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Five months ago, on May 11, the Obama administration revoked an antitrust policy established during President Bush’s regime that regulators said hindered their ability to take on anticompetitive behavior by companies that dominate their market.
At the time, Department of Justice officials said antitrust policies under Bush contributed to the economic downturn that led to the global recession, and promised that they would be more aggressive in policing such behavior. DOJ officials have also said the technology and telecommunications industries were among the sectors they would keep a particularly close eye on.
Any doubt about that was wiped away in October when the DOJ reportedly began a preliminary investigation into IBM and its dominance in the mainframe space. That came about the same time a U.S. District Court judge in New York dismissed a lawsuit filed by T3 Technologies against IBM charging anticompetitive practices. T3, which sells non-IBM hardware that runs mainframe workloads, will appeal the dismissal.
T3 and the CCIA (Computer & Communications Industry Association) have filed complaints saying IBM’s refusal to license its z/OS mainframe operating system is unfair to companies like T3. The CCIA, which counts such vendors as Microsoft, Oracle and Advanced Micro Devices among its members, briefed DOJ investigators in September on its concerns about IBM and the mainframe market.
Charles King, an analyst with Pund-IT Research, said there are numerous issues connected with the case, involving subjects such as competitive Unix systems, questions about how dominant IBM mainframes are in the server space and IBM’s continued push to widen the workloads the mainframes will support while also driving down costs.
However, for the IT industry as a whole, what is more worrisome is the degree to which the DOJ is now reflecting the policies of sitting administrations, King said, as “radical shifts in DOJ philosophy and strategy can significantly add to the difficulties that businesses face in operating and competing during what is arguably the most challenging economic environment in a generation,” King wrote in a report issued Oct. 13.
President Obama has been vocal about his support for business regulations, particularly given the belief that it was the lack of such regulations that helped create the current economic problems, so the aggressive attitude of regulators now isn’t a shock. But it does suggest that competition and antitrust regulation will continue to be tied closely to whatever administration is in charge, creating a moving target for companies.
“The complaints against IBM could eventually qualify as a litmus test of the Obama administration’s broader attitudes toward business and market competition,” King wrote. “If the DOJ acts in a careful, measured way it could repair a reputation damaged by eight years of laissez-faire excesses. But if the DOJ gives credence to what we consider to be the essentially baseless claims of T3 and the CCIA, it could portend a very long four or eight years, not just for IBM, but for many U.S. companies in the technology industry and other sectors.”
A Hostile Environment for Business?
Rob Enderle, an analyst with the Enderle Group, said the Obama administration and the European Union both now seem to be creating an increasingly hostile environment for tech companies. With larger companies faced with antitrust allegations, regulators both in the United States and in Europe presume the company is guilty, and “the judicial process is simply an exercise in confirming that guilt.”
To prosper in such an environment, Enderle suggested that IBM’s course of action in the 1950s or Apple’s current practices might help businesses more than the combative strategies employed in recent years by Microsoft and by Intel, which in May was fined $1.45 billion by the European Commission-the antitrust arm of the European Union-for anticompetitive practices.
In the 1950s, when the issue of IBM’s dominance arose, IBM officials were proactive and agreed to a consent decree that was in effect for four decades.
“Not only did IBM show a great deal of respect for the DOJ and other federal entities, they seemed to realize that the cost of a public fight would be more than the firm could bear,” Enderle wrote in an Oct. 13 report. “In essence, the company decided that by effectively self-regulating, they could keep the U.S. government out of their business. They were right. For most of the time the consent decree was in place, IBM enjoyed some of the most successful, and strongest, financial years in the firm’s history.”
Apple also has garnered the scrutiny of the DOJ, Securities and Exchange Commission, and Federal Trade Commission for such issues as its behavior toward Mac clone maker Psystar, and Enderle suggested that the company has eased that scrutiny by putting former Vice President Al Gore on its board of directors.
“Is Apple’s Teflon resistance to government oversight due to Al Gore’s presence?” Enderle asked. “It is certainly intriguing, in that bureaucrats tend to learn early (if they are successful) to pick their fights carefully and leave powerful political figures alone. In any case, Gore appears to be vastly more valuable to Apple than the ex-attorney general hires that Microsoft tried to use to its advantage during its own antitrust trial.”
Joe Clabby, president of Clabby Analytics, said the DOJ may have a difficult time making its case against IBM. Investigators can’t say mainframe customers are locked in when there are other alternatives out there, including Unix-based systems running such RISC processors as IBM’s Power or Sun Microsystems’ SPARC, or Intel’s EPIC (Explicitly Parallel Instruction Computing)-based Itanium chips, which power Hewlett-Packard’s Integrity line of servers, Clabby said in an Oct. 13 report.
In addition, mainframes are open systems in that they can run Linux and Java workloads, as well as SOA (service-oriented architecture) applications. So on the hardware side, there’s no lock-in, which leaves the issue of licensing for z/OS, he said.
“Ultimately, the biggest question on the table is whether other vendors should have a right to deploy z/OS on other platforms,” Clabby wrote. “If allowed to do so, competing vendors could undermine IBM’s mainframe pricing structure by delivering lower-cost alternatives to mainframe hardware. And, to us, that would be unfair.”