Chinese Military's 'Global Hacking HQ Found'

By Mark Stone, China Correspondent

An unassuming 12-storey building in a suburb of Shanghai has been identified as the possible headquarters of a global hacking operation allegedly run by the Chinese military.

According to Mandiant, an American computer security company, extensive evidence collated over three years points to a white tower block in Datong Road, in the Pudong district of the city.

The building is reportedly the headquarters of the People's Liberation Army Unit 61398.

Mandiant has spent several years working for a number of well-known multinational companies who all believe they have been victims of state-sponsored hacking.

Sky News understands that five UK firms described as 'large companies - brand names' have previously employed the services of Mandiant.

Using evidence passed to its analysts by the multinationals, Mandiant has deciphered codes, analysed IP addresses and conducted a series of reverse-engineering processes.

"The details we have analysed during hundreds of investigations convince us that the groups conducting these (hacking) activities are based primarily in China and that the Chinese Government is aware of them," the report says.

The 74-page report - called Exposing one of China's Cyber Espionage Units - contains remarkable detail of the hacking operations.

Military staff outside (city8.com)

Mandiant has identified 20 separate hacking groups in China which it calls Advanced Persistent Threats (APT).

The report focuses on just one, APT1, which is believed to operate from inside the Shanghai building.

"From our unique vantage point responding to victims, we tracked APT1 back to four large networks in Shanghai, two of which are allocated directly to the Pudong New Area," the report says.

The company studied the area of Shanghai pinpointed by their analysis and discovered the Chinese military building.

Mandiant was not able physically to prove that the hackers were inside the building but is convinced that they could not be anywhere else.

"Either they are coming from inside Unit 61398 or the people who run the most-controlled, most-monitored internet networks in the world are clueless about thousands of people generating attacks from this one neighbourhood," the Mandiant's founder Kevin Mandia is quoted as saying.

Of significant concern is the suggestion that hackers originating in China, including the APT1 group, are far more prevalent and sophisticated than previously assumed.

Not only had groups linked to China stolen commercial property, but some had also infiltrated US state infrastructure companies giving them the ability, potentially, to manipulate critical infrastructure including power grids and water supplies.

The Chinese government has repeatedly denied having anything to do with state-sponsored hacking.

In January, the New York Times disclosed that Chinese hackers with an alleged Chinese military "footprint" had stolen the corporate passwords of all its employees and gained access to the personal computers of 53 employees.

"Reaching such conclusions for no reason with uncertain evidence and no proof and saying that China participates in relevant online attacks is totally irresponsible," a Chinese foreign ministry spokesman said in response to that allegation.

The alleged New York Times hacking had apparently taken place at the same time as the newspaper ran a report which suggested that outgoing Chinese premiere Wen Jiabao's family had accumulated at least $2.7 bn (£1.7bn) in "hidden riches".

Mandiant believes the activity it has uncovered represents just a tiny part of a massive hacking operation in China.

It said: "Though our visibility of APT1's activities is incomplete, we have analysed the group's intrusions against nearly 150 victims over seven years."

At Tuesday's regular foreign ministry news conference, officials shed little light on the report.

"Hacking is an international problem," Hong Lei told Sky News.

"It is neither professional nor responsible to make groundless accusations without evidence."

When pushed on the fact that the report appears to provide plenty of evidence, the spokesman said: "I don't know how this evidence in the report is tenable."

He did not elaborate.

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Lloyds Fined £4.3m For Delayed PPI Payouts

Lloyds Banking Group has been fined £4.3m by the City watchdog for failings that resulted in up to 140,000 customers receiving delayed payment protection insurance (PPI) redress.

The Financial Services Authority (FSA) fined three firms owned by Lloyds over "failings in their systems and controls".

The three firms punished by the FSA over their behaviour are Lloyds TSB Bank, Lloyds TSB Scotland and Bank of Scotland, known collectively as LBG.

The FSA said: "Between May 2011 and March 2012, LBG sent 582,206 decision letters to PPI complainants agreeing to pay redress to them.

"FSA rules state that redress must be paid promptly and, in line with that, LBG aimed to make payment within 28 days of these decision letters.

