From the bloomberg newsroom. Emily im emily chang. This is bloomberg west. In theps the ante encryption debate, telling the fbi to back off. Who wins in the standoff . Beats estimates again, closing in on at t and verizon. How do they do it . Deeper intoigs grocery delivery. We will see how long startups can compete in this business. First, to the lead, a watershed moment in a debate to in Silicon Valley and washington. Apple is rejecting a court order to investigate the iphone of one of the shooters in the San Bernardino terrorist attacks. Tim cook framed it as a chilling attack on civil liberties. He wrote we are challenging the demand with the deepest respect for american democracy and they love of our country. That this demand would undermine the very freedoms and liberty are government is meant to protect. Echoed by thewas most famous defender of civilian privacy, Edward Snowden, who said the f ei is creating a world where citizens rely on apple to defend the rights. Told reporters the department of justice has the full backing of the president who vowed to the fight would not be over anytime soon. This is goinga to be a longterm agenda. It is extremely complicated and technical. It is going to require a whole bunch of legacy systems already in place. Emily it comes down to whether National Security or individual privacy is more important. Here to defend apple is greg nojeim, defending Law Enforcement and the facts are chris. I will start with you. What do we know and how does this play out . The government has a court order trying to compel them to give them the ability to unlock an iphone. Apple is pushing back. There is no sign any side is going to stand down. This will play out for a while. Eg, we are going to talk about if apple can do this. I want to talk about whether you should. You think apple is in the right. Apple should resist the order. It would set a precedent. It would mean the fbi could demand that apple unlock any phone, no matter what operating system. It would go to apple and say, if you can give us access to phones, how about computers and other providers and demand the same thing. There is a lot at stake. Could present a precedent. Particularly if it moves higher in the courts. Emily you disagree. Apple should participate in a controlled way. I dont agree with giving blanket access to the technology. I do believe that given these situations, apple should participate in the process. That would require the government to change their rules as it relates to how they investigate situations and who is involved. And notould be involved have to be compelled to give up the keys to the kingdom. Emily this debate has been going on a long time. Since the revelations of edward trying to rebuild trust between washington and Silicon Valley and get these Technology Companies to help the government more. Take a listen to what he had to say on charlie rose. Charlie i dont expect them to do things to help us that compromise their business or their competitive position. I do want to have a bridge so that we can work, where possible toward Common Solutions to common problems. Emily in response to this case, donald trump is backing the government. Take a listen to what trump had to say. Donal actually it is a fullscreen club. He says i agree with the court. We have to use our heads. To think apple wont allow us to get into a cell phone, who do they think they are . Greg i think they are the maker of the phone. The fbi has a lot of options for conduct an investigation. It doesnt have to compel Technology Makers to weaken their devices. Has enormous resources. In fact, it uses its own technology to exploit devices, to break in, to hack into our devices. Thing, butroublesome it is better than making the companys make their devices even weaker so the fbi can get in. Of cyber many reports security problems. Data spills. All of this personal information stolen. If it is encrypted, it is more protected. Doing is under that encryption and our protection. I dont necessarily agree with that. I dont believe they are causing apple to undermine their security. Cooperates with apple and they can work together, apple can control how the government gets access to these devices. I dont think this is a threat to privacy. As a matter of fact, it is focused on this particular phone and question. Emily hang on. If apple does this for the government, what about the government of russia or china . Could they come in and say we want you to help us . Greg absolutely. Will set a precedent. If apple controls the situation, they can employ those same controls to russia, china, comes about and asks for a similar participation. I dont think apple should give blanket access. That sets a bad precedent. Apple should be involved in this process. Emily Edward Snowden has been chiming in on this allday saying this is the most important tech case in a decade. Silence means google has picked a side. It is not the publics. What does this say about google . Greg i want to respond to the other point. The other point was other governments are going to be demanding the same access the fbi is demanding for the iphone. The government of china passed a law that the president of the United States criticized that would require Tech Companies like apple to give the government of china access to the devices that are sold in china. The chinese are not going to go to apple in the case of a shooter. They are going to go to apple in the case of a dissident. We do have to worry about what precedent this sets. Not