View from City Road: Microsoft under the regulatory microscope

So it is out of the frying pan and into the fire for Microsoft. After enduring three long years answering the questions of investigators from the US Federal Trade Commission, the world's largest computer software firm was told that the commissioners had dismissed anti-trust allegations brought by staff members. Within a few minutes, however, it learnt that the US Justice Department had decided to begin an inquiry of its own into the company's business practices.

Microsoft is probably now wishing the FTC staff had been more convincing in their arguments. Had the commission accepted their recommendation to proceed with their complaint, it would probably have got off with a warning against bullying its smaller rivals. The Justice Department, unlike the FTC, has the power to bring criminal charges against companies engaged in monopolistic activity.

The facts of the case are still far from damning: Microsoft is accused of using its dominance in the market for disk operating systems to force its other products on computer makers and consumers. Indeed, Microsoft's rivals have argued the case both ways: that it has deliberately created incompatibilities so that competing application programs will not work properly with its pervasive MS-DOS system; and that secret codes in its Windows programs unfairly encourage owners to use MS-DOS. The company denies it has designed 'non-functional incompatibilities' into its products, but also notes, quite rightly, that it is under no obligation to write its software to run on rival operating systems.

The facts of the case, however, are less important now than they were before the Justice Department stepped in. This will now be the landmark monopolies case of the 1990s, just as IBM and AT&T were the benchmarks of American anti-trust activism in the 1980s.

What is important to investors and analysts trying to gauge Microsoft's prospects in the digital multi-media future is that it will be under constant regulatory scrutiny as it ventures into sensitive new markets such as wireless communications and cable television.

Some will be only too happy to see it paralysed by regulatory intervention - either broken up into competing companies by crusading trust-busters, as AT&T was in 1983, or debilitated by its victory over them, as IBM is now.