MERGERS AND HIGH FUEL COSTS MAY MEAN FEWER CHEAP FLIGHTS

With Delta and Northwest seeking approval on a merger and rumors swirling about Continental seeking a merger partner in both United and American, competition in the airline industry in the United States is declining. Add high fuel costs and you have a recipe for higher fares.

From BusinessWeek via MSNBC:

n the three decades since the airline industry was deregulated, the flying public has received a free ride, or at least close to it. Thanks to debilitating price wars among airlines seeking an edge over competitors, U.S. airfares have plunged more than 50 percent in real terms since 1978 — giving rise to $49 flights and turning a form of travel that once was the province of the wealthy into the great proletariat pastime.

But when the CEOs of Delta Air Lines and Northwest Airlines sealed their merger accord with a handshake on April 15, the moment probably marked the end of the era of cheap travel. In this new age, major airlines could achieve the critical mass needed to raise fares enough to start recouping some of the $29 billion in losses they've suffered since 2001.

DELTA/NORTHWEST MERGER WILL HAVE TO CLEAR SEVERAL HURDLES

Delta and Northwest may intend to merge, but before that can happen, they will have to deal with union concerns and overcome antitrust regulatory hurdles.

From AP via Yahoo:

If Delta and Northwest are going to complete their deal to create the world's largest airline, they'll first have unions to cajole, politicians to placate, and antitrust regulators to convince.

Two of Northwest's largest unions immediately declared their opposition.

Most importantly, the airlines will need antitrust approval from federal regulators. In 2001, an attempted merger of United Airlines and US Airways fell apart amid antitrust concerns. Executives at Delta and Northwest said they are aiming to close their deal by the end of this year, which would be before the end of the merger-friendly Bush administration.

The takeover announced Monday calls for the combined airline to be named Delta, remain based in Atlanta, and be run by Delta CEO Richard Anderson. If the share-swap becomes final, Delta shareholders will get a bigger company, while Northwest shareholders would get a 16.8 percent premium over Monday's closing stock prices. Based on those prices, the deal values Northwest at more than $3.6 billion.

EUROPEAN UNION REGULATORS FINE MICROSOFT $1.3 BILLION

The European Commission fined Microsoft $1.3 billion for failing to comply with a 2004 judgment that found the software giant guilty of abusing its market dominance. This fine brings the total Microsoft has paid due to European Commission rulings to $2.5 billion.

From The New York Times:

Microsoft had earlier been fined after the commission determined in 2004 that the company had abused the dominance of its Windows operating system to gain unfair market advantage. The commission imposed the new fine Wednesday, it said, because the company had not met the prescribed remedies after the earlier judgment.

“Microsoft was the first company in 50 years of E.U. competition policy that the commission has had to fine for failure to comply with an antitrust decision,” the European competition commissioner, Neelie Kroes, said in a statement.

Microsoft said it was “reviewing the commission’s action.”

The company, the world’s biggest maker of software, said in a statement that the commission had announced in October 2007 “that Microsoft was in full compliance with the 2004 decision, so these fines are about past issues that have been resolved.”

MICROSOFT HIT WITH ANOTHER EU ANTITRUST SUIT

This post mixes news with my opinion.  I welcome the thoughts and opinions of others.

From PC World:

Opera [browser company] is asking the [European] Commission, the executive branch of the European Union, to force Microsoft to unbundle IE from Windows, or include other browsers as a standard part of its operating system. It also wants it to require Microsoft to adhere to industry standards with its Web browser.

The issue of standards is seen as important because if all Web browsers do not use the same standards, Web site developers are likely to design their Web sites to work with the most widely-used browser, which is Internet Explorer. That gives people a disincentive to use other browsers.

"By tying its Internet Explorer product to its monopoly Windows operating system and refusing to faithfully implement industry accepted open standards, Microsoft deprives consumers of a real choice in internet browsers. Browsers are the gateway to the internet. Microsoft seeks to control this gateway," said Thomas Vinje, speaking for ECIS [European Committee for Interoperable Systems].

Let's review.  

