TCS Daily

Keystone Comp

By Jeremy Slater - July 14, 2006 12:00 AM

The apparent glee European Commission competition regulators took in imposing yet another massive fine on Microsoft this week was short-lived. The day after the EU's latest Microsoft move, the Court of First Instance shot down a decision the Commission had taken earlier on a merger between Sony Music and BMG. But wait, as they say on TV, there's more. That same day the European Court of Justice annulled a large fine the Commission had imposed on Volkswagen. Despite the Microsoft headlines - or, rather, because of them - it's clear from the Court's actions that European antitrust law is in something of a mess right now.

Over the past few years the Luxembourg-based court has embarrassed the Commission again and again by overturning decisions made in Brussels, including most notably on the Tetra Laval, Schneider Legrand and Airtours-First Choice mergers. All of these were major deals that had significant impact on their relative markets. All were blocked by the Commission because of fears of market dominance. In all cases, the work done by the Commission was rejected by the court.

In late 2003 the then-competition commissioner, Mario Monti, tried to explain away the shoddiness by saying the Commission had been seriously undermanned at the time of the decisions. He promised that the merger analysis process would be revised and that additional expert staff, such as an economics chief, would be brought in to get things right in the future. Now, with the rescinding of the Sony-BMG deal, a decision taken by the Monti-run competition directorate under his new guidelines, things look even worse.

Imagine the dismay in DG Competition's Brussels headquarters building when one of Monti's last major decisions as competition chief, some two years later, is overturned and this time it was because the experts had decided to clear it and create a music industry giant.

Such apparent disarray should embolden Microsoft and its lawyers and advisers. Despite this week's setback they have a chance to see the Commission's original decision against them - with its landmark fine of €497 million - chucked out by the Court. Nevertheless, Commission will not give up on Microsoft and will keep hounding the software giant morning, noon and night.

Microsoft is appealing the case claiming it has been given very little time to produce what it claims is 12,000 pages of technical details that will allow rivals to be able to access Microsoft programmed servers and other parts of its operating system. The company further says that the Commission has only recently given it the guidelines as to what software and code it is supposed to hand over to its competitors.

"Having received a clear definition of the documentation requirements this April, we have already nearly met all those requirements in just three months. We have dedicated massive resources to deliver high quality documentation," said Brad Smith, Microsoft's general counsel.

The key issue in the case and many others where the US and the European Union part company on is the definition of market dominance and whether this can be a positive factor in the operation of a market. Invariably, Brussels sees such dominance as harmful to the consumer, negatively affecting price and service.

However, others argue that market dominance can lead to product innovations and can be beneficial as long as the consumer is not harmed. They add that it should not necessarily be the role of antitrust policy to protect companies from big or innovative rivals.

Such a view of competition policy would also argue strongly against putting price controls on successful products, but this is exactly what the Commission did in another announcement made on the same day as the Microsoft ruling. In an attempt to curry favor with European mobile phone users -- everybody, basically -- Brussels has introduced a regulation that will in a year cut the cost of cellphone roaming charges by 70 percent.

Apparently, in the run-up to the decision there was a heated debate between relatively free-market commissioners such as G√ľnter Verheugen and Peter Mandelson and more ardent regulators, such as the legislation's chief proponent, Viviane Reding.

In the short run, cutting phone costs will prove popular. However, this sort of policy and the interpretation of market dominance in the longer term are likely to lead to less innovation in two sectors that are key to the revival of the European economy. The Commission's bizarre definition of competition policy is essentially robbing the people of Europe of a better technological future.

Jeremy Slater is a TCS Daily contributor.


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