In Brussels they call him "Super Mario"—after the Nintendo game character; Jack Welch knows him as the Euro-official who derailed his dream of crowning a triumphant career at General Electric Co. with the takeover of Honeywell International Inc.; and Bill Gates sees him as the Eurocrat with the chutzpah to suggest that revealing the source code of the Windows operating system might be in the best interests of consumers.

Mario Monti, a 59-year-old Italian economics professor, heads the European Commission's Competition Directorate, which is responsible for reviewing mergers and acquisitions, looking into allegations of price-fixing and investigating companies charged with antitrust activities. The former Yale University graduate student has attracted more attention than perhaps any of the 20 EC commissioners. In a sense, Monti has become the personal embodiment of the increasing power of the EC in global business.

"Is it right that Europeans have the right to inquire into mergers and acquisitions in the United States?" asks Richard Barrington, an executive who is on loan from Sun Microsystems Inc., Palo Alto, CA, to the United Kingdom government, serving as director for industry at the office of the e-envoy in the British Cabinet Office. "The reality is that in the global economy it is only natural that regulators around the world will take longer and harder looks at these mergers," he says. "Some have big issues for employment and competitiveness across Europe, and it's only reasonable for regulators to have an interest."

In fact, some Europeans see the EC's heightened activism as a case of what goes around comes around. "I would remind the Americans of the debate in the 1950s and 1960s on the extra-territorial application of the antitrust laws, because they did exactly the same as Mario Monti is doing now," says Kurt Biedenkopf, prime minister of the German state of Saxony. "Europeans have finally understood what antitrust is all about," adds Biedenkopf, known to the German popular media as "King Kurt" and a heavyweight politician who once campaigned against former Chancellor Helmut Kohl for the leadership of the Christian Democatic Union party. "Antitrust means no cartels, no market dominance, no discrimination. If you form a quasi-monopoly or a duopoly in the United States, it will influence the European market, and we will not agree to a combination that will produce a dominant position."

But part of Monti's reputation also comes from his own personal drive. Since his appointment as director of competition at the EC in 1999, Monti has combined a straightforward approach to the job with intellectual zeal in its pursuit.

"Monti's a tough man. A rigorous man," says Malcolm Nicholson, head of EC law at the London-based law firm of Slaughter & May. "He's rigorous in the sense that he's firm in his judgments. He's swinging some pretty huge fines around."

In December alone, action against seven price-fixing conspiracies involving 40 companies saw fines totaling 1.5 billion Euros (roughly $1.3 billion at the exchange rate on Feb. 26, 2002) imposed on errant corporations. For the whole year, fines totaling 1.8 billion Euros (roughly $1.5 billion at the exchange rate on Feb. 26, 2002) were collected.

But more controversial than the crackdown on cartels has been Monti's attitude to the other side of his job—mergers and acquisitions. The EC has blocked eight mergers in the last two years compared to 10 in the previous nine years (see box, below). "In the merger field, he's been tough," says Nicholson. "EC merger control is quite tough—it's not an easy environment for doing deals. Monti's less of a deal-doer than [Karel] van Miert," Monti's predecessor as competition commissioner, who held the job for a decade.

The MOBILE INTERNET should remain "under control of the mobile industry—and not the computer industry."
—Jorma Ollila, CEO, Nokia

In fact, Monti seems to pride himself on not letting outside factors influence his decisions. He seems to take a much more inflexible approach to the law's practice than the U.S. authorities at the Department of Justice (DOJ) and the Federal Trade Commission (FTC). For instance, unlike the DOJ, which cited the poor state of the U.S. economy as a reason to seek a speedy settlement with Microsoft Corp., Redmond, WA, on relatively benign terms, Monti takes an academic detachment to his task.

"If the Dow falls below 10,000, we cannot suspend Article 85 of the Treaty [of Rome] and permit cartels," says Monti. "If the FTSE [Financial Times Stock Index] goes under 5,400, we cannot say that any company with a dominant position is allowed to abuse that position until the index recovers."

Therein lies a clue to understanding Monti's approach—he leans more toward principles than practicalities. And the principles that govern EC merger-and-acquisition rules are fairly open to his interpretation.

The Treaty of the EC prohibits abuse by companies "of a dominant position within the common market," according to EC background materials. In addition, mergers and acquisitions that could impede competition significantly in the common market can be derailed by the EC. In general, the EC reviews mergers with combined sales of $5 billion and European sales of $250 million for at least two of the companies concerned.

But the application of these rules is an imprecise science. "In one way, the test is precise—it operates if the combination results in a market share of 25%," says Ross Denton, who handles European law for the international law firm Baker & McKenzie. "But the question is: How do you get to that figure? You need to establish what the markets are, and a lot of facts go into that and can produce different results…Then you have to consider whether that market share can be used to disadvantage others. For instance, in the Compaq/HP deal it couldn't because they wouldn't be able to put their prices up without ruining their business, whereas GE/Honeywell involved aero engines which require a great deal of R&D. They clearly could have used their market share to disadvantage others by raising prices."

