Arguments for e-commerce and software being tax free were prepared for the WTO meeting by vendors like Microsoft, even if the battle of Seattle prevented their being considered. But this week, a more balanced assessment is being made about the need for a tax on Internet transactions, which mostly escape state and local taxes. One of the gritty issues facing the Advisory Commission on Electronic Commerce is to think through how Internet commerce could be tax-free, yet the tax money needed could be raised. ACEC meets today and Wednesday in San Francisco. In many ways, the arguments about a tax on web commerce replay the issues raised in the US by out-of-state purchases by mail order. It took a Supreme Court decision in 1992 to decide that sales tax on mail order sales could only be collected if the seller had a substantial physical presence in the state. With 46 states and many cities having a sales tax, mostly in the 5 to 9 per cent range, there are more than 6,000 sales tax jurisdictions. There is a legal obligation for those in other states to pay a use-tax on goods and services bought out-of-state, but this is hardly ever enforced. Internet-based merchants nearly all want to keep the Internet tax-free, but there are objections from the bricks-and-mortar traders. There's also a need to obtain tax revenue to pay for essential local services like schools, the police, the fire service, and municipal expenses. Between a third and half of the taxes of states and cities have come from sales tax in the past, but the amount is likely to decline as a result of tax-free Internet sales. Estimates vary widely as to how quickly the Internet would result in a significant erosion of the tax collected, except that it will be billions of dollars in two or three years' time. Some organisations, like Amazon.com, which moved from New York to Washington state, have changed their physical location to take advantage of a lower tax regime. Other companies are ensuring that their Web presence is through a different company, so that their physical presence in many states will not necessarily result in a sales tax in the future. ACEC was set up by Congress last year, and is supposed to report by 1 April, but there is already some doubt as to whether the 19 members, under the chairmanship of Virginia Governor James Gilmore, will reach any agreement by that date. If not, Congress itself could take over the matter, or give ACEC more time - and the betting is that the latter would be more likely in election year. The argument is being made that a tax-free Internet favours the rich, since most wealthier households have Internet access. This is not a very convincing argument since local kiosks would soon be established by traders, so that anybody could place an order there, and pay with cash as an alternative to plastic. Another scenario is the possibility of a local Internet business agent receiving a commission on sales that were forwarded, as happened with catalogue sales. If it is decided to introduce new legislation for a sales tax on inter-state trade, there are some formidable technical issues to be resolved. Tax-free havens would quickly spring-up offshore, and it would be ironic if Cuba became one of them, following a relaxation in US-Cuban relations - Cuba Libre would have another meaning. Considerable infrastructure would be needed to collect tax on goods coming into the US from these tax havens, something that would prove to be politically undesirable for any party, especially in election year. A radical decision would be to abolish sales tax and introduce an alternative, but this appears unlikely since it would be so easy to enact legislation to oblige online merchants, or more probably the credit card companies, to send the tax collected in exchange for a commission. There would be some wailing over the complexity of local taxes, but reform is possible. The Washington Post yesterday cited clothing as an example: nine states exempt clothing from sales tax, and in eight of them a shoelace is classified as clothing, except in Texas. There would need to be a big database for all this, but it does only have to be built once and then maintained. At the ACEC deliberations, state and city officials will lock horns with mostly Republicans, activists against tax, and Internet traders. Gilmore will be advocating permanent tax exemption because he sees e-commerce as a driving force in the US economy. There will be an organised opposition through the E-Fairness Coalition, composed of those with an interest in bricks-and-mortar, such as retailers like Wal-Mart and shopping mall owners. Gateway has recently separated its in-store activity into a separate business in anticipation of tax regime changes. In Europe, where there is supposed to be free trade, customs duties are used to penalise purchasers of some of the better things in life. Sales tax - value-added tax - is charged on trade between EU member countries, which has resulted in complaints about non-EU suppliers of goods and services having favourable treatment. The clear winners are going to be the delivery services, and those who set up local Internet service centres for placing and receiving orders - a natural evolution of the Internet café. ®
