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QUEST MEANS BUSINESS

Apple Earnings; Interview with Jack Dorsey; Yellen's Big Week; Fallout from Snowden's Revelations

Aired October 28, 2013 - 17:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RICHARD QUEST, HOST: Europe has changed her clocks. America is still on old time. The market is now closed. It's 5:00 on Monday, the 28th of October.

Apple's juicy results -- they've been spoiled by a less than rosy outlook.

The many sides of Jack Dorsey -- Twitter's co-founder tells us about his other company, Square.

And bugged by the U.S. surveillance scandal -- now Spain is demanding answers. It's the start of a new week, and, of course, I'm Richard Quest. and yes, I mean business.

Good evening.

Apple's earnings have been released in the last hour. And a disappointing number. Quarterly profits fell from a year ago. The stock is down around, oh, 3 percent in after hours trading. The numbers, as seen for Apple, as you take a look. For its fiscal fourth quarter that ended in September, now net profit, $7.5 billion. Bergman gap, non-gap, net, EBITDA, these are the numbers we're working with. Net profit, it's down 8.5 percent from last year.

But these are the underlying data. Apple sold 33.8 million iPhones, which was a record for the quarter. It was -- that was up quite sharply, by the way, 14.1 million iPads, that's just about even Stevens, 14 million as against the previous year.

The chief exec, Tim Cook, says it's been a strong finish to an amazing year -- it's Apple's fourth quarter.

Investors, of course, looking to the future. And when you look to the future where Apple is concerned, you're really talking about the challenges.

And what is next for Apple?

Well, the overarching point, the stock is down 13 percent in 12 months, closing at $529 today. There is a pressure to get that stock price back up again, led by the activist investor, Carl Icahn, of which you'll hear more in a moment.

Apple has got new products, but investors are still looking for more. Consumers are looking for more. They want to know about the iWatch. They want to know about the new Apple TV. And Berenberg's analyst has suggested that Apple even make the iCar by buying Tesla and putting the two brands together.

And then, of course, you have the issue of China and waiting for a China mobile deal is still a possibility.

So those are the issues for a company that is still a darling in the tech world, but where the luster has perhaps somewhat faded.

Paul Sloan joins me now, editor-in-chief of CNET News.

He joins me from San Francisco.

Interesting results, Paul. Revenues up, profits down. There -- what's going wrong here?

Margins are being squeezed and how.

PAUL SLOAN, EDITOR-IN-CHIEF, CNET NEWS: Well, that's the story, right?

It's margins. I mean they've -- they've beaten expectations. Yes, profit was down, but it's still better than expected. And as -- as you point out, it's sort of this dance with Wall Street. It's all the -- you know, numbers is about what you match against or what you have -- what you guide.

And they've done well there. The problem is, they're guiding forward and showing that margins are going down. Their products cost a lot to make and they're under pricing pressure. It's the -- it's the ongoing story of hardware and the difficulty of the smart phone competition.

QUEST: And in that environment, they have to build a better mouse trap, because if your margins are under pressure and you've got a pricing pressure at the same time, you've got to keep coming up with something new.

SLOAN: Look, everyone has been having this discussion since the stock started declining a little over a year ago. And, you know, when is the post-Steve Jobs breakthrough going to come?

Are we going to go -- I would like that iCar, by the way.

(LAUGHTER)

SLOAN: But when are we going to get the watch, which I don't, you know, I don't think the whole world is going to get that excited by an iWatch.

QUEST: Right.

SLOAN: At least immediately.

But there's still a lot of iteration, a lot of innovation that's going on in every iteration that Apple is making. And, you know, there's a reason people are lining up for the 5S phone. It's really nice. And they add a lot of speed and with the chip...

QUEST: So...

SLOAN: -- and they have -- the camera is nice. I mean they're still doing world class products.

QUEST: Right. So come off the fence on this core point, because I feel your frustration with my question. So feel free to come off the fence.

Does Tim Cook have to do the big next thing?

Does he have to?

Or does he just carry on as is?

SLOAN: I think a big next thing would help. I think it might be Johnny Ive more than Tim Cook. I also think you sometimes don't know what the next big thing is until long after that thing has been -- has come out.

Remember, people were very dismissive of strategies such as the retail store. I know that's different, but people were also very dismissive of the iPad when it came out. I mean sometimes you don't know what's the next big thing. And people seem to think that Tim Cook is going to stand on stage and unveil something and, boom, we'll all see this is it, this is the breakthrough.

Well, it just doesn't work that smoothly.

QUEST: And interestingly, back to that report, the iCar that Tesla suggested, putting Tesla.

There was a serious point under the article, which is basically, if Apple is to seriously grow revenues, then something -- I mean not -- not an iCar, per se, but something has to come along that's going to give a massive boost to the revenues. Otherwise, you can pretty much see it remains a $37 billion, $38 billion forward.

SLOAN: Yes, I mean at this size, it's pretty hard to grow revenues. I mean there's this law of large numbers, right?

I mean it's how big can one get?

So that's true. They would have to do something that (INAUDIBLE). And it's really hard to imagine.

