Inevitably...Microsoft

It's the hottest topic in Brussels right now - the shock judgement by the Court of First Instance against Microsoft in its long-running anti-trust battle with the European Commission. It's been analysed from all angles in the media already, but I think it's a topic I can't avoid (with some delay and a considerable break since my last posting - blame Summer holidays and workload).

I'll focus on some of the key questions:

First, was the judgement correct? I really have to leave that one to the competition lawyers, but for what it's worth I have very bright friends on both sides of the case, and I can't help feeling sympathetic to the Commission, primarily as a user and as someone who knows something about the difficulties of IT systems integration. One of the striking aspects is the size of the case in terms of the sums of money and numbers of companies and lawyers involved. That the world's biggest company can throw such vast resources into this fight and still lose in what is generally acknowledged to be an impartial court does warm the heart of even the most fervent capitalist.

Second, what of the bizarre reaction by the US Department of Justice? In a press release, the DoJ stated its view that the decision was pro-competitor but not pro-competition, and that it would end up harming consumers. This struck me as odd because you can hardly talk about a bias in favour of competitors and against competition in the same sentence as the word, "Microsoft" and keep a straight face, can you? I mean, honestly. Is 95% market share not sufficiently dominant that competition is virtually non-existent, regardless of how many or how worthy the competitors are? Every computer user I have ever spoken to has had some complaints about Microsoft applications. This is entirely normal and should not reflect badly on Microsoft, since the company's products are of exceptionally high quality. But it does emphasise the fact that dissatisfied or frustrated users really have no alternative. How it can be anti-consumer to provide such people with more choice, I don't know. I understand and accept that the theoretical incentive to innovate is lessened if you know you are going to have to share your intellectual property rights with competitors. But this is really something of a joke in this particular case, isn't it? What market share do these competitors have? Is sharing protocols with them really such a threat? Surely the resources pumped into the case, had they been employed in trying to steal a march on competitors, could actually have resulted in more innovation and not less? Isn't monopolistic behaviour inherently anti-innovative? Isn't it true that all the biggest and best innovators, especially in the IT world, have been start-ups? Microsoft, Apple, HP, Intel, AMD, Google... Big companies talk about innovation essentially as a defensive mechanism, to stave off the rise of more creative start-ups. Microsoft's innovations will all be based on the premise of the PC with a traditional operating system. They will simply be evolutions of what Microsoft already offers. The really innovative stuff will come from companies that can and must think outside this box.

Sooooo...all this goes to show what a load of rubbish the DoJ was spouting in its press release. But Commissioner Kroes' reaction was totally unnecessary, and in my view, unhelpful to her own cause. The DoJ statement was so transparently silly, both in substance and as a major diplomatic faux pas, that Kroes could have simply killed it with faint praise, smirking quietly while making a very polite but somewhat superior comment. Instead, she chose to get all defensive and lash out at this "foreign" jurisdiction, as if the EU was not in the habit of exporting its standards, regulations, policies, and court rulings around the world. She could have been 30-0 up, but is now stuck at 15-15. What a wasted opportunity.

Third, are there implications for Intel and other dominant firms that are already or soon to be in the Commission's sights? One of the most commonly cited examples is Apple, whose i-Pod has a huge market share in the US (somewhere around 80%). But if my sources are correct, the i-Pod's market share in Europe is much, much lower, hovering around 20% in Germany, and closer to 10% in France. This could conceivably give Apple Significant Market Power, but Dominance in Europe is just a pipe-dream for Steve Jobs right now. Moreover, the market for music players is really very new. Did anyone carry such things around five years ago? I don't think so. But I do recall Microsoft's products, and indeed its 90%-plus market share in PC OSs being much older news when the Commission started its investigation.

The other favourite comparison is Intel. But the behaviour that Intel is charged with is completely different from the behaviour that Microsoft is guilty of. Essentially, Intel is accused of putting unfair pressure on customers not to buy AMD products - something Microsoft has probably never really felt it needed to do. So I don't expect the Microsoft ruing to be anywhere near as historic as many of those involved might like it to be. In my mind, the judgement was the inevitable result of a blindingly clear case of abuse by a super-dominant player. If you read a textbook on EU law, it quickly becomes apparent that the most historic judgements are not those meted out to obvious villains, but those where defendants with strong cases have unexpectedly found themselves on the sharp end of an innovative treaty interpretation.

