The US government has delayed until today its proposal on what the Justice Department wants to do about the remainder of the 1956 consent decree restricting IBM Corp’s operations. The proposal, which had been expected to be delivered on June 28, addresses the Justice Department’s decision on whether to support IBM’s efforts to terminate the part of the 40-year-old decree restricting its operations in mainframes, and to announce a proposed phase-out period for restrictions on the AS/400 mid-range computers – as reported, the government has already agreed that the mid-range part of the decree should be terminated. According to a court document the parties filed last week, IBM and the Justice Department are continuing discussions to define and narrow further the issues that remain to be decided, and that those discussions would benefit from additional time. Neither side would comment further. In April, the parties had said they would work out a so-called sunset agreement phasing out the decree during a specified period of time. Speculation by informed sources close to the case puts that time span at three years. But on May 22, the date that the sunset agreement was due to be handed to Judge Allen Schwartz for review and, presumably, eventual approval, IBM and the government said they wanted a little longer to work out the details. The latest date for presentation of the agreement should also be the day on which the government will decide whether to fight to preserve the Consent Decree in the mainframe market. It now seems more likely than ever that the Justice Department will agree to end the Consent Decree in its entirety under terms that do not take effect immediately but instead come into play far enough in the future for affected participants in the computer industry, and IBM customers, to adjust to the new rules – or, more accurately, lack of special rules – of competition in the markets where IBM is most influential. There is a great deal of statistical data supporting IBM’s contention that its power is much less than it was in 1956 and that the mission of the Consent Decree has been accomplished, as IBM contends. The importance of mainframes in relation to the whole of the computer business has diminished. Also, the share of the mainframe market held by IBM is currently in decline due to the unexpectedly good reception customers have given the Hitachi Ltd Skyline processors.
By Hesh Wiener
IBM is also going to face additional competition in the low engine power segment as Hitachi and Amdahl Corp bring their alternatives to the IBM 9672 to market. A similar case can be made in the mid-range market for which IBM builds AS/400s. The growth of the market as a whole is more rapid than that of the AS/400 portion, and with Pentium Pro servers just coming into their own, the AS/400’s share of the segment is widely expected to decline considerably. IBM’s opposition – independent lessors and service organizations – are unlikely to persuade the government that their role in mainframes and AS/400s is sufficiently vital to the interests of customers to warrant continuation of the Decree. And the Justice Department has displayed very little inclination to view IBM’s practices in any market as unlawful and anticompetitive. As a practical matter, the Consent Decree does not seem to have been enforced lately anyway, so there might not be much change in industry conditions should the entire Decree be terminated. Not only will lessors, maintenance companies and other firms whose existence arose as a result of the Decree be little affected, but IBM itself may get no immediate practical benefit at all. However, anti-trust enforcement is a political phenomenon, subject to great changes as social conditions vary. A complete termination of the Decree would protect IBM from different interpretations of its meaning in the future, and it is possible that the US will at some time return to the more vigorous anti-trust policies it has upheld at various times in the past. IBM has already discovered that the financial fuel it obtains from the mainframe business is by itself insufficient to power its entry into emerging markets as a dominant player. Even in young market segments where IBM had a better chance than any computer market to reign supreme – the personal computer market is a prime example – a combination of IBM decisions and exogenous conditions prevented IBM from holding onto the lead it had established early in the last decade. Even if it could be shown that the Consent Decree played a crucial role in the establishment of a fiercely competitive personal computer industry that is beyond IBM’s control, the Consent Decree has already been whittled down too far to make much difference. The main beneficiary of the termination of the Decree may not be IBM at all. Instead, it may be Microsoft Corp which, in the absence of vigorous anti-trust policy, has amassed tremendous power over two large markets, that in desktop workstations and that in small servers. It is hard to imagine a Justice Department that views IBM’s power as well within the limits of legality and propriety going after Microsoft, which, despite its power, is confined to the software market and which has been unable to get a solid grip on the exploding World Wide Web browser market.
From the June 1996 edition of Infoperspectives, published by Technology News of America, 110 Greene St, Suite 1101, NY NY 10012, phone 212-3349750 (C) 1996 Technology News of America Co, Inc. All rights reserved.