"However, a series of failures at LBG meant that not all customers were paid redress within that time frame."

The customers were not paid redress within 28 days of receiving a decision letter and almost 9,000 had to wait more than six months for their compensation, the FSA said.

The payments were identified as a result of aggrieved customers calling to chase payment from Lloyds and media attention highlighting the plight of affected customers.

The FSA added: "Further, when customers telephoned LBG to enquire about the non-receipt of expected PPI redress payments, deficiencies in its process meant LBG was unable to fast-track the payment to the customer, inform them when payment would be made, or explain why it had been delayed."

Britain's high street banks have been hit by massive claims over PPI mis-selling.

As a result, the banks have made provision for more than £10bn being paid out to those affected customers.

Approached by Sky News after the FSA announcement was made, Lloyds said: "When we took the lead in 2011 to compensate customers on PPI, we had not fully anticipated the volume of complaints to be processed at the outset and experienced some administrative errors as we scaled up our systems and processes.

"We acknowledge that this led to some customers not being compensated on time and we apologise to those customers whose payments were delayed.

"It is important to note that almost all customers who were due redress during the review period have now been paid in full and, as the FSA notes, we have taken steps to ensure customers have not been financially disadvantaged."

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Eurotunnel Ferry Move Could Mean Price Rises

Passengers and freight firms may face higher ticket prices following Eurotunnel's purchase of three ferries from defunct operator SeaFrance, according to the competition watchdog.

By adding ferry services to its existing Channel Tunnel business, Eurotunnel would "significantly increase" its already high share of the cross-Channel market and prices would rise, the Competition Commission (CC) has provisionally found.

The watchdog said Eurotunnel decided to acquire the SeaFrance ferries in order to prevent ferry operator DFDS/LD Lines from buying them.

Eurotunnel was concerned that if DFDS/LD Lines acquired the assets cheaply, it could drive down prices for customers, the CC found.

The group last year branched out into sea transport with the 65m euros (£56m) purchase of three of the ships formerly operated by SeaFrance, a unit of French railway operator SNCF that went into liquidation early last year.

France's competition watchdog cleared the takeover which saw Eurotunnel launch ferry services between Dover and Calais on August 20, under the MyFerryLink brand.

Eurotunnel says the creation of MyFerryLink is "pro-customer"

Alasdair Smith, deputy chairman of the CC and chair of the Eurotunnel/SeaFrance Inquiry Group, said: "It would seem that Eurotunnel moved into the ferry business because it was concerned at the increased competition it would face if another operator bought the assets.

"Given that the company already holds a market share of over 40%, we're concerned that customers could lose out from Eurotunnel increasing its share even further and being able to raise prices on the tunnel services.

"In view of the current excess capacity on the Dover-Calais route, it also seems likely that one of the current ferry operators is likely to exit in the short to medium term.

"We think that customers will be better off if there are two independent ferry companies competing with the tunnel than if one of the two is owned by Eurotunnel.

"We will now look at how we can protect competition in this market. Whilst our focus is primarily on customers' interests, we will also consider carefully the interests of the ferry employees," he added.

In its report, the CC said DFDS/LD would be likely to cease operating services between Dover and Calais in the short to medium term "in the context of excess capacity and continuing competition from MFL".

P&O Ferries, MyFerryLink and DFDS/LD are the three operators which currently run cross-Channel ferry services on the Dover-Calais route.

Groupe Eurotunnel said it would be challenging the finding that the addition of a new operator was "detrimental to competition and could lead to an increase in prices".

It said the acquisition of the former SeaFrance ships - nine months after the company ceased all operations - and the creation of a new competitor meant increased competition and customers had an "additional choice".

Jacques Gounon, chairman and CEO of Groupe Eurotunnel, said: "Eurotunnel intends to continue to work with the Competition Commission to allay the concerns raised by existing ferry operators and to demonstrate that the creation of MyFerryLink is a good thing for the market as it is both pro-customer and pro-competition."

The CC is expected to publish its final report by April 14.