I mean doesn't Tesla sound a little far-fetched to you?

It's just hard for me to picture that.

QUEST: Oh, I love it...

SLOAN: (INAUDIBLE).

QUEST: -- I love the thought of a good story...

SLOAN: You'd like...

QUEST: -- that's just going to take it to another level.

SLOAN: Well, you know, people have entertained Apple buying Netflix, which is always thought was entertaining, too. It's just -- it's so far we've never -- in Apple's history, we've never seen them do those kind of acquisitions.

QUEST: Right.

SLOAN: But it would sure spice up the story, wouldn't it?

QUEST: It would, indeed.

Paul, good to see you.

Thank you for joining us.

The results from Apple...

SLOAN: Sure.

QUEST: -- out just a short while ago.

Now, it's round two in the nasty fight between the interventionist investor, Carl Icahn and Bill Gross over Apple's future. It started on October the 1st, when Icahn Tweeted -- now, this is Carl Icahn, one of the great names of investor and activism in the boardroom and among the shareholders.

He said, "I had a cordial dinner with Tim last night. We pushed hard for $150 billion buy-back. We decided to continue a dialogue in about three weeks.

So that's what it was so far.

Now, seconds away, round two.

It comes out, first of all, Gross. This is from Gross. Bill Gross entered the ring last night -- week, and took a swing at Icahn. He Tweeted: "Icahn should leave Apple alone and spend more time like Bill Gates" -- a reference to philanthropy. "If Icahn's so smart, use it to help people, not yourself."

But the battle goes on.

(BELL RINGING)

QUEST: Icahn today straight back with a double punch to Bill Gross at PIMCO: "If you really want to do good, why not join GivingPledge.org, like Gates, I and many others have?"

Well...

(BELL RINGING)

QUEST: The way it looks in the boxing ring, Twitter's executives are on the road marketing their newly minted shares to would-be investors. The New York Stock Exchange staff are ready to started trading and getting things ready for day one.

On Saturday, they conducted a dummy run of Twitter's IPO. They want to avoid sort of mistakes that happened, for example, with Facebook, avoiding any glitches to avoid problems on the NASDAQ.

The staff declared the Twitter dummy run a complete success.

And while Twitter gets ready for the big day, the company's co-founder is focusing on its projects for small businesses.

Maggie Lake spoke to Jack Dorsey about his mobile commerce company, Square.

(BEGIN VIDEOTAPE)

MAGGIE LAKE, HOST (voice-over): Unassuming and soft-spoken -- Jack Dorsey blends right in with the average business owner.

But make no mistake, this 36-year-old tech titan is far from average.

As one of the founders of Twitter, he conquered the media universe and reinvented the way we communicate.

Now, he's ready for an encore.

JACK DORSEY, CEO, SQUARE: Yes, our mission at Square is to make commerce easy. And we believe the results of that mission is to give time back to our sellers, give time back to our merchants, so they can really focus on building their business up.

So, you know, we don't want this to just be about payments. We don't want it to be about transactions. Those are all mechanical things that -- that should be so intuitive that they disappear.

LAKE: Starting with a credit card reader back in 2010, Square has expanded to a virtual register that tracks merchant data and a newly launched service called Square Cash, which lets people send money to friends using just an app or e-mail.

UNIDENTIFIED MALE: One day we'll have an office.

LAKE: We caught up with Dorsey at the Hula Girl espresso shop in Toronto. He's crisscrossing North America, talking to small business owners. He believes they are the key to reviving the economy.

DORSEY: We want to level the playing field for everyone who wants to participate. So what I think is great about technology and every technology that exists is it increases the number of people who can participate, in our case, commerce. It also increases the velocity that they can participate.

So with Square, you can start as an individual. You can start selling something and then you can grow. You can add employees. You can add locations around the country, maybe -- maybe even around the world.

LAKE (on camera): You've got PayPal. You've got some giants out there that are also trying to make a land grab.

What are you doing different at Square that you think is going to set you apart?

Is it how easy it is for people to use?

DORSEY: A lot of folks are -- are looking at parts of the equation. And Square is looking at the entire thing, because if you're not solving for the entire experience, you're putting those seams in front of the customers. And the customers see that and they have all these friction points and it actually slows down the business. And it takes time away from the business. It takes time away from the buying experience.

And that really puts a damper on how many customers you can bring into your space.

So we want to make sure that it's just one end-to-end, cohesive, great, frictionless experience and that's been our focus from day one.

LAKE (voice-over): Those efforts seem to be paying off. Transactions have tripled over the last year and a half. But the success of Twitter has cast a long shadow on Dorsey.

(on camera): Because of our involvement with Twitter, I think the bar -- the expectations are really high.

Does that make it easier for you with this venture or does it make it harder?

DORSEY: It's not something I really think about that much. You know, this is an entirely new canvas. Twitter is focused around communication. This is around commerce.

But I think they're both fundamental to humanity. I think both are extremely complex and both companies are trying to make each simple.

But they're very, very different problem sets. And they require different solutions to each one. So we're just focused on making commerce easy and so everyone can participate and everyone can grow at the speed they want to grow.

