Posted on 29-3-2004

Market Ab-users
26.03.2004, by Chris Barton (see photo)

Abusive monopolist - a deliciously colourful term that leaves no doubt a
company is doing something very, very bad. Our Commerce Commission isn't
describing Telecom that way, but comes close with "has misused its market
power, and continues to do so, to prevent or deter competition".

But in Europe the competition watchdog doesn't hold anything back,
describing software giant Microsoft as an abusive monopolist while hitting
it with a record €497.2 million ($926.6 million) fine. "Dominant companies
have a special responsibility to ensure that the way they do business
doesn't prevent competition on the merits and does not harm consumers and
innovation," said European Competition Commissioner Mario Monti. As Monti
points out, such intervention is necessary to restore the conditions for
fair competition and establish clear principles for future conduct.

If only it were that simple. Both cases illustrate just how inadequate
competition law is to deal with today's high-tech monopolists. The EU
action comes after a five-year investigation and is far from over, with
Microsoft now appealing. Telecom's alleged anti-competitive behaviour
dates back to 1998 and our doddery commission still has a long drawn-out
legal battle ahead. Meanwhile, time and technology wait for no man - so
that when a decision is finally reached it is largely irrelevant. Witness
the spectacular failure of the US Justice Department to rein in
Microsoft's monopolistic abuses in the browser wars. The settlement is
still being hammered out, but the main victim of Microsoft's dominance,
Netscape, is no more.

Telecom has had similar success knocking out free internet provider i4free
early in 2001. That case is also wending its way through our courts and
shows no signs of being settled soon.

The penalties don't work either. If Microsoft is eventually made to pay
its record fine, it will have little effect on its US$50 billion cash
reserves.

Similarly, the most Telecom will face in the present action by the
commission involving its setting retail prices lower than wholesale prices
for a particular product is a fine of around $10 million - a sum Telecom
can swallow in one gulp. All of which leads to the unsettling conclusion
that cheats do prosper and that the big guy will always win; that the
monopolist weighs the costs of being found guilty of abusing market power
and realises that no matter what happens it can't lose.

The purpose of competition law is to intervene where there is market
failure to ensure competition thrives - presumably leading to lower prices
and more variety for consumers. If government and business are serious
about that principle, we need an enforcer that is effective - one that can
move quickly with enough power to make its rulings stick.

Our present regime clearly lacks both those attributes. That is the effect
of saying "let the market decide" - albeit with the nuisance of a
toothless watchdog yapping. In telecommunications in New Zealand and in
software in Europe, the market also seems to be saying: "Monopolies are
okay."