The EC's blocking of the $43-billion merger of GE, Fairfield, CT, and Honeywell, Morristown, NJ, after it had been approved in the States, drew more criticism on Monti than any other decision. The EC decided that GE has a dominant position in aircraft engine manufacturing while having two subsidiaries that added to that dominance—GEC Aviation Systems (GECAS), which is the largest purchaser of aircraft in the world (larger than any airline), and GE Capital, a major provider of finance. Therefore a merger with Honeywell—the leading supplier of avionics systems, of engines for corporate jets and engine starters, described by the EC as "a key input in engine manufacturing"—would extend the dominant position GE already holds.

Although Monti was accused in the media of protecting the European aircraft building consortium Airbus, he denies it. "Contrary to some statements in the media, the large aircraft manufacturers Boeing and Airbus have not been particularly active in the proceedings," he has said.

In contrast, when the EC nodded through the proposed merger of Hewlett-Packard Co., Palo Alto, CA, and Compaq Computer Corp., Houston, it made a clear distinction between the PC/server market—where the cost of entry is low and market share can evaporate overnight if prices are raised—and the aircraft engine business where there are few players, cost of entry is high and a dominant position can be abused by price increases with impunity. After only a month reviewing the matter, the EC found that "HP would not be in a position to increase prices and that consumers would continue to benefit from sufficient choice and innovation." Encouraging the EC to agree to the deal was an almost total lack of objection from competitors.

Doug Dunn, president and CEO of ASM Lithography Holding NV, Veldhoven, The Netherlands, which took over the U.S. company Silicon Valley Group Inc. (SVG) last year, has no complaints about the way the EC reviewed his deal. Ironically, the only trouble the merger had came from the United States, in which there was some concern that vital U.S. assets were coming under the control of a foreign company. "The politicians, and the civil servants from the various departments of state, dealt with us entirely properly and appropriately…but there was a band of strange, nongovernmental people shooting 20-minute videos and sending them to senators and congressmen saying we were foreigners, we were in league with communists and would supply all the technology to China," says Dunn. The merger was ultimately approved.

In the case of Microsoft, the xenophobic shoe is on the other foot. While the Microsoft case is still ongoing, the EC has released little information as to its status. Yet, the investigation appears to be much broader than the one in the United States. Last year, the EC expanded its investigation into whether Microsoft was trying to damage its competitors by embedding Media Player into Windows and whether it used its monopoly in operating systems to gain market share in server software.

"Europeans have finally understood what antitrust is all about."
—Kurt Biedenkopf, prime minister, German state of Saxony

And many in Europe are wary of Microsoft's plans in mobile computing. Microsoft wants to get its operating system Smartphone 2002 (originally called Stinger) adopted as the standard OS for the mobile Internet. Yet the mobile Internet largely is controlled by European companies, which so far have shown a preference for the Symbian OS, made by Symbian Ltd., London. In an uncharacteristically direct warning shot at Microsoft, Jorma Ollila, CEO of Nokia Corp., Helsinki, says the mobile Internet should remain "under the control of the mobile industry—and not the computer industry." Nokia reckons that, in 2004, half of all 3G phones will be Symbian-based.

While the Microsoft investigation is still active, the EC's investigation of Intel Corp., Santa Clara, CA, seems to have ended. Monti indicated in February that the Intel investigation would be dropped because the EC had uncovered no evidence to support the claims.

There are efforts under way to unify the approach of the United States and the European Commission to antitrust issues.

The EU has called for a World Trade Organization Agreement on Competition based on nondiscrimination, transparency and due process. In February 2001, the International Bar Association sponsored a meeting in the UK to explore the scope for a global competition initiative. And last October, the International Competition Network was launched in New York to provide a forum to discuss competition issues. The network is open to the competition authorities of all developed and developing nations. It's mission is to "provide more coherence, more coordination more governance in international competition policy," according to Monti.

"A silent process of convergence in competition law and practice has been going on for a number of years and has recently intensified," says Monti. "We are deeply committed to this process." In fact, a recent EC proposal seeks to open a debate on whether to align the EC criteria more closely with the U.S. criteria by which proposed mergers are judged.

Ultimately, Monti probably will be judged on the success, or failure, of his efforts to promote trans-Atlantic convergence on competition policy. "We want a world in which there are equal opportunities to merge and acquire either way across the Atlantic, and no one wants to get stuck in politics," says ASM's Dunn.

David Manners is a reporter for Electronics Weekly, a newspaper covering the electronics industry in Europe. E-mail him at David.Manners@rbi.co.uk