Intel prepares for EU antitrust hearing on Tuesday

Chip maker accused of offering rebates to PC makers that bought Intel processors

BRUSSELS — Intel Corp. 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 Advanced Micro Devices Inc. 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 fairly in a competitive industry.

However, these charges may 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 and to the offices of Europe's largest electrical and electronic goods retailers, including 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 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 more than 460 stores spread across 11 countries in the European Union, 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, however, doesn't see it that way. 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 company 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 CEO Paul Otellini said in an interview published in BusinessWeek magazine last October.

If the commission finds Intel guilty, it can fine the company as much as 10% 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.

Copyright © 2008 IDG Communications, Inc.

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