LAKE (voice-over): His desire to tackle these complex problems has landed him on magazine covers and prompted comparisons to visionaries like Steve Jobs.

But it has made him the subject of some withering commentary inside Silicon Valley.

(on camera): Obviously, you're in the news a lot. There's a lot being talked about in the environment.

How do you stay focused on what you're doing?

Is it distracting?

Do you bother -- does it bother you, because some of it's personal?

DORSEY: You know, it's just a -- it's going back to the fundamentals of what we're trying to do. It's, you know, I have a lot of people around me, fortunately, who are constantly reminding me what's most important and what we have to get done today. And that -- that's always going to be the most meaningful focusing element is like we have a ton to do, we're really excited about it and we want to get it out there.

I mean we're building all these great technologies that we're really proud of. And what makes us proud is actually seeing other people use it, being in a store like this and seeing like it's working.

(END VIDEO TAPE)

QUEST: Jack Dorsey talking to Maggie Lake in Toronto.

There are various ways that one could describe the market for you. If you look at those numbers for Monday, well, virtually non-existent. I mean minus 1.3. Hardly worth talking about. Fifteen, 50, the 6-8 for the Dow.

The S&P 500, now that rose 2 points. In doing so, it broke Friday's all-time high. The Dow and the NASDAQ were off.

The investors were pleased with the latest batch of earnings. Besides Apple, which happened after the bell, Merck fell -- the shares fell after the drug maker reported sales below forecasts.

Burger King surged. Earnings and revenues were well above forecasts for those companies.

The Fed chair nominee, Janet Yellen, has a big week coming up. We'll talk about what the next few days could mean for her future and the future of the U.S. economy, when we come back.

(COMMERCIAL BREAK)

QUEST: Janet Yellen faces a week that will likely decide not only her own future, it'll give us a very good idea of what's going to happen to the U.S. economy.

As the nominee for the Fed, she is meeting U.S. senators individually this week. Dr. Yellen faces some opposition from Republicans. They're upset about the Federal Reserve's stimulus efforts, of which she has been a strong proponent.

Still, her current duties as the Fed chair continues. And as we've said on Tuesday, the Fed begins a two day policy meeting.

Looking ahead, Janet Yellen's confirmation hearings are expected at some point next month. And Bernanke's term at the central bank ends January 31st. So there is plenty of time for those hearings, confirmation, approval, good-bye parties, Christmas cheer and into the new year.

Diane Swonk is the chief economist at Mesirow Financial.

She joins me from Chicago.

Diane, good to see you, as always. I am assuming nobody in their right mind believes Janet Yellen isn't going to get confirmed.

DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: I think that's a good assumption, although there will be some delays, probably, in her confirmation, as you already mentioned.

One of the interesting issues is she's already vice chairman. So as Chairman Bernanke leaves in January, even if she's not confirmed yet, she becomes the chairman by default.

So there's a bit of a hidden clause in this particular time, because she's not only the first woman chairman of the Fed, she's the first vice chairman to ever make it there.

QUEST: So we're on a time scale that it is going to happen. Again, if we look at this week's Fed meeting, having made such a royal cobbless (ph) of their summer communications strategy and then their September strategy, I am assuming no -- that nothing is going to happen this month.

SWONK: Well, they certainly aren't going to change their asset purchase program and that's for sure. I think they'll have to downgrade their talk on the economy a bit, because we have seen some weakness out there. And they'll have to factor in, of course, what they were afraid of, and that was fiscal fiascoes.

We did have a shutdown, after all. You were in Washington, as I was, while it was going on, Richard. So you know we had one. And they're going to have to acknowledge that.

I think there is a chance, as well, we're going to start seeing even more talk about forward guidance. What they'd really like to do is hand off the baton of balance sheet expansion to further out forward guidance on how long they're willing...

QUEST: But...

SWONK: -- to hold that punch bowl out there with long and short-term -- with short-term interest rates at 0.

QUEST: Well, you say that, but -- and this -- this debate on forward guidance, which is getting into the real weeds of macroeconomics. I'm not sure.

What more can they do?

They've said -- they've come up with a number for unemployment. They've pretty much said that the Fed funds rate will not be raised until X date in the future.

So when you talk about forward guidance, what more do you -- do people refer to?

SWONK: Well, we're already seeing the Fed sort of back off that number. Remember, 6.5 percent, then we'll -- once we cross that, then we're going to think about raising interest rates.

Well, now it's, well, we could go below 6.5 percent. It depends on how we get to 6.5 percent.

Is it because the participation rate is falling, which would be bad news -- a bad way to get to 6.5 percent?

Or is it because the economy is really improving, which would be a good way to get to 6.5 percent?

So now they're starting to condition it a lot of. And I think you're also going to see -- we have seen markets actually move back a little bit when -- or move in a little bit, when they think the Fed is going to raise rates because the unemployment rates are going up fester than we thought.

QUEST: But I mean -- but, right, but...

SWONK: (INAUDIBLE)...

QUEST: -- but I mean...

SWONK: -- not for the right reasons.

QUEST: But I'm reading that this time, we are not looking for a tapering until into next year.

