dorsey has done, forest and the trees, it's one of the more remarkable leadership positions and jobs we have seen. those companies, in different ways, had challenges. twitter's turnaround story speaks for itself. what has happened there has just been a massive turnaround. we continue to think twitter goes higher here. dorsey should be getting a ton of credit here with the golden touch on both names. emily: quickly, caroline, this tech rally we are seeing in the u.s. is not limited to the u.s. -- it is happening globally?

caroline: you are right. we are seeing stocks, particularly in the technology sector, doing well in europe as well. chipmakers have been a source of growth. we are getting a lot of excitement about new companies coming to the public market. we've had one danish company up 25% on the first day of trade. next week, we have a payment provider coming to the market, $8 billion valuation, going to list about $1 billion of shares. that is yet another notable sign that there is appetite for these companies. all eyes on a fintech company likely to come in the summer in the u.k. as well. emily: caroline hyde in london. dan. thank you. that does it for this edition of "bloomberg technology." i'm emily chang. this is bloomberg. ♪

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