Subject: MNS and Justice Dept. From: Marganne@aol.com Date: Fri, 9 Jun 1995 17:13:29 -0400

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Hope this hasn't been posted by someone else in the interim. I thought it was
of interest to most of us here.
_______________________________
By STEVE LOHR

c.1995 N.Y. Times News Service

It may not be a full-blown investigation yet, but the Justice Department is
giving Microsoft's plans to enter the commercial on-line business in August a
hard look. In the last two weeks, Justice Department officials have been
asking
questions of executives of services like America Online, Compuserve and
Prodigy
and to their lawyers, some of the people questioned say.

So while Microsoft says it knows of no "open investigation" of its coming
on-line
service, the Microsoft Network, and the Justice Department isn't saying, the
inquiries are being made even if the I-word - investigation - is avoided.

The issue is not that the giant of personal computer software is about to
extend
its reach into another business, but the way it plans to do so. Microsoft
Network
will appear as an icon on the screen in the company's new operating system,
Windows 95. Click on the icon, and Microsoft Network fires up, offering
everything from E-mail to celebrity gossip to NBC News reports.

Loading its on-line service onto its operating system is a big marketing
advantage for Microsoft. America Online; Compuserve, a unit of H & R Block,
and
Prodigy, owned by Sears, Roebuck and I.B.M., can be loaded onto personal
computers, but they have to pay PC makers for the privilege. Microsoft
Network,
by contrast, will get free distribution courtesy of Microsoft's dominance of
the
PC operating-system market.

In some ways, the on-line issue is broader than the two previous rounds of
investigation by the Justice Department. Last summer, Microsoft agreed to
alter
some licensing practices to end a four-year antitrust inquiry into how it
sold
its operating system, a settlement now under review in the Federal courts.
Two
weeks ago, Microsoft abandoned its $2 billion bid for Intuit, the leader in
personal finance software, after the Justice Department filed suit to stop
the
acquisition.

The operating-system inquiries can be seen as an examination of past
practices,
and the Intuit challenge as a merger case. But Government scrutiny of the
on-line
business raises tricky questions of what Washington should do - or refrain
from
doing - to insure competition, innovation and consumer welfare in emerging
markets.

To make a case for intervention, the Justice Department needs to find
arguments
to get around what seem to be significant obstacles. Microsoft is a new
entrant
in the on-line business, and antitrust law tends to give newcomers more
leeway
than established companies seeking to merge, as in the Microsoft-Intuit case.

And the on-line business is a young industry, with only 7 percent of American
households as subscribers. If Washington is to step in, it must make some
confident predictions about why its fine-tuning is preferable to letting the
market sort out winners and losers.

"All policy should encourage Microsoft to enter the on-line business and
bring
innovation and customer convenience to that market," said Robert E. Hall, an
economist at Stanford University. "But there should also be a balancing of
interests, Microsoft's and others."

Mr. Hall, 50, a senior fellow at the Hoover Institution at Stanford
University
and an architect of the flat-tax proposals embraced by House Republicans,
could
scarcely be considered an advocate of Government intervention in business.
But he
advised the Justice Department on both the operating-system investigation and
the
Intuit challenge. He occupies a middle ground in the Microsoft debate.

In the operating-system case, Mr. Hall justifies the Justice Department's
letting
Microsoft off with barely a slap on the wrist, saying "there was no remedy
that
was likely to benefit the consumer or improve the environment for
innovation." In
the Intuit case, he says the department challenge insured that the strongest
rival to Intuit - Microsoft - remained a competitor.

Mr. Hall stressed that he had not been asked by the Justice Department to
examine
the on-line business. But he said that if Windows 95 came with a Microsoft
Network "button" on board, he would tend to favor "buttons that make it
easier
for others to have access."

Much of the controversy about Microsoft's entry into the on-line business
hinges
on access to the operating system. Microsoft opponents use a telephone
analogy,
with the Microsoft-controlled operating system being the digital-age
equivalent
of the telephone dial tone.

"Without the Government stepping in to give MCI and Sprint access to the
local
dial tone, we never would have had real competition and lower prices in
long-distance telephone service," said Gary Reback, a lawyer in Palo Alto,
Calif., who has many Microsoft rivals as clients. "It's the same in the
on-line
business."

Microsoft's backers reply that such an analogy is off base. Instead, they
argue,
the Government should look to airline computer-reservations systems. In the
late
1980's, several smaller carriers sued American and United, saying the two
were
using monopoly positions in computer-reservations systems as a lever to gain
an
unfair advantage in the market for air travel.

In 1991, a Federal appeals court tossed out the case, ruling that except in
an
industry with a long tradition of regulation, like telephone service, the
dominant company is not required to provide competitors equal access.

"In competition, fairness is not an issue," said Jerry Hausman, a
Massachusetts
Institute of Technology economist, who has advised Microsoft. "Consumer
welfare
is.

"For all the complaints about Microsoft from its competitors," he added, "its
customers have benefited from Microsoft's strength, setting the standard in
operating systems. I see no reason why Microsoft should be forced to give
away
that advantage in the on-line business."

Transmitted: 95-06-09 11:05:48 EDT


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