What's Mes -- what's your forecast for tapering?

When are you looking for it?

SWONK: Well, unfot -- I mean I think the Fed is in a very tight spot. And I think they're going to be stuck with not doing any tapering until probably March, when Janet Yellen will be chairing that meeting, actually, in full. That's a tough spot for the Fed because there's many on the Fed that are uncomfortable with the balance sheet. They're uncomfortable with the political backlash. And they're not so sure of its efficacy and they'd like to sort of be able to more gracefully hand off...

QUEST: (INAUDIBLE).

SWONK: -- tapering to this forward guidance.

But as you said, that's a bit in the weeds and their communications haven't exactly been clear.

QUEST: We could talk -- I could talk much more about the weeds of the -- of the gardening in the Fed, but we are -- we have to leave it there for tonight.

Diane Swonk joining us from Mesirow Financial.

Many thanks, indeed, in Chicago.

Now, European markets, they pulled back ever so slightly. Traders are looking ahead to that Fed meeting.

Britain has been hit by some severe storms. Trading volume was down in London, not surprisingly.

The DAX slipped after, rising above 9000 for the first time. It just slipped back a touch.

G4S, the security company, went and sold all sorts of security divisions, rejected a $2.5 billion offer for its cash and transportation business.

So to Asia. Nik -- the Nikkei was the standout performer, up 2 percent. The (INAUDIBLE) jump of almost 3 percent. In other words, it is even Stevens.

The yen weakened on the dollar. Good for exporters. Sydney's benchmark index hit a new five-hear high.

In a moment, a scandal over organized crime has cost a top Japanese banker his job. Takashi Tsukamoto will step down as chairman of Mizuho Bank while keeping his post at the top of the parent company.

An internal report found the bank failed to stop $2 million from being transferred to the mob. The investigation has also concluded that Mizuho did not engage in a deliberate cover-up.

The bank's chief executive offered an apology and the traditional deep bow.

He will stay on and give up part of his salary. Mizuho's chief executive explained the reasoning behind the chairman's departure.

(BEGIN VIDEO CLIP)

YASUHIRO SATO, PRESIDENT AND CEO, MIZUHO FINANCIAL GROUP (through translator): This issue was not elevated to a management level and there were some details that could be seen as nearly breaking the law. The responsibility for that is a very serious one, so we have decided there is no choice but to call for resignation as a punishment.

(END VIDEO CLIP)

QUEST: A New York department store is facing allegations of racial profiling and the rapper Jay-Z says he is being demonized and denounced. We'll take you to the heart of this very unpleasant row.

(BELL RINGING)

(COMMERCIAL BREAK)

QUEST: The U.S. rapper, Jay-Z, says he's being demonized for not dropping a promotion with a famous New York department store. The department store is being accused of racially profiling its customers. You can see where this one is going.

Two young black shoppers are suing Barneys because they say police targeted them after they visited the store. In an online statement, Jay-Z defended his partnership with Barneys. He has a commercial arrangement, saying, "Why am I being demonized, denounced and thrown on the cover of a newspaper for not speaking immediately?"

Well, you need to know more about this.

And Nick Valencia has the details.

(BEGIN VIDEOTAPE)

NICK VALENCIA, CNN CORRESPONDENT: Jay-Z is no stranger to social issues. We saw him and his wife, in fact, at the Trayvon Martin rallies earlier this year.

And now the rap superstar finds himself in the middle of another social issue, as he prepares to launch his high end holiday collection at the luxury retailer, Barneys, there are some people that are asking him to reconsider.

(music)

VALENCIA (voice-over): Next month, Jay-Z is set to sell a new fashion line at Barneys. But a Change.org petition is calling for him to end all partnerships with the New York retailer. That's because a second African- American college student has come forward to allege racial profiling, saying undercover officers stopped and questioned her after she bought a $2,500 Celine bag at Barneys New York.

KAYLA PHILLIPS: I had good intentions. I went. I bought my favorite bag. You know, I wanted this bag. I deserved that bag. And then to find out, you know, I'm being accused of using someone else's card, I just really felt demeaned.

VALENCIA: Twenty-one-year-old Kayla Phillips came forward after 19- year-old Trayvon Christian made headlines claiming he, too, was racially profiled after purchasing an Ferragamo belt at Barneys in April.

Both shoppers want damages from the store and the New York Police Department.

TRAYVON CHRISTIAN: The undercover cops on the left side, they had regular clothes on, stopped me from the left side and asked me, like, oh, I just got a call from Barneys saying your card is not real.

VALENCIA: In a prepared statement, Mark Lee, CEO of Barneys New York said, quote, "No customer should have the unacceptable experience described in recent media reports and we offer our sincere regret and deepest apologies. We want to reinforce that Barneys New York has zero tolerance for any form of discrimination. Our mission is to ensure that all customers receive the highest quality service, without exception."

The New York Police Department says it's investigating the incident.

Jay-Z's representatives have not commented, but Kayla Phillips hopes they do.

PHILLIPS: When he hears about it or even when he gets involved in it, he knows that it's not right and he will make the right choice.