1. Microsoft has created the world's most popular browser.
2. Opera has created a competing browser that is preferred by a few users and has a tiny market share. 
3. Opera has sued Microsoft in the E.U. claiming that (1) bundling IE with an operating system is unfair and (2) that Microsoft should be FORCED to use "standards" spelled out by others in the creation of their product.
4. The ECIS spokesperson claims that consumers are being denied a choice of browsers.

The implications of points one and two should be obvious to everyone; Microsoft is the big market share winner, Opera cannot compete in a free market, so Opera goes crying to the European courts for help and protection.  I have an idea.  Why don't they invest the time and money they will spend on this suit creating a better browser that can compete more favorably with Internet Explorer?

As for points three and four, who believes that any company should be forced to adhere to other's "standards" in creation of their product?  It is absurd and would crush the creativity it is supposedly designed to protect.  Microsoft, along with any other company, should be free to design its software any way it chooses.  If users and designers do not like it, they will avoid it and choose another product.  The ECIS spokesperson is way off base.  Consumers are not being denied a choice of browsers.  How do I know?  Well, as I write this, I'm using Apple's Safari browser on my Microsoft Windows Vista computer.  And, in other window, I'm running Firefox.  And, yes, I do have Internet Explorer and Opera installed, as well.  I use each browser for different tasks.

You have to question the motive and sincerity of anyone who would suggest that consumers are being denied a choice when Safari, Firefox, and Opera are all free and easy to download and install.  While you are at it, question the motive of a company that files a lawsuit because it is unsuccessful in competing in a free and open market.

INTEL IS THE EUROPEAN COMMISSION'S NEXT TARGET

In the wake of the ruling against Microsoft this week, Intel seems to be the next target for the E.U. in terms of anti-competitive behavior. Rival AMD has complained since 2000 that Intel has used questionable practices, seemingly legal in the United States, but perhaps illegal in the E.U. In July of this year the European Commission charged Intel with illegal use of sales tactics such as rebates and incentives to maintain or increase its market share in microprocessors.

From BusinessWeek:

The EC cases against Microsoft and Intel are based on different kinds of alleged market abuse and draw on separate legal precedents. But both reflect a widening gap in how the U.S. and Europe view the legality of hardball business tactics by dominant companies. While regulators in both regions look for signs of harm to consumers from monopoly behavior, Europe gives as much or more weight to the impact on competitors.

That distinction played a critical role in the Microsoft ruling. On the face of it, Microsoft's free inclusion of Media Player in Windows was a boon to consumers. But the EC was able to show that the software bundling harmed rivals such as Real Networks and Apple and reduced competition in the media player market—thus potentially hurting customers in the long run by leading to less choice in digital content formats. A similar argument held that by limiting the information it gave out about Windows networking standards, Microsoft had foreclosed competition in desktop and server operating systems, to the detriment of consumer choice.

The same kind of thinking is at the core of the commission's case against Intel. Prompted by complaints from rival chipmaker AMD dating back to 2000, the EC has charged Intel with illegal use of sales tactics such as rebates and incentives to maintain or increase its market share in microprocessors. Such programs are normally permissible but can cross the line into abuse when practiced by companies with monopoly market share.

Intel strongly denies any wrongdoing and says it has acted within the law with its market incentive programs. It also argues that the programs have led to lower chip prices for consumers.

That may not be enough of a defense in Europe—especially now that the commission's hand has been strengthened in the wake of the Microsoft defeat. "European authorities and courts put a higher duty on dominant firms to deal fairly with their competitors," says Philip Marsden, a senior research fellow at the British Institute of International & Comparative Law. "They want to foster gentlemanly competition, a premise that is foreign to American antitrust thinking."

EUROPEAN COURT DENIES MICROSOFT APPEAL

From the International Herald Tribune:

The second-highest court in Europe on Monday rejected Microsoft's attempt to overturn a landmark European Commission antitrust ruling and record fine, bolstering smaller software makers and putting market leaders on notice that they cannot leverage dominance in one technology niche to squelch broader innovation, industry and legal experts said.

The European Court of First Instance, in a starkly worded summary, ordered Microsoft to obey a 2004 commission order to share confidential computer code with competitors. The court also upheld the record fine of €497.2 million, or $690 million, against the world's largest software maker.

