Travel exchange under investigation

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May 22, 2000
Web posted at: 11:49 a.m. EDT (1549 GMT)

by Eugene Grygo

(IDG) -- THE BACKERS OF Internet-based trading exchanges will have to think twice about the issues of price-fixing and industry monopolies as they forge ahead to claim territory in the New Economy.

Representatives for the Justice Department confirmed this week that the government has begun an investigation of a business-to-business commerce site for the travel industry, tentatively called T2.

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The site is sponsored in part by five major airlines: American, Delta, United, Continental, and Northwest. Approximately 30 U.S. and non-U.S. carriers are behind the T2 effort slated to launch later this year.

The Boston Consulting Group is reportedly working with the airlines to develop the site for selling airline services and providing air information. Officials at the Boston Consulting Group did not return phone calls by Thursday. However, a spokesman for the T2 effort said in a statement that the group would be cooperating with the government probe and that the collaborative venture would be shown to be in compliance with the law.

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The investigation should serve as a wake-up call for emerging exchanges that even the appearance of price-fixing or monopolistic moves should be avoided, said Randy Covill, an analyst at AMR Research, in Boston.

As digital exchanges become more of an everyday reality and more competitors come together, the U.S. government is going to start paying closer attention, Covill said.

The problem is that in order for exchanges to get off the ground, they will need the support of major industry players on the buy-side and sell-side of the exchange equation, Covill said. The independent, neutral exchanges -- the ones without major name buyers and suppliers behind them -- are not likely to survive, he said.

"They need sponsors with name recognition and business status," Covill said. "[But] the 800-pound-gorilla sponsors have got to stand back and let the child grow."

The government action will force the issue for many of these exchanges, Covill said. The exchanges "need a plan and a process," he said. "[Exchange sponsors] will have to set up an independent layer of management and will have to step back from it to insulate themselves," he said.

In the rush to get first mover advantage and claim territory, the exchanges "forgot some of the Old Economy rules that still matter," Covill said.

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