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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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