Europe's Regulators Ready To Rule Against
INVESTOR'S BUSINESS DAILY
Talks to settle the European Commission's antitrust probe of
Microsoft Corp. (MSFT)
broke down Thursday over regulators' requirements that the software
maker change the way it bundles features into future products.
The European Commission and Microsoft had reached much agreement,
but "were unable to agree on principles for new issues that could
arise in the future," Microsoft Chief Executive Steve Ballmer said
in a statement.
Analysts say the European Union's antitrust arm might have
overplayed its hand by trying to address the issue of bundling
features into future Windows operating systems.
"Microsoft firmly believes they cannot let governments dictate
what they can and can't put into Windows," said Matt Rosoff, an
analyst with independent researcher Directions on Microsoft.
Politics also might be playing a role in Europe's tough stance
against the U.S. tech giant.
Politics is "absolutely" playing a role in the EU's case, said
David Smith, an analyst with market research firm Gartner Inc.
"This is very much a matter of not wanting to back down and
wanting to declare victory more than anything," Smith said.
The failure of settlement talks clears the way for the European
Commission, the EU's executive branch, to issue a decision in the
case next week. EU Competition Commissioner Mario Monti said he
would propose a fine and recommend that Microsoft be ordered to
change its business practices.
Monti gave no amount for the fine, but it's likely to be in the
hundreds of millions of dollars.
The 20-member European Commission is slated to rule on the
proposal Wednesday in Brussels, Belgium. The EU says Microsoft uses
its monopoly status in personal computer operating systems to
dominate the market for media players, or software that plays music
and shows video. Microsoft has integrated its media software into
The European Commission says this has unfairly hurt competitors
such as RealNetworks Inc.'s (RNWK)
RealPlayer and Apple Computer Inc.'s (AAPL)
The commission is expected to demand that Microsoft offer
computer makers in Europe a version of Windows without its media
The EU's case also has probed the advantages Microsoft has in
making both PC and server operating systems.
The commission is expected to require Microsoft to provide
greater access to its underlying Windows code so that servers made
by rivals, such as Sun Microsystems Inc., (SUNW)
can work well with computers running Windows.
Microsoft agreed to similar terms in its November 2002 settlement
with the U.S. Justice Department, but observers say Europe might
seek more concessions.
Resolving the media player and server issues apparently wasn't
the biggest disagreement between the European Commission and
Microsoft. It was the product-tying, or bundling, issue.
This is the same issue the Justice Department ultimately decided
to back away from because it didn't believe it could win in
"We made substantial progress toward resolving the problems which
have arisen in the past, but we were unable to agree on commitments
for future conduct," Monti said in a statement. "In the end, I had
to decide what was best for competition and consumers in Europe. I
believe they will be better served with a decision that creates a
That precedent would "establish clear principles for the future
conduct of a company with such a strong, dominant position in the
market," he said.
But Microsoft would "fight to the death" for its right to add new
functions to its Windows operating system, said analyst Rosoff.
The company's next-generation operating system, code-named
Longhorn and due out in 2006, is expected to have an integrated
search engine and other new functions.
The European Commission wanted concessions beyond what the case
was about, said Nicholas Economides, a professor of economics at New
York University's Stern School of Business. Microsoft likely would
win the bundling issue in court because it benefits consumers, he
The Microsoft case is the most politically charged competition
probe since the EU blocked General Electric Co.'s planned
acquisition of Honeywell International Inc. in 2001.
Europe's handling of the Microsoft antitrust case is more in
keeping with its legal history rather than on any divisions stemming
from disagreements over the U.S.-led war in Iraq, Rosoff said.
European legal history puts more emphasis on the power of government
and less on the power of business, he said.
"It's more of a long-term political-cultural divide than anything
that happens to be related to how the geopolitical situation is
right now," Rosoff said. "Most of the governments in Europe would be
considered socialist by American standards."
Microsoft could appeal the EU ruling to the Luxembourg-based
Court of First Instance and later to the European Court of Justice,
a process that could take years.
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