Wednesday, 19 September 2007

EU slaps Microsoft, big energy

It’s been interesting to watch the very different coverage on either side of the Atlantic of the EU anti-trust ruling against Microsoft. While in Europe the ruling has been largely heralded, especially on the continent, in the US the coverage has been akin to something straight out of a World War I warning of the hun menace.

Even the New York Times coverage seems to suggest that the ruling is going to do tremendous damage to competition in the IT sector. The logic seems to be that big companies are the only companies that understand how to innovate or compete, and stifling them is going to cause a slowdown of growth.

On the other hand in Europe, there were huge sighs of relief coming from Brussels Monday. Considering the European Commission’s reputation as a crusader for consumers and competition, it would have been greatly damaged if the court hadn’t upheld their orders. Monday’s ruling is the result of nearly ten years of work by the EC to deal a blow to what they see as Microsoft’s monopoly over the software industry.

Interestingly the ruling comes the same week that EC President Jose Manuel Barroso unveiled the commission’s plan to break up big energy firms in Europe. The plan, unveiled just an hour ago, would force European energy markets to be open to more competition by forcing energy giants to unbundle operations. This means that businesses which generate power and supply gas will not also be allowed, for instance, to control the network of pipelines. The problem the plan is attempting to resolve is the fact that many EU residents and firms lack a real choice of supplier. The conventional wisdom is that it will be the French and German companies hardest hit by that. British energy companies (which tend to be smaller) are ecstatic, judging by the flood of emails I’ve just gotten from their press people praising the plan.

So, two big pieces of consumer-friendly news in Europe, one of which (Microsoft) will have a major impact on US consumers.

The Microsoft ruling consists of these main parts:

  • The court ruled that Microsoft had abused its market power by adding a digital media player to Windows, undercutting the early leader, Real Networks.
  • The court ordered Microsoft to obey a March 2004 commission order to share confidential computer code with competitors.
  • The court upheld the record fine levied against the company, €497 million ($689.4 million).
The argument against Microsoft was that it had used its monopoly over computer operating systems to stifle competition and give it an unfair advantage. More than 95 percent of computer users use Microsoft Windows. The commission argued that Microsoft had achieved its success by using a strategy of bundling its own software products with the system along with refusing to share its coding with software makers so they could be compatible to the system. The result, the commission said, was that Microsoft’s inferior software products instantly gained market dominance.

I think anyone who’s used Microsoft products can agree with this. I’ve been a Mac user for three years now and I love it. The interface is so much better, it never freezes or shuts down, and its performance is excellent. But unfortunately it’s time for me to get a new computer next month, and I’m ashamed to admit it’s going to be a PC. As great as Macs are, Microsoft has made it too difficult for me to use it. Interoperability problems are constant. Watching windows media player files is a nightmare. And the Mac version of Windows messenger is very dysfunctional (and sadly that’s the only thing people use here in Europe. They don’t even know what AIM is).

Do I resent this? You bet I do! So on one level it feels good to see Microsoft get punished for the practices that have led to this situation. But the question remains, is this ruling good for the consumer? Most American pundits seem to think not. The US Justice Department issued a statement denouncing the European decision, saying that tough restraints on powerful companies can be harmful. Thomas O. Barnett, assistant attorney general for the department’s antitrust division, told the New York Times that the effect, “rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition.”

Of course this argument might make sense if Microsoft understood innovation or actually produced something innovative. But Microsoft today isn’t the innovator it was long ago. It’s become a mammoth company like IBM, good at protecting its market position but horrible at actually making innovative products. Of course with a monopoly over operating systems, it can force these inferior products on consumers (Internet Explorer anyone?)

The big question was whether Microsoft was going to be able to extend its power into servers. The European ruling's biggest effect will be to force Microsoft’s to share some of its intellectual property in software for servers. The European Commission had ordered Microsoft to share technical information with competitors so their server software works smoothly with Microsoft’s Windows desktop. The court has upheld that. Essentially, the EC didn’t want the same thing to happen to servers as had happened to PCs.

The ruling only applies to the EU, but because the EU market is now bigger than the US, Microsoft will have to make those adjustments worldwide. In fact what’s most striking about this result is that a European ruling can have such a huge effect on an American company and American consumers (Jack Welch learned this the hard way as well). 

Though Microsoft may reside in the world’s only superpower, the US doesn’t have any representatives sitting around the table at the European Commission. So Microsoft’s massive lobbying arm –which got an identical case against the company in the US thrown out- can’t have as much of an effect. In fact, lobbyists are a comparatively small force in Brussels, without anything even resembling the power they have in the US. The result has been a bit of a turning of the tables. Though for decades Europe has had to follow the decrees of an American government in which it had no representation, now it is Americans who must pay attention to what’s going on in Europe to see what will happen to them.

Don’t forget that in the US we once had a government that paid attention to this sort of thing, breaking up massive monopolies like Ma Bell. But that era has long since passed, and most mergers are now cleared without a second thought. Since the US courts have become so disinterested in considering competition or consumers, it should be welcome news to Americans that the European Commission is paying such close attention to it.

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