Software and legal experts said the court's decision may signal problems for companies like Apple, Intel and Qualcomm, whose market dominance in online music downloads, computer chips and mobile phone technology is also being scrutinized by the commission. The ruling also could make it harder for Microsoft to continue "bundling" new features into its Windows software.

Microsoft's allies said the court's decision, which expressly forbids the company's policy of bundling new extras into its Windows operating system, will have a chilling effect on the strategies of many global software makers.

"This ruling is certainly going to introduce a lot of uncertainty," said Jonathan Zuck, president of the Association for Competitive Technology, a Washington-based group that supported Microsoft in its legal case in Europe. "What the court is basically saying is that if you develop a successful product and get too big, the European Commission is going to force you to give away your intellectual property."

When Microsoft wants to put handwriting and speech recognition features or stronger anti-virus and other security software into the Windows operating system, competitors can complain to European authorities, even though the European unbundling order in the media player case - compelling Microsoft to offer a version of Windows in Europe without the media player but with no difference in price - was a failure.

Microsoft has already been forced to pay nearly €1 billion in fines in the long-running legal case, which has pitted the software maker against the commission and a host of competitors, including International Business Machines and Novell.

After Sun filed the initial complaint in 1998, the commission later expanded its inquiry to include Microsoft's practice of bundling its Windows Media Player into the Windows operating system. After Microsoft began bundling its media player into Windows, it overtook the market leader, RealNetworks.

Microsoft has been repeatedly fined by the commission since the 2004 antitrust ruling for failing to adequately disclose server software coding.

During the course of the litigation, Kroes said in Brussels that Microsoft's share of the market in workgroup servers had risen to 80 percent from 40 percent and that Windows Media Player had come to dominate the market.

She highlighted the fact that Microsoft had 95 percent of the world market for desktop operating systems and said she would like to see that share decline.

"You can't draw a line and say exactly 50 percent is correct, but a significant drop in market share is what we would like to see," she said. "Microsoft cannot regulate the market by imposing its products and its services on people."

NEW DETAILS ON SIRIUS/XM PRICING AFTER MERGER

Newly filed FCC documents show that IF, and that is a big IF, the merger between Sirius and XM is approved, prices for some services will increase, others will remain the same, and some will be lower. Here is the breakdown from an AP story at The New York Times.

Lower Price
For customers who choose to receive fewer channels than they currently receive, prices will decrease from the $12.95 monthly rate. Which channels and how much the price will drop is not detailed. Currently, customers can choose to block certain channels like the Playboy channel, but they do not receive a discount for doing so.

Same Price
For customers who choose to keep their same service, expect the price to remain the same.

Higher Price
Customers who choose a "best-0f" service from both providers can expect to pay a "modest premium" above the regular $12.95 fee.

Also from the article:

Sirius and XM were explicitly forbidden from merging when their licenses were granted a decade ago, but the companies are arguing that much has changed since then, and that the companies now face increased competition in audio entertainment from iPods and Internet radio, as well as traditional terrestrial radio.

On Tuesday, a group of six consumer and advocacy groups asked the Senate panel to call for a tough regulatory review of the transaction, which would eliminate one of the only two competitors in the emerging satellite radio business.

The statement from Consumers Union, the Consumer Federation of America and others said that the deal would reduce competition, decrease choices for consumers and possibly lead to higher prices.

SIRIUS & XM SATELLITE RADIO CONSIDERING MERGER?

According to The Wall Street Journal, rivals Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. seem to be considering a merger, but any combination of the only satellite radio providers would face serious legal and regulatory antitrust hurdles from the Justice Department Antitrust Division, the Federal Trade Commission and the Federal Communications Commission. According to Reuters, FCC Chairman Kevin Martin today said, "There's a prohibition on one entity owning both of those licenses," making a merger seem unlikely, but he did leave the door open by saying that the FCC would review any transaction submitted to it.

While Sirius and XM are the only satellite radio providers in the United States, they might be able to get over most antitrust and competition hurdles by arguing that satellite radio competes with traditional terrestrial radio, MP3s, Internet radio, and even cellphones.

While both Sirius and XM have added millions of users, totalling more than 12 million, neither has approached profitability. In the past 12 months, Sirius stock price has fallen more than 35% while XM has dropped more than 40%.