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EU plans new network-monopoly curbs after Microsoft defeat

A new ruling against Microsoft’s refusal to unbundle and code-share enables the EU to launch tougher network-opening requirements, and could trigger action against several other companies with a stranglehold on components of digital communication.

Microsoft’s appeal against its 2004 conviction for anti-competitive practices has been dismissed by the European Court of First Instance. The verdict has no immediate significance for the US software giant, since it relates to the XP version of its Windows operating system that was replaced this year by Vista. But it establishes a principle that will allow the EU Competition Commission to go after other companies that attempt similar bundling and exclusion tactics. The Commission judged that Microsoft breached its competition rules by attaching its own applications to the operating system, and withholding information that would have assisted suppliers of rival products in linking to the system. This tactic enabled, in particular, Microsoft’s Media Player to capture significant market share from other audiovisual download players, including that supplied by RealNetworks.

Microsoft’s justification, that its integration improved customers’ experience, was overruled by the Commission’s argument that it restricted consumer choice. The company could appeal one more time, to the European Court of Justice, but its grounds for doing so appear very limited. Its lawyer Brad Smith responded to yesterday’s verdict by promising it would be fully complied with. As well as having to pay the original €497 million fine, and a €280 million penalty for subsequent non-compliance, Microsoft will have to show that its business practices have now changed to avoid a recurrence. The company will have to provide information that enables hardware companies to make servers fully compatible with the Windows system, and rival software companies equal scope to interlink with Windows.

In effect Microsoft – whose operating system now runs on around 95% of the world’s computers – is being treated like a regulated network company. Its platform must be made available to rival suppliers in the same way as, for example, BT must allow rival telecoms providers to use its phone network and British Gas its gas pipeline network in the UK. Enforcement will be pursued by pressure groups that backed the EU’s action, including the Free Software Foundation and the European Committee for Interoperable Systems.

The decision will enable competition commissioner Neelie Kroes to introduce a tougher EU code on anti-competitive practices, and to launch new legal actions against companies alleged to have engaged in similar tactics. Those expected to be on the receiving end include Microsoft (which has continued bundling its products into Vista), chip-maker Intel, chip interface supplier Rambus and mobile phone operating system maker Qualcomm. Google, now enjoying a similarly monopolistic hold over internet search and the advertising revenues that go with it, could also be a target as it adds to the number of services linked directly to its homepage.

On the same day as the Court upheld its Microsoft penalties, former computer rival Apple admitted to a potentially similar move to preserve the domination of its iTunes service over music downloads. Its latest iPod players have been re-engineered to prevent them being used with other MP3 file management programs, on the Microsoft or open-source Linux operating systems.

US competition authorities backed away from their anti-trust actions against Microsoft in the early 2000s, preferring to rely on technological change to undermine the dominance of Windows and Works. But the capture of new online growth markets by Apple, Google and MySpace have multiplied the problem rather than resolving it. Market power tends to become highly concentrated in networks because it rarely pays either producers or consumers to build and run more than one. The EU, possibly helped by the current giant’s exclusively American parentage, aims to break new ground in making the private monopolists more publicly accountable. (financeweek.co.uk)