Europe's Competition Equalizer
He is a soft-spoken, unemotional former university professor, by all appearances a paragon of academic modesty. But Mario Monti is something much more--as chief of the European Commission's competition office in Brussels, this man's ideas are shaping the boundaries of the New Economy. With Monti and his lieutenants preparing to decide on the propriety of the AOL-Time Warner merger and Vivendi's acquisition of Seagram's media properties, lawyers, lobbyists, and executives are wondering just how this economist views the world.
It's a dark vision, crowded with potential Microsoft-style predators prowling the new digital landscape. Associates say the former professor knows the Bill Gates story by heart--how the software titan assumed control, squashing competitors like digital gnats. Monti wants to make sure no new Microsofts dominate the Net--even if it risks shutting off innovation in nascent markets such as the mobile Internet and online exchanges.
Critics across the Atlantic say Monti seems driven by resentment of U.S. dominance of the Internet and aims to protect the interests of Europe's national champions. These barbs seem to leave no mark on the Brussels regulator, though. Europe's trustbuster wields formidable power to impose his will and voice his fears about every big-time merger. Since no digital wannabe can afford to ignore Europe's 350 million potential customers, Monti considers it his duty to review every major merger and acquisition, even those between American companies. Monti is a consummate technocrat who doesn't like to compromise. "Once Monti makes up his mind, nothing will budge him," declares Elizabeth Kraus, an antitrust specialist at Weil, Gotschal & Manges LLP in Brussels.
These days Monti's thumb is often pointing downward. Over the summer, he helped block the MCIWorldCom/Sprint merger. Now he looks ready to torpedo Time Warner's $20 billion marriage with British music-maker EMI Group PLC. Even Time Warner's $183 billion merger with America Online Inc. seems in danger.
The Brussels bureaucrat's aggressive new approach has provoked a powerful corporate backlash. Business leaders are pressing for new limits on the EC's vast regulatory powers. "We have to be very, very careful about how we define markets in new technologies," says Emmanuel Kohnstamm, Managing Director of Corporate Affairs for Europe's largest cable-TV operator United Pan Europe Communications. His company is facing tough scrutiny in its plans to join up with the portal Excite and offer high-speed Internet access.
But Monti's tough approach has suited the interests of regulators in Washington. Hamstrung by greater political and legal constraints, they have so far appreciated European activism. The camaraderie could quickly vanish, though, if Monti nixes a deal that Washington likes--with the shape of the Internet at stake. Many of the mergers he has attacked are between American companies. Will he be just as aggressive in cases concerning European national champions? Also, with an eye always on Microsoft, Monti is aggressively applying a legal concept called collective dominance. He argues that a merger should be stopped simply if it creates a small number of competitors with the power to set prices, even without making one company dominant. Thus, Monti may nix Time Warner's takeover of EMI on the grounds that it would reduce the number of global music companies from five to four.
A Monti specialty is to target companies operating in different areas that together create a potentially fearsome combination. Take the AOL-Time Warner deal. Monti fears that, down the road, an AOL-Time Warner-EMI monolith could strangle Internet access by leveraging its media assets, especially in music. According to Monti's logic, the more AOL-Time Warner makes its music available online, the more Europeans become dependent on the Americans for their Net-delivered entertainment. Also, other music companies may be forced to offer their wares on AOL's network to reach customers. In a nonpublic EC document obtained by BUSINESS WEEK, Monti's staff voices the fear that "AOL's online outletwill become a sort of essential facility." The paper goes on to say that the result could be predatory pricing by AOL.
For similar reasons, Monti could well rule against the proposed $41 billion Vivendi-Seagram tie-up. While AOL-Time Warner has weak distribution for their content in Europe, Vivendi owns Europe's largest pay-TV station, Canal Plus, in addition to fixed- and wireless-Internet access services, which would all combine with Seagram media and music assets. BUSINESS WEEK has learned that Vivendi has already promised Monti that Vivendi's European distribution channels would carry content from movie studios and music companies competing with Seagram's Universal Studios and Universal Music, and that Universal films and music would be available to other European distributors. But Monti might ask for a total sell-off of certain businesses.
AUTOCRATIC DECREES. Does Monti's nightmare vision of new Microsofts add up? Instead of intervening now, critics say, Monti would be better off waiting to see how markets mature. Otherwise, he risks cutting off investment in budding industries. The next stage in Europe, for example, is the mobile Internet. But even before it gets off the ground, Monti has intervened to put restrictions on plans by giants Vodafone Group and Vivendi to set up their Vizzavi joint venture.
If he waits and lets AOL develop a Windows-style monopoly for downloading music, or lets Bertelsmann and Kirch dominate interactive TV, Monti fears he will never be able to restore free competition. "I do not have the luxury of being able to see how the market develops," he argued in a recent speech.
One danger, though, is that Monti's stubborn personality could transform good intentions into autocratic decrees. What's more, Monti wields far more power than Washington regulators. EC trustbusters serve as prosecutor, judge, and jury, and once their verdicts are delivered, appeals must be made to the European Court of Justice, a process which takes two years or more. On Sept. 27, Monti announced a reform which would increase the powers of national European regulators. But at the same time, he requested greater powers for his investigators to search private homes, among other things--all the while insisting that "the EC will keep its central role in maintaining competition policy." The Italian professor may have left the classroom, but he clearly believes he has plenty of lessons left to teach.