Microsoft's Surface Pro: More security blanket than tablet

NEW YORK (CNNMoney)

But the Surface Pro doesn't quite deliver.

First, the good news. It's every bit as well built as its counterpart. Every aspect of the Surface Pro's design is expertly considered and executed. It has a look and feel that lets you know you're using a Surface made by Microsoft (MSFT, Fortune 500), and not just any Windows 8 device from another manufacturer.

And it certainly has all the specs on paper, with a 1080p display, an Intel (INTC, Fortune 500)Core i5 processor, 4 gigabytes of RAM, and either 64 or 128 gigabytes of RAM. Given that the Windows 8 install eats up more than 40 gigabytes of storage space, the $999, 128 gigabyte model is recommended.

To house the added horsepower, the Surface Pro is thicker and heavier (0.5 inches and 2 pounds, respectively) than the RT. And the battery, rated for 4-6 hours of use, really lasts 3 to 4 hours under moderate, but constant use.

The laptop guts of the Surface Pro make the thing zip around as fast as similar ultrabooks. Unless you're trying to run the newest hardcore games, push around serious pixels in Photoshop, or edit a full movie, the Surface Pro is more than game for any task thrown at it.

And Windows 8 has never looked better on a tablet display, largely because the Surface Pro packs full HD resolution into a 10.6-inch screen. It's not quite as beautiful as a display like the Nexus 10, which manages 300 pixels per inch in its 10.1-inch display. But it's no slouch, either.

Now the bad news. I've written before about the downsides of shoehorning a laptop experience into a hybrid device. And that turns out to be the biggest problem with the Surface Pro.

The big sell on the Surface Pro is that it can run all those old Windows apps you used to use on Windows 7 (or maybe even XP), and still function as a compact tablet. In actuality, working in the legacy desktop mode can be more of a hassle than its worth.

A big problem with the Surface is the display, or rather, how Windows 8 handles those old Windows apps. You're forced to pick between display settings that shrink everything down so that the visuals are sharp and the screen feels spacious or settings where everything is readable, but cramped.

Once I found a combination of screen settings that I could put up with, I then found myself fighting a battle with the keyboard covers that come with the Surface Pro.

Typing is mostly acceptable with either the Type Cover (featuring springy, mechanical keys) or Touch Cover (which has no moving parts). But the trackpads on both are borderline unacceptable.

Fitting a properly-sized keyboard and trackpad on a tablet cover is hard. And Microsoft chose to sacrifice trackpad size to make it happen. As a result you lose responsiveness and many of the gestures that make Windows 8 so enjoyable. You're burdened with extra swiping and a clunky left click/right click experience.

Relatively simple tasks, like signing up for an online service through a browser, become significantly more complicated when using the Surface Pro. It gets to the point where you'd rather reach for a proper laptop instead.

Some of this interaction friction could have been alleviated if the desktop environment of Windows 8 had been given the slightest bit of touch optimization. But aside from visual streamlining, it mostly looks and behaves like Windows 7.

It's weird to think this is an issue since hardware and software are coming from the same source, but the Surface Pro just doesn't seem to be well-tuned to handle Windows 8 Pro -- and vice-versa.

Of course, you can connect external monitors, and employ wireless keyboards and mice to improve the majority of what ails the Surface Pro, but then you're one level removed from what the device is supposed to be—a replacement for your existing laptop and tablet.

There's also a pressure-sensitive stylus, which mostly works as advertised, but isn't ideal. While it's fun as an aid for drawing or note taking, it isn't much better than a finger for navigating.

The Surface Pro does enable you to do more than the Surface RT. Still, one has to hope that Microsoft sees the device for what it is: a hedge.

It is a security blanket for users still trying to make sense of the divide between mobile and desktop operating systems.

Despite its glaring flaws, the Surface Pro really isn't a bad device. It can handle applications and multimedia as well as any other ultrabook. It doesn't fall short so much because it's a bad idea as much as it just wasn't properly executed. It needs to be more in sync with Windows 8.

Ironically, the Surface Pro might be best used as a device for the home. You can dock it to a keyboard, mouse, and monitor, where it essentially functions as a brain. And it would be fine as a living room/bedroom tablet, where weight and portability are less of a concern.

But if you need a primary Windows 8 machine that you can take anywhere, use anywhere, and really get stuff done, the latest generation of ultrabooks are still your best bet. For now, the Surface Pro is a work in progress.

First Published: February 5, 2013: 9:03 PM ET

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Why 4G may lead to bigger smartphone bills

Cisco is predicting that smartphone networks will get faster and faster. But you pay more as a result.

NEW YORK (CNNMoney)

The average American will use 6.2 GB of data on their mobile devices each month in 2017, according to the latest annual Visual Networking Index released by Cisco (CSCO, Fortune 500). To put that into context, Americans used just 752 MB Americans on average last year.

