Intel prepares for EU antitrust hearing on Tuesday

by Paul Meller

March 7, 2008 —

Intel is preparing to defend
some of its questionable business dealings with PC makers at an antitrust hearing
with European regulators and competitors next week. Questions about its dealings
with retailers will have to wait for another day.

The meeting on Tuesday and Wednesday will focus on charges made last July by
the European Commission, Europe's top antitrust authority, accusing the world's
biggest maker of computer chips of handing out "substantial rebates"
to computer manufacturers if they bought most of their x86 processors from Intel.

The Commission also accused the company of paying computer makers for scrapping
or delaying the launch of machines fitted with AMD chips, and of selling its
chips for server computers at below cost to large customers such as governments
and universities.

Intel has argued that it is competing hard but fair in a very competitive industry.

However, these charges may just be the foundation on which the Commission intends
to build a much bigger case.

Last month the regulator made surprise visits -- often referred to as dawn
raids - to Intel's offices in Munich, Germany, and to the offices of Europe's
largest electrical and electronic goods retailers, Media Markt in Germany, Italy,
Hungary and Poland; DSG International in the U.K., and PPR in France.

The Commission said it conducted the raids because it suspects Intel and the
retailers of violating laws banning restrictive business practices, or of abusing
Intel's dominant position in the computer chip market.

Concerns about Intel's relationship with the leading electronics retailers
date back a number of years, but the Commission only opened an investigation
in 2006 after it received a complaint from AMD, Intel's only significant rival.

The Commission said at that time that it suspected Intel of pressuring Media
Markt not to stock PCs fitted with AMD chips. Media Markt is a German chain
of over 460 stores spread across 11 countries in the E.U., and is a vital distribution
channel for the computer industry.

The raids earlier this year shift the focus onto Media Markt and the other
big retail groups. "Media Markt is in as much hot water as Intel now,"
said AMD spokesman Jens Drew.

The Commission's latest search for evidence of antitrust abuse has been interpreted
by people close to Intel as a fishing expedition, revealing a weakness in the
regulator's efforts to expand the antitrust case to the retail sector.

Drew, not surprisingly, doesn't see it like that. Just as it did in the antitrust
case against Microsoft, the Commission is treading very carefully and building
a solid case that it can defend in an inevitable court appeal, he said.

Indeed, the landmark 2004 antitrust case against Microsoft started as two separate
investigations, which were then merged into one giant case that not only made
the software giant pay $2.6 billion in fines (at current exchange rates), but
also forced it to change its business practices in Europe and around the world.

However, next week's hearing will focus purely on Intel's business practices
relating to PC manufacturers. And if it remains solely about this, and doesn't
expand to include Intel's behavior in the retail trade, "the worst case
is to write a check," Intel chief executive Paul Otellini said in an interview
published in Business Week magazine last October.

If the Commission finds Intel guilty it can fine the company up to 10 percent
of its worldwide sales -- roughly $3.2 billion. But as with Microsoft, Intel
will be more worried about the changes it will have to make to its business
model than any fines it may incur.

IDG News Service