ANALYSIS: The Trials of Microsoft - lessons from the past (Part 1)

The US Department of Justice's (DoJ) scrutiny of Microsoft is nothing new. In the past, AT&T and IBM have also been accused of abusing their dominant market positions. In the first of a two part series, John Oates looks back at the AT&T case to see if experience can teach us anything

The critics who believe that Microsoft is abusing its desktop dominance have come up with one obvious solution: split the company in half. If its operating systems business and applications business were separated and forced to compete on their own terms, one of the company's major 'unfair' advantages would be removed, they claim. But should, or even could, this be done? To try to find an answer, perhaps we ought to look to the lessons of the past. The closest historical parallel is the enforced divestiture of AT&T in 1982. The AT&T case hinged on two issues. The first was whether the telco did indeed have a monopolistic market position. On its own, being a monopoly isn't anti-competitive. But if AT&T was guilty of abusing that position by preventing competitors competing on a level playing field, then action would have to be taken. The case - which was brought by Northeastern Telephone - centred on the allegation that AT&T was pricing other players out of the market. The court defined predatory pricing as "sacrificing current revenue in order to drive a competitor from the market to gain increased market power in the future". The court found against AT&T, and it was split up. But some industry observers believe the nature of the markets Microsoft operates in is so different as to render any comparison meaningless. David Brown, chairman of Schema consultancy, said: "Telco authorities across the world have encouraged an atmosphere of cooperation and openness between companies. The IT world has always been more averse to regulation." If Microsoft had stuck to its dominance of the corporate desktop, the issue would never have arisen. The problem is that by moving into Internet software, it has overstepped the mark, according to Brown. The IT industry, despite its reluctance to embrace regulation, has had to take note. But even if you accept that argument, the next step is not at all clear. Microsoft may well have overstepped the mark - but what can the DoJ do about it? The practicalities of splitting up AT&T were obvious: it was divided into the Baby Bells along geographical lines. Schema's David Brown said: "If the case does go against Microsoft, who will do what about it? They can be fined, but I cannot see what action could be taken to remove it from its position of dominance." The divide between operating systems, desktop applications and Web tools is difficult to identify. Applications like word processors and Web browsers are becoming universal - and increasingly inseparable. Indeed, it could be argued that integrating a browser with the operating system is good for consumers. So it's doubtful whether DoJ officials could reach any agreement on whether Microsoft could be split up into two (or more) parts - even if they agree that it should. So the AT&T case doesn't act as an enormously useful precedent. Although DoJ involvement is the common factor, there are more differences between the cases than there are similarities. The nature of the two companies' monopolies are different - and even if the DoJ did decide to take remedial action against Microsoft, it would be far more difficult to implement than it was with AT&T. In our second analysis, to be published later this week, we'll look at the IBM case of the 70s and 80s to see if that can shed any light on Microsoft's current plight.