Friday, March 12, 2010:
The Indian Council for Research on International Economic Relations (ICRIER), along with Indicus Analytics, released a report on The Issues of Competition in Mainframe and Associated Services in India in New Delhi yesterday.
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It was sponsored by OpenMainframe, a forum made up of industry and IT representatives, and other stakeholders who want a fair deal in the mainframe industry. The report is based on a survey conducted among infrastructure firms, including financial services, retail trade, services (telecommunications), transportation and wholesale trade.
The release was attended by eminent economists, including Dr Rajiv Kumar, director and chief executive, ICRIER; Dr Laveesh Bhandari, director, Indicus Analytics Pvt Ltd; Jeff Gould, editor, OpenMainframe.org and CEO, Peerstone Research, and Professor Bibek Debroy, senior economist.
The report debates giving serious thought to issues of free and fair competition, entry of pioneers in this space, whether international or Indian, and ensuring universal inter-operability between different IT systems. As India's IT industry has mushroomed, it is imperative 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.
Lack of competition in mainframes tests the security mechanism of the country. For one, security agencies and departments are likely to be held to single-player ransom. Further, if "talking" is not made possible between databases maintained by each of these entities in the network, the mechanism's efficiency is a suspect and likely to fail.
Openness and interoperability are likely to be the basic requirements of developmental projects like the Unique Identification (UID), which has been allocated Rs 1,900 crore in the Union Budget 2010-11. 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 standards," 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.
The 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".
IBM's 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 and 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.
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