Eurotunnel operates the vehicle shuttle services in the Channel Tunnel between Britain and France and earns revenue on other freight and passenger trains that pass through the tunnel.

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RBS Considers 'Hybrid' Branches Sale

By Mark Kleinman, City Editor

Royal Bank of Scotland (RBS) is mulling a hybrid sale of more than 300 branches to private equity firms and institutional investors in an attempt to jump-start the flagging auction.

The state-backed lender is drawing up proposals to sell a minority stake in the branch network to an outside investor before attempting to list the business on the stock market, according to insiders.

Under the plan, one or more of the private equity firms currently showing an interest in acquiring the branches - which include Apollo Management and JC Flowers - could buy a stake of around 20% in the business.

The idea could offer RBS greater certainty that it can achieve a full sale of the branch network, which it is supposed to have completed by the end of the year under a deal with the European Commission.

Bidders expect to be told about RBS's preferred option for disposing of the network at around the time the bank reports full-year results next week.

The network, which RBS has codenamed Project Rainbow, has to be sold as part of the bank's state aid package that saw it rescued with £45bn of taxpayers' money in 2008.

It comprises RBS branches in England and a handful of NatWest branches in Scotland.

Sky News revealed last month that a group of City institutions including Schroders and Threadneedle Investments were exploring a bid for the branches.

That project would not be incompatible with the sale of an initial minority stake to one or more private equity groups, people familiar with the situation said.

RBS had lined up the sale of the Rainbow business to Santander UK, but that deal collapsed last autumn amid recriminations about the state of the branches' associated IT systems.

The sale of the branch network is one of many challenges facing RBS and its chief executive, Stephen Hester.

David Cameron, the Prime Minister, told newspapers today that he would like the bank to accelerate reforms as the Government prepares to sell its stake in the coming years.

RBS executives interpreted that as a signal that it should shrink its investment bank further, although one pointed out that it had already shed thousands of jobs and reduced the size of its balance sheet by hundreds of billions of pounds.

RBS declined to comment.

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Supermarkets 'Now Take 58% Of Retail Spend'

Nearly 60% of all retail spending is now made in supermarkets, according to a new report.

The Payments Council study found that 58p in every retail pound is handed to them, up from 46p a decade ago.

The changing trend shows that in the last 10 years supermarkets have taken an extra 26% of retail sector spending.

The Payments Council said the latest data also showed that the UK spent £58bn on entertainment last year, 60% more than in 2001 and outstripping growth in consumer spending by over a quarter.

However, the wide-ranging survey was carried out before the discovery of horsemeat in a number of processed meat products across several supermarkets which is believed to have hit sales.

It came as spending in restaurants and cafes was revealed to have almost doubled in the same period.

According to the report, The Way We Pay, a number of consumer trends have been combined for the first time.

It said cash purchases continue to migrate to debit card payments but it warns that plastic spending may become history. The study said that mobile phones, led by the smartphone revolution, look increasingly likely to become the primary payment vehicle.

Smartphones are expected to become an important payment vehicle

The Payment Council also said cheque usage halves every five years.

In 2003, 43% of our retail spending by value was with cash, but now it is just 30% - with the majority being for payments under £5.

Chief executive Adrian Kamellard said: "We scarcely notice the steady changes in the way we pay, yet someone in their thirties today will see more change in their lifetime than in the entire history of money.

"Even recent innovations such as payment via a mobile phone, which ten years ago some felt to be science fiction, will soon be commonplace. The 2000s were the decade of the debit card.

"The 2010s are likely to be the decade of the mobile phone.  Just as we can't imagine how we ever did without the internet, many people will soon wonder how we used to be so dependent on cash and cheque - 20 years from now even cards may seem archaic."

The report also looked at how leisure pursuits continue to shift for many people.

Spending in furniture and homeware shops is down by nearly half during the last decade, as is spending in DIY stores.

Meanwhile, the digital revolution of the media has now hit the delivery of publishing - newsagents have lost nearly 20% of their trade in the past 10 years.

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Energy Bills 'Set To Rise' Ofgem Warns

Will The Lights Go Off For Britain?

