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INFORMATION TECHNOLOGY: MICROSOFT RIVALS LODGE NEW COMPLAINT WITH COMMISSION.

Speaking at a press conference in Brussels on February 11, Ed Black, head of the Computer & Communications Industry Association (CCIA) which filed the complaint, said: "Only competitive markets can deliver choice, innovation and fair prices for consumers. It is therefore imperative to take steps to preserve competition in these and related markets and to prevent future anti-competitive conduct by Microsoft." The CCIA is a trade group that represents the interests of dozens of information technology companies, including some of Microsoft's largest competitors - such as Sun Microsystems, Oracle, and America Online. The group formally filed the complaint with the Commission on January 31.

At the heart of the complaint is the way in which Microsoft "bundles" other products along with its Windows XP environment - such as Internet Explorer, Outlook Express, Windows Media Player and Windows Messenger. This, argues Mr Black, harms competition by restricting the choice that consumers have over which products they can install in their computers. Mr Black would ideally like to see European regulators step in and break up this bundle of software products altogether so that proper competition can develop.

The complainants also accuse the US software giant of employing other illegal business practices to squeeze out competition - such as using its dominant position in certain markets to muscle in on new ones, known as "leveraging", and giving Microsoft products a more favourable position in the layout of the Windows operating system.

This latest complaint deals with a broader range of issues than those currently being addressed by the Microsoft case under investigation by EU regulators, which is expected to be wrapped up by the end of July. This anti-trust probe, which predates the release of Windows XP, is looking primarily at the bundling of Media Player with the Windows operating system. Mr Black now wants a new investigation to be opened which looks at the wider picture of Microsoft's alleged anti-competitive behaviour.

In its complaint, the CCIA argues that Microsoft has over 90% market share in three markets - for PC operating systems, for product application bundles such as Microsoft Office, and for web browsers.

Software bundling.

According to the CCIA, product bundling restricts consumer choice, as they have only limited choice to decide to install alternative products. This results in competitors being squeezed out of the market place as they lose the ability and resources to provide alternatives to compete with these bundled applications.

Mr Black cites a recent anti-trust case in the United States against Microsoft, where Internet web browser provider Netscape complained about the bundling of Internet Explorer with Windows. Netscape argued that this made it impossible for its own Navigator software to compete on a level footing in the marketplace. The CCIA says that this bundling caused the market share of Internet Explorer to leap from 7% in 1996 to 96% in 1999, whilst Netscape Navigator's position in the market fell dramatically.

The CCIA is also unhappy that PC retailers are under significant pressure to include Microsoft Windows on every PC that they sell, otherwise consumers will not be interesting in buying the machine. This makes the effects of bundling even more serious, because every new PC will contain every product in that bundle.

Mr Black also points out the difficulties of removing individual products in the bundle after installation and using a competitor's software instead. He notes that the Add/Remove utility provided by Windows removes only the desktop icon and not the underlying program code. Furthermore, interdependencies among Microsoft products often override users' efforts to make use of non-Microsoft products.

Some products, such as web browsers, allow the development of new applications which are platform-independent and therefore do not require the Windows operating system. "Such products clearly present a threat to the dominance of Windows, which is why Microsoft wants to be able to control them", said Mr Black.

Biasing.

According to the CCIA complaint, the user interface of Windows XP has been developed in such a way as to promote the use of Microsoft applications ahead of competitor's software. For example, Microsoft's Windows Messenger automatically loads whenever Windows starts up. Also, entering an incorrect web address in Internet Explorer will automatically bring up Microsoft's MSN Search rather than any other search engine. Both of these examples show how Microsoft's products benefit from exposure not available to competing software.

The CCIA also alleges that the lay-out of Windows' screens give Microsoft considerable control over which products users see first, thereby determining which they are most likely to make use of. This is known as "screen biasing".

Windows XP also uses "operational biasing", whereby Microsoft programs and services are automatically selected as default before the user has made the choice for him/herself, and these default settings can sometimes be difficult to change.

Proprietary technologies.

A further complaint is that, by bundling client applications with Windows, Microsoft is effectively ensuring the proliferation of its own proprietary standards at the server end of computing. For example, if most PC users run Windows Media Player, it makes sense for distributors of audio and video files to make certain that they are compatible with Microsoft's proprietary Windows Media Format.

Microsoft's .NET initiative takes this strategy a step further by establishing interdependencies, based on proprietary interfaces and protocols, between and among Microsoft's dominant products. In the words of Microsoft, ".NET is a set of Microsoft software technologies for connecting information, people, systems, and devices". The technology enables Microsoft applications to connect to one another and to other applications over the Internet, providing that these applications use the .NET interface.

The CCIA regards the .NET initiative as an attempt by Microsoft to eliminate the threat that platform-neutral Internet computing represents to its dominant market position, and to extend its influence over the Internet.

Document formats.

The CCIA says that Microsoft should be prepared to disclose the file formats that its Office suite of programs use. By keeping these formats secret, the CCIA argues that Microsoft is reducing the usefulness of competing applications by obstructing third-party developers to inter-operate with these files.

Mr Black believes that this strategy is preventing operating systems such as Linux from gaining a foothold in the market place. Microsoft Office is not currently available on Linux. By not porting Office to Linux, and by refusing to disclose the file formats that Office uses, Microsoft is effectively forcing consumers who wish to read Office files back on to Windows.

Leveraging.

Leveraging is a practice whereby a company uses its dominant position in one market to gain footage in another. For example, the CCIA insists that Microsoft is using its existing dominant position in desktop software to muscle in on the markets for handheld computing devices and smart phone software. By refusing to provide sufficient information for third-party applications to interface with its desktop software, Microsoft is encouraging consumers to buy its handheld computing devices rather than technology from its competitors.

Not everyone agrees with how leveraging should be used to regulate competition. However, Microsoft's competitors can draw some comfort from the recent decision to overturn the Tetra Laval/Sidel prohibition (see European Report 2722). Whilst the Court of First Instance held that the Commission had not provided sufficient proof in blocking the merger, the Court stressed that leveraging theory was still admissible in EU competition law.
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Title Annotation:Computer and Communications Industry Association
Publication:European Report
Geographic Code:1USA
Date:Feb 12, 2003
Words:1212
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