Think tank urges Microsoft breakup

In an interesting twist, a politically conservative group recommends Microsoft be required to split its OS business

The Progress and Freedom Foundation, a conservative Washington think tank, is suggesting a new way to slice and dice Microsoft.

While it's hardly the first third party to weigh in on suggested remedies in the ongoing Department of Justice vs. Microsoft antitrust battle, the PFF made public on Thursday its proposal for a "hybrid" structural remedy for Judge Thomas Penfield Jackson to consider.

The recommendation is unusual because organisations and lawmakers on the conservative side of the political spectrum have generally been against heavy-handed government remedies in the case.

Instead of simply breaking up Microsoft into an OS and applications company, or into an undetermined number of separate businesses (the so-called "Baby Bill" approach), PFF is suggesting a modified alternative.

The government should allow Microsoft to break itself up into separate OS and applications companies, and then split the OS side into three independent companies -- each of which would control Windows source code and have the power to strike its own deals with OEMs and software vendors.

The PFF's proposal comes just two weeks after word leaked out that the DoJ and 19 state attorneys general suing Microsoft for antitrust violations were pushing break-up of Microsoft into three parts as their favoured remedy. Last December the DoJ hired New York-based Greenhill and Co LLC to advise it on the financial implications of remedies, including structural and behavioural solutions.

"This would create OS competition right away," said Tom Lenard, PFF vice president of research and author of the study, entitled "Creating Competition in the Market for Operating Systems: A Structural Remedy for Microsoft."

Lenard added that such a remedy would require only three to five years of monitoring, as required by the court. After that, ongoing government regulation -- a factor cited as a stumbling block by many opposed to government intervention in the Microsoft case -- would no longer be required.

Lenard said the three OS companies would, as a result of market pressures, refrain from fragmenting the Windows code base. They would be motivated to maintain compatibility with each other and with third-party applications, he said.

If they didn't, "they would lose their customer base and companies developing applications," Lenard claimed.

Microsoft, for its part, held to its party line that considering any remedies, including breakup, at this juncture in the trial is inappropriate.

"It is inappropriate and reckless to even consider breaking up Microsoft, because it would be bad for the industry, software developers and consumers," said Microsoft spokesman Jim Cullinan. "This radical idea is not appropriate considering the issues involved in this case and the trial, but the ultimate issue is that this idea would damage the high-tech industry which has been the engine for our economic prosperity."

PFF, which calls itself a "free market think tank," has been an advocate of more-aggressive deregulation in the telco and electricity industries. PFF is part of the so-called Chicago School tradition, the economic school to which belongs Judge Richard Posner, the mediator of the ongoing Microsoft-DOJ settlement talks.

PFF is financed by corporate donations. In the past, Microsoft was a donor; this year it was not, according to PFF officials.

Lenard, a former private consultant specialising in regulatory and antitrust economics, was an advisor for economic policy at the White House Office of Management and Budget during the mid-1980s.

Many of the organization's board members hail from former President Ronald Reagan's administration. Board member Peter Harter, who is currently VP of global public policy and standards at Emusic.com, was global public policy counsel for Netscape, one of the companies instrumental in helping the DoJ bring its antitrust case against Microsoft.

Next Tuesday Microsoft is slated to make public its rebuttal to the DoJ's proposed conclusions of law. Earlier this week the DoJ posted its rebuttal to Microsoft's proposed conclusions of law. The volley is the last public exchange between the two parties before the case, barring settlement, goes into the oral argument phase in Washington on February 22.

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