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Reporter's Notebook: Governemnt Recommends Breakup of Microsoft

Aired April 29, 2000 - 9:39 a.m. ET


MILES O'BRIEN, CNN ANCHOR: Well, breaking up is hard to do. You know, the federal government has only seen fit to break up monopolies twice before. The first, Standard Oil, 1911, and then AT&T in 1984.

KYRA PHILLIPS, ANCHOR: So the proposal to carve up Microsoft is not taken lightly. And the courts will take a long, hard look at all sides.

If you have a question about what a Microsoft breakup might mean, you can call us now, 404-221-1855.

O'BRIEN: And joining us from New York City to answer your questions and offer her insights into this matter is Mary Jo Foley. She is the executive news officer at ZDNet, and she's spent years covering Microsoft, of course.

Welcome to the program, Mary Jo, glad to have you with us.

MARY JO FOLEY, ZDNET.COM: Thanks, thanks a lot.

O'BRIEN: All right, let's get right to the e-mail. It seems appropriate to begin with e-mail on this particular segment. This one comes from Norman Walker, who is in Farmville, Virginia. And this is his query. "I'm not sure I understand how breaking up the best software company out there is going to benefit the average computer user. As a consumer of Microsoft products and services, can you explain how this is supposed to help me?"

FOLEY: Well, the government thinks it's going to create a whole new slew of competitors to Microsoft on both the operating system and on the application front. I myself am not really convinced it's going to benefit consumers that way either. I question what other kinds of applications we're going to see ported to Microsoft Windows that aren't already there.

The government seems to think that suddenly there's going to be this whole new raft of products, like Microsoft Office, on Linux that would be created out of this kind of breakup, but again, I question how much that would really come to benefit the consumer, who still has to go to the computer store and buy whatever the PC maker is preloading on their hardware.

PHILLIPS: Mary Jo, Joe on the line from Georgia, one of our best callers. Joe, what's your question this morning? Are you there, Joe? Oh, well, maybe we lost him.

Mary Jo, while you're on the note of that, what about AT&T and the fact that they did break up, and it did do well for investors? Can this give us some sort of foreshadow of what's -- what we'll see with Microsoft, if indeed it does break up?

FOLEY: ZD Interactive Investor, which is part of ZDNet, is predicting that if, in fact, Microsoft is broken up, it would be a real boon to shareholders, that people who currently hold Microsoft stock would actually get stock in two very successful companies, the Windows company and the applications company.

So we're saying on our Web site that it definitely would be a boon to the shareholders.

PHILLIPS: All right. Joe's back with us. Joe, go ahead. All right, maybe not...

O'BRIEN: (inaudible)...

PHILLIPS: ... the phone lines are not working.

O'BRIEN: ... let's go to the e-mail...

PHILLIPS: They're breaking up -- Miles.

O'BRIEN: ... let's go to those reliable computers, shall we, Mary Jo? This one comes from Christina H., parts unknown to me, anyhow. "How dare the United States government propose to break up this remarkable company that has brought us out of the dark ages of computer technology? Why can't they leave anything alone? Microsoft pays its taxes, Bill Gates is a profitable and good citizen, from whom the U.S. government gets plenty of money every year."

FOLEY: Well, a lot of people are asking that same question. The government seems to believe, again, that Microsoft has behaved illegally by using its monopoly in Windows operating systems to unfairly force some of its rivals out of business, or to curtail their work. And that's why the government is asking for this breakup.

What they're suggesting is, by breaking up Microsoft into two companies that would not be allowed to, quote unquote, "collude" with each other, that it would create more opportunities for rivals and for the customer.

O'BRIEN: All right, let's go to Carlos C., and this might require a little bit of explanation for folks. His question is this. "Why not make Windows an open source operating system?" And what Carlos is suggesting is that basically the code is laid bare for everybody to use and manipulate and make programs for it. What's the matter with that idea, Mary Jo?

FOLEY: A lot of Microsoft's rivals have suggested that Microsoft be required to open its source code as a potential remedy in this case. Microsoft has claimed that what its major asset is, at least in terms of operating systems, is its source code. And a lot of times it's called, the source code, the crown jewels of the company. So Microsoft doesn't want to be required to open that up to anyone and everyone, something that they've spent years developing.

So that's why they don't want that to be a remedy. I was kind of surprised the government didn't ask for that as remedy.

PHILLIPS: Well, let's see if we found a remedy in the phone line situation. Janet from Arizona is on the line -- Janet.

CALLER: Hi. I'm just wondering what type of future our children have. We are supposed to have free enterprise here. What -- if somebody takes the risk and the threat (ph) and whatever that goes into all this work, what are they going to build a big, giant company, and then somebody's going to take it away because they're jealous, or who's going to want...

FOLEY: Well, Microsoft has that same line of reasoning that you have. They're wondering aloud if they aren't being punished for being too successful or two big. Again, the government says they're not punishing them for being a success story, that they still believe that they will be a continued success story if Windows and Office are separate companies.

O'BRIEN: All right, Mary Jo, a final e-mail. This one comes from Marnie Scully. "I am currently studying Microsoft technology in the realm of Internet development, and I'm curious about the impact of the proposed breakup on the many server technologies, ASP, Active X, domain, Web, and SQL servers. The strength of these technologies rely upon their integration with one another. How could the breakup of Microsoft benefit consumers if this strength is diminished? In what way can there be a breakup and maintain these technologies with autonomy?" Good question.

FOLEY: It is a good question, and it's something Microsoft asked yesterday during their response to the remedy plan, because if you look at where Microsoft's going in the future, they're more tightly integrating more of these so-called middleware technologies into the operating system, especially with this forthcoming plan that they have that they're going to announce in a couple of months called Next Generation Windows Services.

So if the government has its way, a lot of the work that Microsoft's currently doing in the operating system realm is going to have to be redone, at least in terms of how products are integrated and how they work over the Web.

PHILLIPS: Mary Jo, last question, real quickly here, what do you do with the stock if you own it? Lot of people are asking.

FOLEY: A lot of people are asking us too. And ZDII is telling people, buy Microsoft.

PHILLIPS: All right.

O'BRIEN: There you hear it. Mary Jo Foley, who is with ZDNet and offered some insights for us on what is a stunning moment in the world of the Sherman Antitrust Act. Thanks very much for joining us on CNN SATURDAY MORNING.

FOLEY: Thank you.



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