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|IBM MAINFRAME STRANGLEHOLD SURE THREAT TO INDIA’S GROWTH|
|Thursday, 11 March 2010 11:46|
ICRIER-Indicus report calls for open, competitive arena in high-end-server market Openness, interoperability in high-end computing imperative to enhance
IBM Mainframe Stranglehold
ICRIER-Indicus report calls for open, competitive arena in high-end-server market
Openness, interoperability in high-end computing imperative to enhance
March 11, 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 on Thursday.
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; Dr 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.
The report calls for lending serious thought to issues of free and fair competition, entry
of new innovators in this space, international or Indian, prevention of 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% market share), HP
(33%) and Sun (17%). “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 abovemarket
prices for IBM solutions, including the mainframe in India,” says the ICRIERIndicus
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
“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 ICRIERIndicus
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
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.
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
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 enterpriseclass
server hardware is not tied to the sale of enterprise software, is an important policy
recommendation of the report.
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