Brussels to probe IBM mainframe market role

IBM on Monday became the latest big US technology group to come under attack from Europe’s top antitrust watchdog with officials at the European Commission launching a formal probe into its behaviour in the multibillion-dollar market for mainframe computers.

The Commission – which has fought long battles with Microsoft and Intel and is also taking a preliminary look at issues surrounding Google – said it was opening two separate cases against IBM.

The first focuses on allegations IBM has illegally tied its mainframe hardware to its mainframe operating system. This follows from complaints to Brussels from a couple of much smaller would-be rivals, which accused the US group of refusing to allow customers to run IBM’s mainframe operating systems on anything other than IBM mainframe hardware.

One complainant is a French company, TurboHercules, which submitted allegations to Brussels in March; the other is T3 Technologies, which filed its complaint in 2009. A third company, Texas-based Neon, has also made similar allegations, but investigations there are at an earlier stage and its charges did not form part of Monday’s announcement.

Brussels’ second probe centres on mainframe maintenance services, and is being brought on the Commission’s own initiative. Officials said they were concerned IBM might have used anticompetitive tactics to keep potential competitors out of this market.

Mainframes – machines that handle high-volume processing – are no longer at the cutting-edge of the technology market. But the Commission maintains that “the vast majority of corporate data worldwide” is still stored on them, and that sales of new mainframe hardware in 2009 were worth €8.5bn ($11bn), with €3bn being spent in the European Economic Area alone.

They also remain a central pillar of IBM’s business. The group does not disclose the extent of its dependence on the machines known as “big iron”, but Toni Sacconaghi, an analyst at Sanford C Bernstein, estimates that as much as 20 per cent of its revenues and 40 per cent of its operating profits come from sales of hardware, software and services related to mainframes.

IBM said it intended to co-operate with any EU inquiries, but denied there was any merit in the complainants’ claims. “IBM is fully entitled to enforce its intellectual property rights and protect the investments we have made in our technologies,” it said.

The technology group is also expected to defend the cases by arguing that mainframe servers are only a small part of a much wider server market, where there are plenty of competitors. “The mainframe server is a small niche in the overall, highly competitive server landscape,” it said on Monday.

IBM went on to allege that the accusations against it were being fuelled by business rivals – notably Microsoft, which has held a minority stake in T3.

But the charge is denied by the complainants: “We want to see competition restored,” said one lawyer advising T3. Microsoft declined to comment.