just in the United States, but what it means for people abroad. Technology will continue to evolve. When you look at the iphone 6, the security on that phone is Lightyears Ahead of the 5 version. These issues will continue for some time to come. As i said, apple can control this comment if they get givingd instead of access to the government. Blancheadvocating carte access. They can control Diebold Ching information. Vulging information. Emily the fbi could give apple the phone. What actually happens from a legal perspective . The fbi saying that they want a limited access to one iphone. Aboute larger debate is how companies have been offering their users and customers devices that are encrypted. Going, lawhnology is enforcement doesnt have the traditional access they have wanted. What you have is a precedentsetting case. Apple doesnt want to be in this business. Apple doesnt want to have to basically intervene to assist Law Enforcement. They want out of that business. Greg no technology wants to be in that business. The fact of the matter is, they are being used in the commission of terrorist activities. Not just by the government, by those that are using these technologies in these activities. Emily all right. Cyrus walker, thank you. Thanks for your willingness to debate here today. We are going to talk more in the next block about the technical challenges of actually doing this. Right now we are monitoring a story in m a. The Worlds Largest it should bidder of computer products will be bought by 40price tag a little under a share with a value of about 6 billion. The deal will enable them to accelerate investments while adding expertise and expanding its geographic reach. It will be headquartered in irvine, california and will operate as a subsidiary of tianjin tianhai. Instead of laying off 15 of the yahoo workforce, Marissa Mayer has opted for several rounds of weekly layoffs. It appears the companys unit is being hit hardest, including the digital magazine section. Create a, can apple onetime only backdoor for the fbi in the San Bernardino shooting case . We will focus on the text question next. U. S. Watch sales recovering from a slump that began last year. Sales up 7 . The first gain in 10 months. The apple watch did not provide the list many were expecting. Ift many were expecting. Emily priceline jumped to the most in more than three years. Said bookingsnt rose 10 in 2015 and if not for currencyrelated losses, they would have surged 25 . Priceline gets a quarter of its sales in the u. S. Continuing our conversation on apple. According to josh earnest, it is back door. Uilding a here he is speaking earlier in the day. Josh earnest they are not asking apple to create a new backdoor to one of their products. Somethingsking for that would have an impact on this one device. Emily but is it really that simple . We have to dig in now. Immunityd by alex at and chris ing from boston. Is it really that simple . Or is that what needs to be done . What they are asking apple to do is provide a way for the fbi to attempt to crack the device. They want the data not to be deleted from the phone. They want there to be a way for them to try all of those pass codes instead of having somebody punch them in manually. Apple could design the Software Update so it would only work on that phone. This is possible. Emily alex, how would you describe it . Mr. Eng. Gree with there is a larger worry about setting a precedent and if apple develops this capability, they ast forget how to do it and the Technical Analysis bears out, this would affect all potential 5c devices. So they have demonstrated they have the capability. Emily could the government abuse whatever Software Apple gives them . Is that the problem . Chris if they were to lock it to that one device, that particular phone, the government could not take that update and apply it. Apple would have to create another version for them because the update would be digitally signed by apple. The government could not manipulate it. Chris, is apple making a mountain out of a mole hill . They could do this for one person . Chris there are implications to everything. They are protecting consumer privacy. That is the choice they have decided to make. One thing they are doing that is important, they are speaking with their actions as they evolve the iphone platform. This is an older version of the iphone. It is possible to do these things. Versions,ild newer that is going to get harder and harder. They want to get to a point where they say it is not possible. With his older phone, the cant say that. Isly whether government asking is software to change the security settings so that if they try multiple passwords, the information is not deleted. Is it possible for apple to give them the actual password on the phone . Alex no, i dont believe so. How we know the encryption works, apple should have no reason to know. I dont believe they can retrieve the passcode in plaintext. It boils down to a larger issue of the government wanting Software Providers to backdoor their code or trojan their code when they give it to other clients. We would never do that. Chris, would you do that . We are not in the business of compromising our users data. Im not a lawyer. It is for other minds to decide if it is the right thing. Apple does comply. How long could it take Law Enforcement to get this information . Ive heard it could take years. Alex that is right. With the girl them they have used, we are looking at 12 guesses per second the algorithm they have used, we are looking at 12 guesses per second. A six character password, uppercase letter, number, you are looking at the order of 150 years. It is outside the reach of this investigation. Obviously something we will continue to follow closely. At immunity and chris eng, thank you both. Coming up, google gets into grocery delivery. How will startups survive the competition . That is next. Emily google is jumping into fresh food delivery. 