Is IBM mainframe the next shark for CCI?

NEW DELHI, INDIA: A strong report has raised concerns over the attempts by IBM to tighten its hold on the Indian market by 'under pricing' its products, much lower than other markets. This, in essence, is a clear effort to monopolise the market. The 'big fish' not allowing competition and resorting to predatory pricing is not new, it has happened in the United States and Europe earlier.

The Issues of Competition in Mainframe and Associated Services in India report, therefore, is best taken as a clarion call for India to deter one-player stranglehold on its young IT market. As the report points out, IBM is alleged to have extracted huge profits from proprietary mainframe offerings for long in the US and Europe and "it is unlikely that this will change in the near future".

IBMs India-specific revenue is estimated at Rs 57.83 trillion from domestic business for Fiscal 2009, up from Rs 42.42 trillion in Fiscal 2008 and Rs 33.80 trillion in Fiscal 2007.

High-end servers such as mainframes are very crucial for India's IT needs for its developmental programmes, and monopolistic practices of dominant enterprises in this sector are detrimental to growth. Given that the Indian enterprise IT market is entering its high growth phase, CCI has an excellent opportunity to avoid the pitfalls of the mature IT markets. Unbundling hardware and software, that is, ensuring that the sale of enterprise-class server hardware is not tied to the sale of enterprise software, is an important policy recommendation of the report.

The report calls for lending serious thought to issues of free and fair competition, entry of new innovators in this space, international or Indian, deterrence to bundling of IT goods and services, ensuring universal inter-operability between different IT systems, including high-end computers.

Given the need for inclusive growth in India - in the last few years, social sector programmes have seen a dramatic increase in scale and scope targeted towards the underprivileged - it is imperative that the public and private sector build a large-scale IT backend, especially high-end servers, including mainframes. For this, it is vital that there is free and fair competition in the mainframe sphere in the country.

India's high-end computer market is dominated by IBM (with 50 per cent market share), HP (33 per cent) and Sun (17 per cent). "During the MRTP days this would have been sufficient to launch investigations against IBM because of its size. Competition authorities, influenced by Chicago, no longer believe that the relation between a high market share and market power is obvious. We therefore need to further probe IBM's conduct and ask whether it has denied customers benefits of technological innovation and whether it charged above-market prices for IBM solutions, including the mainframe in India," says the ICRIER-Indicus report.

Although IBM has had a "history of antitrust violations" in Europe and the US, "the Indian mainframe market is relatively young but growing rapidly". At the same time, the report has cautioned that expansion in the installed base of mainframes with the proprietary z/OS could lead to "welfare losses like those reported for Europe". The proprietary nature of the operating system of the IBM mainframe creates problem for legacy mainframe workloads as these cannot switch to high-end servers, because they are tied to an operating system (z/OS) that cannot run on these servers because of IBM's restrictive licensing practices.

"India's growing prowess in the ITeS segment attracted immense attention but the server side (hardware and operating system) has been largely ignored. The Issues of Competition in Mainframe and Associated Services in India is first such study to examine structure and conduct in the server market in the country. As one would expect, the market is tightly controlled by a few firms. The results suggest that the Competition Commission of India needs to be proactive in ensuring that the server market remains open and competitive, and that no one player is able to abuse its dominance in the relevant market segment," says Professor Kathuria, who spearheaded the ICRIER-Indicus study.

Openness, interoperability in high-end computing are imperative to enhance developmental projects, as some may opine. The Indian Council for Research on International Economic Relations (ICRIER), along with Indicus Analytics, have released a report on The Issues of Competition in Mainframe and Associated Services in India.

Sponsored by OpenMainframe, a forum comprising industry and IT representatives, and other stakeholders promoting fair competition in the mainframe industry, the report is based on a survey conducted among infrastructure verticals, including financial services, process manufacturing, retail trade, services (telecommunications), transportation, utilities and wholesale trade.

At the release, eminent economists, including Dr Rajiv Kumar, Director and Chief Executive, ICRIER; Dr Laveesh Bhandari, Director, Indicus Analytics Pvt Ltd; Mr S.L. Rao, Chairman, Institute for Social and Economic Change; Mr Jeff Gould, Editor, OpenMainframe.org and CEO, Peerstone Research,

Professor Bibek Debroy, Senior Economist; Dr Mahesh Uppal, Director of Com First (India) Private Ltd and ICRIER Professor Rajat Kathuria, deliberated on the need for a level-playing field in the mainframe and high-end computing market.

Openness and interoperability are likely to be the basic requirements of developmental project like that of the Unique Identification (UID) -- allocated Rs 1,900 crore in the Union Budget 2010-11 for a plan that envisages 600 million people with UIDs within the next four years - and, as the report puts it, "closed standards would create serious patent and interoperability complications". z/OS is an example of such standards.

The report highlights that vital data like that of UIDs will require storage formats that are open and free of all constraints like royalties, patent claims etc. "Storing large data sets and performing online verification on IBM mainframe z/OS will be eminently possible, but the risk would be in ceding some control over the information to IBM as a result of the proprietary standard," it says. To take a leaf out of the grim experience in the US, financial institutions have been locked in to the legacy application at high cost, for decades.