It was expected that the new relaxed rules on data encryption export from the USA would come into effect on Wednesday, but this will not now happen until 14 January, according to an announcement from the Bureau of Export Administration of the US Department of Commerce. The compelling market need is of course to protect e-commerce payments. The problem seems to be that the draft that was circulated by the BEA did not live up to the September announcement of the relaxation, and was also unworkable. Seven countries that the US regards as sponsors of state terrorism will not be allowed to have access to powerful encryption, nor will countries where the US government considers there to be significant money laundering. The pressure for relaxation, which is only from 40-bit to 56-bit keys (baby stuff nowadays), had come from vendors who pointed out that whereas the US used to have essentially the whole market for encryption products, there were in excess of 500 non-US products with 128-bit or greater encryption. The Norwegian-developed Opera browser offers 128-bit encryption, for example. When 56-bit products were specifically allowed to be exported in the past - to financial institutions for example - they had to have a back door for the Feds. The US IT industry is generally of the opinion that the 64,000-fold increase in security by going to 56-bit encryption from 40-bit is not enough. In June last year the Electronic Frontier Foundation confounded the FBI claim that it would take months or years to crack 56-bit keys: the EFF demonstrated this being done in a few hours. In August, the security system used in Internet transactions was cracked by an international effort coordinated by the Dutch National Research Institute for Mathematics and Computer Science (Centrum voor Wiskunde en Informatica, CWI) in Amsterdam. The RSA-155 code (so-called because the 512-bit numbers in the code have about 155 decimals) was originally developed at MIT. Cracking it required finding the prime factors of a 512-bit number. The factored key is a model of the public key, which is used in the SSL protocol. This means that 512-bit keys are no longer safe against what the team modestly called a "moderately powerful attacker". More bits would help, but the hunt must now be on for something a few orders of magnitude more difficult to crack. ®
Alan Sugar, British household name and chairman of Viglen Technology, is famously bearish on Internet companies - or at least the valuations placed upon them.
Microsoft claimed recently that "thousands of companies have built their Web sites on the Windows 2000 platform" and announced that "6,000 Web sites are currently running on the Windows 2000 beta". We were therefore puzzled to find that Microsoft's Hotmail still uses Apache 1.3.6 Unix on FreeBSD, while msn.com uses IIS 4.0 on NT or Windows 95, according to Netcraft. Microsoft.com itself is running on the Windows 2000 beta. Microsoft was also keen to point out that "the Windows platform, including the forthcoming Windows 2000, is used to power more than half of the top shopping sites, according to Netcraft..." Of course, qualifying that claim to "top shopping sites" does give some definitional latitude. However, that's not all that Netcraft is allegedly saying. Netcraft's November 1999 survey shows that Apache powers 55 percent of servers (up 1 per cent on the previous month) while Microsoft-IIS fell to 24 per cent (down 1 per cent on October). Netscape trails at 7 per cent. Microsoft has always joked about eating its own dog meat, so why isn't Microsoft using the Windows 2000 beta for all its sites? After all, Craig Bellinson, the W2K lead project manager said it is "incredibly more scalable and reliable". Could it be that it isn't actually scalable enough for Hotmail, or reliable enough for MSN? And why does MSN run on NT and Windows 95? We think we should be told. ®
Updated 3Com subsidiary Palm Computing filed its divorce papers yesterday -- or at least early details of how it's going to break away from the comms giant through its upcoming IPO. Palm hopes to make $100 million on the issue, which is believed to be scheduled for next February, though there's nothing in the company's S-1 Securities and Exchange Commission filing to confirm that. Neither is there confirmation of the number of shares to be issued or there price point -- Palm will reveal that information in a later filing, closer to the IPO date. What is known is that the company will launch on Nasdaq with the symbol PALM (surprise, surprise...). The issue will be underwritten by Goldman Sachs. Palm will use the proceeds of the IPO "for payment of a dividend to 3Com, payment of other amounts due to 3Com, capital expenditures, marketing expenses, working capital and potential investments in, or acquisitions of, other