2. 99 is charging members per delivery. Yearn fresh charges a membership that includes some options for prime members. Grocery delivery is a lowmargin business. How will independent players respond . Im joined by alan hewitt. Have beentartups trying to explore this. Explain the economics. Im an amazon fresh user. I benefit from this. How are they making money . I have no idea. They are trying to figure that out. Everyone knows groceries are a low margin business. That, to offer start todelivery, you really think, it is unclear where the margin comes from. When you are google and amazon, that is ok because you have tons of money you can use. If this is your main thing, that is a question a lot of people have been asking. Cart how well is instant doing . Weve heard about layoffs. It will remain to be seen. What is not looking good is if you look how amazon and google have been tweaking their business model, both of them charge steep yearly membership fees to make the numbers pan out. Amazon has played around with a bunch of formulas for this. The latest, 299 a year. Emily i use it. To me it equals out. Is a pain because it is not as good as inventory. Ellen its true. Retailersolling from they partner with. Amazon has its own warehouse is. That changes how accurate the information is, what is available for shoppers. Emily how would you describe googles priorities . Are seems like they doubling down on something they were trying to figure out. Ellen there was a time when they shut down two delivery hubs. People were thinking google thinks this is not going to work out. It sounds like they are putting in new effort and they have had leader ship changes. One top exec left to uber. So we will see how it turns out. Google has a lot of money to play around with to try to find a magic formula that will work for them. Emily it is scary if you are young. Et, thank you so much. Coming up, we are talking about zen if its zenefits. Weve got a big investigation. Emily im emily chang. Bloomberg west. A look at me stories making headlines in asia. Good morning. Stocks in asia are poised to extend the rally after the s p 500 closed higher for a third day. 30. Lso about iran has not committed to any curbs of its own. It depends on cooperation from other producers. Come murder commercial thatlite images support the state department was responding to reports that a surface to air system has been set to the island as part of the hair cells. The state Department Says reports would raise new tensions if found to be true. Toyota is recalling more than a million rav4 suvs. Made between 2006 and 2014, affecting belts in the second row. Toyota says they can be cut by the friends, potentially harming passengers. It is not known if anybody has been hurt or killed. Will be fixed at no cost to others. Sharp is considering excluding supporters of the foxconn rescue bid from its final vote. Sources say Board Members may be left out because they work for a company that holds preferred stock in sharp. The board is split on competing offers. Includes bid, which preferred shares. s it hopes to make a decision this month. Emily. Emily how significant would it be if sharp approved the foxconn bid . Start is seen as a test case. If foxconn is successful, this will be huge and have quite the ramifications because so often government hedge funds if foxconn were to take over sharp, it it would be seen as a willingness by Japanese Companies to embrace overseas investors. Of course this latest development could see it swing. Has the support of at least four of the 13 directors. They are excluded, that tips the balance to incj. You so much for that update. This is your global news 24 hours a day powered by our 2400 journalists around the world. The relationship between regulators in Silicon Valleys drive is thing tested. One of the Fastest Growing startups is under scrutiny, zenefits, the creator of tasks is being investigated by california and washington state. The cofounder resigned amid the scandal involving allegations employees sold insurance without holding proper licenses. Here with me to discuss this and the fallout, our startup reporter for bloomberg news. A great piece out by you. First of all, youve got details about whether Parker Conrad resigned. What do you know . Everyone willing as would like to make it seem. Andreessen horowitz is the main investor. Hey own 25 of the company there was a big push to parker, you need to step aside. There was an internal investigation. It, it was, ok, we need a ceo change. Parker did not wake up and say i will resign. Emily interesting given their support for founders and founder ceos. Definitely. It was founded on the premise of founding ceos. They brought in this big time parkersd sachs, to be supervisor. Obviously david sachs has replaced parker. Emily he has not minced words in announcing this transition saying compliance is like oxygen. Without it, we die. Beenof our actions have inadequate and some decisions have been wrong. As a result, parker has resigned. What did zenefits do wrong . The parker cap is not happy