VALENCIA: And Jay-Z isn't the only star getting caught in the middle of a high end store controversy. "Treme" star Robert Brown filed a lawsuit this week against Macy's. Brown says he, too, was the victim of racial profiling. He says police accused him of using a fake credit card and detained him back in June.

(on camera): Now, Macy's says they are investigating, but they wouldn't comment on ongoing litigation. As far as that Change.org petition asking Jay-Z to sever his ties with Barneys, well, it's already collected more than 5,000 signatures.

(END VIDEO TAPE)

QUEST: Nick Valencia reporting there.

We'll turn our attention to surveillance of a very different kind. This time it's fury over the U.S. surveillance program. And it's now spread to Spain. Officials in Madrid summoned the U.S. ambassador following new espionage leaks.

So who's taking this seriously and where does this story go next?

QUEST MEANS BUSINESS after the break.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest.

There's more QUEST MEANS BUSINESS in just a moment.

This is CNN and on this network, the news always comes first.

The White House says it recognizes the need for more constraints on how the U.S. gathers and uses intelligence. President Obama's spokesman, Jay Carney, told reporters that a review of surveillance capabilities is underway and should be completed by the end of the year.

Five people were killed and 30 more injured in China's Tiananmen Square on Monday after a car plowed into a crowd of tourists at the entrance to The Forbidden City. Authorities are looking into whether the crash was an accident or intentional.

A powerful storm is pushing further away from the United Kingdom after pummeling Britain with fierce wind and heavy rain. At least two storm- related deaths were confirmed in England and some 220 homes are without power. Parts of France and Belgium and the Netherlands are also affected by the storm.

The Russian president says there will be no prejudice at the Sochi Winter Olympics. The event has become the focus of a backlash against a Russian law which calls -- what it calls for homosexual propaganda amongst minors. Some activists have threatened to boycott the $50 billion games. Apple reports a dropping quarterly profits to $7 and 1/2 billion from a year ago despite selling 33.8 million iPhones. It's a record for the quarter. Apple shares are down roughly 3 percent in after hours. The British Prime Minister Dave Cameron has sent a warning to the U.K. media in the midst of the NSA spying scandal. Minister Cameron said the U.K. government may be forced to clamp down if the press doesn't behave responsibly when deciding to publish intelligence leaks. The Prime Minister acknowledged newspapers are free to publish what they want -- he said. But he asked for judgment and common sense.

DAVID CAMERON, BRITISH PRIME MINISTER FROM VIDEOCLIP: They've now gone on and printed further material which is damaging. I don't want to have to use injunctions or D notices or the other tougher measures. I think it is much better to appeal to newspapers' sense of social responsibility. But if they don't demonstrate some social responsibility, it'll be very difficult for government to stand back and not to act.

QUEST: The fallout from the NSA spying allegations is reverberating around the world. Join me at the Super Screen and you'll exactly what I mean. You're aware of course of what's happened in Germany and France, well now Spain has summoned the U.S. Ambassador to a meeting over reports from two Spanish newspapers that said the NSA spied on its countries. And one of those states the U.S. monitored 60 million calls during a 30-day period. You're well aware of what's happened in Germany, where officials will meet U.S. counterparts over the alleged spying and surveillance of Chancellor Angela Merkel's mobile phone. Last week Chancellor Merkel said reports of American spying had severely shaken relationships and she warned that eavesdropping amongst friends in her words is "never acceptable." There are reports that Japan has turned down the NSA request to tap into cables running through the Asia-Pacific region. The U.S. was interested in gathering and garnering phone and internet data about China. Officials in Japan declined to cooperate because of legal restrictions on wiretapping and a shortage of workers to carry out the task. I'm not sure which is more significant, the legal restrictions or the shortages of workers. Somewhat surprised they suggested if they had the workers they might have done it. Foreign affairs reporter Elise Labott is in Washington. Elise, OK, I -- let's put this into context. How serious are the administration taking it being -- living here in the States at the moment, one doesn't get the feeling that this story is -- has anything like the (inaudible) ramifications that say, for example, one was hearing in Europe or elsewhere?

ELISE LABOTT, FOREIGN AFFAIRS REPORTER: Well, Richard, if you remember when the NSA scandal broke when Edward Snowden leaked the documents that the NSA was spying on Americans and collecting all this metadata, there wasn't even a big uproar then. I think that in this post- 911 and 911 world, the American public realizes that this is something the United States does to make sure that it is following all leads -

QUEST: Right.

LABOTT: -- and protecting its security. And do they don't really see this as a big deal, until it really affects them.

QUEST: How can this affect the U.S.? I mean, ultimately, we're in a situation of cutting nose to spite face. So, the Germans are not going to suddenly break off relations with the United States any more than the Spanish are going to expel the Ambassador, any more than the French are going to break off diplomatic relations. That would be classic cutting off nose to spite face. So, surely the Americans just have to privately say 'Sorry.'

