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Congress may extend Microsoft probe

A request by three senators for an antitrust probe of Microsoft licensing practices could be the beginning of much larger inquiries.

    A request by three senators for an antitrust probe of Microsoft licensing practices could be the beginning of much larger inquiries into the threat of monopolies in the age of media convergence, including congressional hearings this summer.

    In a letter to Federal Trade Commission commissioner Robert Pitofsky signed Thursday, Sens. Conrad Burns (R-Montana), Ted Stevens (R-Alaska), and Craig Thomas (R-Wyoming) asked that the agency look into Microsoft's alleged violations of a 1994 consent decree involving licenses of its Windows operating systems. But sources on Capitol Hill told CNET's NEWS.COM that there is growing concern about media monopolies in general, extending well beyond any one company or suspected violation.

    "Technologies are converging and one way they're going to converge is through the PC," said a member of Burns's staff. "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."

    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.

    It seems that members of Congress are taking notice, too. 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.

    The possibility of such hearings would require the approval of Commerce Committee chairman John McCain (R-Arizona) as well as that of the committee's ranking Democrat. So far, no requests have been made, according to committee press secretary Pia Pialorsi, and the Republican senator was unavailable for comment.

    McCain and Sen. Slade Gorton (R-Washington) countered last week's letter with a parliamentary request of their own, calling an FTC investigation of Microsoft unnecessary and inappropriate.

    The senators who signed last week's letter and their staff have been careful not to accuse Microsoft of violating antitrust laws, but they feel that the allegations brought to their attention deserve an agency investigation, even while the Justice Department conducts its current probe.

    Their request is unlikely to go far, according to one FTC official.

    "I can't imagine that the majority of commissioners would believe it's appropriate for two agencies to investigate the same thing at the same time," said the official, who asked not to be named.

    However, there are antitrust issues that merit a broader discussion, the official said.

    "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," the official said. "These are questions that belong in front of Congress or the Supreme Court."

    Not only the world's largest software company, Microsoft has also quickly become a creator of content on the Internet and on television and is moving to give consumers access to both media through their Windows operating system software. "Memphis," the code name for the next version of Windows 95, will be able to receive and display TV signals from cable, antenna, and satellite transmissions.

    Microsoft co-produces the MSNBC cable TV channel with NBC. It also produces several Web sites with regional and national content, including Slate, MSNBC.com, the Sidewalk regional online publications, and the Expedia travel service.

    In addition to becoming a media producer, Microsoft is investing in the delivery system. It has recently purchased WebTV Networks for $425 million and invested $1 billion in cable TV operator Comcast.

    Despite such expansion, the company scoffs at suggestions that it could dominate or control any area of media production, distribution, or access.

    "It's very far-fetched to suggest that Microsoft will have more than a tiny fraction of content or content delivery systems in the world," Microsoft spokesman Mark Murray said.

    Murray also addressed fears that Microsoft would control access through the "active desktop" feature of Windows: "There will be lots of active desktops, and people are free to reconfigure their system with other active desktops and other channels, including Netscape's."

    One antitrust attorney who represented Intuit in the financial software company's proposed merger with Microsoft--a merger that was eventually abandoned under pressure by the Justice Department--believes the possibility of technology monopoly far outweighs the possibility of information monopoly.

    "Microsoft's continued control over software markets is real and amply documented," said John Steele of Silicon Valley firm Fenwick & West. "Government enforcement agencies should focus there rather than get caught up in the hysteria over monopolies of all media content."

    The Justice Department is also looking into Microsoft's acquisition of WebTV.

    Last week's letter to the FTC does not state what the violations may be or who has been complaining to the three senators. But the Burns staff member said that the allegations, aired by representatives of "a couple hundred" high-tech companies that briefed Senate staff in a series of meetings in May and June, centered on the practice of "tying"--forcing PC makers to ship machines with Microsoft applications in order to receive a license to ship Windows or other Microsoft operating systems.

    Another allegation, said the staffer, was that Microsoft was waiting until late in the year to renegotiate operating system licenses with PC makers, thus giving the manufacturers little time to negotiate before the important Christmas selling season.

    Tying is specifically forbidden in the consent decree, which Microsoft signed in 1994. It is less clear if the second allegation would be a violation of the decree.

    Microsoft officials denounced the allegations and said they are being spread by rivals looking for a competitive advantage.

    "Neither of those allegations has truth whatsoever," spokesman Murray said. "We have never tied products to Windows licensing. There are many computer manufacturers shipping computers with Windows and Netscape's browser, for example. These allegations are mirror images to what Netscape made six, nine, and twelve months ago."

    As for the second charge, Murray said that Microsoft is on a "normal schedule" to complete its annual OEM contracts by September.

    According to Murray, the decree forbids Microsoft from doing four things:

  • Selling "per-processor" licenses to computer makers, known as original equipment manufacturers, which add Microsoft's operating system to their machines before selling them. With "per-processor" licenses, Microsoft was able to sell volumes of system software based on the number of PCs the manufacturer would make with a certain processor, Murray said.

  • Signing multiyear licenses.

  • Requiring an original equipment manufacturer to sell a minimum number of PCs per year.

  • Requiring an OEM to ship other Microsoft products as a condition of licensing Windows, a practice known as "tying."