BERLIN — The European Commission opened investigations Monday into whether I.B.M. had abused its dominant position in mainframe computers, signaling that the era of aggressive prosecution of American technology leaders in Europe did not end with the Microsoft antitrust case.
The commission said that it would examine whether I.B.M. had shut out rival mainframe software vendors and service providers. The investigation could lead to charges and potential fines against the company.
Joaquín Almunia, who took over in February as the European competition commissioner, “is making it clear that the Internet and the information technology sector will be an enforcement priority for him and for the commission,” said Alec Burnside, a competition lawyer in Brussels at the law firm, Linklaters. “It is clear that he is building on the precedent left him by his predecessor.”
Mr. Almunia’s predecessor, Neelie Kroes, oversaw the conclusion of a 10-year investigation against Microsoft, which eventually required the world’s largest software maker to pay 1.2 billion euros, or nearly $1.8 billion, in fines and to change its business practices in Europe.
In a statement Monday, the commission, the executive arm of the European Union, said it would investigate whether I.B.M. had illegally tied sales of its mainframe operating system to its mainframe hardware, responding to complaints by third-party sellers of hardware. The commission also said it was opening a second, separate investigation on “its own initiative into I.B.M.’s alleged discriminatory behavior towards competing suppliers of mainframe maintenance services.”
The second investigation focuses on whether I.B.M. delays the sale of spare parts to third parties, potentially blocking competitors from performing maintenance on its mainframes. By opening its own inquiry, the commission has indicated that there might be substance to the antitrust claims.http://jodnet.blogspot.com
The I.B.M. investigation comes on the heels of a European Union investigation into Intel, the world’s largest chip maker. The commission fined Intel 1.06 billion euros in May 2009 for abusing its dominance of the chip market. Intel, based in Santa Clara, Calif., is appealing the commission’s fine and judgment.
The two investigations into I.B.M.’s practices have the potential to redefine the market for mainframes, the expensive, complex computing devices that still run most of the critical operations of big businesses and governments.
I.B.M., based in Armonk, N.Y., invented the first mainframe computer in 1964 and still dominates much of the business.
Sales of mainframe computers account for less than 10 percent of the worldwide market for data center computers, estimated to be $49 billion this year, according to the International Data Corporation, a research firm in Framingham, Mass.
I.B.M.’s mainframe sales, however, are projected to be $3.3 billion in 2010 and represent about three-quarters of the overall mainframe market of $4.5 billion.
The commission’s investigations involved complaints from two rival companies that make and distribute competing software for I.B.M.’s proprietary mainframe operating system.
Those companies are TurboHercules, a French maker of open-source software for mainframe computers, and t3 Technologies, an American distributor of Flex software that runs mainframes.
The software made by the companies works on less expensive computer servers, mimicking the functions of I.B.M.’s entry-level mainframes.
I.B.M. said Monday that it would cooperate with the European investigation. But the company said the claims were without merit and called the companies that filed the complaints “proxies of Microsoft.”
Microsoft competes with I.B.M., and I.B.M. accused Microsoft of orchestrating the complaints to promote sales of its Wintel servers.
“Let there be no confusion whatsoever: there is no merit to the claims being made by Microsoft and its satellite proxies,” I.B.M. said. “Certain I.B.M. competitors, which have been unable to win in the marketplace through investments in fundamental innovations, now want regulators to create for them a market position that they have not earned.”
Other mainframe makers, like Unisys, Bull, Fujitsu and Hitachi, are selling small numbers of their proprietary mainframes to existing corporate and government customers as replacements for older machines, an I.D.C. analyst, Matthew Eastwood, said. They do not compete directly with I.B.M.
Companies that did make mainframes that could work with I.B.M. software dropped out of the market about a decade ago.
For years, I.B.M. steadily cut mainframe prices as it faced competition from smaller, less expensive machines that used standard chips made by Intel and Advanced Micro Devices, Mr. Eastwood said.
Those machines account for 60 percent of server computer sales.
But the decline in mainframe prices has slowed since the makers of I.B.M.-compatible servers exited the market.
From 1995 to 2001, I.B.M. reduced the price of computing tasks handled by mainframes by 31 percent a year. Those price declines averaged 13 percent after the makers of compatible mainframes exited the market, said A. M. Sacconaghi Jr., an analyst at Sanford C. Bernstein in New York.
I.B.M. said its market position in mainframe computers was not significant because mainframes accounted for only a small percentage of the overall computing market.
The European investigation comes amid a resurgence in the use of mainframe computing, which little more than a decade ago was widely dismissed as expensive and increasingly irrelevant in a market dominated by personal computers. Over the last decade, demand for mainframes has increased almost fourfold, according to data released by I.B.M.
Companies like TurboHercules have asked I.B.M. to sell its mainframe operating system to clients of TurboHercules, decoupling the software from the purchase of I.B.M.’s hardware. I.B.M. has refused to allow that.
Up until 2000, I.B.M was required by the Justice Department to sell the parts separately. The department dropped that obligation in 2000, saying that mainframes had become a niche market in the broader computing world.
“I think this case could in the end have a significant effect on the lower end of the mainframe market,” said Jeff Gould, the chief executive and research director of Peerstone Research, an industry consultant in San Francisco. “And ironically, I don’t think it will hurt I.B.M. in the end. They will still get paid by companies like TurboHercules, and they will be freed up to focus on the really large customers.”
Roger Bowler, the president of TurboHercules, said the French company welcomed the commission’s investigation.
