Bid to ensure fair competition for multimedia firms

Date: 25/04/1996

By Tim Jones

THOSE who find it hard to keep up with developments in modern communications can take comfort from the fact that it is a feeling shared by those with the task of policing the market for anti-competitive practices.

The telephone has come to be considered as an essential tool of life in the EU, but such limited expectations are becoming outmoded. For a growing number of people, fax machines and modems attached to personal computers have become equally vital.

Now there are signs that multimedia technology is finally starting to take hold in European households.

In Europe, the UK is leading the way, largely because of its deregulated telecoms market and the high penetration of CD-Rom as a way of storing information on home PCs.

But in France and Germany as well, manufacturers are seeing the market grow by as much as 20&percent; every year and, in the business sector, interest is growing in video-conferencing and multimedia training tools.

Then comes the Internet - the world's largest non-commercial online network - originally developed in the Sixties to link university research departments, and which now brings together more than three million computers and 50,000 networks in more than 80 countries.

As the market develops, there is a danger that customers could be left behind by the enthusiasm of suppliers to come up with ever more sophisticated information technology (IT) products.

A survey carried out by the European Electronic Messaging Association (EEMA) identified a split between suppliers and users over the best and most useful technologies.

Business customers are still wedded to the Internet and fax messaging, although locally networked electronic mail is also making inroads. Far behind, despite the best attempts by manufacturers to push it, is the latest internationally recognised telecoms standard X.500.

At the household level, the world's biggest publishing and software firms are falling over themselves to win a slice of the market in online services.

These range from 'proprietary' services with their own home shopping and banking, news, games and interactive services for subscribers to simple access services to the Internet.

These three - sometimes inter-linked - markets for online services, cable communications and multimedia are providing headaches for regulators on both sides of the Atlantic.

Neither the US Department of Justice nor the Commission's Directorate-General for competition, DGIV, wants these markets to be carved up by companies already dominant in related areas.

This, they believe, would be the best way of ensuring that, after an initial burst of activity as the market came to life, the dominance of some firms would breed laziness and lack of innovation. Only with constant change will the full potential of these markets be tested.

The biggest challenge to this comes from Bill Gates and Microsoft. He already dominates the global provision of software for PCs, taking an even more commanding lead with the world-wide launch of Windows 95 last year, and is threatening to do the same for the Internet.

The Commission is investigating allegations from CompuServe, among others, that Microsoft has made trying to access services other than MSN from Windows 95 excessively complex.

Meanwhile, US federal investigators are looking into allegations that some software packages from other companies designed to allow people to browse the Internet do not work with Windows 95. US investigators are talking to Netscape as well as CompuServe and Prodigy.

“If he (Bill Gates) is trying to foreclose the market and make life impossible for competitors, then we will act swiftly and with determination and be as tough as we need to be,” Competition Commissioner Karel Van Miert has warned.

Gates' next move will be Teledesic, a plan to launch 840 satellites into low orbit which will allow people equipped with a decoder and an aerial outside major cities to use all the new information technologies.

This, despite some worries expressed by Van Miert, is - so far - outside his jurisdiction.

But European online services are emerging to take on Microsoft.

The most significant so far is AOL Bertelsmann Online Management GmbH - a joint venture between Europe's biggest publisher Bertelsmann, America Online and Deutsche Telekom.

“We have to combat the threatening dominance of Microsoft in Europe,” said Bernd Schiphorst of AOL Bertelsmann recently.

“If we do nothing today, more than a satisfactory online business will be lost. We have to completely dominate our markets here in Europe.”

That market is growing constantly, promising to expand to 6 billion ecu by the end of the decade while, globally, industry-watchers expect the number of Internet subscribers to grow to 200 million by 2002.

Van Miert may sympathise with the sentiments of AOL-Bertelsmann as it tries to take on the might of Bill Gates, but he cannot endorse the domination of an infant market even by European companies.

For this reason, late last year DGIV set in motion parallel inquiries into AOL-Bertelsmann, MSN and the latest addition, Europe Online - a multi-company venture dominated by publishers Burda and Pearson, US telecoms operator AT&T and a group of Luxembourg banks.

The task of the investigators is to find out whether these services in any way restrict the free play of market forces.

“In the online business, you have strong players coming together,” Van Miert has said. “We don't have any objection in principle, but we have to find out whether access to the software will be available to others as well. It was pre-emptive action to avoid the creation of deals that later on would have to be investigated.”

In the case of AOL-Bertelsmann, the Commission is most concerned about the participation of Deutsche Telekom, which already dominates the German online market through T-Online as well as controlling the networks which competing services need to start up.

AOL-Bertelsmann believes it can win 25&percent; market share in Germany early on, and 200,000 online subscribers in Europe by the end of this year, rising to around a million by the end of the decade.

It launched a French service at the end of February, with the intention of bringing local partners on board to avoid simply transposing the German service on to the market in France.

AOL-Bertelsmann would also like to bag publishing house Hachette along with its extensive catalogue of publications, particularly since AOL and Hachette are already partners in the US.

But the Commission wants guarantees that big publishing houses such as Bertelsmann will not restrict published information on the services. The company already dominates Germany's book club market and a large group of newspapers and magazines which provide material for the service.

Europe Online seems less problematic, since its services are directly on the Internet and should not restrict competitors' access to networks. Again, as in the AOL-Bertelsmann case, the problems lie in publishing the contents of publications owned by Europe Online's partners and the ability of competitors to buy space to advertise products. With Burda and Pearson, this venture boasts two of Europe's biggest book publishers.

The results of the inquiries are likely to be published by the summer, allowing the firms involved to make any necessary adjustments to avoid anti-trust actions by the Commission in the future.

The nascent market for pay-television and multimedia services via cable is running into even more solid obstacles. The most ambitious venture, Media Services GmbH (MSG) - a combination of Bertelsmann, Deutsche Telekom and Kirch - was blocked by Van Miert for fear that it would hamper the entrance of newcomers in this market.

“What we are witnessing is that some companies are trying to foreclose evolving markets,” said the Commissioner.

“With the MSG case, nobody can pretend we got it wrong because three big players - Deutsche Telekom, being the owner of more than 90&percent; of the cable infrastructure, Bertelsmann and Kirch - were foreclosing the growing pay-TV, digital-TV market for the German-speaking area.”

Let the ambitious beware. DGIV will not turn a blind eye for a moment.