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What is to be done about Microsoft? Illustration of Scott Rosenberg
Break it up? Open it up? Nationalize it? As the trial grinds on, the government smells victory and eyes remedies.

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By Scott Rosenberg

June 2, 1999 | Once upon a time, two decades ago, I owned a handful of shares in AT&T, purchased for me by a generous grandparent. Then came Judge Harold Greene's landmark decision in the early 1980s to break up AT&T into many little pieces -- and suddenly I owned a whole telecommunications portfolio.

As a young investor schooled in the '70s bear market, I decided that the last place I wanted to park my money was among the shards of a freshly trustbusted phone monopoly; I sold the shares, earning a few hundred dollars. Big mistake, in retrospect: If I'd held these fractional chunks of Baby Bells through the '80s and '90s, I'd have made out like a bandit.

I offer this little flashback not as stay-the-course advice to jittery investors at this moment of stock market uncertainty, but rather as a little piece of antitrust history to ponder as the Microsoft trial resumes this week: The unimaginable can come to pass -- and when it does, it often has unexpected consequences.

No one is surprised that the settlement talks encouraged by Judge Thomas Penfield Jackson during the trial's three-month break led nowhere. By all appearances, the particular brand of dig-in-your-heels, spit-at-the-world arrogance that has turned the Microsoft trial into such a wipeout for the Bill Gates team remains thoroughly entrenched in Redmond. The next few weeks are likely to bring more of the same.

In the latest round, the government will offer witnesses from IBM talking about the tactics Microsoft used to crush the OS/2 operating system, and Microsoft will grill an America Online exec to try to show that the newly merged AOL/Netscape is a powerful competitor. But by now the trial's outcome feels as inevitable as the months of delay that will surround its delivery. By the time Judge Jackson issues his ruling, we may all know just how well Microsoft's products handle the Y2K problem. Then, of course, there's the unavoidable Microsoft appeal, to a U.S. Circuit Court of Appeals that's shown itself friendlier to the company's stance than Jackson is. And who knows? The Supreme Court could give us its decision on Microsoft as early as 2003.

By then, Intel will be introducing its Pentium V, America Online will "reach" 137 percent of U.S. households and Windows 2000 may even be rolling out. During this long wait, the most popular pastime among Microsoft-watchers is talking about "remedies": In other words, if Microsoft has blown its case and is headed for defeat, what is to be done? How should the government go about fixing things?

One common assumption is that any such remedy must be shaped as a punishment, harsh enough to keep the company from repeating its behavior. Yet the history of antitrust enforcement suggests that their targets almost always prosper in the wake of a lost case. The progeny of Rockefeller's Standard Oil became the foundation of the U.S. automobile economy. AT&T's babies spent the '80s and '90s in a vast corporate mating frenzy that continues to this day -- while not perhaps exactly what the court envisioned, the mergers have nonetheless begun to reshape the telecommunications industry in more competitive ways. It's only the companies that win their antitrust cases, like IBM, that seem to suffer years of lost opportunities and depressed stock value as the price of victory.

Next page | Why a federally mandated breakup might be the best thing that ever happened to Microsoft

Illustration by Zach Trenholm


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