Justice Loosens Clutches on IBM

Withdrawal of restrictions from the 1956 consent decree could help IBM's booming services business

The Justice Department's proposal to relax a 1956 consent decree, placing restrictions on IBM to create a level playing field, would help the company's booming services business.

The decree hindered IBM's ability to do business in the broader marketplace, specifically infotech services, company spokesman Tom Beermann said. It forced IBM to create its outsourcing operation, Integrated Systems Solutions Corp. (ISSC), as a separate subsidiary (See related story on p. 16).

The government's restrictions also prevented ISSC from buying IBM hardware and software at discount prices, as outsourcing competitors Electronic Data Systems Corp. and Computer Sciences Corp. do.

Analysts pointed out that the decree, originally intended to create competition, has affected IBM's loss of market share, and the Justice Department's proposal reflects the company's active push to get the restrictions lifted. The government said it wants to let ISSC become integrated into IBM, not a separate subsidiary, and be able to buy IBM products at discount prices.

The government, however, does not seem as prepared to release IBM from restrictions on the company's marketing of its mainframe and AS/400 midrange computers, which represent a significant portion of IBM revenues. The Justice Department requires IBM to sell, not lease, both kinds of hardware and to hang on to used mainframes for two months before reselling them.

"In an industry where new products are introduced every six months, a 40-year-old consent decree doesn't make sense to ensure competition," Beermann pointed out.

The Justice Department filed its proposal, subject to public comment, with the U.S. District Court in New York. Even if the court favors the department's proposal, IBM officials said it is not clear whether the company will continue to run ISSC as a separate subsidiary.

IBM's services business increased 26 percent last year to $7.7 billion, the only segment that showed double-digit growth. ISSC signed nearly 40 major contracts in 1994 and, recently, booked $1 billion in business in a single month.

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