IBM has just announced it is buying up Platform Solutions, Inc. (PSI), its small but most significant competitor. PSI is/was a small mainframe manufacturer that had sued IBM over the same anticompetitive practices in Europe and New York.

The Computer & Communications Industry Association sees this as a clear attempt by IBM to purchase a company solely to foreclose competition in the mainframe marketplace, protecting IBM’s cash cow at the expense of consumers. This acquisition should be a cause of concern for competition authorities throughout the world.

“This is a Black Hole acquisition,” said CCIA President and CEO Ed Black. “It sucks the life out of the market and destroys the matter. Transforming a market with latent potential for competition and innovation into a sector with little prospects for anything but complete domination by IBM.”

Although the cost of the takeover narrowly misses the threshold level under U.S. law for mandatory review, and also falls short under EU law, both of the world’s leading antitrust authorities should nevertheless review this extinguishing of competition in the mainframe market. PSI was also committed to the open systems model, as contrasted to IBM’s closed proprietary monopoly model.

In 2001, the U.S. Department of Justice dissolved a 49-year-old consent decree IBM had signed which kept tabs on its business practices as a result of prior anticompetitive actions. In doing so the Justice Department made it clear that if IBM engaged in further “anticompetitive activity” they would be “immediately liable to suit.”

The news IBM is buying PSI comes days after another competitor, small mainframe supplier, T3 Technologies announced it would file an antitrust complaint against IBM in Europe.

“CCIA strongly believes that IBM’s actions since the consent decree was dissolved, the purchase of PSI and these new allegations by T3 collectively paint a convincing picture that IBM has gone back to its old ways. When it comes violations of competition law, IBM appears to be an unrepentant recidivist,” Black said. “In light of this deal, T3’s complaint takes on a heightened importance.”

Once released from its consent decree, IBM has ceased licensing patents necessary for other companies’ hardware to interoperate with IBM’s operating system. Because the legacy data and applications that reside on mainframes are designed to work with IBM’s OS and would be prohibitively expensive to recreate, IBM’s refusal to license effectively locks customers into using IBM’s larger, more expensive mainframes and makes it impossible for companies such as PSI and T3 to compete. Antitrust law forbids a monopolist from tying the purchase of one product to that of another distinct product.

The multi-billion dollar market for mainframes is too important to be under the exclusive control of one company, especially when the technology exists to allow cheaper, more scalable computer systems to compete with IBM’s machines. Mainframes are critically important to virtually ever industry in the world. Indeed, the backbone of the world’s financial markets is built on mainframe computers.

  • Over 80% of the world’s corporate and government data resides on mainframes
  • According to IBM, $5 trillion worth of business assets are housed on IBM mainframes
  • Nearly 95% of Fortune 1000 companies use IBM’s Information Management System (IMS) for their critical data management needs
  • More than 50 billion transactions are running through IMS databases on a daily basis involving financial ATM sessions, healthcare record access, tax accounts and other critical information.

“The market for mainframes might be invisible to ordinary Americans, but it is one that is critical to our economy and security. More commercial transactions are processed on mainframes than on any other platform. And yet, the mainframe market is completely dominated by one company, IBM, with well over 90 percent market share,” Black said. “Antitrust authorities must pay attention.”

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