Report: Government Seeks Microsoft Split

After weeks of behind-the-scenes wrangling over remedies in the Microsoft antitrust case, published reports Monday indicate that the U.S. government and 19 states are inclined to seek a breakup of the company.

Reportedly, the government will propose a radical alteration in the structure of Microsoft, splitting it into two or three individual companies. The Justice Department is apparently floating the idea among industry executives and the states involved in lawsuits against Microsoft.

Such action would mark the first time since the 1974 antitrust suit against AT&T that the U.S. government has considered forcing a company to break up.

Reno Aware

Significantly, U.S. Attorney General Janet Reno has already been made aware of the proposed remedy.

The first plan would call for the company to be divided into three separate entities: One organization would oversee the Windows operating system, another would handle office applications, and the third would govern Microsoft’s Internet business, including its Explorer browser software and the Microsoft Network (MSN).

An alternate plan would divide the company into only two parts, with the browser software and operating system divisions working together.

Two Year Plan

Even though the plan is the most extreme remedy proposed to date, some states feel that its provisions would not be tough enough to change Microsoft’s business practices while the breakup is taking place. The process could take up to two years.

Even so, prosecutors are reportedly drafting a formal proposal suggesting the breakup to U.S. District Judge Thomas Penfield Jackson, along with a number of steps that would severely limit Microsoft’s business practices until the full plan can be put into effect.

Innovations at Risk

Opponents to the restrictions argue that it would require years of court oversight and could hamper Microsoft’s “Freedom to Innovate” at a time when technology is booming.

Restrictions being considered include requiring Microsoft not to discriminate in prices or terms in its deals with PC makers; giving PC makers greater freedom to put rival software on new machines; and banning Microsoft from making exclusive deals with certain companies.

In another proposal that Microsoft adamantly opposes, the company would be required to offer greater disclosure on the inner workings of Windows. Microsoft would be allowed to add new features to Windows — a key issue that the company considers non-negotiable — but it would be required to make an “unbundled” version available.

Microsoft on the Defense

Late last week, Microsoft Chief Executive Steve Ballmer met with reporters to strongly defend his company’s business practices. Ballmer lent particular attention to the challenge from Linux, which was named in Jackson’s April 3rd ruling as an example of a product that has suffered at the hands of Microsoft’s monopolistic methods.

Ballmer claims citing Linux as an example is irrelevant, because the system is not in Microsoft’s league. “So far, Linux doesn’t have a lot of traction on the personal computer except in some university environments,” Ballmer said.

In response to inquiries about why Microsoft Office applications will not run on Linux, Ballmer said, “In Linux there is just nothing there that would create a different user experience and there’s no financial opportunities and there is no customer clamor. The combination makes it seem like pretty much an improper use of company resources.”

Since Jackson issued his verdict, other companies have come forward to complain about Microsoft, this time saying the software giant has put certain features in Windows 2000 that cannot be accessed by any server other than Microsoft’s.

The disgruntled companies see this move as yet another abuse of Microsoft’s monopoly power, and have asked the government to consider this latest affront while drafting its remedies.

Microsoft Forges Ahead

Microsoft has unveiled plans to package Internet Explorer with its Windows Millennium consumer operating system — even though packaging IE with Windows is what landed the company in legal jeopardy in the first place.

Microsoft demonstrated the software at a recent trade show and plans to begin distribution later this year. In addition to IE, the new version of Windows includes software that will allow users to download, store and share digital content via the Internet.

The company reportedly plans to extend its monopoly power to the server market with its Windows 2000 operating system, a move that is drawing protest from many quarters. In a document submitted to federal officials, Oracle Corp., Sun Microsystems, Inc., Linux, and Unix claim that Microsoft 2000 only performs well in an all-Microsoft environment.

Microsoft says that it is merely trying to compete in the server market, and that the antitrust ruling cannot be applied to other products.