Monti's World

Europe's competition czar, Mario Monti, prepares to take on Bill Gates & Co.

Mario Monti--judge, jury, and executioner, all rolled into one. That's how many bosses of American multinationals view the courtly Italian who heads the European Union's Competition Commission. In less than three years on the job, Europe's antitrust chief has shot down MCI WorldCom's (WCOM ) $80 billion merger with Sprint Corp. (FON ), muscled Microsoft Corp. (MSFT ) out of a cable-TV investment in Britain, and put heavy conditions on the AOL Time Warner (AOL ) deal. But what cemented Monti's reputation as a Brussels behemoth was his dismissal last year of the proposed $42 billion merger between General Electric Co. (GE ) and Honeywell International Inc. (HON ), a combination that had quickly passed muster with U.S. regulators and earned praise from Wall Street.

Time for an antitrust siesta? Think again. Monti's docket is packed with cases that could hit American companies. He's looking at TV and sports and may issue a ruling that could affect the Olympics. He has a long-standing investigation into alleged marketing abuses by Coca-Cola Co. (KO ) in Europe and could slap the soda maker with a multimillion-dollar fine. Far more important, even if current negotiations between the Bush Administration and Microsoft Corp. finally resolve the four-year antitrust case against the software giant, Monti is primed to jump in with a ruling of his own, probably in early summer. In a case his staffers have been preparing for two years, he could levy up to a $2.5 billion fine on Microsoft for anticompetitive practices, or even force the software maker to hand over the keys to the source code to its Windows operating system. Add it up, and not only does Mario Monti blast away at American icons, but he also risks an escalating battle with the U.S. Justice Dept.

But to put an American slant on Monti's moves is far too simple. Yes, the formal, soft-spoken Italian arguably wields more brute influence than any elected politician in Europe. Singlehandedly, he can punish companies he finds guilty of anticompetitive behavior, and ban merged companies from doing business in the European Union, the world's biggest economy. But keep in mind, every time Monti deals his hard justice to American companies, other U.S. competitors, from Sun Microsystems (SUNW ) to PepsiCo (PEP ), are quietly celebrating. Indeed, a regulatory challenge in Europe can be cheaper, quicker, and every bit as potent as a suit filed in the U.S.

What's more, Monti is hardly a raging America-basher. Not by a long shot. In Europe, the Yale University-trained economist is the closest thing there is to a free-market zealot. By accelerating the competition agenda established by his predecessor, Dutchman Karel van Miert, he says he hopes to lead Europe along the path of the U.S., whose "greater dynamism" and "consumer-oriented policy" he praises. He grows weary of defending his stance on GE-Honeywell but insists the legal differences that led to that bombshell are shrinking as Europe moves its antitrust standards closer to those of the U.S. "The U.S. is the classical reference model," he says.

In truth, Monti wreaks far more havoc in the Old World than the New. From his steel-and-glass tower on Rue Joseph II, known as the Directorate General for Competition, (DG Comp for short), Monti has hammered the 15 member states of the European Union on reform. In late February, he pushed German Chancellor Gerhard Schröder to dismantle Volkswagen's (VLKAY ) takeover defenses. Days later, Monti and his fellow commissioners sued the EU's national governments, which are bucking Brussels' mandates to cut subsidies on everything from development for blighted neighborhoods in Britain to Portuguese pig farms. Last year, he fined DaimlerChrysler (DCX ) $65 million for strong-arming its dealers into turning away cross-border shoppers looking for bargains. "Instead of running after small fry, they're tackling large players," says Carlo Secchi, rector of Bocconi University, the Milan business school where Monti long taught.

Monti's case is piled high with paradox. The 59-year-old Italian, for decades an economics professor and newspaper columnist, favors free enterprise. But he pushes for it by using the biggest of big governments, a Brussels bureaucracy that operates largely by decree. He regularly dispatches investigative hit squads to make dawn raids on companies he's investigating for jilting consumers, from cell-phone giant Vodafone Group PLC (VOD ) to Coca-Cola. Search warrants? A signature from Monti will suffice.

What's more, Monti has never held elected office and claims disdain for partisan jostling. Yet he finds himself at the heart of two vital political dramas. One involves nothing less than establishing a central government in Europe. In the other, he's working to forge Europe's role as an equal with the U.S as a referee for global antitrust. Both jobs require political smarts and a knack for dealmaking. Yet the upright Monti, who associates negotiations with the sly nods and winks of politics in his native Italy, runs the other way. "It's his reluctance to negotiate that gives him such a scary reputation," says Alec Burnside, a partner at the Brussels office of Linklaters & Alliance, a London law firm. Adds a leading Italian CEO: "He acts like a high priest."

Monti has long prided himself on remaining outside Europe's political mainstream. From his post as professor and president of Bocconi, Monti for years wrote columns in Corriere della Sera in which he encouraged Europeans to stop clinging to state-run economies. It's a sign of Europe's growing economic pragmatism that Monti, an unabashed admirer of the U.S. and Britain's Margaret Thatcher, would land the most powerful job in Brussels with a mandate to free up Europe's markets. Still, Monti's political greenness, and some priestly inflexibility, may have gotten him into trouble in the GE case.

