Update: EU hits IBM with two antitrust investigations

The Commission will look into reports of IBM's alleged abuse of its dominant market position in mainframe computers

The European Commission announced on Monday that it will begin formal investigations into allegations that IBM has abused its dominant market position in mainframe computers.

The Commission, Europe's main antitrust authority, said that it would look into two separate cases of alleged infringement of the E.U.'s antitrust rules. Both cases are related to IBM's conduct in the mainframe computer market.

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The first case follows complaints by emulator software vendors T3 and Turbo Hercules who claim that IBM is tying its mainframe hardware to its own operating system. Emulator software allows the computer to run software that it would not normally accommodate.

The second case is being brought by the Commission itself over IBM's alleged discriminatory behavior toward competing suppliers of mainframe maintenance services. This follows concerns that IBM may have restricted potential competitors in the maintenance market, in particular by restricting or delaying access to spare parts for which IBM is the only source. Although the Commission has not reported a formal complaint, it is likely that the concerns were raised by others in the industry.

Part of the debate, in particular for the second case, is whether the mainframe server market constitutes a discrete market. Mainframes are powerful servers primarily used by larger organizations to process and store business-critical information. In 2009 around € 8.5 billion ($10.9 billion) was spent on new mainframe hardware and operating systems. However, IBM argues that the mainframe market is a sub-sector of the overall server market.

"Today's computer server market is clearly dominated by Intel-based servers from HP, Dell, Oracle, and many others, as well as Unix servers. The numbers speak for themselves: mainframe server sales today are a tiny fraction of worldwide servers -- representing just 0.02 percent of servers shipped and less than 10 percent of total server revenues in 2009. Today, the mainframe server is a small niche in the overall, highly-competitive server landscape," IBM said in a statement on Monday.

The company added that it will cooperate fully with the Commission's inquiries, but will "not allow the fruits of its innovation and investment to be pirated by its competition through baseless allegations."

The initiation of proceedings does not imply that the Commission has proof of infringements, but it will treat the cases as a matter of urgency. Another formal complaint against IBM was made by NEON Enterprises earlier this year and it remains to be seen whether the Commission will deem that too, to be worthy of further investigation.

This story was updated on July 26, 2010

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