LABOTT: Well, it doesn't -- as you say -- it's not going to make a big break in relations with these countries. But it does affect the relationship. It goes to the further impression that the U.S. can't be trusted. Now if you remember when President Obama took office, he said he was creating this new era. This was not the Bush Administration, and he was going to work with allies. And now this kind of fuels that the impression that American is not a trustworthy ally and these countries may not break up relations but there might not be a little kind of pep in the dialogue so much anymore. And that could affect relations over the long term.

QUEST: Is it your thinking that somebody -- maybe it'll end up being the poor Secretary of State John Kerry -- somebody in the administration is going to have to say publicly, 'Sorry.'

LABOTT: I think you already see the administration moving in this direction by saying we recognize that allies have concerns. The Administration has been talking more publicly about this review that they're doing of U.S. intelligence and surveillance activities to make sure that not just the United States does surveillance because it can -

QUEST: Right.

LABOTT: -- but because it should and this could be working more directly in line with what U.S. policies and U.S. goals is. So they're not saying 'sorry' yet, but I think they're ramping up to some kind of more public mea culpa if you will.

QUEST: Yes, I was trying to avoid the mea culpa, but I suppose the mea culpa -

LABOTT: Can't avoid it.

QUEST: -- no, you can't avoid it. Eventually somebody's got to do the mea culpa, even if they won't mea or culpa. All right, many thanks indeed. Elise Labott's been joining us from Washington. Now, this privacy question not only in the United States government but it's also at the heart of a trial that began in London today. Among the defendants are two former newspaper editors. They are facing serious charges of conspiracy to intercept mobile phone voicemail messages. Our correspondent Max Foster reports on what is a very high-profile case in the media.

(BEGIN VIDEOCLIP)

Female: I (inaudible) my All Mighty God so that the evidence I shall give shall be the whole -- the truth, the whole truth and nothing but the truth.

MAX FOSTER, ANCHOR AND ROYAL CORRESPONDENT FOR CNN INTERNATIONAL: It was a story that's rocked the foundations of the British establishment. Two former newspaper editors put on trial, charged with phone hacking. Rebekah Brooks and Andy Coulson are due to appear in court at the Old Bailey. Both have been top executives of the now defunct "News of the World" -- closed after these allegation surfaced in 2011. Brooks, the former chief executive of Rupert Murdock's News International, will appear alongside her husband and four other journalists in court.

STEVE HEWLETT, MEDIA COMMENTATOR: The stakes here are enormously high for someone who was right at the center of power in prison and right at the heart of the (inaudible) empire.

FOSTER: The charges relate to illegal eavesdropping by journalists at the newspaper sparked by the case of missing schoolgirl Millie Dowler in 2002 who was later found murdered.

BRIAN LEVESON, ENGLISH JUDGE AND PRESIDENT OF THE QUEEN'S BENCH DIVISION: Nobody should think that because they're not called to give evidence their submissions are not being considered. Everything is being considered.

FOSTER: Public outrage at the hacking of her cell phone was such that it prompted a legal inquiry led by Lord Justice Leveson.

Male: Why are we all here? We're here because of the truly dreadful thing that happened -- not to politicians, but to ordinary members of the public whose lives have been turned upside down.

FOSTER: A legal examination of politicians, journalists, celebrities and the police which culminated in this damning 2,000-page report.

HEWLETT: Everybody agrees with what Leveson said, more or less, about what a new press self-regulator should look like and what he should be able to do. The question is how can the public be reassured that what has happened every time previously -- which is that they say they'll do it and then don't -- doesn't happen again.

FOSTER: Both Brooks and Coulson had close ties to British Prime Minister David Cameron. Brooks, a close family friend and Coulson as Cameron's former head of communications in Downing Street. All defendants deny the charges. Max Foster, CNN London.

QUEST: It's a case of a little could help a lot, and I'm talking about the width of your seat. Well not here, which is comfortable enough. How about the seat in space on a long-haul flight. Airbus has some new research. We'll tell you about it in a moment.

(COMMERCIAL BREAK)

QUEST: It's being touted as the world's biggest airport within 14 years. Tonight joining a handful of commercial planes who are using Dubai's newest airport is the Al Maktoum International, and it threw open its doors and opened its runways to passenger flights on Sunday after three years of cargo services. It's being built within Dubai World Central in Aviation City. It's all located 50 kilometers south of the main airport which is the Emirates Airlines hub. Now, Emirates is expected to operate entirely out of the new airport when it's finally and fully completed. At this stage, that's due to be finished in 2027. It will have cost more than $32 billion. The opening of this mega airport is one of those popular stories we have online right now. You can read about what the Maktoum has to offer and leave your own thoughts to what makes a perfect airport at cnn.com/international. Airbus says, however, that passengers would sleep much better on a long- haul flight if their seats were wider. Now, by wider, you've only got to go 2.6 centimeters, or just an inch -- basically that much more -- will give us all a better night's sleep. The aircraft manufacturer is brandishing the new findings of a study that shows the extra space vastly improves sleep quality. That was already billed in the added wiggle room in the top end of the industry standards, and wants airlines to follow suit. It took a swipe at its competitors, for what it calls eroding passenger comfort. No matter how wide or comfortable your seat on a long-haul flight, if you haven't got a bed, there comes a moment when you have to twist and contort yourself to try and get into sleep. And there are devices that can help as I found out over the North Atlantic.

