• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Microsoft is Ordered to Revamp Windows Seoul Panel Declares Bundling of Features Blocks Competition

Posted on: Thursday, 8 December 2005, 12:00 CST

By Choe Sang-Hun

Microsoft was found guilty of breaching fair trade rules in South Korea on Wednesday in a ruling that ordered the software giant to create two new versions of its Windows operating system for the South Korean market. Microsoft said it would appeal. Coming after a similar ruling in Europe and a costly out-of-court settlement in the United States, the South Korean verdict presented Microsoft with a growing technological and marketing challenge. Encouraged by the rulings, experts said, regulators elsewhere may also demand multiple versions of Windows to resolve antitrust complaints under their jurisdiction.

Microsoft vowed to take the ruling by South Korea's Fair Trade Commission to court. But it said it would not follow through on its earlier threat to withdraw Windows from the country.

The ruling Wednesday, which followed a 51-month investigation, also ordered Microsoft to pay a $32 million fine, saying that the company's bundling of its Media Player and MSN Messenger programs into its Windows platform "blocks competition, leads to a monopoly," and "hurts consumer interest by raising the entry barriers" for competitors.

The commission ordered Microsoft to sell a version of the operating system stripped of the media and Messenger programs as well as another version that retains them but adds new features, including links to Web sites, to give Windows users fair access to rival software. It called for the changes within 180 days.

Microsoft was also required to split the Media Server from its Windows server operating system. The media and Messenger software allows computer users to watch videos, listen to music and exchange real-time messages.

"We think this is very bad for Korean consumers and very bad for the industry in Korea and for mature innovation," said Tom Burt, Microsoft vice president and deputy general counsel. "Challenging the decision in Europe in court, we think we are going to win. Challenging this decision in court, we think we are going to win."

In March, European regulators fined Microsoft 497 million, or $585 million, and ordered it to offer a Windows version without its Media Player software. Microsoft is appealing the case.

The remedies ordered in Europe and South Korea were "significantly different," Burt said.

In Europe, Microsoft was permitted to offer its original Windows as well. But the South Korean decision "requires two new versions of Windows that currently don't exist and bars Microsoft from offering any existing versions of Windows," Burt said.

Kang Chul Kyu, chairman of the fair trade commission, said the South Korean regulators aimed to "maximize consumer satisfaction."

"Consumers must be able to use Windows as it is or have other options," Kang told a news briefing. "That's why we went one step further from the EU action and ordered Microsoft to carry access to competitors' programs."

Microsoft has spent billions of dollars to settle a string of disputes. In October, the firm agreed to pay $761 million to RealNetworks, a U.S. firm marketing the RealPlayer audio-visual software. Last month, it reached a $30 million settlement with Daum Communications, a South Korean Internet portal that started the dispute here. Nonetheless, the fair trade watchdog continued its investigation.

While South Korea accounts for less than 1 percent of Microsoft's sales, the ruling may encourage companies to challenge Microsoft in other countries, said Sohn Yoon Kyong, of Mirae Asset Securities in Seoul.

"There are companies in other countries eyeing this development," she said. "It could be a nagging headache for Microsoft."

SK Communications, a South Korean operator of a messaging system, welcomed the ruling, hoping it would create bigger opportunities for smaller companies. But Microsoft has argued that stripped-down versions of Windows would only stifle innovation, disrupt Web-site operations and increase costs for computer manufacturers.

The South Korean ruling means that "instead of looking at the marketplace for answers, successful companies must design 'backward' to ensure they have satisfied the possible objections of market regulators," said Lars Liebeler, antitrust counsel for the U.S.- based Computing Technology Industry Association.

Microsoft aspires to increase sales by making computers part of home-entertainment systems for playing music and games and a way of staying in touch with friends. It hopes to sell such systems bundled with Windows.

Judging from the decision Wednesday, not everyone seemed enthusiastic.

"We will apply the same guidelines to products of technological convergence if they undermine market competition and consumer interest," said Suh Dong Won, a senior regulator at the commission.

Source: International Herald Tribune

More News in this Category