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Microsoft 'hard to refuse' says America Online

A TOP executive of America Online, the biggest internet service provider in the US, yesterday said his company reached a near-exclusive agreement to distribute Microsoft's web browser Internet Explorer because the software giant made an offer that was hard to refuse.

The US government's second witness at the antitrust trial, AOL's senior vice president of business affairs David Colburn, said AOL chose Microsoft's Internet Explorer as the default browser on its software over Netscape's Navigator browser in 1996 because it let AOL keep pace with the competitive threat from Microsoft's own online service product.

AOL has frequently said it chose Internet Explorer because it knew Microsoft could help it reach millions of new customers at a time when the internet was just becoming popular.

Earlier this year, the AOL chairman, Stephen Case, said he signed up with Microsoft because Microsoft agreed to prominently feature AOL in its Windows software, which runs on about 90 per cent of the world's new personal computers.

The US Justice Department and 20 states suing Microsoft say AOL's relationship with Microsoft illustrates how the world's largest software maker illegally leverages its Windows monopoly to gain a foothold in related markets.

The government's suit alleges Microsoft used its monopoly position to squeeze Netscape out of the rapidly developing market for browser software that lets PC users surf the internet.

Microsoft arrived late to the browser market after Netscape had already achieved a commanding lead. By most accounts Microsoft holds the biggest share of the browser market.

Netscape contends the AOL deal, in a single stroke, increased Microsoft's share of the internet browser market by 9 million users.

But Mr Colburn's testimony suggests that even when AOL is an established industry leader, serving about 15 million of the total 23 million households that have internet access in the US, it continues to depends on Microsoft to reach new customers.

At the end of this year AOL will have the option at the end of this year to undo the controversial 1996 agreement, but it probably will not do so, because it fears Microsoft will retaliate, Mr Colburn said in written testimony. He added that AOL would "be inclined" to license Navigator but if AOL ends the browser agreement, Microsoft has warned that it will stop listing AOL in its Windows 98 software that refers PC users to Internet service providers.

Mr Colburn said: "Given the importance of continuing to be included in the Windows operating system and desktop, AOL's intention is to opt to continue with the provisions of the 1996 Microsoft agreement."

Mr Colburn also testified that Microsoft imposed tight restrictions on AOL, among them, the condition that AOL could ship a competitive browser to no more than 15 per cent of all its customers.

The videotaped appearance of Microsoft's chairman Bill Gates, originally scheduled to begin on Tuesday, will be delayed at least until today.

The government plans to play six or seven hours from his 20-hour questioning by lawyers in August, two months before the trial began last week.