with that message. The story is that there was a thing the company coined the macro which is a Software Tool that says im taking training. I do want to spend 52 hours paying attention. The licensingives tool into thinking im paying attention when i might not be. The 12 was created by Parker Conrad in the early days of the company. It has persisted. Emily did you uncover at one point david sacks knew this was happening . Eric in november, it became the macrothing like existed. There was an internal investigation. A response to a buzz feed article that zenefits had unlicensed brokers selling insurance. That came out in november. The company says we are going to look into it. Andhear about the macro then late january is when things get serious. Emily parker had been on our show a few times. We found a telling quote from an interview in 2014. Take a listen to this. Isker starting a business very hard to and absolutely impossible. Behind the facade of every punch you are who is killing it, there is someone who is worried about, how are they going to handle these customers . What are they going to do if it fails . Very interesting in retrospect. You also uncovered a lot of detail about how much money they are making. Its not that much. Raised money, 4. 5 billion. 500 million from fidelity. It was a big story. Zenefits has been missing the mark. It is a software to services business. They had 20 million at the end of 2014 and then 60 at the end of 2015, which is good by most metrics. Zenefits had hoped 100 million. Emily has the investigation crimped their growth . Tie it tos hard to the investigation. There are more out questions at the company. A couple of salespeople left yelp to zenefits and then went back to yelp. Issues, some retention separate, may be related to these licensing questions. Emily i know you will stay on it. We are hoping to get david sacks on it. News,test revolving door the new head of entertainment at abc. The first africanamerican in charge at a major network. She has been at the Company Since 2009 and has developed goals like scandal. Who isceeds paul lee stepping down. Abc suffered the worst audience losses of the four Major Networks this season. The next time your laptop feels heavy, consider not too long ago it weighed 30 pounds. Thats right. Modeleek ibm released the 68, 1 of the very first portable , laptops. Imagine putting that on your lap. The machine was considered advanced for its design, which weighed 30 pounds. The keyboard folded into the base unit, creating a suitcase. How times have changed. Coming up, one startup attempting to make your morning commute easier. And tomorrow, dont miss jonathan toews. More of bloomberg west next. Emily big news in tech out of the quarterly filings. A disclosure required that provides insight into the holdings of some of wall streets biggest investment managers. David einhorn and carl icahn cutting their stakes in apple in the fourth quarterbefore the companys shares started to slide. Others see a buying opportunity. So what do these filings tell us about Investor Sentiment . Is it a sign of trouble ahead . This person has been studying for anal the findings long time. Use thisnvestors can information to beat the market. Moves madegs show months ago. How should investors reacted to this news . When i started looking, i had the same question. I said im going to let the data tell me the reality. Can you follow the star managers . Hedge funds attracted the Michael Jordans of the finance space. We did this by hand originally. We said, can we track Warren Buffett where each quarter we can go in, what if we equal awaited the portfolio. You could manage your way. How would that perform . Out the value type managers, it works. In Warren Buffetts case, it has outperformed the market massively for 15 years. Papers thatademic take it back to the 1970s. In general, it is a wonderful strategy. Emily take apple. It is not clearcut. Youve got people coming back. Youve got tiger global doubling down. Book thatote a tackles 15 of our favorite managers. We take you through this process. It helps to have some domain expertise. To be able to know, for example, you can follow a manager that is highfrequency. You cant follow a manager that does arbitrage trades or derivatives. You want the stock pickers. Those that dont have a lot of turnover. We think it is easy to pick out some of the great ones, the buffets of the world, even einhorn, following all of those guys. They beat the market by quite a bit. Emily so what would you do with apple . Apply theay you theory, you are not looking at any individual stock. You are betting on the actual manager. For example, you want to say, decide. G to let warren im going to let him go anywhere. His top 10, whatever they are, im going to invest. Some managers will own apple. Some wont. That is the beauty of this strategy, you are outsourcing your picks rather than asking your broker. You are getting some of the best Fund Managers on the planet. The data shows it works great. Emily youve made the point sometimes you can outperform the hedge fund itself. Tell me about that. Meb youve got to remember hedge funds, the problem is the fees. It charges 2 management fee. 20 of performance. That is a major hurdle. The beauty of cloning, where you are buying the stocks they hold, you avoid the fees and the Tax Implications that are inefficient. It allows you to avoid lockups, gates, and fraud as well. There is a lot of benefits. A few drawbacks. A lot of the benefits of doing it on your own emily . Interesting. Aber, thanks so much. Franciscos public transport system is not the best in the world. Elliott gotkine reports. Is no ordinary bus. It is a chariot. Passengers paid in advance, including the startup founder. They are faster and more reliable and more comfortable than Public Transit and much is. E affordable than tax onfor those that dont live is pricier3. 