Antitrust Action -- Microsoft & Beyond

By Richard McCaffery (TMF Gibson)
July 18, 2000

You can't talk about operating systems or antitrust cases without talking about Microsoft (Nasdaq: MSFT). The Redmond, Washington company seems to have a monopoly on both.

But, while the Justice Department's case against Microsoft has grabbed the spotlight, there's plenty of action elsewhere on stage.

Antitrust officials have been flexing their muscles in a host of industries, from oil and gas to communications and the Internet. In fact, antitrust officials have a plateful of issues before them, including a case against credit card companies Visa and MasterCard, the pending merger of Web services company America Online (NYSE: AOL) and entertainment company Time Warner (NYSE: TWX), and, most recently, long-distance operator WorldCom's (Nasdaq: WCOM) failed attempt to buy wireless superstar Sprint (NYSE: FON).

Rapid consolidation across different industries and within sectors has led antitrust regulators to take a harder look at tomorrow's super-companies. For example, despite months of lobbying regulators, the WorldCom/Sprint deal got broken up before it ever happened. U.S. and European regulators stepped in and voiced concerns that the deal would consolidate too much power in the Internet services, long-distance, and international calling telephone markets.

Regulators insisted WorldCom would have to make drastic concessions to bring off the merger, such as selling its prized Internet business, UUNet. It was clear from the beginning WorldCom wouldn't do this, but it was almost shocking how fast the company walked away from the deal. Actually, it's a tribute to Bernie Ebbers, WorldCom's CEO, that he could swallow his pride and move on to other ventures, rather than start a war he couldn't win.

The jury is still out on AOL and Time Warner, though few expect antitrust officials will actually block the deal. Regulators, however, put the merger under renewed scrutiny recently, in part because of Time Warner's move to pull 11 ABC stations off its networks due to a contract dispute.

The flap between Time Warner and ABC owner Disney (NYSE: DIS) couldn't have come at a worse time for AOL, whose command in the Web services and Instant Messaging business gives regulators night sweats. The scrum highlights the tensions between content companies and conduit companies, and it's clear regulators will pay close attention to unions between companies in these spaces.

Is there anything left to say about Microsoft now that U.S. District Court Judge Thomas Penfield Jackson ruled to split up the company? Microsoft drove a hard bargain, conceded nothing, and got exactly what it didn't want. Who would have thought a company so smart and rich could make such poor choices?

Interestingly, Microsoft's shares rallied after the June 7 breakup order, and continued to climb. Part of this is the market's distaste for uncertainty, and having the worst out in the open put wind in the company's sails. Also, many investors are more optimistic about Microsoft's chances with the Supreme Court than they were at the District level. This remains to be seen.

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