The commissioner, of course, insists that he got the case right. At the heart of the dispute is a difference in antitrust law between Europe and the U.S. In the U.S., a merger can be nixed only if it materially and demonstrably "lessens competition." But in Europe, the new company faces antitrust action if it is deemed "dominant." The staffers in Monti's merger task force decided that GE-Honeywell represented just that danger. By leveraging its broad portfolio, which extends from finance to jet engines, they argued, the combined company could have achieved a dangerous dominance in Europe's market. Monti agreed, and impassioned arguments by GE CEO Jack Welch failed to sway him.

Now, even some Monti admirers say that the commissioner got locked into a theoretical corner by eager staffers and then lacked the savvy to extricate himself. "He's very moderate and thoughtful, which made it all the more surprising that he blew up the GE deal," says Robert Pitofsky, chairman of the Federal Trade Commission under Clinton. A Brussels lawyer adds: "He regrets the GE decision every day."

Monti denies this. But his frustration is all too clear. It was GE-Honeywell alone that established his reputation as a maverick, one who was willing to embrace ideas long discredited among the antitrust Establishment in America. "It was just one disagreement," Monti insists. "Ninety-eight percent of the time, we agree [with the U.S.]. If you have the most respected CEO in the world complaining vociferously, it's hard to get a balanced picture."

To be sure, since the GE decision both sides have redoubled their efforts to patch up their differences. Indeed, Monti has proposed reforms to European law that would replace "dominance" with the American "lessening of competition"--thus eliminating the difference that led to the GE-Honeywell blowup. Assistant Attorney General for Antitrust Charles A. James, who was burning mad after Monti's GE decision, is conciliatory these days. "Mr. Monti and I have a good working relationship," he says.

In truth, even if Monti clings to his reasoning on GE-Honeywell, that merger ruling should have no impact on his Microsoft decision. Microsoft, after all, is not a merger but a case of alleged marketplace abuses. And Monti's Microsoft case is a bit different than the one in America. While the Europeans focus largely on network software, Washington has long zeroed in on the browser wars. "In the Microsoft case, the EU procedure is factually and legally different from the U.S. case," Monti says. True. Yet U.S. authorities are clearly anxious for Monti to accept their remedies for the Microsoft case and not come up with his own. "Charles [James] could be outraged if the Europeans distance themselves on Microsoft," says Molly S. Boast, former director of competition at the FTC and now a partner at Debevoise & Plimpton in New York.

In his formal charges, issued last August, Monti accuses the software giant of illegally using its desktop monopoly to take control of key Internet markets. These range from on-screen music and video players to computer servers, the engines of the Net. The European case grew from complaints filed by Sun Microsystems and other rivals. For Microsoft's top lawyer in Europe, John Frank, it's simply a matter of competitors targeting Microsoft in Brussels, where court and administrative costs are low. "If you want to harass competitors on the cheap, you hit them in Brussels," he says.

Monti does not see it that way. But before acting, he's hoping that American courts settle the differences between the Justice Dept., which has come to an agreement, and the nine states that still want a tougher remedy. Meanwhile, on a separate front, Europeans are quietly pushing Monti to stop Microsoft before it extends its dominance to the mobile Internet, where it battles European champs such as Finland's Nokia Corp. (NOK ) "If Mario doesn't take on Microsoft here, they'll drive Europeans out of the market," says an Italian official close to the commission. Monti responds brusquely that his job is to press for fair competition, not prop up local companies. "I'm not here to carry out industrial policy," he says.

Microsoft's lobbyists in Brussels have plenty of people to talk to, from Monti's staffers in DG Comp to the other commissioners and representatives of member states. But at the end of the day, only one person really counts: Monti. And he's highly suspicious of lobbying efforts. "We have lots of contacts at staff level," says Frank. "The question is, how do we approach Monti?" So far, Microsoft has put Monti in touch with CEO Steve Ballmer, say sources close to the case. But they're holding off on the heaviest artillery, Chairman William H. Gates III. After the reception Jack Welch got in Brussels, Gates may well keep his distance.

The guessing in Brussels is that the Commissioner, eager to get to work on the European economy and reluctant to lock horns with Washington, may not go for a scorched-earth solution to the Microsoft case. What might work? A remedy that focuses on details. Perhaps he'll force Microsoft to share development information earlier--an area where Microsoft is already making offers--or uncouple European versions of its media player from Windows. Brussels insiders surmise that he may also hit Microsoft, which has $38 billion in cash, with a big fine, though nothing near the 10% of revenue permitted by law.

Even as his aides work through Microsoft briefs, Monti is pushing ahead with a broad European agenda--one closer to his heart than Microsoft. He's threatening to force phone companies to slash mobile roaming fees and to open up their phone lines to competitors. The longtime fan of the Inter Milan soccer team is threatening to break up the syndicates that control televised sports in Europe. He's looking into beer sales, car sales. Perhaps most important, he's pushing to pry open Europe's energy markets.

More than two decades ago, Monti as a young free-market economist traveled to London for a private audience with Margaret Thatcher. Now, until his term ends in 2004, he has a chance to extend a Thatcher-like jolt to all of Europe. And the speculation that Monti would return home to Italian politics? After this high-voltage tour in Europe's capital, for Mario Monti even the top job in Italy would probably feel like a demotion.

Corrections and Clarifications "Monti's moment" (European Business, Mar. 25) gave the wrong nationality for former European Competition Commissioner Karel Van Miert. He is Belgian.

By Stephen Baker in Brussels, with Gail Edmondson in Milan and Dan Carney in Washington

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