50, it than city busters. They think it is worth it. It is always on time. Super efficient. It is more relaxing. It is an efficient way to get to where i work. Bussan startups have been tried before. Albeit without success. In san francisco, no one mourned the demise of leap because so few people used to them. After waiting ages for a second bus startup, several have come at once. Israeli startups are taking a different route, making buses and public transport work better. Move it enables commuters to find the best way to get around. Another makes software that makes vehicles more efficient. Solutione developed a based on an out the rhythm that compromises a schedule in real time. In israel, the solution is being used by all the bus companies. Month ago we started in europe and the United States. Busses haveriots thousands of rides a week. He is not worried about uber. Not everyone has a 14 seat minivan in the driveway. Emily that was elliott gotkine. Uncarrier the tmobile reading estimates. Plus, stay tuned to find out who is having the best day ever. His market value has increased by 11 billion since monday. The nations thirdlargest wireless carrier is making a push for the top spot. Tmobile posted one million new monthly users. Investors pushed the stock higher. Said done with the ceo and asked how they did it. Im glad you are here. The brand is alive and vibrant. I couldnt the happier for our employees and shareholders. You are right. We crushed it. of all the postpaid phone growth. Three5, tmobile had point 5 million phone subscribers. At t and verizon and sprint, together, 269,000. Are you making money . You started this price were a couple of years ago. It is great for consumers. How about you . Im glad youre here today. It is very important to get across this point. The model is working. Subscriber growth is leading to revenue growth. Up 11 year over year. 32 in adjusted Free Cash Flow yearoveryear. The model is working. We are doing it by solving customer points. Fixing what was a stupid, broken, arrogant industry. You are also doing things in an unconventional way. A lot of people are talking about net neutrality. Are you going to change the way you roll the service out . We are pronet neutrality. We described binge on. All content is going to the internet. All internet is going mobile. The Fastest Growing use is video. The pain point, overages. We created binge on, which has been successful. Come. Y can most importantly, completely customer choice. You can turn it on, you can turn it off. E are content agnostic it is clearly in the sweet spot. Where do you think it is going to grow next year . 3. 4 . to what can you tell us about the u. S. Economy . People say we are in a slowdown. The 11thuarter was quarter in a row we added a million customers. A couple of things, not that we are, we can survive in any economy. Economy, bad economy, people are going to participate in wireless services. Maybe even more so in a rough economy. You are conscious of your money. I see a vibrant economy. On smartspecially phones and wireless services, participate at a rate greater than before. How do you make sense of your stock getting hit worse than the rest of the market . It is up 45 . We are a consensus long. We are one of the most recommended stocks to hold. Right now in 2016, i would college hedge fund derisking. If you look at 12 months, the average price target is about 46. You know what i want, 5g. Is going toent 5g be delayed. It is not really here yet. When it is available, youre going to get it. Ledger with stephanie ruhle. This just in, the google ceo standing with tim cook on his toection of a court order help investigators unlock the iphone of one of the shooters in the San Bernardino terrorist attack. He tweeted important post by tim cook. We know Law Enforcement and intelligence agencies face challenges in protecting the public against crime and terrorism. Products to keep your Information Safe and give Law Enforcement access based on valid orders. This could be a troubling acid and. Precedent. Officially having the best day ever. Since monday, the market value has surged ¥1. 2 trillion after the billionaire ceo outline plan to spend ¥500 billion to buy back shares. That does it for this edition of bloomberg west. Watching. Tomorrow we are all about gaming. We live in a pick and choose world. Choose, choose, choose. But at bedtime. Why settle for this . Enter sleep number and the ultimate sleep number event going on now. Sleepiq technology tells you how well you slept and what adjustments you can make. You like the bed soft. Hes more hardcore. So your sleep goes from good to great to wow only at a sleep number store. Right now find our c2 Queen Mattress starting at only 599. 99. Know better sleep with sleep number more than three decades steeped in the world of defense and technology. He is now the public face of the campaign against isis in iraq and syria. U. S. Policy has come under scrutiny and carter has had to defend it. I sat down with him earlier today for a wideranging conversation. We talked about u. S. Strategy, the role of technology, his goals for leaving office, and more