(BEGIN VIDEOCLIP)

QUEST: We're all familiar with the blowup pillow, but thankfully, these days, there are new gadgets, gizmos and contraptions to make it better. This is the upright sleeper. It even comes with its own set of instructions. This is what they call the correct neck alignment. It does come with its very own modesty screen which of course (inaudible). Actually this is remarkably comfortable. They call this the ostrich pillow. You could lean on the table in front. It's very warm in here, and could be quite claustrophobic to wear.

(END VIDEOCLIP)

QUEST: So last night I'm flying back from San Francisco, and I'm on the red eye from San Francisco to New York. And it's only four and a half hours, and it is one of those flights where you do have to twist -- it doesn't matter whether you're in economy or first, you're twisting and you're sleeping and you really don't (inaudible). Samuel Burke has been speaking to the head of passenger comfort at Airbus. There's no -- unless you've got a full flat bed, there's no getting away from the fact you're going to end up a contortionist with a bad back.

SAMUEL BURKE, BUSINESS CORRESPONDENT: Yes, I just had to fly from New York to London, and it's true, you kind of lean over and it's just never quite comfortable when do it. But the study, Richard, they said that with just one more inch of room, that people fell asleep faster, that they woke up less often, and that they had less of those twitches that you know we all have, especially when we're falling asleep at first. And all because of that one inch of room. It's just this, Richard, so I asked that Head of Passenger Comfort at Airbus how this can make the difference.

(BEGIN VIDEOCLIP)

KEVIN KENISTON, HEAD OF PASSENGER COMFORT, AIRBUS: The results from the sleep study that we did with the London Sleep Center showed that one inch makes all the difference. The 18-inch wide seats gave the people that participated to that study a much better quality night's sleep -- 53 percent better in fact.

BURKE: Isn't what people really want is just another inch front here so that that seat doesn't lean back on them so much. I know that's up to the airlines, but wouldn't that make more of a difference than one inch right here in the width of the seat?

KENISTON: In terms of the seat comfort, the comfort driver's width are far stronger than those of pitch. So it's better to focus on the width of the seats than it is on the amount of leg room that you have.

(END VIDEOCLIP)

BURKE: So, Richard, Airbus was like the entire industry -- they just add this one more inch, but you know better than I do. It's not that easy. It's really not simple at all to just increase the width, because it has more to do with the airplane than it does just simply the width of the seats.

QUEST: Fascinating stuff. Samuel Burke in London with the width on the plane. Tom Sater is at the weather forecast and has bought in for us this evening. Very -- my mother -- not that you're terribly concerned about my mother, but she was very concerned living in North London --

TOM SATER, CNN METEOROLOGIST: Yes.

QUEST: -- about these storms and gales, and whether trees would come down.

SATER: Yes, a big problem, Richard. Mainly this storm would not have been a major player if it was a month and a half or two months from now. But because we did have the leaves on the trees, therefore the damage and unfortunate fatalities. If it wasn't for the leaves, we probably would have had some damage, and there's no doubt there would've been disruption to travel, but nothing like this that's going to have a hefty price tag. It will be, I'm sure, several insurance claims. Unfortunately it's not an historic storm, but for those families who lost loved ones -- that we know of, four -- in the southern areas of England, and of course, four fatalities there, as many as four to even six more across parts of France. It's Amsterdam, Germany as well.

We have a smattering of cloud cover. We will have some sunshine again for the day tomorrow. This was a fast-moving storm and when you have a fast- moving storm, that's also a wind maker, those two factors coupled together create more damage. Isle of Wight 159 kilometers per hour. In fact, anything that's 120 is considered hurricane strength. Copenhagen 137. Just five hours ago they were still up to 119 kilometer per hour winds. So even the pictures -- I mean, they do tell the story here. The system developed southwest of England, just offshore around the 11 o'clock evening period. Last night by noon, it was already in the North Sea. This is in Germany. This used to be twin windmills. Only one is now standing. In fact the winds have even untilled the other windmill on this one. The center of the storm, still producing some strong winds is very close to Stockholm now and it continues to surge in the next hour or two, it'll be in the Baltic Sea. The numbers, well they're responding up toward the north of course. Copenhagen's 11, London's at 9, we're getting a little bit closer. I think they're going to be a few degrees cooler in the next 24 hours that they were today. Still a little breezy, Dublin 39, notice that of course they do pick up the closer to the center you go. Amsterdam 26, Brussels 30. A number of flight cancellations and delays, but even notice some of the wind gusting. Copenhagen now.

The possibility of a few stronger wind gusts will remain as the system starts to move out, we're going to find everything start to quiet somewhat, and it's really going to be cleanup time. As we take a look at the rain pattern, you're going to see it's quite widespread. We will be watching another system approaching from the west and the northwestern areas of the U.K. If you have flight plans and schedules for Tuesday, these were the delays and most likely the airports that had some backups, and it's going to take a while to get their flight schedule back up to where it should be. So, everyone from Amsterdam, Brussels all the way down Frankfurt, Hamburg had several problems in the day today. But your temperatures, Richard, look like this. Vienna 17, Paris 13, London 13. It's nice to get this one in and out of here. It's too bad it didn't happen a month from now when we didn't have so many leaves on the trees. Terrible day, though.

