EC May Force Microsoft to Bundle Rivals’ Browsers

Microsoft and the EU

The European Commission (EC) may require Microsoft and its PC manufacturing partners to include competing Internet browsers on new computers sold in Europe, Microsoft revealed in documents filed last week with securities regulators.

Microsoft’s disclosure came after the EC’s competition directorate notified the software maker a week and a half ago that it had been illegally tying Internet Explorer (IE) to Windows since 1996.

Earlier this month, the EC, the European Union’s (EU) executive branch, sent Microsoft (NASDAQ: MSFT) the results of a year-old investigation into the company’s business practices, and the EC’s proposed remedies. According to Microsoft’s 10Q filing, those remedies may include providing consumers with a choice of browsers on new PCs when they purchase them. They also may include a “significant” fine against Microsoft.

The revelation marks the latest development in Microsoft’s ongoing antitrust saga in Europe. The most recent spat started a year ago when Oslo, Norway-based Opera Software — and Europe’s largest browser developer — complained to the EC that it had been blocked from active competition because of Microsoft’s illegal tying of IE to Windows since the mid-1990s.

If the EC’s remedies come to pass, the decision could cost Microsoft a lot of money and perhaps substantial market share in the browser arena.

“The Commission is considering ordering Microsoft and OEMs [PC makers] to obligate users to choose a particular browser when setting up a new PC,” the company stated in its 10Q. “Such a remedy might include a requirement that OEMs distribute multiple browsers on new Windows-based PCs.”

That represents a different approach for European regulators from earlier battles over the bundling of Windows with Windows Media Player. As a result of that case, Microsoft began selling a version of Windows without the media player.

Now, however, Microsoft faces more than just the prospect of having to provide multiple browsers on PCs. It may also be required to disable “certain unspecified IE software code if a user chooses a competing browser,” the filing said. In addition, the EC seeks to impose a fine based on the value of sales of Windows in the EU, though Microsoft did not disclose how large the proposed fine might be.

“In the [statement of objections], the commission sets out evidence and outlines its preliminary conclusion that Microsoft’s tying of Internet Explorer to the Windows operating system harms competition between web browsers, undermines product innovation and ultimately reduces consumer choice,” the EC said in a statement on January 16, when it announced this latest move.

Under EC rules, Microsoft has two months to respond to the “statement” as well as to request a hearing on the commission’s conclusions and proposed remedies. The filing did not disclose whether Microsoft would seek a hearing.

Does Microsoft deserve it?

Some analysts, however, wonder about the EC’s reasoning in filing yet another grievance against Microsoft, and whether some of the commission’s angst might be misplaced.

“Frankly, I’m not trying to excuse Microsoft from anything, but the continuing interest of the EC has really gone beyond the pale in terms of Microsoft,” Charles King, principal analyst at Pund-IT, told InternetNews.com.

In fact, Neelie Kroes, the EC’s Competition Commissioner, gave a speech last spring wherein she railed against Microsoft — although not by name — during a meeting of a European open source organization.

Page 2: Bumpy ride ahead

Microsoft and the EU

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Observers point to other areas where the reasoning behind Europe’s stance seems unclear. For instance, why bring an action against Microsoft when the complaining company, Opera, has less than 1 percent market share? Additionally, Microsoft has been losing important share to Firefox and Safari — two of the other browsers expected to be on the Windows desktop if the EC prevails.

“Opera’s claim that they’re disadvantaged seems a little disingenuous to me because Mozilla [the open source group behind Firefox] doesn’t seem to have much trouble gaining Market share from Microsoft,” King added.

Microsoft’s current browser market share on a global basis has fallen to 68 percent, according to recent statistics by Web metrics firm Net Applications. That’s down from the high 90s just four years ago, when Firefox debuted. Today, Firefox holds 21 percent and Apple’s Safari nearly 8 percent.

Both of those browsers, said one analyst, built substantial market share despite Microsoft’s inclusion of IE in Windows.

“If you do look at market statistics, this comes at a time when IE is really losing share,” Matt Rosoff, analyst at Directions on Microsoft, told InternetNews.com.

“I install Firefox in a couple of minutes and it doesn’t require a reboot,” he added, stressing how easily consumers can switch browsers today.

It’s going to be a bumpy ride

Microsoft has had a busy recent history of unsuccessful legal dustups with the EC.

In September 2007, the European Union’s Court of First Instance (CFI) upheld an earlier EC ruling against Microsoft that the firm had abused its dominant market position in two areas. First, Microsoft was found guilty of illegally tying its Windows Media Player to Windows, forcing Microsoft to offer a version of Windows in Europe without a media player.

However, that product has never been popular as most consumers opt for a copy of Windows with the media player installed.

Second, the EC ruled that Microsoft had repeatedly withheld technical documentation on how competitors could interface with the software giant’s server products. Microsoft paid two fines totaling nearly $1 billion to pay those infractions off.

Meanwhile, Microsoft is still awaiting an appeal in another case with the EC. Microsoft’s lawyers are appealing a further $1.35 billion fine levied by the Commission against Microsoft last year for dragging its heels in providing competitors with technical documentation it had been ordered to turn over under the 2007 ruling.

Microsoft is also under investigation by the EC regarding interoperability between its Office software and other vendors’ products.

Further, the EC is reported to be looking into Microsoft’s behavior during its highly-politicized push in 2007 and 2008 to make Office 2007’s default file formats — dubbed Office Open XML — a standard certified by the International Organization for Standardization (ISO).

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