Updated: 1:05pm UK, Tuesday 19 February 2013

With the head of Ofgem issuing a warning about Britain's future energy reserve capacity, Datamonitor's director of energy and utilities research and analysis, Neil Atkinson, gives Sky News an industry insider's view of the coming decade:

Today, Ofgem's chief executive Alistair Buchanan repeated warnings that the UK faces a power supply capacity crunch. His message was first delivered to City analysts in July 2012 and it is stark: within three years the spare capacity margin for UK power generation capacity will fall from today's comfortable 14% to a distinctly uncomfortable 5%.

How worried should we be about this and if this looming capacity crunch is to be avoided how much will it cost us all?

In the next few weeks, according to Mr Buchanan, about 10% of the UK's current capacity shuts down as older coal and oil-fired plants reach the end of their lives. (The EU Large Combustion Plant Directive mandates the closure of these plants after they reach 20,000 hours of operation.)

Datamonitor Energy forecasts that by 2020, UK residential power demand will be 4% higher than it is today with other increases expected in power used in the commercial sector and in transport - more hybrid and electric cars - outweighing lower demand from industry.

In that time frame there will be nothing like enough improvement in energy efficiency via initiatives (like the Green Deal) and the Government's hopes for new nuclear capacity are looking more and more doomed as time goes by.

In practice, the lights will stay on in the UK. Tighter capacity doesn't mean we will all be using candles. It just means that if several extreme events happen at once the lights could go out, but even if they did industrial customers would be cut off first to spare households.

The UK would need prolonged severe winter conditions (that is, like in 1963) alongside an interruption to supplies from somewhere such as Norway or the unavailability of liquefied natural gas supplies for there to be power cut offs to households.

However, what is unavoidable is that for the foreseeable future the UK will need to use more gas and this means higher prices.

Mr Buchanan is right to point out that other parts of the world are competing for tighter gas supplies and prices in Asia are far higher, by some 60%, than here in Europe. Also, the almost complete lack of action on developing the Britain's own supply of shale gas means that UK consumers will see no help from that quarter in the next five years at least. In comparision, US natural gas prices are one-third of their level five years ago.

Still, it could be worse - households in 12 EU countries pay far more for their electricity than here in the UK.

Today, demonstrators blocked the street outside the Department of Energy and Climate Change protesting about fuel poverty.

As long as the Government remains committed to greening our power supply and faces up to subsidies for new nuclear capacity, it is hard to see that prices will come down.

This picture would be slightly more palatable if UK households thought their suppliers are doing a good job. But they don't and that's another story.

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British Airways Enters The 'No Frills' Market

British Airways has launched a new "hand baggage only" fare in an attempt to claw back ground lost to budget carriers.

The new type of fare is now available for flights from Gatwick to Amsterdam, Dubrovnik, Jersey, Tunis and Turin for travel from February 26.

Prices start from £39 one-way to Amsterdam and Turin, £45 for Jersey, £49 for Dubrovnik and £69 to Tunis.

The discount compared to fares including a piece of checked-in luggage varies between £9 and £15 depending on the route, BA said.

The announcement coincides with the transfer from Heathrow of five Airbus A319s for the Gatwick short-haul fleet.

Peter Simpson, director of Gatwick for British Airways, said: "The introduction of our hand baggage only fare is all about giving our customers more freedom to choose the kind of flying they want.

"Many British Airways customers on Gatwick short-haul breaks choose not to check in a bag as they're already taking advantage of our generous two-bag hand luggage policy. Those who still want to check in a bag will simply pay the same price they do now."

The move comes as BA struggles to compete with the growth of Ryanair, easyJet and other budget airlines offering a limited number of amenities in exchange for lower ticket prices.

The airline, which is owned by International Airlines Group (IAG), has been hit by industrial action in recent years amid plans to cut jobs.

Its parent company has also had to deal with ongoing strife involving its sister airline, Spanish carrier Iberia, after workers started rolling strikes on Monday.

The IAG share price rose more than 1% after BA confirmed the new airfare structure.

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India: Helicopter Row Overshadows PM's Talks

By Joey Jones, Deputy Political Editor, in India

David Cameron's trade talks in India have been overshadowed by corruption allegations relating to the sale of Westland helicopters to the country's air force.