If data plans stay the same five years down the road, the average user's smartphone bill could grow by $40 a month.

The wide-spread roll-out of 4G, the lightning-fast wireless networks that all four of the major carriers are in the process of deploying across the country, is expected to be the main culprit. 4G is capable of speeds comparable to your home broadband service, and it's roughly 10 times faster than 3G. By 2017, Cisco predicts that the average smartphone connection speed will grow more than three-fold.

The faster the connection, the more stuff people consume on their mobile devices -- particularly large video files, which will be the primary driver behind the download explosion, Cisco says. Streaming video services such as Netflix (NFLX), Hulu and Google (GOOG, Fortune 500)-owned YouTube are expected make up two-thirds of downloads in five years.

Related story: Video and mobile are breaking the Internet

The number of 4G devices is relatively small now. Just 1% of devices were connected to 4G networks last year -- but those smartphones and tablets accounted for 14% of global mobile traffic. By 2017, Cisco estimates that 10% of the world's devices will have 4G connections, and they will make up almost half of all traffic.

Clearly, people who have (or plan to buy) 4G-capable phones will download like crazy. That has vast implications for wireless carriers -- and your wallet.

Today's mobile-data-per-user average sits just below the entry-level 1 GB data tier that Verizon (VZ, Fortune 500) has put in place and well under the 3 GB tier that AT&T (T, Fortune 500) offers. But if Cisco is right that we'll all be consuming 6.2 GB-per-month on average in five years, those same Verizon or AT&T customers would have to pay $40 a month more in their cell phone bills to cover all that data.

Related story: Why your cell phone bill is going up

The companies haven't exactly been shy about stating the rationale behind switching to tiered and shared data plans. As customers rack up more and more gigabytes on their 4G devices, they pay more.

But if those plans don't change, carriers with data caps or tiers are going to have a revolt on their hands. For the time being, Sprint (S, Fortune 500) and T-Mobile continue to offer unlimited data service for mobile customers

"As you have more people using bandwidth-intensive applications on the networks, carriers are putting data caps in place," said Thomas Barnett, manager of Cisco's Visual Networking Index team. "But carriers will need to evolve their tiers for cell service to remain affordable -- while still getting those top users reined in."

AT&T and Verizon declined to comment on whether they'd consider raising their tiers as average use ticks higher in the future.

But those tiers have clearly been very effective. American mobile customers offloaded half of their traffic to Wi-Fi networks last year. In other words, the prospect of paying more has forced customers to think twice about when they need to use a 3G or 4G network.

By 2017, Cisco forecasts that 66% of smartphone and tablet traffic will be over Wi-Fi. So that may be a way for consumers to keep watching Netflix on their phone or tablet without paying an arm and a leg to their carrier.

First Published: February 5, 2013: 9:12 PM ET

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China moves to curb rising income inequality

Growing income inequality is a problem for China's communist government.

HONG KONG (CNNMoney)

The lengthy document, posted on the government's website, contains a broad set of promises to combat growing inequality and corruption.

But the plan, which had been delayed for months, is measured in its recommendations and contains only a few specific deadlines.

The minimum wage will be boosted in most parts of the country to 40% of the average salary by 2015, the government said. Higher property taxes will also be considered, as well as an estate tax and new limits on salaries at government-owned businesses.

The government will seek more contributions from state-owned enterprises, which will be asked to increase returns to the treasury by 5% to help finance social welfare programs. State-backed enterprises in China typically control huge swaths of market share and receive favorable loans and treatment from Beijing.

The blueprint also contains a pledge to narrow the huge difference in income between citizens living in rural areas and those in fast-growing urban areas, where wages are typically much higher.

Yet the impact of the reforms could be muted, especially given the size of the problem, which analysts view as one of the most pressing challenges facing the country's government.

"To carry out an intensified reform for income distribution is a complex and difficult project," the government said. "It cannot be done overnight."

Last month, China's statistical agency said the nation's Gini coefficient, a commonly used measure of income inequality, was 0.47 in 2012. That figure ranks China near the United States, but well behind many of the world's developed economies.

Some analysts contend China's official statistics understate the magnitude of inequality, and others warn the gap between rich and poor is already wide enough to potentially inspire social unrest in the country.

Related: Foxconn's China workers to get more union rights

China's government has pledged to make corruption a top priority, but a recent wave of scandals involving graft and embezzlement have embarrassed the country's top leadership.

Account after account of officials and executives who have used their power for personal gain have surfaced in recent months, sparking outrage on social media sites popular in China.

The series of scandals have complicated the handover of power taking place at the highest levels of government. Xi Jinping, already installed as party boss, will assume the presidency in March and has pledged to tackle corruption.

