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Home / Technology

Anti-monopoly commission bares its gums

24 Jun, 2002 07:49 PM5 mins to read

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By CHRIS BARTON

No Surprise last week when the Commerce Commission - known for its lack of teeth with monopolies - dismissed a claim against Microsoft for anti-competitive practices.

But the complaint from law firm Clendon Feeney was tossed out with an extraordinary statement: "Microsoft is likely to have a substantial degree of power in the operating systems market, and as a result of that market power Microsoft may be able to act in a manner that it would otherwise not be able to do, by taking advantage of its market power.

"However, there is insufficient evidence to show that if it has taken advantage of its market power, it has done so for the purpose of restricting, preventing or eliminating another party from a market."

On the one hand the commission concedes that Microsoft has so much monopolistic power it can pretty much do what it wants, but on the other it says as long as it does not breach the anti-competitor provisions of Section 36 of the Commerce Act, that's fine.

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Perhaps it's time the commission opened its eyes and looked at the bigger picture. The underlying purpose of the act is much wider than Section 36 - namely, to promote competition in New Zealand markets.

"Competition should benefit the economy, and therefore individuals, through: more efficient and innovative businesses; a wider choice of goods and services; higher-quality goods and services; competitive prices."

In focusing only on Section 36, the commission has missed the essence of Clendon Feeney's complaint. It is not whether Microsoft's price increases for business software are designed to limit competitors.

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Everyone knows that in PC operating systems and business application suites there is no competition to speak of. It was long ago eliminated by anti-competitive means.

That is why the United States Department of Justice took and won its anti-trust case and is still trying to impose penalties against the software giant.

The real issue Clendon Feeney asked the commission to investigate was whether Microsoft, with its almost total market monopoly, has the right to raise software prices whenever it feels like it. In short, the law firm and its chief protagonist, Craig Horrocks, were raising a terrible spectre - price controls on software.

It's not as scary as it sounds. Under the act the commission can recommend that specific goods or services be subjected to price control.

But that can only happen when "there is limited competition in the market for particular goods or services" - which is clearly the case with Microsoft products - and if "control is seen as necessary or desirable in the interests of users, consumers or suppliers".

Which is exactly what Horrocks is arguing: "The conduct is occurring where Microsoft, as a supplier, unilaterally changes its terms of trade in a manner that will result in very substantial price increases unrelated to product costs, efficiency or enterprise profitability and is only able to do so because of its market power."

That's lawyer talk for "Microsoft has us over a barrel and is flaying the skin off our backs."

Horrocks argues that Microsoft can raise prices "due to its market position obtained and maintained through the economics of technology inter-operability, having the character of an essential supplier acting in a manner that ignores the market position of its customers".

In other words, even when you own the market and everyone needs your products, that doesn't mean you can ride roughshod over business consumers.

The commission did not even look at this aspect of Horrock's complaint, preferring to limit itself to whether Microsoft's actions would stifle non-existent competition.

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It also did not bother to talk to any business users of Microsoft software to find out whether they knew about the new pricing or if it would adversely affect them.

I asked director of business competition Geoff Thorn why. He said the commission felt it had sufficient information from Microsoft and the complainant to be satisfied there was no breach of the act.

Price control was not looked at because the commission has never invoked that part of the act and is still figuring out under what conditions it should apply.

Its report on whether price controls should be applied to airfield activities is due to go to the minister at the end of this month. But judging by the commission's indifference, there is no chance this will pave the way for considering price controls on software.

Thorn had no answer to why Microsoft can discriminate against customers who buy the same goods but at lower volumes. He was unaware the Government itself is negotiating a $20 million bulk-buying deal at a cost of about $250 a user for a menu of desktop applications. Horrocks says under Microsoft's new pricing strategy small to medium business like his will pay about 10 times that.

So what is he going to do now? Horrocks says the experience of being "told not sold" has started a process that will see his company abandon Microsoft software.

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The switch to a Linux-based system will take three years and cost about $10,000 a user. The high exit costs caused by "lock in" to Microsoft software were another key plank of Horrock's argument.

"My complaint unfortunately was treated as if it was a nuisance rather than one of the most important issues in competition law in this country today. I love this country, but sometimes I do wonder whether we really have got any savvy at all where it counts."

*

Clendon Feeney's complaint against Microsoft

The Commerce Act

Price Control under the Commerce Act

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