businesses or technologies". After the IPO, 3Com will remain the majority shareholder in Palm, retaining around 80 per cent of the company. That will be reduced further by private sales to Nokia, Motorola and AOL, which will each take 1.5 per cent of the company in a sale worth a total of $225 million -- which, based on Palm's estimate IPO takings shows just how little of the company is being sold off to the public (though it has to be said, the $100 million is little more than an estimate used to calculate Palm's fees to the SEC). Motorola will be using Palm for "new wireless products" -- possibly its own version of the Palm VII -- notes the filing. Nokia recently licensed the PalmOS for mobile phone products, and AOL will apparently work with Palm to offer Internet access through the handheld devices, part of its AOL Anywhere strategy, presumably. ® Related Stories Smartphones, Palms to dominate mobile market PalmOS extends lead over WinCE -- just New chiefs for old at Palm Sony steps on gas to get Palm-based products out quickly Sony, Palm deal set to expand PalmOS horizons -- and then some
Developer of the Quake family of games and 3D gaming guru John Carmack has called for the development of an independent OpenGL "conformance nazi". Essentially, Carmack feels there's not enough testing of OpenGL drivers going on, largely because most of it's being done by software developers in their spare time. More to the point, driver development tends to focus on getting the maximum performance on key features rather than properly supporting the wider OpenGL feature set. "I would rather improve quality and coverage instead of kicking a few more fps out of Quake III," he notes. What's needed, he writes in his latest .plan file, is a "vendor-neutral OpenGL watchdog, or even a small group, especially in the Linux space" who can "really exercise different implementations through all corners of the OpenGL specification". "Some of the windows IHVs have good testing procedures and high quality drivers," he adds, "but even there, it would be nice to have someone hounding them about things beyond how well Quake-related games run. "The same goes for Apple, especially now that there is both ATI and 3dfx support." His concern the "Linux space" centres on the fear that driver writers are tending to be more interesting in getting better benchmark stats that those produced by Windows drivers. Understandable, says Carmack, but not the right approach: "Sure, it is nice to beat windows drivers on some benchmarks, but I wouldn't let pursuit of that goal introduce dumb things into the code." ® Related Story MS and OpenGL: supporting it to death?
Last week's announcement from Quantum that it had developed the world's quietest hard drive has had cold water poured on it by a number of industry watchers. The Fireball lct was heralded as a breakthrough by Quantum, with a resting noise level of 27.8 decibels reaching just 32.5 decibels in read/write mode. Quantum is hoping the quieter drive will become the HHD of choice for set-top boxes and other home electronics devices where noise levels are considered more important. But this breakthrough is now being given the "so what" treatment by analysts and rival manufacturers. One of drives the Fireball was compared with in the tests that revealed it be the quietest HHD on the block was the IBM Deskstar 25. The Fireball was found to almost half as quiet as the Deskstar. But while the Deskstar is a three-platter 15.2GB drive, the Fireball is a single platter 10GB drive. According to Electronic Buyers News (EBN), this prompted IBM representatives to say: "The test sponsored by Quantum compares apples to oranges." Big Blue claimed that any drive of the same size as the Deskstar 25 would produce similar noise levels. Anthony Nash, vice president of Charles M Salter –- the analysts that carried out testing of HHD noise levels -– told EBN that there was more that PC manufacturers could be doing if HHD noise reduction really was a priority. Existing PC assembly has drives mounted on metal rails, which make production processes easier and quicker. If they were installed on rubber mountings, this would bring down noise levels, he said. Nash admitted that the initial test that gave the Fireball a glowing report were "non real world tests" as each drive was tested in isolation in a hemi-anechoic chamber. ® Related story Fireball lct -- world's quietest desktop HDD
