Halting Microsoft's March in Europe?

The pressure is building on Commissioner for Competition Mario Monti to prevent Gates & Co. from dominating the mobile Web

By Stephen Baker

When the Microsoft antitrust case was raging in the U.S., Jon S. von Tetzchner wasn't much of a factor. The Iceland native is the founder and CEO of Opera Software, a 100-person outfit in Oslo. His company makes a fast Web browser that battles head-to-head with Microsoft's Internet Explorer. Opera is the No. 3 browser, after Explorer and Netscape. Considering that Microsoft now owns about 90% of the market and Netscape about 8%, No. 3 doesn't count for much -- at least in Washington.

With the Microsoft wars now moving to Europe, however, executives like von Tetzchner are finally getting their say. At a BusinessWeek conference in Paris in early December, the keynote speaker was Mario Monti, Europe's Commissioner of Competition. The Brussels-based Monti last summer shot down the General Electric-Honeywell merger and is now pursuing an antitrust case against Microsoft.

The company's top European executives showed up to listen to Monti, who didn't talk much about the case. Also in the audience were a number of Europeans who have a bone to pick with the software giant, including Matti Alahuhta, the president of Nokia's cell-phone division, and von Tetzchner.


  Europeans are finding that they suddenly carry more weight on the tech scene. Americans long controlled the Internet through their domination of personal computers, but the Net is now extending -- albeit fitfully -- to wireless devices, where the Europeans are a force. And now Microsoft and Finland's Nokia are jousting for control. The two powerhouses collide in nearly every area, from server software to operating systems on legions of new gadgets. Microsoft is focusing much of its wireless drive in Europe, launching new businesses and products with a host of companies -- practically everyone but Nokia.

One new venture that will debut early next year involves Hotmail, Microsoft's popular e-mail service. The software giant is nailing down agreements with European phone companies to relay the headers on incoming e-mail as short messages to the cell phones of some 30 million Hotmail subscribers in Europe. If readers want more of the e-mail, they fire off a short message to the phone company -- at the cost of somewhere between 5 cents and 25 cents a request. Microsoft and the phone companies will split the take, which could be substantial, given how popular mobile messaging is in Europe.

Microsoft is also getting into the hardware end of the business by helping phone companies come up with their own branded handsets. At a mid-December meeting with journalists in Paris, a Microsoft executive passed around a prototype for a British Telecom Web phone featuring Microsoft's Stinger operating system. Devices like this, built by contract manufacturers and branded by the telephone companies, are aimed squarely at Nokia's high-end business market.


  Officials at Microsoft insist that they're eager to work with Nokia on such products and would even like to get Microsoft's software and browser into Nokia's phones, which represent a towering 35% of the mobile market. However, Nokia Chairman Jorma Ollila, who steers clear of confrontational talk, says the mobile Internet should remain "under control of the mobile industry, and not the computer makers."

The battle extends beyond the mobile industry and industry giants. Opera's von Tetzchner alleges that Microsoft battles his tiny company by making MSN and Hotmail, two of the most popular pages on the Web, go on the fritz when Opera's estimated 5 million users come calling. He issues press releases to complain about it, then pushes his engineers to build code around the Microsoft traps. Microsoft, meanwhile, insists that its products are built to Web standards and the software problem is Opera's own.

Why might Microsoft pick a fight with tiny Opera? Well, Opera has its browser entrenched in mobile devices -- just where Microsoft wants to be. It's the default browser for the anti-Microsoft operating system, Symbian, in which Nokia is the leading partner and investor. Von Tetzchner says he can't spend precious funds fighting Microsoft in court. "I'd rather use the money to hire programmers," he says.


  He may not have to make that choice if Opera and other European Microsoft rivals get help from Brussels. Commissioner Monti is pursuing an antitrust case against Microsoft, charging that it's leveraging its dominance on the desktop to win market share for software that runs servers -- the engines of the Internet. He's also concerned about the bundling of Microsoft's Media Player into Windows.

Monti issued his latest charges in August, and Microsoft responded in November with a dossier topping 1,000 pages. The company's lawyers say they're eager to negotiate a settlement with Monti. The commissioner, though, is likely to bide his time, and when he moves, which will probably be next spring, he could force the software giant to unbundle its Media Player or even open its precious programming source code -- the key to its desktop monopoly.

Many European officials in Brussels say Monti should consider the strategic implications of his ruling. Translation: Europe has an interest in preventing Microsoft from extending its dominance to the mobile Web. An effective remedy by Monti could benefit European companies such as Nokia.


  In theory, favoring local champions would be anathema to the commissioner, who was a prominent free-market economist in Italy before moving to Brussels. He maintains that his job is not to carry out industrial policy for Europe. True enough. But the U.S. Justice Dept. isn't responsible for the nation's economy, yet when it came time to settle the Microsoft case, Justice officials pointed to the perilous state of the economy as the reason for a quick and lenient accord.

Try as he might not to, Monti will be analyzing Microsoft from a European perspective, with European interests in mind. From the wireless marketplace to the regulators' offices in Brussels, the Continent is looming large for Microsoft.

Baker covers the European technology scene from BusinessWeek's Paris bureau

Edited by Thane Peterson

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