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.”

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."

XM AND SIRIUS SATELLITE RADIO TO MERGE?

On Tuesday the rumors that had swirled for more than a year regarding a possible merger between the two satellite radio companies in the United States, XM and Sirius Satellite Radio, were confirmed when both companies announced they are interested in a "merger of equals". There will be numerous hurdles to overcome before the companies can merge.

1. The Federal Communications Commission will have to approve the merger. They will take into consideration what is in the best interest of the public and if they do green light the merger, they might require concessions such as being able to regulate satellite radio like the currently do with terrestrial radio and requiring XM and Sirius to give back some of the radio spectrum issued to them by the FCC.
2. The Federal Trade Commission's Bureau of Competition seeks to prevent business practices that restrain trade. They get their charge and power from the FTC Act and Clayton Act, both of 1914. If the Bureau of Competition determines that consumers could lose in a scenario in which there was only one provider of satellite radio, the merger would likely not be approved.
3. The Antitrust Division of the Department of Justice will look closely at the proposed merger, consulting with the FTC to streamline the process and avoid duplication. If the DOJ believes that the merger would be a violation of the Sherman Antitrust Act of 1890 and/or the Clayton Act of 1914, the merger would likely not be approved.

Going from two competing satellite radio companies to one merged company seems to violate antitrust laws - one provider of a good or service that lacks a viable substitute - but XM and Sirius will argue that they do have competitors and substitutes in terrestrial radio, internet radio, and iPods and other portable music devices including mobile phones.

Most proposed mergers take a few months to clear all of the hurdles, but this one will likely take much longer, possibly going into 2008 before a final decision is rendered.

WSJ.com
USA Today

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%.

COMPETITION FOR CABLE AND SATELLITE TV?

Before satellite TV, most cable companies enjoyed a monopoly, typically regulated by the municipality in which they operated. As such, cable providers were guaranteed a "reasonable" profit, but without competition, prices climbed steadily over the years.

When satellite TV entered the picture, most believed that the competition would be good for consumers and that increases in prices for cable would slow. That has not been the case. In fact, cable and satellite TV providers have settled into a cozy duopoly, not so much competing as coexisting without much competition.

Prices for cable TV between 1995 and 2005 shot up 93%. In municipalities with only satellite and one cable provider, the average price for cable was $43.34 per month. In municipalities where there was more than one cable provider, the average price was $35.94, demonstrating that the increased competition was good for consumers.

The FCC wants to increase competition nationwide by adopting new rules that would make it easier for phone companies to compete directly with cable TV companies. Verizon already provides TV service in 300 municipalities, while AT&T does so in 24.

The problem in rolling out TV service via phone lines has been the requirement for the phone companies to seek permission and agreements one at a time from local governments. This is time-consuming and inefficient. The U.S. Congress could pass a law eliminating the tedious one-at-a-time agreement requirement, but has failed to do so thus far. Three states - Texas, California, and New Jersey - have passed laws allowing speedy rollout and competition, and their consumers have benefited.

The new FCC proposal would speed things a bit by requiring municipalities to act on applications by phone companies to provide cable TV services within 90 days in most cases, 180 days in the remainder of cases.

As we know, capitalism thrives on competition and the consumer benefits. The sooner new FCC rules or a new law can be passed, the sooner we will all see lower cable and satellite TV bills.

USA Today