MS-DOJ: Economist calls Microsoft a harmful monopoly

In a 116-page report released Wednesday, Frederick Warren-Boulton, who was chief economist for the antitrust division of the U.S. Department of Justice from 1983 to 1989 and is now an independent consultant, echoed the government's charge that Microsoft (Nasdaq:MSFT), which controls more than 90 percent of the market for PC operating systems, operates a monopoly.

Warren-Boulton's research constitutes an important part of the government's case. In order to convince the court that Microsoft was guilty of predatory practices, prosecutors need to first demonstrate it to be a monopolist.

Warren-Boulton, who is expected to take the stand in the antitrust trial this week, wrote that Microsoft had illegally attempted to block the progress of browser rivals in a bid to protect the company's Windows monopoly.

Blocking the competition
"Microsoft has engaged in a number of practices that significantly impede the commercial opportunities of rival producers of Internet Web browsers, a product that is a key element of a threat to Microsoft's operating system monopoly," according to Warren-Boulton, .

"Microsoft's restrictions have constricted, and continue to constrict, the distribution channels available to Netscape and other independently supplied browsers," he continued.

Warren-Boulton provided additional fodder for the government's charges against Microsoft, accusing the software maker of leveraging its desktop operating system monopoly to tie its Internet Explorer browser to Windows. He further asserted that Microsoft undercut rival Netscape Communications Corp. (Nasdaq:NSCP) with a two-pronged strategy: Microsoft inked restrictive deals with Internet service providers and computer manufacturers and also gave away its browser for free.

MS official worried
Warren-Boulton also refers in his report to a January 1997 memo where Microsoft official Jim Allchin bemoans the prospects for the Explorer browser.

"I do not feel we are going to win on our current path. We are not leveraging Windows from a marketing perspective," Allchin wrote. "We do not use our strength -- which is that we have ... a strong OEM shipment channel for Windows."

Allchin said he was "convinced" that Microsoft must leverage Windows in order to change the constellation of power in the browser market. "This is the one thing (Netscape) doesn't have," he wrote.

Caught off guard
Microsoft was caught off guard by the release of the materials, which are usually posted to the Web the afternoon before a witness testifies.

In a prepared statement, the company said "the real story" will emerge during Microsoft's cross-examination. "Contrary to Mr. Warren-Boulton's claims, Microsoft does not have monopoly power, regardless of how the market is defined," the company claimed. "Nor are there high barriers to market entry."

The company statement described Warren-Boulton as "an ivory tower consultant" who had "little or no direct" day-to-day business experience.