INTEL HAS NO MONOPOLY; FTC CAN'T PROVE CHIP MAKER CONTROLS MARKET OUTCOMES, PRICE.

Byline: M. Royce Van Tassell

ON June 8, the Federal Trade Commission filed an administrative complaint against Intel, the world's largest chip maker. At the time, most pundits agreed with the FTC. As is so often the case, the market has proved both the pundits and the FTC wrong.

The FTC alleges that Intel wields monopoly power in the chip market. Because Intel chips drive so many computers, the FTC alleges that Intel must provide information on coming chips to all who ask for it. In 1997, Intel refused to supply the Intergraph Corp. with crucial information about those chips. The FTC believes that in refusing to give away technical information, Intel broke the law.

While Intel did withhold information on coming chips from Intergraph, it has never had a monopoly. Intel spokesman Chuck Mulloy said that to prove Intel wields such power, the FTC must prove that Intel's market share allows it to control market outcomes and market price. The FTC cannot meet either standard.

The FTC alleges that entry into the chip market by a competing chip maker ``is difficult and unlikely to correct Intel's monopoly power.'' A potential competitor would need at least $1.9 billion in capital and at least four years to develop a chip comparable to Intel's.

Reality, however, ignores such claims. One week before the FTC filed its complaint, The New York Times reported that chip makers Advanced Micro Devices and Cyrix pose a ``competitive threat'' to Intel because of a shift in the computer market toward less-powerful computers. In the past, Intel focused on creating faster, more powerful, more expensive chips. But consumer preference has changed. Rather than buying the latest, most powerful computer, many consumers prefer less-powerful, less-expensive computers for word processing, browsing the Web and personal budget software.

Because Intel chips cost twice as much as competitors' chips, computer manufacturers cannot earn a profit on a $999 commuter with Intel chips. They can, however, earn a profit on the same machine with a chip from Cyrix or AMD.

While Intel has created a chip, the Celeron, for this emerging sub-$1,000 PC market, analysts were disappointed with its first version. According to The New York Times, ``the Celeron . . . was too little, too late.'' Specifically, computer makers complained that the first-generation Celeron did not have Level 2 cache, or high-speed memory directly on the chip.

While Intel has released Celeron A, which does have L2 cache, the delay in providing this function gave Cyrix and AMD a significant advantage in gaining market share. Even worse, the Celeron remains substantially more expensive than the AMD and Cyrix chips.

As a result of these problems, Intel is having trouble maintaining exclusive contracts with some of the world's largest computer manufacturers. IBM recently announced that it will begin using AMD chips in some of its coming PCs. In addition, Compaq, Hewlett-Packard, Packard Bell and Acer are all using the Cyrix chips in some of their PCs.

These shifts toward Intel competitors are not isolated. On Aug. 4, ZD Market Intelligence, a San Diego-based market research firm, reported that Cyrix and AMD control 60 percent of the booming sub-$1,000 PC market. According to the same report, Cyrix or AMD chips powered 38 percent of the x86 PCs sold in June. Last June, AMD and Cyrix machines made up 5 percent of the x86 PCs.

If Intel really does exercise monopoly power, none of these shifts should have happened. A company that can control market price would not allow other companies to undercut that price. It would not give up exclusive contracts with big-name computer manufacturers like IBM, Packard Bell and Compaq.

Intel never was a monopolist. The FTC has no case. Its suit relies on the claim that Intel's monopoly makes access to its proprietary information indispensable. Since Intel really doesn't and never did exercise monopoly power, the FTC cannot force Intel to distribute its proprietary information to all comers.

One can only hope that the FTC lawyers drop the suit before the January trial. If they let it continue, not only will they waste their own time, but our precious tax dollars as well.