Another difference: The AT&T divestiture undid acquisitions from decades before, in which AT&T had swallowed local phone operating companies. Microsoft, by contrast, has expanded primarily through internal growth. Because AT&T had capital and employees dispersed all over the United States to serve its customers, it could therefore divest itself relatively easily of the local telephone companies. These were then organized into seven "Baby Bells" to provide regional phone service. Microsoft, with its capital far more centralized and with much less need to have people "on the ground" in geographically defined areas (except for sales), would be far more adversely affected by such a legal order.
The settlement that led to the AT&T breakup also liberated the company from a 1956 antitrust consent decree that prevented it from entering and competing in non-regulated businesses, such as data processing. In exchange, AT&T voluntarily acceded to divestiture. Thus, the AT&T breakup was a consensual step toward deregulating a part of the economy that had long been regulated under the public utility model. A Microsoft breakup, by contrast, would represent a major increase in the government's intervention in this part of the economy.
At any rate, the AT&T breakup has been far from a complete success. One part of the agreement created a competitor in the long-distance market, free to introduce new technologies. This seems to have been relatively successful, with AT&T moving into cable, wireless, and other data transmission arenas and competing with a variety of businesses around the globe. (Of course, AT&T doesn't always compete successfully, as demonstrated by its huge stake in the floundering cable-modem system Excite@Home, which has been teetering on the verge of bankruptcy for most of this year.)
Much of the old AT&T was left behind as the local Bell companies, which were forbidden to manufacture telephone equipment or design new telephone products. The theory was that keeping these Baby Bells from equipment manufacture and design would prevent them from using their profits from local telephone service to subsidize new businesses. Instead, the arrangement created local phone monopolies that have been slow to innovate or to let competitors into their captive markets. Lucent, the technology company formed out of the breakup, is itself mired in financial and legal troubles.
Judge Greene's supervision of the telephone companies continued from 1982 until 1996, when an exasperated Congress finally dissolved the consent decree. In the intervening period, hundreds of applications for waivers -- usually by local Bell companies wanting to sell or license a new technology -- sat on Judge Greene's docket for an average of four years.
Antitrust is sometimes said to be superior to formal regulation, in that antitrust does not require continuing government oversight of the company's business. But the AT&T case demonstrates that enforcement of antitrust laws can generate as much or more intervention. Like the Standard Oil case, the AT&T case reveals a pattern of government control expanding over time, first to manage prices and avoid "unhealthy" competition, then approving and disapproving of mergers and acquisitions, and ultimately ruling on whether to allow innovations in products and services.
The Microsoft Panic
And Microsoft? If the assault on this company is to do more good than the partly successful breakup of AT&T -- let alone the utterly unjustified wars on Standard Oil and Alcoa -- then one would at the very least expect the suit's rationale to survive the passing of time. But it hasn't. More than half a decade after the first loud warnings about the awful world to come if Microsoft isn't stopped, the company's critics have been proven wrong at almost every turn.
In the year before the introduction of Windows 95, Microsoft announced it would start its own online service, to be called Microsoft Network (MSN). An icon for MSN would appear on the screen of every computer that shipped with Windows as an operating system; this was expected to be a huge advantage for gaining customers. At the time, Microsoft had a market share of exactly zero in the online services business. AOL promptly ran to the federal government to complain that Microsoft's plan was "anti-competitive." Technology journalist Steven Levy wrote an article in Newsweek warning that because of MSN, "One day, dollar bills may be replaced with Bill Dollars, and a piece of every online transaction could go through Microsoft's bulging coffers."
In Upside magazine, Gary Reback, Brian Arthur, and other devoted Microsoft critics wrote, "It is difficult to imagine that in an open society such as this one with multiple information sources, a single company could seize sufficient control of information transmission so as to constitute a threat to the underpinnings of free society. But such a scenario is a realistic (and perhaps probable) outcome." Business Week worried that Microsoft might "leverage" its operating system dominance to "corner" markets such as "networking, home software, and online services. In short, it might largely take control of the information superhighway."
Later, a group of Microsoft's competitors -- Netscape, Oracle, Sun, and MCI -- urged government action so that Microsoft would not "gain control of the Internet," arguing that suppressing Microsoft would "ensure the accessibility and affordability of information technology and the Internet." Netscape's Jim Clark offered a similar warning regarding Microsoft's Web browser, Internet Explorer: "If Microsoft owns the browser as well as the operating system, there will be no Yahoo!, no Infoseek, no Excite, just Bill standing at the gate, pointing out where he wants to go. Microsoft will be the one and only 'portal'." Sun's Scott McNealy fretted: "How are you going to compete if Microsoft won't put you on the Microsoft Shopping Center -- which will be the opening screen of everyone's computer?"
Ohio Attorney General Betty Montgomery warned that unless Microsoft was stopped, it would turn the "information superhighway" into a "toll road." In 1997, the misnamed Council for a Competitive Electronic Marketplace warned that with Windows, Microsoft would be able to capture customers for online services for products such as insurance, banking, real estate, and local entertainment. A year later, an advocacy group called ProComp (which had been created to promote restrictions on Microsoft and is funded by Microsoft's business rivals) warned of "the very real potential that Microsoft will become virtually the sole gateway to the digital marketplace."
Similar warnings were made when Windows 98 made its debut with Channels (a soon-to-fail version of a "favorite links" list). As late as April 2000, after AOL announced it would choose Netscape as the AOL browser, the Department of Justice was warning that Microsoft might "add proprietary features to its Internet Explorer browser to tighten its control of the main on-ramp to the Internet for millions of consumers."
The government did not abolish MSN, nor did it suppress Channels, nor did it outlaw "bundling." While the pressure of the antitrust case may have forced Microsoft to stop enforcing some terms in contracts with some of its business partners, and may have distracted the company's leaders from producing new and better products, those setbacks were surely minor in light of Microsoft's supposedly immense market power. Microsoft's sinister power has had years to grow since the DOJ filed its suit. So what happened?
Windows 95 made its debut with the MSN icon intact, and MSN went on to become the most expensive failure in Microsoft's history. The network's content was weak, the interface was horrible, and the installation routine was lengthy and error-prone. Meanwhile, AOL made its interface better and better, and marketed itself incessantly through free sign-up disks and by paying computer manufacturers to include an AOL icon on the Windows desktop screen.
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