Lastly, what of the future for Microsoft? Has it learned any lessons? Will it appeal? Very few people really know the answers to those questions. I can only express my hopes: yes, and no.

A Quiet Revolution

Back to one of my favourite topics: the Services Directive. This isn't an excuse for me to publish that picture of the Polish plumber again, although I suppose I might secretly be hoping that readers think he's me...!

No, I really want to share my views and hopefully stimulate some discussion on the effects of the Directive. My line of argument is essentially that the Directive's main benefits will come in areas completely unrelated to the subjects of heated political debate. I remember distinctly the times when PES (Socialist) and EPP-ED (Christian Democratic) groups stopped talking to each other in the European Parliament's internal market committee. I remember the tortuous negotiations that addressed the precise wording of the Country of Origin Principle (now renamed the Freedom to Provide Services Principle). I remember the painfully detailed discussions on precisely what administrative requirements for establishment of new businesses should be banned or reviewed or allowed. I remember the farcical horse-trading that went on over the scope: health services, public services, education, gambling, temporary work...in or out?

There was also a surreal moment when I saw a news item on Belgian television about the anti-Services Directive demonstrations in Brussels organised by the trades union movement. The journalist interviewed a Polish union member holding a placard written in French, who said that he was against the Directive because he, as a Polish worker, wanted to be able to work in Germany for German wages and not Polish wages. It was surreal because he clearly had been bussed to Brussels on the basis of a plain lie about the contents of the Commission proposal - the proposal specifically said that workers posted in other Member States would work under local labour conditions, specifically including wages. He was actually fighting against the cause he claimed to be fighting for. But the irony didn't stop there. It was of course even more surreal because it was widely believed (and in fact explicitly claimed by the trades unions movement) that Polish workers overwhelmingly wanted to come to the West to work for lower wages than locals.

Joking apart, it was a significant moment in my life, when my view of politics changed abruptly, and I saw much more clearly than ever before how cynical people could be when seeking to achieve a political goal. hroughout he debate on the Services Directive, it mattered little to the unions or their opponents what logic they used, as long as they could make a big media impact. It was media coverage the politicians were counting on to win their battles on the Services Directive, and not the strength or consistency of their arguments.

All this is really to set the scene for my main point. Which is that while these battles were being fought, the parts of the Directive that I think will have the biggest long-term impact on the single market were being quietly nodded through. I suspect this was partly because the articles concerned were quite boring and therefore less likely to make good press. I am, of course, referring to the articles on administrative simplification and administrative co-operation.

The Directive's high profile provisions on freedom of establishment, freedom to provide services, and the restrictions on administrative requirements, were essentially re-statements by the Commission of its interpretation of the Treaty and ECJ case law. None of this, despite the claims of the more passionate advocates and opponents of the proposal, was really innovative. It was simply an attempt by the Commission to force the pace of opening of the internal market for services by directly attacking common practices by protectionist Member State administrations through legislation. Had these proposals not been made, the ECJ and the Commission would have done the job eventually through case law and infringement proceedings.

The parts of the proposal that were new and innovative were those that addressed the most fundamental workings of national administrations. These will entail nothing short of a revolution in the way public administrations work in the EU. The Directive contains no less than 13 articles (well over a third of the content of the Directive) that touch on the way national administrations must change to serve the market and the citizen. I won't bore readers with a detailed list, so here are some headlines:

• simplification of procedures;
• points of single contact for businesses;
• rights to information for economic actors;
• procedures by electronic means;
• detailed obligations on mutual assistance for Member State administrations;
• rules on which Member State is responsible for supervision of various aspects of cross-border service provision;
• alert mechanisms when fraud is suspected.

The Commission is given some pretty impressive powers to harmonise implementation through comitology, particularly as regards the IT systems that will have to be set up to make all this work. The whole philosophy that drives these provisions is one that will strike those of you who are familiar with European public administrations as quite alien. National administrations will be obliged by the Directive to modernise and become more efficient, and to communicate systematically with counterparts in other Member States. The primary driver of all of this is the idea that the administration should facilitate, rather than control, economic activity. That philosophy is going to be a shock to most of the national administrations I have come across. Expect strikes and demonstrations as the Commission and Member States push modernisation through. ..