Closed Windows?: Antitrust case likely won't hit broadband investments

Microsoft's antitrust woes probably will have a minimal impact on its efforts to integrate into broadband Internet - partly because the government has yet to win its case and because those efforts have so far met with indifferent success.

"Windows has been the wellspring of Microsoft's riches, and they've used that well to invest in both the broadband Internet and in content to deliver over those media," said Nelson Tatum, an analyst for Rendell Investments. "The goal has been to make sure that wherever the Internet wants to go tomorrow, Microsoft will have a part (see figure).

Microsoft's investment probably will not be effected directly by its legal battles. "I don't see how you would get from Point A - Microsoft having a desktop monopoly - to Point B - prescribing how it invests in other markets where it clearly is not a monopoly player," said Dwight Davis, Microsoft analyst for Summit Strategies.

Still, opening Windows source code for use by competitors seriously could hamper the prospects of its subset Windows CE, already struggling to compete for use in set-top boxes, mobile phones and hand-held Web devices. That would remove some of the rationale for buying into providers that specify those products.

Or not. "Don't underestimate Bill Gates' determination," said Carole Morris, an analyst with House & Spence. "If investments can get him a place as a carrier's provider - or even one of a handful - then he may redouble his efforts to buy equity in the big providers. He's got the world's biggest wallet."

Some Microsoft ventures may be spun off the way Internet travel service Expedia was. This is a possibility for both Hotmail and WebTV, the interactive TV product that never lived up to its subscriber projections. The Microsoft Network Internet service, too, has lagged behind expectations.

In fact, Microsoft's difficulties competing in the Internet ecosystem may lead it to refuse to settle the antitrust case and take its chances at law. "An appeals court will look at the world as it exists at that time rather than as it was when Microsoft's misdeeds occurred," Davis said. "And anybody who looks dispassionately at the world a year from now is going to see Microsoft on the defensive in many ways."

An old MCI WorldCom merger problem flared up again last week before a Senate Commerce Committee hearing called to investigate problems with telecom mergers, including MCI WorldCom's purchase of Sprint. A Cable & Wireless executive told the committee that MCI WorldCom didn't fulfill some conditions when C&W bought $1.75 billion in Internet assets from MCI last year prior to its merger with WorldCom.

C&W's experience "should weigh heavily in any antitrust review of the Sprint acquisition," said Michael McTighe, C&W's CEO for global operations. He advised tougher oversight in the future and suggested that forcing MCI WorldCom to sell its UUNet subsidiary - which carries 50% of the global Internet traffic - would be more successful than spinning off Sprint's smaller, "more highly integrated" Internet business.

C&W currently is suing MCI WorldCom over the sale in a Delaware federal court. McTighe told senators that MCI failed to transfer personnel, did not document all customer contracts, did not retain customers and did not provide necessary back-end services such as customer billing.

Already, hints have surfaced that Sprint may be forced to sell its Internet service operations for the merger to win antitrust approval from the Justice Department.

But two days after the Senate hearing, Sprint CEO William Esrey said that the companies had no plans to divest either Internet backbone and will not make transition plans until they know the Justice's view of the proposed merger - perhaps by first quarter 2000.