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Microsoft-WebTV deal cleared

After a "thorough investigation," the Justice Department approves Microsoft's proposed $425 million acquisition of WebTV.

After a "thorough investigation," the Justice Department said today that it has approved Microsoft's proposed acquisition of WebTV Networks.

Determining that the acquisition would not violate antitrust laws, the department decided not to challenge the estimated $425 million deal announced in April. The cash and stock deal, which had already been approved by WebTV shareholders, was completed immediately after today's decision.

Approval of the deal clears the way for Microsoft's official entry into the convergence of computer and television technologies for Internet uses. Seen as key to the growth of the Internet among new users, the market has led to other major developments, such as Sun Microsystems' plans to acquire set-top box maker Diba.

The clearance is the second high-profile victory for Microsoft on antitrust issues this week. On Tuesday, it was disclosed that the Federal Trade Commission said it has officially rejected three senators' request to reopen an investigation of Microsoft's alleged antitrust practices. (See related story)

The WebTV deal and the request for an FTC investigation have been viewed as key barometers for those concerned about antitrust issues involving Microsoft and other companies that have rushed headlong into the emerging new media and relative technologies.

Sources on Capitol Hill have said there is growing concern about media monopolies in general, extending well beyond any one company or suspected violation. The Senate Commerce Committee could "very likely" hold hearings on media convergence as early as the end of this summer, said the staff member, who asked not to be identified.

"Technologies are converging and one way they're going to converge is through the PC," said an aide to Sen. Conrad Burns (R-Montana) in a recent interview. "If a company has a monopolist position over what appears on the screen and can pick winners and losers in content, that is a real concern."

WebTV issues specifications that allow TV set-top boxes and built-in television connections to access the Internet. The company offers Internet service through agreements with ISPs nationwide.

Microsoft's interest in the company is at least twofold: to acquire another vehicle to extend its Windows CE operating system and, more broadly, to find another outlet for its expanding media and content operations, which range from the joint cable venture MSNBC to the Microsoft Network online service.

Although WebTV's 115,000 subscribers are not expected to notice immediate changes from the Microsoft merger, WebTV spokesman Aaron Mata predicted that the integration of Microsoft's CE operating system will result in what he called a "wealth of content" for customers. He added that "we are very excited but not at all surprised" about the Justice Department decision.

Microsoft spokesman Greg Shaw described the investigation as a routine review applied to any merger above a certain size. Such reviews are conducted to determine whether mergers will result in unfair competition or monopolies in a given industry.

"This is a competitive, innovative marketplace," Shaw said, citing Sun-Diba deal as an example. The WebTV acquisition "is good news for consumers," he added.

Sun declined to comment on today's announcement, but spokesperson Jenny Johnstone touted her company's commitment to "an open system that will provide consumers and manufacturers with choices." That, she said, stands in stark contrast to Microsoft's closed, proprietary system.

The acquisition had drawn opposition from the Committee to Fight Microsoft, which has warned that the software giant was using its technology "as a way to injure competitors." It is this prospect of empire-building that has caused some nervousness in Washington.

"You have to look at essential facilities--in other words, if you have facilities that your competitors need to get into market, you have to give them access. Microsoft says that Windows is not an essential facility; others say it is. And you have to look at abuse of dominance, where a company uses its monopoly position in one market to unduly influence another market," one official told CNET's NEWS.COM in early July. "These are questions that belong in front of Congress or the Supreme Court."

Since President Clinton signed the Telecommunications Reform Act on February 8, 1996, media, telecommunications, and other technology companies have made an astonishing number of mergers, alliances, and competitive thrusts into each other's traditional markets. Outgoing Federal Communications Commission chairman Reed Hundt has publicly questioned the wisdom of such mergers, including the recently quashed AT&T-SBC union.

Reporters Suzanne Galante and Alex Lash contributed to this report.