Intel faces another monopoly probe

There are, arguably, only three truly dominant companies in the tech industry: IBM, Microsoft and Intel. Operating successfully, while staying within the confines of the competition rules of the day, has been a constant challenge for them.

It is a test that the first two companies in that list have failed more than once, but one which, until now, has been consistently passed by the third. IBM first lost an anti-monopoly case in the early 1930s, and endured three more setbacks in subsequent decades. Microsoft has lost three cases, the most recent being the March 2004 ruling by the European Commission (EC) that incorporating a media player into Windows amounts to an abuse of market power. But Intel, despite being investigated on several occasions by regulators in the US, Europe and Japan, has so far evaded fines or other sanctions. If a market for its microprocessors ever goes away, this seemingly Teflon-coated organisation might consider manufacturing non-stick appliances instead.

And so the news earlier in June that the EC seems set to revive an old inquiry into Intel should be treated with some scepticism. Indeed, even the EC itself seems to accept as much. In confirming to journalists that the EC had written to certain PC makers in May, an official spokeswoman stated: “I would caution you against rushing to conclusions.”

It was not immediately clear why the inquiry had restarted, although it was generally assumed to have been in response to the discovery of new evidence by Intel’s nemesis, chipmaker AMD. The letters that EC officials sent to PC makers were thus likely to look into two of AMD’s most consistent charges against its great rival: first, that Intel has been threatening PC manufacturers with retaliation of some form or another if they supported AMD’s new 64-bit chips; and second, that Intel offers improper discounts or other financial incentives to persuade manufacturers to use its chips exclusively.

The charges have arisen before, only to be dismissed, most recently by EC competition commissioner Mario Monti, who told a press conference in Washington two years ago that he could find no evidence to support AMD’s complaints. Still, experts point out that the EC never formally abandoned the inquiry, and speculate that Brussels would have kept at least a back channel open to AMD.

Intel, which produces about 80% of the microprocessors used in PCs, says it has nothing to fear from the fresh probe. “We believe that our business practices are lawful and fair,” the company said. Many experts are inclined to agree. “Intel’s success [in avoiding prosecutions] is not a matter of luck,” wrote David Yoffie and Mary Kwak, both of Harvard Business School, in an article for the Harvard Business Review. “It’s a matter of painstaking planning and intense effort.” They argued that the company’s antitrust compliance programme, established in the wake of the 1984 break-up of AT&T and refined over many years, has become an integral part of the business strategy.

For example, say Yoffie and Kwak, Intel’s legal department carry out random audits of employees’ files to make sure they are keeping within the boundaries set by management edict: no price fixing, no exclusive contracts, no talking with competitors about product strategies, and so on. At other times, employees are ordered to take part in mock depositions, in which a member of Intel’s legal team cross-examines an executive in front of his colleagues. The idea is that any employees who might have become lax are given a wake-up call.

Intel has also played the political game cleverly. Its lobbying efforts on both sides of the Atlantic over the years have brought it well-placed friends and plenty of new business: indeed, the EC is separately looking into why some European governments specify Intel-only clauses in official public sector procurement guidelines. And the financial support given by CEO Craig Barrett to President Bush’s re-election campaign will may also raise concerns.

Thus, although the EC seems increasingly determined to keep the US-dominated IT industry in check, it remains improbable that Intel will join IBM and Microsoft in the ranks of companies that have fallen foul of competition law.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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