IBM faces probe over competition concerns

Big Blue accused of unfairly dominating top end of corporate market
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IBM, the computer pioneer known as Big Blue, is being investigated in the US over allegations that it has been acting anti-competitively.

The company dominates the market for mainframe computers, the $1m-plus (£600,000) servers that are used by corporations to deal with huge databases, and its rivals say it is abusing a monopoly position by refusing to license out the software that is used on these super-computers.

The Department of Justice, based in Washington, has become involved and IBM admitted yesterday that it faces a federal investigation.

The DoJ is acting on a complaint from the Computer & Communications Industry Association (CCIA), which came after IBM won the latest round in a court battle against a smaller rival.

T3 Technologies, a company that is part-owned by Microsoft, says IBM frustrated its efforts to make mainframe products based on IBM technology, but its anti-trust complaint was thrown out by a judge last week. It plans to appeal.

It is understood that the DoJ has contacted T3 and members of the CCIA to ask for information relating to IBM and the mainframe market. The DoJ declined to comment.

"We understand the Department of Justice has asked T3 for documents from the litigation," IBM said in a statement yesterday. The company "intends to co-operate with any inquiries... We continue to believe there is no merit to T3's claims."

IBM shares slipped yesterday morning, even as the rest of the stock market was rising, as investors fretted over the possible threat to its mainframe business from a federal competition investigation. The company makes about a quarter of its total revenue from selling mainframes, according to analysts, although – in common with other traditional hardware manufacturers – it has been diversifying into IT consulting in recent years.

The launch of the DoJ's investigation brings the regulatory spotlight back on to IBM for the first time since the Reagan administration dropped a 13-year competition inquiry into Big Blue's dominance of the computing market.

IBM, which developed some of the earliest super-computers, was pre-eminent among eight major industry players in the Sixties, to the extent that the sector used to be referred to as IBM and the Seven Dwarves.

The question of whether the DoJ decides to pursue action against IBM could turn on whether it decides that mainframe computers represent a separate market to the rest of the server market.

Numerous rivals have sprung up in recent years trying to offer smaller servers that mimic the functions of bigger mainframe computers, but efforts to make them compatible with IBM's legacy computers and in particular with the software used by IBM mainframes are being stymied, according to the CCIA.


The cost of one IBM mainframe server.