Microsoft faces a tough road ahead as it prepares for the penalty
phase of its antitrust trial, which begins on May 24 under the
guidance of US District Judge Thomas Jackson. Will the convicted
software monopolist be given a slap on the wrist and be told to play
fairly, be forced into several smaller versions of itself, or something
in between? The likely outcome may be one no one is considering,
and one that won't be settled until after the November election.
Toronto, ONT, April 17 /SHfn/ -- -- An interesting series of events have been
taking place during the Microsoft [MSFT] anti-trust case, none of them in US District Judge Thomas Penfield Jackson's courtroom
or even in his back chambers. What is possibly developing--and will develop if history repeats itself as it usually does--is that Judge
Jackson's decision will, in the end, be relegated to the status of historical footnote. Today we take a close look at the range of
possible remedies following the MSFT guilty verdict that could be handed down as early as late May. Punishment suggestions being
bandied about range from the proverbial slap on the wrist to the unthinkable: breaking up the software bad boy into several smaller
pieces. Finally, we will take a look at what the likely outcome will be after all is said and done, sometime down the road, but not too
far away.
As it stands now, Judge Jackson has set an April 28 deadline for the 19 states that have outstanding suits pending against MSFT to
submit their remedy proposals. It is widely believed that the antitrust office is pursuing what are often referred to as conduct curbs
against MSFT rather than a break-up, largely in the belief that such penalties might better survive a MSFT appeal. The company has
already denied any wrongdoing in this case and has vowed to appeal.
The most popular conduct curbs gaining early attention center on the Windows source code, which
many say MSFT should be forced to make open and free to download, as is the case for the Linux
code. There are also those who suggest such provisions as requiring MSFT to publish the price it
charges computer makers to license Windows OS. This seems petty on the surface but when you
consider that Windows powers a staggering 95% of the world's personal computers, it may work out
to be more than a mere inconvenience. It is widely expected that the states and the federal
government will reach a hard and fast consensus so as to best form a united front in anticipation of a guaranteed MSFT defense and
appeal.
Another scenario appeared briefly in the Wall Street Journal Interactive edition early in the week and was pulled for unknown
reasons. The story spoke about the possibility of MSFT being stripped of the rights to its Internet Explorer Web browser and being
forced to grant royalty-free licenses for IE. This would in effect open the programming code to customers and computer makers, and
would seem to fit well with the possible opening of the source code for Windows.
Most of what has been written on MSFT sanctions doesn't call for the break-up of the company although there are certainly those
who would advocate just such a remedy. However, merely breaking up the company into several smaller entities might just serve the
opposite effect. Firstly, many believe that a few smaller mini-bills would in fact end up being more competitive and far stronger in the
long run. The antitrust office could find it's creating several mini monopolies, which doesn't address the core problem in the first
place. As long as the Windows monopoly remains intact, the abuse of that monopoly will continue. What difference could it possibly
make whether the company has separate operating divisions or not? Any remedies to the problem will attempt to ensure that
yesterday's problem doesn't become tomorrow's problem. One possible indication leaning away from the break-up option is that
Judge Jackson has approved a rigorous schedule for the critical remedy phase due to start May 24. This expedited process is
designed to avoid potential market interruptions, which seems to be a good indication that a complicated break-up isn't in the cards.
One interesting point in this whole scenario is that with technology moving so quickly, it might end up that any penalty would be
seen as both overkill and ineffective. Windows could very well continue to lose market share as Linux, Apple and Java-based
platforms gain popularity. With the emerging wave of WAP phones, Internet devices, PDAs as well as other new appliances such as
high-tech fridges, who needs the Windows operating system? The fact of the matter is that the technology sector is becoming
increasingly competitive and the technology market is becoming increasingly volatile as a result. The market was ripe for a sector
rotation and it's merely a coincidence that the correction arrived the same week Judge Jackson scribbled his 50-plus page ruling.
Perhaps the most interesting turn to date, one which will likely have a far greater impact on the outcome of the case than anything
else, is that the 2000 election will likely end up playing a pivotal role. Late last week, Republican congressional leaders called for an
investigation of whether the Justice Department was overzealous in its prosecution of Microsoft. This comes after Bill Gates
personally met with leading Republicans including Majority Leader Trent Lott. Microsoft has not surprisingly become a major political
contributor since the case began. Clearly the Republicans plan on making a political issue of the suit and have linked the case to
Vice President Al Gore who has come out in favor of sanctions.
It has been mentioned before in various circles that it would serve MSFT well to delay any pending
sanctions until after the presidential election in November, hoping for a Bush victory. With a
Republican friend in the White House, one that received considerable financial backing from
Microsoft, any sanctions would likely be eased considerably. Taking a telling look into the past, the
Reagan administration dropped the 13-year antitrust case against IBM [IBM] in 1982 and then went
on to drastically reduce antitrust enforcement in the 1980's.
Contributing to the political nature of the case is the widespread concern that any sanctions unduly punishing MSFT will have a
ripple effect that could drive the markets down. And, while Microsoft once held the stage as the world's largest corporation in terms
of market cap, it has since slipped to #4 with a market cap of around $424 billion. GE is once again #1 at $500 billion. It is clear that
MSFT has been pushed from the podium and the political and economic repercussions of this occurrence are still being worked out.
Going forward, it is undeniable that MSFT will have a hard road ahead for the foreseeable future, with its endless litigation and
looming class-action suits overshadowing most anything else the company might like to accomplish. In the stock markets, it is
unlikely institutions will be bidding up the stock price with so much uncertainty surrounding the outcome. The share price will
probably hover between the $80 and $100 marks but not straying far from there. MSFT shares closed at $79.38 Thursday, falling
below the $80 support level that had not been seen since last June.
Of the 31 analysts who follow the stock, 17 maintain a 'moderate buy' as opposed to only 11 with a 'strong buy', down from 14 only 2
months ago. Goldman Sachs analyst Rick Sherlund cut his fiscal Q3 revenue estimates for MSFT citing a sluggish demand for PCs
as well as slower Windows sales. Sherlund also anticipates earnings to be affected by Windows 2000 transition issues.
With a projected $0.41 EPS, it is expected that MSFT may dip into its investment portfolio gains as it has done in the past to shore
up its numbers. MSFT Q4 numbers are due out some time next week.
There are many who would argue that the ranks of MSFT competitors, peddling competing platforms like Corel [CORL] and Red
Hat's [RHAT] versions of the Linux operating system, stand to benefit greatly from a harsh MSFT penalty. However, one recent
study of a variety of court decisions affecting MSFT over a period of 6 years, starting in 1991, found that following favorable decisions
MSFT stock rose along with its competitors' stock. Unfavorable decisions caused a decline in stock prices for both sides.
It is interesting to note that the CEO of Corel recently made a seemingly bold move by speaking out against the break-up of MSFT,
claiming, "A Microsoft break-up would only split one huge monopoly into multiple monopolies working in tandem."
For Microsoft, the penalty phase in May will no doubt be an important milestone in the history of the antitrust case. However, all
eyes should be on the November election for a true indication of whether the software giant will end up facing any sanctions at all. |
