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IBM in EU Antitrust Probe Over Mainframes
IBM is facing regulatory scrutiny from the European Commission, which launched two separate antitrust investigations into Big Blue's mainframe business. Regulators to question IBM over allegations of misbehavior in the tiny market for high-powered workhorses.
The scrutiny comes in spite of the market's relative size. Citing IDC numbers, IBM (NYSE: IBM) noted that mainframes account for only 0.02 percent of total server sales. However, mainframes also account for close to 10 percent of server revenue.
IBM also continues to work on refining and enhancing its offerings in the category, most recently introducing its newest mainframe, the zEnterprise. With the launch, IBM integrated management of the mainframe with its x86 and System p RISC-based servers, allowing zEnterprise to act as a central management controller for a virtualized network across mainframe, Unix and x86 environments.
One of the two new investigations came about as a result of complaints from emulator software vendors T3 (a U.S. company) and TurboHercules (a French company). Both companies make x86 software that emulates a mainframe environment, allowing mainframe apps to run on commodity hardware.
The second inquest stemmed from what the EC's own questions about discriminatory behavior by IBM toward unnamed competitors in mainframe maintenance services.
"The initiation of proceedings does not imply that the Commission has proof of infringements," the Commission said in a statement issued on Monday. "It only signifies that the Commission will further investigate the cases as a matter of priority."
In response, IBM rejected the allegations but promised to cooperate fully with the investigation. It also pointed the finger at Microsoft -- itself no stranger to EU regulatory scrutiny -- of being behind the investigation.
"IBM is fully entitled to enforce its intellectual property rights and protect the investments we have made in our technologies," IBM said in a statement. "The accusations made against IBM by TurboHercules and T3 are being driven by some of IBM's largest competitors -- led by Microsoft -- who want to further cement the dominance of Wintel servers by attempting to mimic aspects of IBM mainframes without making the substantial investments IBM has made and continues to make. In doing so, they are violating IBM's intellectual property rights."
Microsoft spokespeople did not return request for comment by press time.
T3 and TurboHercules have been complaining about IBM interference in the market for some time. In mid-2009, T3's complaints led to an investigation by the Justice Department into IBM practices, an investigation that is still ongoing. In January 2009, T3 filed another complaint in the EU, sparking the latest investigation.
In response to the news, Paris-based TurboHercules lauded the EC's move.
"We welcome the European Commissions decision to initiate formal proceedings against IBM's suspected abuse of its dominant market position. Hopefully, it will lead to remedies that will allow companies like TurboHercules to compete in the mainframe market," Roger Bowler, the co-founder and creator of the Hercules software, said in a statement. "We simply ask that customers be allowed to run their mainframe applications on the hardware of their choice. It is also good news for the Hercules open source community and its 11-year history of innovative development."
Martin Reynolds, a research vice president with Gartner, describes an IBM loss as likely to result in "a big fine and a changing of IBM's habits."
"IBM would be compelled to give the local company access to a license," he told InternetNews.com, adding that T3 and TurboHercules could potentially argue that a customer who previously bought a mainframe could transfer the mainframe license to commodity x86 software and use that hardware to run mainframe software.
"TurboHercules have a good story," Reynolds said. "If you're government agency with these old mainframes kicking around, you can put your old software on some x86 stuff and scrap the mainframe. They've got a reasonable technology but it's difficult for them to get a license because IBM won't allow them to run [IBM] software."
The investigation has just the right formula for an EC investigation, he added: "A big American company with deep pockets, a local company complaining about it, and that big American company with greater than 50 percent market share. But it will probably take about three years to go anywhere."