Much to gain from Microsoft break-up

Fifteen years ago, Judge Harold Greene presided over the break-up of AT&T, and in the process made antitrust law a topic of mainstream conversation in the US. Now, Judge Thomas Jackson has helped educate a new generation of Americans, and another company, about antitrust law.

Judge Jackson's findings of fact all but say that Microsoft has repeatedly abused its monopoly in operating systems for personal computers. With his appointment last week of Judge Richard Posner as a mediator, he has changed the focus of debate from "What remedy will be ordered?" to "Will the parties settle, and on what terms?"

Neither side wants Judge Jackson to rule over Microsoft - and potentially the computer industry - in the way Judge Greene oversaw the US telecommunications industry in the US for 12 years.

Both probably agree on the principle that the outcome should encourage innovation, although they differ on how it should be done. This probably rules out any settlement that requires the court to continue to oversee Microsoft's conduct.

Interest in another possible remedy of auctioning the Windows source code has waned because potential buyers have realised the code is worthless without access to Microsoft employees who know its intricacies.

This leaves the break-up of the company, which would probably come in one of two ways. The court could create three vertically-integrated companies. - known as the Baby Bills. Or, it could allow Microsoft to split itself into two separate companies, controlling operating systems and applications. The court could then divide the operating systems company into three.

The reason for choosing the latter approach is that Judge Jackson's findings did not find abuses on the applications side of Microsoft, so there is no need to split up that part of the company.

Either break-up option has the strength that it strikes at what Judge Jackson sees as the heart of the problem - Microsoft's repeated abuse of its monopoly position in operating systems. Divide up that part of the enterprise and competition in that market will instantly re-emerge without extensive and continuing judicial oversight.

Meanwhile, Microsoft's top management should realise a break-up is best for shareholders. As it is, the company can only justify its share price by constantly growing the earnings of an increasingly cumbersome enterprise. A break-up would refresh each part of the component parts. Shareholders will be rewarded, just as they were with AT&T. This case will settle only when those running Microsoft come to the same realisatiion.

The author is director of the economic studies programme at the Brookings Institution in Washing- ton, DC. He was formerly deputy assistant attorney-general in the antitrust division of the US Justice Department