[109225] in Cypherpunks
Wall Street Journal on EU and MS
daemon@ATHENA.MIT.EDU (FitugMix)
Sun Mar 14 14:18:29 1999
Date: Sun, 14 Mar 1999 20:05:30 +0100
From: FitugMix <tonne@thur.de>
To: cypherpunks@cyberpass.net
Reply-To: FitugMix <tonne@thur.de>
At the biggest antitrust battle of a generation, Microsoft Corp.'s trial in Washington this winter, the European Union sat back and watched. But that doesn't mean it has been idle.
At a meeting last year at Microsoft's "campus" headquarters in Redmond, Washington, company executives tried talking technical standards with three visiting European Commission officials. Far from being docile pupils at Microsoft University, the EU visitors finished up by "talking about how they could become involved in [our] standards," says one Microsoft official.
There's more than one way to skin a fat cat. The U.S. Justice Department chose a conventional method, battling Microsoft in a courtroom antitrust case. But as the Redmond meeting indicates, the EU is tackling the problem from another angle: fighting to establish agreed, international standards for new products. Standards, after all, were at the heart of the Washington trial: The company was accused of using its proprietary Windows standard of personal-computer software, which has 83% of the global market, to try crush competition in the related field of Internet software. The commission's strategy is to prevent companies like Microsoft from ever again creating such a monopoly over key technical standards.
The EU calls it the "New Approach," and in a nutshell, it boils down to endorsing a single, nonproprietary technical standard for new products well before they go on sale. The goal: To give industry the legal insurance to exploit new technology without fear that its investments will quickly be rendered obsolete-or that it will have to pay a monopoly supplier exorbitant license fees to use the technology. "Our vision is the creation of an open electronic marketplace with open access and clear standards," says Reinhard Buescher, an EU official in charge of standardization and the industrial aspects of electronic commerce.
Noble goals, but the strategy has already set trans-Atlantic tempers flaring, because it generally makes life difficult for companies touting competing standards. Many in Washington contend the New Approach is just New Nonsense-a way of forcing a premature, and protectionist, standard onto the market. "It's crazy to write the specifics of technology into law," says Ray Kammer, director of the U.S. National Institute of Standards and Technology, which represents many big U.S. companies in international standards organizations. "It's too rigid, and my experience with that has all been bad. The technology is overtaken."
But Brussels is persisting. Whether the issue is computer operating systems, digital mobile phones, chip-card readers or set-top boxes for digital television, the commission has been taking a greater interest in the kinds of high-tech arenas that are the motor of job growth on both sides of the Atlantic. In each case, the commission is pursuing a two-pronged strategy: Pushing for the new industrial standards, while also enforcing conventional competition law. Brussels sees getting European companies to agree on a common standard for things like mobile telephones as the key to making sure technology sold in one EU country will work in all the others. The indirect advantage of such standards-setting is that it can give European companies a leg up on foreign competitors not only in Europe, but in growth markets overseas as well, through economies of scale.
The poster child of the New Approach is GSM, or Global System for Mobile communications, a European digital cell-phone standard that is now the world's most widely deployed wireless communications system. Europe would like nothing more than to repeat that success with other standards, including so-called third-generation, or 3G, mobile-phone standards. Two rival technologies, one based on work by Sweden's Telefon AB L.M. Ericsson and the other by Qualcomm Inc. of the U.S., are vying for backing-and the issue has high stakes for both Washington and Brussels. "Telecoms is the growth sector in Europe," said Martin Bangemann, Mr. Buescher's boss as the EU commissioner responsible for overall industrial policy, in a recent statement.
But the EU's approach has several problems, critics say. Amy Zuckerman, a consultant who has written a number of books on international standards, says the EU is purposely using standards-setting committees as a sort of Gore-Tex liner to keep foreign standards at bay, while allowing EU-supported standards to become powerful enough within Europe to compete head-to-head internationally. "Europe has been very clever in using standards for economic warfare," she says, "but they'll never admit it."
The commission bridles at talk of protectionism. Mr. Bangemann has insisted that European standards bodies are "completely independent and industry-led." If the commission does anything, it simply endorses industry-agreed standards in order to promote compatibility within the European common market, he says.
But protectionism is exactly what U.S. officials accused Brussels of in the 1980s, the last time it waged a computer-standards war against a U.S. technology titan. Then, the target was International Business Machines Corp., and its System Network Architecture of computer networking; in response to complaints from European computer makers, Brussels began promoting a rival European-designed computer-networking standard, Open Systems Interconnection. In the end, the fight fizzled into irrelevance, with both standards overtaken by newer technologies and IBM's market dominance deflated by normal competition.
A Juicy Target
But this is the 1990s, and Microsoft is the new target.