Ever since Nixon went to China, the US has eyed the Chinese market lasciviously, even though the red ink continues to flow in Chinese IT investment. Yesterday, NASDAQ announced that Amgen, Applied Materials, Cisco, Dell, and Microsoft would be listed on the Stock Exchange of Hong Kong from February. Softbank may also be involved in the SEHK launch programme. Trading will be in local currency. The Hang Seng index appeared to be unaffected by the news today, and fell 1.5 per cent. The US stocks to be traded are too high to be popular in Hong Kong, so some method of trading in fractional shares seems likely. Microsoft would be HK$751, whereas the most expensive HK share is Hutchison at HK$107.50. NASDAQ chairman Frank Zarb reiterated that he wants to expand the SEHK listings in due course to the NASDAQ 100. Some SEHK companies may be listed on NASDAQ, although HSBC and China Telecom are already listed on the NYSE. Most Hong Kong stocks are little known in the US. Expansion plans also include NASDAQ exchanges in Europe and Japan for later next year. The deal is seen more of a marketing move for NASDAQ than any form of global domination. The NYSE will be meeting in January in Europe to discuss the so-called G-9 alliance of the nine largest exchanges in the world, except for NASDAQ that is. The benefit of 24-hour trading will probably have as much impact as 24-hour supermarkets - a little more convenience for some, but low volumes. Most trading will continue to take place where there is most liquidity. ®
Hewlett Packard will today announce support for storage area networking in the NT arena, along with a number of other initiatives designed to bolster its storage portfolio. Hugh Jenkins, head of product marketing at HP UK, said that the introduction of NT storage area network (SAN) support, filled a gap in its portfolio. He said that HP's support for NT had been somewhat patchy and support and products weren't in place. "As of today," he said, "all of those issues are sorted." Products HP will launch include cluster configuration for the XP 256 storage unit, and also support for products from IBM, Compaq, Dell and other vendors. HP will also announce an NT high availability product called Marathon, as well as SAN management software, and fail over software. The introduction of the set of products completed its portfolio and would allow HP to compete against high end products from EMC as well as against Compaq and IBM at the lower end, Jenkins said. ®
Novell has released its prices for the NetWare 5.1 upgrade, previously code-named Cobra, which it says will ship on time in mid-January. Novell has already demonstrated NDS running on Windows 2000, but is waiting for Microsoft's final release of Win2k before releasing its own enhancements. In addition to NDS and the new NDS eDirectory (which will support NT server and Solaris - with Linux, Windows 2000 and Compaq Tru64 during the first half of next year), the product will ship with the standard edition of IBM WebSphere Application Server and the entry edition of Studio, which are intended to provide a growth path. There will also be a 5-user version of Oracle8i and Oracle WebDB, giving access to a SQL database. Novell is also including its NetWare Management Portal which allows network administrators to access their network from anywhere in the world. So far as pricing is concerned, comparisons are not easy because both Novell and Microsoft will offer discount plans, and in any event the products are different. Microsoft would need to add additional functionality before useful comparisons could be made. So far, Microsoft has only given the bare bones of its pricing, but Novell's full pricing announcement yesterday suggests that the larger the installation, the greater the saving will be with NetWare. Novell is not expecting to see a great corporate rush to Windows 2000 on 17 February. ®
Japanese consumer electronics giant Pioneer has reversed its decision to delay the launch of DVD Audio hardware and will launch its upcoming player later this year as originally planned. The decision to delay its DVD Audio roll-out, pushing the launch back from December 1999 to April 2000, was made after a band of Norwegian coders cracked the encryption system (Content Scrambling System) on DVD Video and released a utility called DeCSS to copy files from a DVD onto a hard disk. DVD Audio uses an CSS-derived copy protection system called CSS2, developed by 4C Entity (4CE), a company sponsored by IBM, Intel, Matsushita (which owns Pioneer, along with JVC) and Toshiba. 4CE is working on a new version of CSS2 that's more secure than the original and should provide the level of security that arguably should have been implemented on DVD in the first place. The new version should be released in six months' time. Pioneer has now decided not to wait, according to EE Times, and will ship its player without DVD Audio copy protection but with sufficient security for DVD Video playback which the machine also supports. The reason? The simple fact it, Pioneer reckons there won't be any DVD Audio titles available until the new version of CSS2 ships, so it will push the player as a video machine upgradeable to a DVD Audio player. The company is considering releasing its own copy protection-free DVD Audio disks in the meantime. ® Related Story Film biz delivers legal threat to DeCSS-linking Web sites
