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U.S.: Microsoft's Monopoly Questionable

Microsoft is dominant in the personal computer industry, and the U.S. government says its dominance is illegal. There are reports that prosecutors want to divide Microsoft into two or three companies to help restore competition in the technology market. RFE/RL's Andrew F. Tully asked about this in interviews with experts in law and technology, and files this report.

Washington, 14 January 2000 (RFE/RL) -- The American media is full of reports that the U.S. Justice Department will recommend that Microsoft Corporation be split into two or more parts as punishment for what a judge has called illegal monopolistic practices.

The judge, Thomas Penfield Jackson, ruled two months ago that the maker of Windows -- the most widely used computer operating system in the world -- has been taking advantage of its dominance by crushing its competitors.

For example, Microsoft has been giving away its own World Wide Web browser, Internet Explorer. This led to the rapid decline of Netscape Communications Corporation, which brought Web use to maturity with its pioneering browser, Navigator.

Marc Andreesen, Navigator's principal developer, remarked once that his browser could be an operating system in itself, by "browsing" a computer's hard drive.

Many industry observers say Bill Gates, Microsoft's chairman and co-founder, saw Andreesen's comment as a threat to his domination of the PC (personal computer) industry, and that he vowed to crush Netscape.

Whatever the motives, Microsoft began giving away its own browser, which it could afford to do as the richest corporation on earth. Netscape had to follow suit, and eventually was absorbed by America Online, known as AOL.

Microsoft also integrated Internet Explorer into Windows itself, meaning that any computer running Windows had Microsoft's browser by default, lessening the need for the customer to install one -- whether it was produced by Microsoft, Netscape, or any other software manufacturer.

Judge Jackson cited this as a prime example of what he called Microsoft's illegal monopolistic practices.

Since the judge's ruling, another judge has been overseeing negotiations on how to resolve the massive case against Microsoft, which also involves 19 U.S. states. The federal and state governments accuse Microsoft being a "trust" -- a company that controls enough of a single industry that it can sell its products without concern that competitors might sell a similar product at a lower price.

A "trust" ordinarily is the result of a merger of two or more companies that sell the same product. The resulting unified company would face less competition and thus become a virtual monopoly.

Microsoft, however, is and always has been a single company. But it has at least three distinct operations: One that produces the operating system; a second that produces program applications, like the dominant word processor Microsoft Word; and an Internet presence known as Microsoft Network, or MSN.

According to the U.S. media reports, Justice Department lawyers who prosecuted Microsoft before Judge Jackson plan to urge the judge to order the corporation split up into two or three distinct companies.

A Microsoft spokesman, Mark Murray, responded to these reports by citing the recent merger of AOL with Time Warner. Murray noted that this was the largest merger in history, and said its aim was to compete directly with Microsoft.

Industry analysts disagree about whether a break-up is warranted.

Robert Bork is a well-known jurist who specializes in anti-trust law. He tells RFE/RL that Microsoft's practices clearly show it is an illegal monopoly. Bork says a break-up is an acceptable option as long as the software standard is intact -- that consumers know that the software applications they buy will work on the operating systems installed on their computers.

"If they can get a common standard so that they don't wind up with incompatible systems, it probably would be a good idea [to break up Microsoft]."

Solveig Singleton is the director of information studies at the Cato Institute, a Washington think-tank. She agrees that having standards is important. But she says breaking up Microsoft with what is known as a "divestiture decree" would be unwise because ultimately it could stifle competition.

"Divestiture decrees are often obsolete as soon as they are written down. And over time, they impose more and more costs on the industry, and they become significant impediments to innovation and to change in that industry. They can have a lot of unforeseen consequences as well by reducing investment in certain sectors of the economy, or blocking -- or actually restraining competition."

Singleton says the quickly evolving nature of the technology industry serves as its own regulator. She notes that the planned merger of AOL and Time Warner shows that Microsoft is no longer the only leviathan of the current electronic age, and that soon Microsoft may lose its dominance.

"You're beginning to see a lot of movement in this industry, and it suggests that there's enough going on there -- that there's enough natural dynamism in the industry -- that you don't really need the [divestiture] decree. It's just a matter of waiting -- waiting until other innovations sort of catch up with the market, which they seem to be doing very quickly."

Bork is not so certain that the market can be expected to regulate itself, at least in the Microsoft case.

"It's quite conceivable that there's somebody with a technology that will outmode the operating system that Microsoft has a monopoly on. But we don't know that any such thing is coming, and right now, their [Microsoft's] monopoly continues."

Meanwhile, International Data Corporation (IDC), a consulting and research firm that focuses on the technology industry, has issued an analysis that urges Microsoft to pre-empt the prosecutors and voluntarily split up.

The report said a voluntary breakup would end Microsoft's legal troubles. It also would allow each new, smaller company to focus better on its given task. Bork laughed when asked about the IDC report.

"I think that's very funny. That would be fine with me, but the thought of Bill Gates and those fellows breaking themselves up voluntarily -- that's such a fantasy, I think it's funny."

International Data concedes the step would be "bold," as the report put it. But the company insists that this is the only way Microsoft can avoid even more burdensome consequences handed down by the court.