QUEST: Tom Sater at the World Weather Center. It's a warm invitation to the Winter Olympics from the Russian President himself. Vladimir Putin is going out of his way to welcome all to the $50 billion games. After the break.

(COMMERCIAL BREAK)

QUEST: The Russian president is banishing prejudiced from the Sochi Winter Olympics. The event has become a focal point for protests over a Russian anti-gay law. Some activists have threatened to boycott the $50 billion games. Now, Vladimir Putin says no discrimination in Russia.

(BEGIN VIDEOCLIP)

VLADIMIR PUTIN, RUSSIAN PRESIDENT VIA TRANSLATOR: We're doing everything -- both the organizers and our athletes and fans -- so that participa(n)ting guests feel comfortable in Sochi, regardless of nationality, race or sexual orientation.

(END VIDEOCLIP)

QUEST: Putin made the statement as the head of the IOC inspector of the Sochi site on Monday. With 100 days until the 2014 games, as Phil Black now reports, the city seems confident everything will be done in time.

(BEGIN VIDEOCLIP)

PHIL BLACK, MOSCOW-BASED NEWS CORRESPONDENT FOR CNN INTERNATIONAL: Sochi's Olympic bid had one fairly significant weakness -- no existing sporting facilities. Organizers have tried to turn that into a strength by designing from scratch the ideal model for Olympic venues. This is what they came up with. Two clusters -- one by the coast, one in the mountains, a new road and rail line linking the two. Compact, efficient, no big travel times between venues. As the calendar this the 100-day countdown mark, that design is basically a reality. While on the ground, things are still pretty rough and there's a frenzy of landscaping, painting, taking care of the details to get the place looking right. The sports facilities have all been built and tested, but work on one -- big piece of infrastructure-- is letting the (site) down. And it's kind of important. The Fisht Stadium, the stage for the opening ceremony, doesn't look like it's going to be ready soon. Sochi's unpredictable weather and the people directing the opening ceremony have forced big changes on the design during construction. It was supposed to be open with views of the sea on one side, mountains on the other. But it's now getting a roof. Russia isn't a country known for its efficiency. Building all this on time will be a statement to the world. It's why President Vladimir Putin is taking such a personal interest. Dmitry Grigoriev manages the speed skating arena. He says Putin's direct oversight has made big difference.

DMITRY GRIGORIEV, MANAGER OF ADLER ARENA: I'm not going to say why or how, but it has, believe me.

BLACK: But you're seeing things happen.

GRIGORIEV: Yes.

BLACK: Quickly? Efficiently?

GRIGORIEV: Yes.

BLACK: Perhaps in a way that they wouldn't have happened otherwise?

GRIGORIEV: Yes. Yes, very much so.

BLACK: Getting the venues ready isn't Sochi's only challenge. The whole city was run down, neglected, with little investments since the Soviet era. It's getting a major overhaul which doesn't look like it could possibly be ready soon. The skyline is a mess of cranes and partially- completed buildings, many of them, much-needed hotels. And then there's the traffic. Ask any local -- it's often appalling. Sochi's Mayor, Anatoliy Pakhomov, is firmly on team Putin. He says the President's hand is felt everywhere, and Olympic investment generally has renewed the city in a way that wouldn't have been possible without the Games. There are some unusual sights around this Olympic city, like this mysterious and growing military facility near the coastal venues. Security, always a big Olympic concern, is even more so here. Islamic militants fighting an insurgency not far from Sochi have sworn to disrupt the Games. And on the naked, pre-winter slopes, you see these huge silver mounds. In this technically subtropical climate, snowfall can be patchy, so organizers are storing vast amounts of last season's snow just in case. (Rosser) is promising an Olympics unlike any the world has seen. So different is this city from previous hosts, so great the challenges. It would be difficult not to deliver on that promise. Phil Black, CNN, Sochi.

(END VIDEOCLIP)

QUEST: I will deliver on the promise of a "Profitable Moment" after the break. "Quest Means Business."

(COMMERCIAL BREAK)

QUEST: Tonight's "Profitable Moment." There's something rather delicious about the opening of the Al Maktoum Airport in Dubai and having the ruler of Dubai welcome the first flight. A man who has his own jumbo jets and transports horses around the world, welcoming a little Wizz airplane, a low cost carrier from Eastern Europe. What a difference. I'm sure the ruler of Dubai may not have sat in any seats like Wizz has got to offer, but the survey we learned today that apparently width is more important than length, well that's certainly interesting enough. Because when you sit in an airline seat, it's not whether you can do this, it's how easily you can do this. And it is the ability to keep doing this -- whatever the type of day or sort of flight -- that apparently according to Airbus makes all the difference. I often wonder how much money they spend on these pieces of research to tell us something we already knew. And that is "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, hope it's profitable. I'll see you tomorrow.

END