TCS Daily


The Italian Job

By Jeremy Slater - March 26, 2004 12:00 AM

A fine of €497 million may not seem like too much for Microsoft, with a current account balance of something like $50 billion, to pay. One New York lawyer involved in the case waggishly described the amount as "a parking ticket." But what will be a major problem for the world's biggest software company is European Commission's demand that it radically change the way it does business.

Brussels is demanding that Microsoft: 1) provide information to competitors to allow them to interface with its servers; and 2) sell a version of its Windows operating system that does not include MediaPlayer, which allows users to download and play film images and sound files. Some industry experts predict this could create consumer confusion over which version to buy and for what reasons -- and over how to choose between various digital music formats. It's possible that the Commission's effort to produce artificial competition will create the worst of all possible worlds: one in which consumers are given a myriad of incompatible options.

Despite assurances by Competition Commissioner Mario Monti, at a press conference to explain the decision, that the last thing the EU wants to do is to stir up antagonism between the US and Europe, this action goes a lot further than the US Department of Justice decision in 2001 and will inevitably increase trans-Atlantic friction.

When the DoJ opened its investigation it seemed that a break up of Microsoft into three separate organizations was highly likely -- and would have been condoned by the Clinton administration. However, after Microsoft appealed against the initial decision in 2001, the final agreement was far less harsh in its conclusions. Unlike the Commission's decision the settlement did not prevent Microsoft from tying software like its web browser, e-mail client and Media Player with its operating system, an issue that had been a cornerstone of the initial case against the software company.

However, the final settlement required Microsoft to provide software developers with the computer code that would allow rival companies to create competing products. The deal also gave computer manufacturers and consumers the freedom to substitute competing middleware software on Microsoft's operating systems. The agreement strictly prohibited Microsoft from retaliating against any PC manufacturers or software makers for supporting or developing competing software. It also required the company to license its operating systems to PC manufacturers on five-year terms and also banned Microsoft from entering into exclusive agreements.

Brussels bureaucrats, it is clear, have gone much further than their US counterparts. So much for claims that the Commission works in close tandem with Washington on competition issues -- a claim that was defended by Monti at his press conference when he said, "The Commission is diligent in its cooperation with antitrust agencies through a very strong relationship."

What happens now? Well, there will be an appeal and Microsoft's representatives predict that they will win on both counts. As one Brussels-based competition lawyer observed, "For anyone to make low-end servers work they need to be interoperable with Microsoft's software. I expect the European Court of Justice to rule in Microsoft's favor."

The Commission argues that Microsoft will be able to sell its operating system with and without MediaPlayer at different prices -- and that the consumer will benefit from competition between PC manufacturers who will want to install different versions of digital film and music playing software. However, how often does a manufacturer refrain from passing on costs to the consumer?

In the late 1990s, with the high-tech bubble expanding by the hour, traders on Wall Street somewhat ironically referred to Microsoft stock as Mr. Softee after its ticker symbol MSFT, when the share price was anything but soft. Following this clobbering by the Italian commissioner and further investigations to come including, one into Windows XP, perhaps Microsoft from now on should be known as Mr. Whippee.


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