The Four Hundred
OS/400 Edition
Volume 11, Number 11 -- March 18, 2002

TFH Flashback: Decree Settlement Delayed but Possibly Broadened

by Timothy Prickett Morgan

[Editor's Note: This article was originally published in the July 1996 edition of this newsletter.]

An agreement between IBM and the U.S. Justice Department that would bring to an end the application of the 1956 Consent Decree to the AS/400 market was delayed until June 28. 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 G. Schwartz for review and, presumably, eventual approval, IBM and the Government said they wanted a little longer to work out the details. When June 28 rolled around (the day we went to press), both parties delayed the agreement again until July 3.

The new date for presentation of the agreement is also 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. The importance of IBM mainframes in relation to the rest 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 Hitachi's Skyline processors. IBM is also going to face additional competition in the low engine power segment as Hitachi and Amdahl bring their alternatives to the IBM 9672 to market. A similar case can be made in the midrange 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 of late displayed very little inclination to view IBM's practices in any computer market--as well as the behavior of companies outside the computer industry in their own markets--as unlawful and anticompetitive.

As a practical matter, the Consent Decree does not seem to have been enforced lately anyway. For instance, IBM has long since stopped providing list prices for mainframes. It also sells 9672 mainframes as completely bundled systems, which also do not have official list prices. So there might not be much change in the conditions in the mainframe market should the entire Decree be terminated. We expect that IBM will, if it obtains the permission of the courts, behave accordingly in the AS/400 market. It could become substantially more difficult to get a straight answer from IBM on what AS/400 systems and services cost. This will be an annoyance to most AS/400 customers. But that won't stop customers from investing in AS/400 technology. It will just make them work harder to be sure that they are getting a bargain price for IBM's products.

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, antitrust 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 antitrust policies it had upheld at various times in the past. IBM would be, in some measure, insulated from this.

The main beneficiary of the termination of the Decree may not be IBM at all. Instead, it may be Microsoft which, in the absence of vigorous antitrust 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 browser market.

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THIS ISSUE
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COMMON
BACK ISSUES
TABLE OF CONTENTS
Microsoft, IBM Slapped with Antitrust Lawsuits
IBM Puts Out, Then Withdraws Updated DASD Fixpack
OS/400 Shops Featured in iNation Server Consolidation Chat
IBM Readies Beta One of iSeries Access for Web Middleware
PentaSafe Allows "What If?" Testing for OS/400 Security
Admin Alert: Switching Between 80- and 132-Character Mode in Express PC5250
Lakeview Technology Adds Business Partners
As I See It: Manipulating Money
TFH Flashback: Decree Settlement Delayed but Possibly Broadened
TFH Flashback: After 40 Years, the Consent Decree Is Lifted
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