And a big target it is in Europe. In 1998, its European sales totaled $4.6 billion. It operates across 35 countries. It has links to 25,000 independent software companies and 280,000 resellers. Its market share is even a bit bigger in Europe than in the U.S., if such a thing is possible. According to market researcher International Data Corp., in 1997-the last year for which data is available-Microsoft snared 96.1% of revenues in the word-processing market outside the U.S., most of which came from Europe, compared with 91.1% in the U.S. Moreover, Windows 95 constituted 70.4% of all operating systems shipped in Europe, compared with 66.5% in the U.S.
One reason for Microsoft's European success is simple business savvy: The company is, according to even its fiercest critics, extraordinarily well-organized in Europe. A small example: its care and feeding of small, European software developers, upon whom it relies to help tailor and sell its products to business customers. Patrick Neal, who manages relations with Microsoft for Systems Union Ltd., a British maker of accounting applications for small businesses, says Systems Union technicians were recently given a week of free and exclusive training with Microsoft engineers in Redmond on the company's new database product. Steve Ballmer, Microsoft's president, also starred in a promotional video for the Aldershot-based company. "People say, 'look, these guy are on the stage with Microsoft,' and that endorses us as a serious player," says Mr. Neal.
But critics contend there's more to its European success than meets the eye. "They have definitely applied strong-arm tactics outside the U.S.," asserts Scott McNealy, the combative chief executive of Sun Microsystems Inc. and a leader of the anti-Microsoft coalition.
Certainly, the EU has had several run-ins with Microsoft. One case involved the U.K. PC Association, an industry group that represents about 120 small computer makers. The group's head, Keith Warburton, says Microsoft discriminated against his members in 1996 by not allowing them to bundle its popular Office suite of applications with their products. Larger manufacturers, such as Gateway 2000 Inc., had access to Office, and for only around PDNS50 ($82) per license. Microsoft contended such special treatment for large companies was warranted by the high volume of their purchases; large volume earns large discounts. But Mr. Warburton says that system forced his small members to buy their software from retail distributors for around four times as much-pushing up the price of their PCs and making them less attractive.
Mr. Warburton took his complaints to Brussels, but an EU inquiry petered out in 1997 after Microsoft introduced a similar product-the Office Small Business Edition-which it made available to all computer manufacturers on the same terms. A Microsoft legal spokesman says the complaint was a business, not a legal, issue; he notes the company responded quickly to demands from customers by launching that edition.
Unrestricted Access
Another case came in 1997. The commission launched an investigation into a series of contracts between Microsoft and European Internet service providers. The contracts promised a prominent position on the Windows start-up screens to Internet companies that agreed to promote exclusively Microsoft's Net software, Internet Explorer. The contention: The contracts unfairly discriminated against rival software from Netscape Communications Inc. Last March, Microsoft offered to alter the terms of its contracts by removing demands for preferential treatment. The company is still waiting for a formal ruling from Brussels to settle the case.
Now, the commission is itching to see Microsoft forced to provide unrestricted access to its Windows operating system in a way that could give a big boost to European software development. The commission's antitrust department regards Microsoft's dominance of the market for PC operating systems as a potential threat to other, related markets under a principle referred to as "network externalities."
"The Microsoft case is about the use of proprietary standards," says one commission competition official, who declines to be named. "It's not really a question of principle: It's who has the standard"-the network-"and what impact is it likely to have on competition?"-the externalities. The purpose of EU competition law is to ensure that "companies are in a position to compete, and on the merits the market will determine who is best." By that reasoning, the official adds, it could be argued that Microsoft's leveraging of its Windows monopoly to influence other market segments "could represent abuse of a dominant position."
So far, the commission has largely deferred to the U.S. Justice Department in chasing Microsoft. But Competition Commissioner Karel Van Miert has said the agency may reconsider the matter after the Washington court action is finished-and other officials note the commission has acted before in legally similar cases. For instance, Van Miert aides draw an analogy with the market for set-top boxes used to decode digital, pay-per-view TV. In several instances, the commission has either blocked a merger that would have created a closed, proprietary standard or demanded that all exclusivity requirements for set-top boxes be dropped. "The object has been to ensure that companies that aren't related to the joint venture have reasonable nondiscriminatory access," the commission official says.
For its part, Microsoft insists it is not a monopoly or abusing any dominant position, and says it has always been willing to cooperate with other companies on a technical level. "We've always published our application programming interfaces," says John Frank, chief Microsoft counsel in Europe. "The whole point of having a software standard like Windows is to make it easy for developers to write great software that works on your system."
But Brussels wants more. "Once you have universal platforms, openness should rule," says Mr. Buescher, the EU standards czar. "For us, that means publicly available specifications. I can fully understand why Microsoft follows that [proprietary] approach to standards," he says. "The question is whether it should be allowed."
-Matthew Rose in London contributed to this article.
ENDS
This is the CON4 template for any 4-column Convergence page.
The styles are: "body," and "subhed."