“Hopefully, it will lead to remedies that will allow companies like TurboHercules to compete in the mainframe market,” Mr. Bowler said. “We simply ask that customers be allowed to have a choice of platform for running their mainframe applications.”
Joaquín Almunia, who took over in February as the European competition commissioner, “is making it clear that the Internet and the information technology sector will be an enforcement priority for him and for the commission,” said Alec Burnside, a competition lawyer in Brussels at the law firm, Linklaters. “It is clear that he is building on the precedent left him by his predecessor.”
Mr. Almunia’s predecessor, Neelie Kroes, oversaw the conclusion of a 10-year investigation against Microsoft, which eventually required the world’s largest software maker to pay 1.2 billion euros, or nearly $1.8 billion, in fines and to change its business practices in Europe.
In a statement Monday, the commission, the executive arm of the European Union, said it would investigate whether I.B.M. had illegally tied sales of its mainframe operating system to its mainframe hardware, responding to complaints by third-party sellers of hardware. The commission also said it was opening a second, separate investigation on “its own initiative into I.B.M.’s alleged discriminatory behavior towards competing suppliers of mainframe maintenance services.”
The second investigation focuses on whether I.B.M. delays the sale of spare parts to third parties, potentially blocking competitors from performing maintenance on its mainframes. By opening its own inquiry, the commission has indicated that there might be substance to the antitrust claims.http://jodnet.blogspot.com
The I.B.M. investigation comes on the heels of a European Union investigation into Intel, the world’s largest chip maker. The commission fined Intel 1.06 billion euros in May 2009 for abusing its dominance of the chip market. Intel, based in Santa Clara, Calif., is appealing the commission’s fine and judgment.
The two investigations into I.B.M.’s practices have the potential to redefine the market for mainframes, the expensive, complex computing devices that still run most of the critical operations of big businesses and governments.
I.B.M., based in Armonk, N.Y., invented the first mainframe computer in 1964 and still dominates much of the business.
Sales of mainframe computers account for less than 10 percent of the worldwide market for data center computers, estimated to be $49 billion this year, according to the International Data Corporation, a research firm in Framingham, Mass.
I.B.M.’s mainframe sales, however, are projected to be $3.3 billion in 2010 and represent about three-quarters of the overall mainframe market of $4.5 billion.
The commission’s investigations involved complaints from two rival companies that make and distribute competing software for I.B.M.’s proprietary mainframe operating system.
Those companies are TurboHercules, a French maker of open-source software for mainframe computers, and t3 Technologies, an American distributor of Flex software that runs mainframes.
The software made by the companies works on less expensive computer servers, mimicking the functions of I.B.M.’s entry-level mainframes.
I.B.M. said Monday that it would cooperate with the European investigation. But the company said the claims were without merit and called the companies that filed the complaints “proxies of Microsoft.”
Microsoft competes with I.B.M., and I.B.M. accused Microsoft of orchestrating the complaints to promote sales of its Wintel servers.
“Let there be no confusion whatsoever: there is no merit to the claims being made by Microsoft and its satellite proxies,” I.B.M. said. “Certain I.B.M. competitors, which have been unable to win in the marketplace through investments in fundamental innovations, now want regulators to create for them a market position that they have not earned.”
Other mainframe makers, like Unisys, Bull, Fujitsu and Hitachi, are selling small numbers of their proprietary mainframes to existing corporate and government customers as replacements for older machines, an I.D.C. analyst, Matthew Eastwood, said. They do not compete directly with I.B.M.
Companies that did make mainframes that could work with I.B.M. software dropped out of the market about a decade ago.
For years, I.B.M. steadily cut mainframe prices as it faced competition from smaller, less expensive machines that used standard chips made by Intel and Advanced Micro Devices, Mr. Eastwood said.
Those machines account for 60 percent of server computer sales.
But the decline in mainframe prices has slowed since the makers of I.B.M.-compatible servers exited the market.
From 1995 to 2001, I.B.M. reduced the price of computing tasks handled by mainframes by 31 percent a year. Those price declines averaged 13 percent after the makers of compatible mainframes exited the market, said A. M. Sacconaghi Jr., an analyst at Sanford C. Bernstein in New York.
I.B.M. said its market position in mainframe computers was not significant because mainframes accounted for only a small percentage of the overall computing market.
The European investigation comes amid a resurgence in the use of mainframe computing, which little more than a decade ago was widely dismissed as expensive and increasingly irrelevant in a market dominated by personal computers. Over the last decade, demand for mainframes has increased almost fourfold, according to data released by I.B.M.
Companies like TurboHercules have asked I.B.M. to sell its mainframe operating system to clients of TurboHercules, decoupling the software from the purchase of I.B.M.’s hardware. I.B.M. has refused to allow that.
Up until 2000, I.B.M was required by the Justice Department to sell the parts separately. The department dropped that obligation in 2000, saying that mainframes had become a niche market in the broader computing world.
“I think this case could in the end have a significant effect on the lower end of the mainframe market,” said Jeff Gould, the chief executive and research director of Peerstone Research, an industry consultant in San Francisco. “And ironically, I don’t think it will hurt I.B.M. in the end. They will still get paid by companies like TurboHercules, and they will be freed up to focus on the really large customers.”
Roger Bowler, the president of TurboHercules, said the French company welcomed the commission’s investigation.
“Hopefully, it will lead to remedies that will allow companies like TurboHercules to compete in the mainframe market,” Mr. Bowler said. “We simply ask that customers be allowed to have a choice of platform for running their mainframe applications.”
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