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Last Stand For Mario Monti?


It has been a roller-coaster ride for Mario Monti since he became the European Union's competition czar in 1999. In his first two years, the silver-maned Italian was lauded as the tough but cerebral technocrat whose war against cartels, government subsidies, and monopolistic megamergers was helping to modernize Europe's creaking economy. His crusade in support of competition earned him the moniker Super Mario.

In 2002, Monti was knocked off his pedestal. A series of rulings by the EU's Court of First Instance overturning his decisions to block three mergers tarnished the reputation of the former economics professor and the agency he leads, formally called the EU's Directorate General for Competition.

Now, Monti faces what is arguably his biggest test: a showdown with none other than mighty Microsoft Corp. (MSFT). On Nov. 12-14, the "DG Comp," as Monti's agency is called in Brussels-speak, will for the first time hold hearings on its case against the U.S. software giant. The hearings mark the beginning of the end of a four-year drama that has gripped the high-tech community in the U.S. and Europe. A final ruling, expected early next year, will have broad implications for Microsoft -- and Monti's standing as well. "If Monti fails to put together a watertight case after all the effort he has put into it, the credibility of the EU's competition department will be undermined again," says an antitrust expert at a Brussels law firm.

CAREFUL REASONING

To avert such a calamity, the 61-year-old Italian has spent most of the past year revamping his 600-strong division. He has created a "devil's advocate" panel to double-check the reasoning behind objections to the deals the DG Comp is reviewing. To ensure more rigorous assessment, Monti has named a U.S.-educated industrial economist, Professor Lars-Hendrik Roeller, to the newly created post of chief economist. "Future competition policy should become more transparent and predictable, based on sound economics and reasoning supported by hard facts," predicts David Walton, chief European economist at Goldman, Sachs & Co. (GS) in London.

Insiders say such changes are producing a more selective approach to antitrust cases. Europe's competition watchdog has not blocked any mergers in the past two years, after having nixed five in 2001. Some high-profile cases got the green light without the agency's demanding any punitive antitrust remedies. A case in point is last year's $5.6 billion bid by Carnival Corp. (CCL) for P&O Princess Cruises. Both companies boast high market shares in the cruise business, yet the deal "was waved through without major changes," notes Matthew Levitt, a Brussels-based lawyer at Lovells, a British law firm.

Neither did Monti & Co. balk at General Electric Co.'s (GE) $2.3 billion bid for Finnish medical-gear maker Instrumentarium, which received clearance in September. They're also expected to rubber-stamp GE's $6.6 billion takeover of British diagnostics group Amersham PLC and Oracle Corp.'s (ORCL) $7.3 billion bid for PeopleSoft Inc. (PSFT) These deals, of course, are minuscule compared with GE's proposed $42 billion merger with Honeywell International Inc., which the commission blocked in 2001. GE has filed a challenge with the Court of First Instance, which is expected to rule sometime next year.

Legal experts note that a chastened Monti appears to be bending over backward to make sure his directorate is seen to treat Microsoft fairly. In this case, the commission has put out three "statements of objection," the legal documents in which it sets out in detail its allegations of abuses. The norm is one or, rarely, two. "There is a new note of caution in DG Comp," says Thomas Vinje, a lawyer representing the Computer & Communications Industry Assn., a Washington trade group whose members include many of Microsoft's critics. "They were shell-shocked by the court rulings, and they really want to make sure now they get things right."

The commission's case against Microsoft revolves around two separate antitrust issues. One centers on the company's practice of bundling its widely used Windows Media Player with other programs on its monopoly Windows operating system. Competitors worry that if Microsoft isn't reined in, it will use its monopoly to elbow its way into new markets. The second part of the commission's case aims to tackle complaints, in particular from Microsoft archrival Sun Microsystems Inc. (SUNW), that the company has used its Windows monopoly to gain an unfair advantage in the server-software market.

Some of the antitrust issues that Monti is exploring, such as those involving the Windows Media Player, were not tested in U.S. courts. "This case will establish basic rules for competition in the information technology industry," says Vinje. Critics of the commission complain that Microsoft rivals who have failed to get relief from U.S. authorities are "forum shopping" by bringing their complaint to the EU, which is seen to have a more aggressive antitrust policy.

CLOSED DOORS

The upcoming oral hearings in Brussels will kick off a period of fierce lobbying, as the DG Comp closes up the case. Neither Monti nor Microsoft's top brass will be present at the closed-door proceedings. And a final decision in the case will not be made by Monti himself but by the entire EU Commission, the executive arm of the 15-member union. Of course, the commissioners will have Monti's recommendations before them.

Even insiders concede the Commission would probably prefer to reach a settlement with the company rather than trying to impose fines or other antitrust penalties that Microsoft could then challenge in court. "We continue to remain open to resolving these issues," says Microsoft spokesman Jim Desler.

With elections for the European Parliament scheduled for June of next year and a new EU Commission due to take office next November, Monti and his colleagues are in the final stretch of their antitrust watch. Internal Market Commissioner Frits Bolkestein may be a contender for Monti's job, though other candidates are sure to emerge. Monti, meanwhile, could move on to the post of Commissioner for Economic and Financial Affairs, provided he has the backing of the Italian government. But before that can happen, there's the Microsoft case to wrap up -- and this time there must be no loose ends. By Stewart Fleming in Brussels, with Jay Greene in Seattle


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