Related: Economy central for China's new leadership

In several speeches since he took over the reins of the Communist Party in November, he has warned that corruption could lead to "the collapse of the Party and the downfall of the state."

Yet the plan released Tuesday, heavy on populist language, offers few specifics on steps the government will take to fight corruption.

First Published: February 5, 2013: 11:50 PM ET

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Standard & Poor's says it will face Justice Dept suit over subprime ratings

Shares of S&P parent McGraw-Hill fell sharply on news of the looming suit.

NEW YORK (CNNMoney)

The ratings agency said in a statement that the Department of Justice "has informed the company that it intends to file a civil lawsuit against S&P focusing on its ratings in 2007 of certain U.S. collateralized debt obligations," investments based on pools of mortgages.

S&P called the potential lawsuit "entirely without factual or legal merit." The firm said that it "deeply regrets" the fact that its ratings "failed to fully anticipate the rapidly deteriorating conditions in the U.S. mortgage market," but that it relied on the same data as U.S. government officials and other analysts who failed to predict the housing bust.

News of the looming lawsuit was reported earlier by The Wall Street Journal. A spokeswoman for the Department of Justice declined to comment.

S&P is a division of McGraw-Hill (MHP, Fortune 500), shares of which dropped sharply on the news, closing down 13.8%. Shares of fellow ratings agency Moody's (MCO) fell 10.7%.

A Moody's spokesman declined to comment. A spokesman for Fitch, the other of the big three ratings agencies, said the firm has "no reason to believe Fitch is a target of any such action."

Related: U.S. credit ratings test is yet to come

Analysts have long pointed to ratings agencies as key culprits in the financial crisis.

Wall Street firms and other investors rely on the agencies to analyze risk and give debt a "grade" that reflects the borrower's ability to pay the underlying loans. The safest investments are rated "AAA."

Some investors, including pension funds and insurance companies, operate under guidelines that require them to hold a certain percentage of highly rated securities in their portfolios.

In the years preceding the meltdown in 2008, large numbers of mortgage-backed securities received AAA ratings, only to fail as the housing market collapsed. Critics say that because the major ratings agencies are paid by banks and other issuers of securities rather than investors, they succumbed to a conflict of interest in giving their seals of approval to dubious investments.

"Credit rating agencies allowed Wall Street to impact their analysis, their independence and their reputation for reliability," U.S. Senator Carl Levin said in a 2010 hearing. "And they did it for the money."

A 2011 Senate report on the financial crisis said the agencies "weakened their standards as each competed to provide the most favorable rating to win business and greater market share."

First Published: February 4, 2013: 3:47 PM ET

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China trouble deepens for Yum Brands

Yum Brands has a reputation problem in China after an investigation into tainted chicken at KFC.

HONG KONG (CNNMoney)

Yum (YUM, Fortune 500) shares were down more than 5% in after-hours U.S. trading Monday after the company warned that slower sales in China will have a significant impact on its 2013 earnings.

The reputation of the global fast food powerhouse, which operates thousands of KFC restaurants in China, has suffered in the wake of an investigation by Chinese food regulators.

The inquiry was launched after media reports alleged that excess antibiotics and hormones were found in some chicken products sold at KFC locations. The revelation set Chinese consumers on edge and sparked calls for a boycott.

Same-store sales in China declined 6% in the fourth quarter, the company said, a trend that accelerated in the final two weeks of December, when negative publicity turned sales "sharply negative."

The company suggested Monday that problems will persist well into the new year, leading to a mid-single-digit decline in earnings per share in 2013.

"Due to continued negative same-store sales and our assumption that it will take time to recover consumer confidence, we no longer expect to achieve EPS growth in 2013," CEO David Novak said in a statement.

China is an increasingly important market for the parent company of Taco Bell, KFC and Pizza Hut. Yum has placed big bets on future growth in the world's second largest economy; it operates more than 4,200 KFC restaurants in China, as well as about 800 Pizza Huts.

Related: Burger King finds horse meat at European supplier

Prior to the investigation into tainted KFC chicken, western fast food companies had enjoyed a reputation for safety in China, where consumers have been subjected to a spate of food scares.

Regulators traced the bad chicken to two poultry suppliers in KFC's supply chain and have issued a series of recommendations that Yum said it will implement.

Even with the setbacks, Yum will proceed with an aggressive expansion of its operations in China, including 700 new restaurants in 2013 alone.

"Although we cannot predict how long it will take to restore sales, we are steadfast in our belief that the power and popularity of the KFC brand in China will ultimately drive a full sales recovery," Novak said.

First Published: February 4, 2013: 9:55 PM ET

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Texas to California businesses: Move here!