A report on Electronic Buyers' News said that Intel has moved the launch of its 750MHz Pentium IIIs up from next January to next week, and will also introduce a 800MHz Coppermine Pentium III. If the reports are correct, it suggests that Intel is moving faster than expected to narrow the distance between it and its nearest competitor AMD, which introduced a 750MHz Athlon a few weeks back. According to EBN, the other products Intel was planning to introduce next January, including new mobile Coppermine chips and Celeron parts, are still being held until that date. The report also states that there will be both 133MHz and 100MHz versions of the 750MHz parts. Last Sunday, Intel cut prices on some of its Coppermine Pentium IIIs and Pentium III Xeons by between four to seven per cent. Intel never comments on unannounced products to the press, so we'll just have to wait a week to see what's afoot. ®
Why take a separate mobile phone and MP3 player into the shower, when you can have both together in one device? Fujitsu, Hitachi and Sanyo have developed a Flash card system to allow cellphones to play digital music tracks downloaded from the Net. Secure Multimedia Card (MMC) is essentially a rival to Matsushita, Toshiba and SanDisk's Secure Digital Memory Card, and Sony's Memory Stick, all designed to store digital music that can't be subsequently copied. It uses Fujitsu's UDAC-MB (Universal Distribution with Access Control -- Media Base) content delivery and protection system, which can support any compression scheme, including MP3. Sanyo's contribution is to manufacture phones that support the cards, while Hitachi will produce Secure MMC units. Sanyo's handsets will contain music download software which grabs not only the music files themselves but, separately, the decryption keys, which are then stored in the Secure MMC's Tamper-Resistant Module (TRM) area. "Eighty-eight percent of young people in their 20s have portable phones and 70 to 80 percent of them also have portable audio players [in Japan]. So we thought there could be a way to enjoy music [over the phone]," said Fusao Terada, Sanyo's R&D boss, according to EE Times. None of the participant companies would say when their Ketai de Music ('Music on Your Mobile Phone') service and products would be launched. For now they are touting the technology to Japanese content providers and network services. ®
Struggling ISP 08004u is claiming to have pulled off a last-minute victory in its battle to stay in business and get its service off the ground at last.
Korea's chip and TFT-LCD sectors had a boom year in 1999, serving as a prop for the country's economy. Both markets were forecast to stay strong for the next few years due to continuing demand for PC and digital electronic devices, the Korea Herald reported. Analysts said worldwide sales for semiconductors were this year expected to hit $145.2 billion, a 16 per cent hike on last year's $125 billion. This was the fist year of double-digit growth in the industry for four years, helping to pull the nation out of its current economic crisis. The increase helped boost Korean chipmakers' business, especially the bigger players such as Hyundai and Samsung. Chip manufacturers, which had been suffering due to a three-year slump in chip prices, saw profits pick up in June. Surging worldwide demand for DRAM saw prices shoot up from $4 in the first quarter, nudging $20 in September after the Taiwanese earthquake. The price rebound followed healthy growth in demand for PCs and the Web. Many vendors failed to anticipate the surge, resulting in the current situation where demand is outstripping supply. Korean manufacturers were said to have been ramping up production. Hyundai is expected to ship 509 million units by the end of 1999, with a market share of 23.5 per cent, according to IDC. Next is Micron Technology, with 17.6 per cent share, and then Samsung with 16.8 per cent. Samsung is expected to record the highest sales growth rate in the industry, with a 35 per cent increase taking revenue to $5.8 billion. The worldwide TFT-LCD market also showed huge growth, and is expected to reach $12 billion in 1999, a jump of 50 per cent on last year. Sales will grow to $14.3 billion next year and $25 billion in 2003, boosted by the frenzy for handheld digital devices and higher quality monitors. For Korea, the combined sales of its top three LCD makers – Samsung, Hyundai and LG Phillips LCD – are expected to top $4 billion in 1999, a 100 per cent rise on last year. And their sales are expected to grow 35 per cent to reach $6 billion next year. ®
Two IT companies in the US are being sued by a home worker alleging he had been subjected to unfair and illegal treatment. The man, Kamsan Mao – a Cambodian immigrant – is claiming that he built PC power supply units for San Jose-based Top Line Electronics, and earned as little as $5 in a three hour period. That's around £1 per hour. Mao is alleging he had to work weekends and nights and that he was exposed to hazardous fumes and chemicals. The lawsuit also names Lite-On, one of the companies Top Line supplies. Mao's action follows the Californian labour department's decision to investigate the way Silicon Valley companies are treating home workers with Asian backgrounds. ®