India has suspended payments to the Anglo-Italian firm AgustaWestland for 12 helicopters after an Italian investigation suggested middlemen were paid to secure the £480m deal.

It has now launched its own police investigation after the arrests of Finmeccanica chief Giuseppe Orsi and AgustaWestland boss Bruno Spagnolini on corruption and tax fraud charges last week.

Indian Prime Minister Manmohan Singh raised his "very serious concerns" about the case at a joint press conference with Mr Cameron, who is in Delhi on the second day of a three-day trip to the country.

"I told him that we have sought an explanation from the company by February 22 to examine if the contractual conditions on unethical practices and the integrity pact have been violated," he said.

"I have sought full assistance from the UK in this case. Prime Minister David Cameron has assured me of the co-operation of his Government in the investigation."

Mr Cameron promised to provide any information requested by the Indian authorities, but stressed that the case was for Italian investigators to probe because AgustaWestland is owned by Italian firm Finmeccanica.

The issue threatened to cast a shadow over the trade mission designed by the British premier to promote a "special partnership" between the UK and India and deepen its trade links.

Cameron and Singh at Hyderabad House in Delhi

At their talks, Mr Cameron and Mr Singh agreed closer cooperation over cyber-security which is expected to see the creation of a joint taskforce to share information about attacks.

They also signed a memorandum of understanding over nuclear energy which will facilitate the involvement of UK firms like Rolls-Royce in the development of India's capacity.

Mr Cameron is targeting a doubling of annual bilateral trade with India from £11.5bn in 2010 to £23bn in 2015 and both men stressed the importance of developing stronger links.

They agreed that the two countries should be "inextricably linked" in future. The British PM said he wanted to see a "very special relationship" develop.

"The potential of this relationship is immense and we are committed to working together to make sure we realise its full potential in every regard," he said.

Mr Singh said: "David Cameron's personal commitment and leadership have imparted a strong momentum to the strategic partnership between India and the UK."

The situation in Afghanistan was also high on the agenda, amid anxiety in India that it could become a destabilising force once again when British and its allies withdraw their troops.

Mr Cameron reported back on the summit he held in recent days at Chequers with the leaders of Pakistan and Afghanistan and tried to reassure India about security.

The Prime Minister also raised the possibility of India buying British-made Eurofighter Typhoon jets at the meeting.

He hopes the Indian government will reconsider its commitment to purchase a large consignment of French Rafaele fighters and opt instead for the Eurofighter, which is part-built by BAE Systems.

Speaking in Mumbai on Monday, Mr Cameron said: "I think Typhoon is a superior aircraft. It has the advantage of all the partner nations behind it.

"We can make some aeroplanes available within months because there are so many countries already using it. I will obviously make clear that Typhoon is still available."

However, in British government circles, there is little hope that the Eurofighter deal can be salvaged so the Prime Minister's energies are mainly devoted to building cooperation in other areas.

Mr Cameron later had the unusual experience of being greeted by screams of  adulation as he visited a college for girls in Delhi.

However, the screams were directed at Bollywood film star Aamir Khan rather than the PM after the actor joined him to chat with students at the Janki Devi Memorial College.

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Mobile Network EE Yet To Reap Benefit of 4G

Mobile provider EE - the only company offering 4G services in the UK - has confirmed its revenues fell last year despite its rollout of faster broadband.

The company posted a drop in revenue from £6.78bn in 2011 to £6.65bn in 2012.

It also confirmed a loss before tax of £249m for 2012 - more than double the previous year.

In 2011, Everything Everywhere - Britain's biggest mobile operator - posted a loss of £113m.

To date, EE, which owns Orange and T-Mobile, is the only mobile network to launch 4G products in the UK.

Announcing its results for the year ending December 31, 2012, the mobile phone operator said it added 201,000 contract customers in the fourth quarter, during which it launched Britain's first superfast 4G mobile broadband service.

However, its CEO Olaf Swantee admitted that those who moved from 3G to 4G on average spent 10% more for their bills to gain the extra services.