Texas Governor Rick Perry, right, wants to lure businesses from California, after its governor, Jerry Brown, pushed through a tax hike.

NEW YORK (CNNMoney)

Perry has launched a high-profile battle for California companies, running radio ads in California touting the Lone Star State's low taxes and favorable business climate. The ads will be heard in San Francisco, Sacramento, Los Angeles, San Diego and the Inland Empire area east of Los Angeles.

"Building a business is tough, but I hear building a business in California is next to impossible. This is Texas Gov. Rick Perry, and I have a message for California businesses: Come check out Texas," starts the 30-second spot.

Perry notes that his state has won the Best State for Business title from Chief Executive magazine for eight years running. He noted that the cost of doing business in California is 6.3% above the national average and Texas' is 4.6% below it.

This is not the first time Texas has looked to raid California for businesses. The governor has made several scouting trips and has written letters to California companies in the past. And, according to the governor's office, nearly three dozen California companies have relocated or expanded in Texas during California Gov. Jerry Brown's term.

Texas isn't the only one knocking on California companies' doors. Several states have courted Golden State businesses in recent years, particularly during California's budget turmoil.

California officials, however, aren't that concerned. Business relocations account for only .03% of annual job losses and the state is doing well economically, according to the Governor's Office of Business and Economic Development.

"I can understand why Rick Perry is interested in California. We were the national jobs leader for most of the last year with 257,000 new private sector jobs," said Kish Rajan, the office's director. "Real job creation comes from California's history as a national leader in start-ups and the expansion of homegrown businesses."

But Perry sees a new opening with California's recent tax hikes, which he says "increases California's already excessive income and sales tax." He pointed out that Texas has no state income tax and a low business tax cut.

Related: The truth behind Mickelson's taxes

Perry even reminded golfer Phil Mickelson, who recently complained about taxes in California, about that fact. "Hey Phil....Texas is home to liberty and low taxes...we would love to have you as well !!" Perry tweeted last month.

Are you looking to leave California because of the recent tax increase? If so, email tami.luhby@turner.com. You could be profiled in an upcoming story.

First Published: February 4, 2013: 4:02 PM ET

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Dutch bank rescue shows Europe's problems continue

Dutch finance minister Jeroen Dijsselbloem said the rescue will increase government debt

LONDON (CNNMoney)

The Dutch government was forced to rescue SNS REALL to protect savers' deposits after the banking and insurance group racked up huge losses on real estate lending. Attempts to find a private buyer or investor failed.

"I therefore had to use the instrument of last resort, which is nationalization," said Finance Minister Jeroen Dijsselbloem, in a statement. "Nationalization would safeguard financial stability and prevent serious damage to the economy."

The government's intervention comes a day after two of Europe's biggest banks -- Santander and Deutsche Bank -- announced huge writedowns in a bid to reduce their exposure to the region's economic woes and move on from past mistakes.

More banks cleaned house Friday. Spain's second biggest lender BBVA reported a 44% drop in earnings in 2012 due to hefty real estate provisions and rival CaixaBank's earnings fell 78%. France's Credit Agricole announced a €2.7 billion impairment charge, including €852 million related to retail banking in Italy.

Related: Jury still out on eurozone - Draghi

While the investments of shareholders and subordinated creditors at SNS REALL will be wiped out, the rescue will still cost the Dutch state about €3.7 billion in capital injections and writedowns, pushing its budget deficit further above EU targets.

That will embarrass Dijsselbloem as he takes over as chairman of the group of finance ministers charged with policing fiscal policy among the 17 eurozone nations, and anger taxpayers who paid for a €40-billion bailout of the Dutch financial sector in 2008.

"I can well understand the aversion many people will feel because once again, a large sum of taxpayers' money is required," Dijsselbloem said. "This is why I want the private sector to contribute as much as possible."

A one-time levy of €1 billion will be imposed on Dutch banks in 2014 to help pay for the rescue.

Dijsselbloem said the EU needed to legislate to ensure that banks could be broken up more easily and that the cost of future rescues be borne largely by the private sector.

Related: Scandal at world's oldest bank

A working group led by European Central Bank governing council member Erkki Liikanen last October recommended separating investment and retail banking activities to protect taxpayers and savers.

But France has since countered with its own proposal that would stop short of forcing legal separation. So far, the EU has made only small steps toward a banking union -- agreement on a eurozone mechanism for winding up failing banks and protecting depositors is probably years away.

The EU, U.S. and U.K. are all discussing different ways to regulate banks to avoid costly bailouts in the future, leading some industry figures to warn that policymakers are creating unnecessary complexity, and potentially risk, with a confused approach.

UBS Chairman Axel Weber said last week the industry needed a global standard on the issue of separating customer deposits from trading activities.

First Published: February 1, 2013: 2:17 PM ET

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