He said that 1,000 corporate customers were now on 4G contracts, and the he was "pleased with the progress" in 4G uptake by small and medium enterprises.

Mr Swantee said a "relatively high proportion" of 4G customers were choosing £41-plus tariffs.

Plans include the launch of more lower end 4G packages in the coming months.

Mr Swantee said: "In the past year, we delivered solid financial performance, underpinned by good progress integrating the business and success in attracting high value customers.

"At the same time, we built a strong platform for growth, launching a new company, new network, new customer brand, new retail estate and being the first to provide UK consumers and businesses with 4G mobile services alongside fibre broadband."

The company said more than half of its customers were now on contracts, reflecting the growing popularity of smartphones, as it posted broadly flat full-year adjusted core earnings of £1.41bn, on revenue of £6.7bn, down 1.9%.

Its service revenue of £5.95bn rose 2.7% - excluding the impact of regulatory price changes.

Its network, which offers speeds up to five times faster than 3G, is now available in 18 cities including London, Birmingham, Manchester, Leeds, Sheffield, Bristol, Liverpool, Southampton, Edinburgh and Glasgow.

The company said it was ahead of schedule of the 4G rollout, adding that it expected 65 cities and 55% of the population to be covered by the superfast service by June this year.

Rival operators, including Vodafone and O2 owner Telefonica, will be able to launch their own 4G services and products in the coming months.

Companies had threatened legal against communications regulator Ofcom over its 4G auction process, which allowed EE to be the first to offer a 4G network in the UK by using old 2G capacity.

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Titanic II To Be Constructed In China

By Mark Stone, China Correspondent

A full-size working replica of the Titanic is to be built in China following an historic agreement between an Australian entrepreneur and a Chinese shipyard who are poised to sign a deal.

Titanic II is due to be completed by 2016. She will then be sailed to the UK and prepared for her maiden voyage from Southampton to New York - a repeat of the 1912 journey which ended in disaster.

The Jinling Shipyard in Nanjing has already signed an initial agreement to build the ship with billionaire mining tycoon Clive Palmer.

Design work for the vessel, which it is claimed will precisely resemble the original Titanic, is being carried out by a consortium of companies including Norway's Deltamarin.

"It's difficult to replicate a luxury liner, but Jinling Shipyard has a history of 60 years of building various kinds of vessels with high quality," the shipyard's director, Ge Biao, told China's Xinhua news agency.

The film version of Titanic stars Leonardo DiCaprio

The ship will be 270 metres long and 53 metres high with nine floors and 840 rooms. It will accommodate 2,400 passengers and 900 crew members.

"The liner will be equipped with advanced technologies, including the latest life-saving and communications systems to meet the requirements of modern navigation," Jinling Shipyards spokesman Li Wenbao told the China Daily newspaper.

Representatives of Mr Palmer said on Saturday that his company had received inquiries from potential passengers around the world, with some offering up to $1m (£640,000) for a chance to be on the maiden voyage in 2016.

The original and 'unsinkable' Titanic set sail from Southampton on April 15, 1912, bound for New York City. She hit an iceberg in the Atlantic and sank, killing 1,523 passengers and crew.

The history of the voyage is well known in China because of the popularity of the 1997 film staring Leonardo DiCaprio and Kate Winslet. It was one of the first western films to be authorised for general release in China and it remains one of the top three most popular films.

Celine Dion, who sang the film's title song, became the first foreigner to perform at this year's traditional Chinese New Year Gala which is televised across the country. She chose to sing the song from the film, My Heart Will Go On.

The decision by Mr Palmer to choose a Chinese company has prompted scepticism from some about how achievable the project is and how safe the end product will be.

The issue has even been raised in Chinese government-backed newspapers.

"Frequent scandals involving shoddy products domestically and internationally have turned the term 'Made in China' into a synonym for cheap and low value-added products," an editorial in the Global Times said.

However, the newspaper argued that the Titanic II project should be a chance to prove that the 'Made in China' brand does work. 

"It is indeed a challenge for China to fulfil a flawless construction mission as the world watches," the editorial said.

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