Dell, Gates, McNealy go before Senate

Washington, D.C. - Testimony began today before the U.S. Senate Judiciary Committee investigating possible anticompetitive practices by Microsoft Corp.

This morning, two senators questioned Michael Dell about his PC company's apparent unwillingness to sell non-Microsoft Web browser software to the general public. The chairman of Dell Computer Corp. is considered friendly to Microsoft's cause, and Microsoft asked that he be included among the witnesses at the hearing.

Dell maintained that large corporate customers are able to buy Dell PCs with Netscape Communications Corp.'s Navigator Web browser, saying, "We do offer Netscape to our large customers who demand it." But committee Chairman Orrin Hatch, a Utah Republican, and Michael DeWine, an Ohio Republican, pointed out that Dell's telephone representatives have been known to tell ordinary consumers that they cannot buy PCs with Navigator because of Dell's relationship with Microsoft.

Dell did not directly answer the senators' questions about whether his company has an exclusive agreement with Microsoft. "We believe it's in our best interest to offer Internet Explorer," he said. "There are incentives in place that are going to dictate our actions. Demand is also going to dictate our actions."

The committee has also witnessed some testy exchanges between Microsoft Chairman and CEO Bill Gates and Sun Microsystems, Inc. Chairman and CEO Scott McNealy. At one point, when Gates said that McNealy has stated that a Java-based thin client had the potential to totally replace Microsoft Windows, McNealy interrupted Gates, saying, "I never said totally."

Today's hearing, dubbed "Market Power and Structural Change in the Software Industry," nominally was put together to give Senate Judiciary Committee members a chance to learn about software industry competition directly from industry leaders and analysts.

But it is no secret that the hearing is a result of growing concern about the power of Microsoft to use its vast Windows installed base to stifle competition as it enters new markets, especially Internet-related areas. Writing in today's Wall Street Journal, Hatch stated that Microsoft's market power is of special concern.

Initially, two of Microsoft Corp.'s biggest critics and competitors, Sun's McNealy and Netscape Communications Corp.'s CEO, Jim Barksdale, were scheduled to speak along with Gates. But after pressure from Microsoft, the committee also invited Dell and Doug Bergum, CEO of Great Plains Software, Inc. - both generally seen as friendly to Microsoft.

One sign of growing concern about Microsoft's influence and business practices was a brief filed yesterday by 27 states, joining the U.S. Department of Justice in its current case against Microsoft.

Twenty-seven state attorneys general signed on to a friend-of-the-court brief, asking the U.S. Court of Appeals for the District of Columbia to uphold Judge Thomas Penfield Jackson's Dec. 11 injunction ordering Microsoft to unbundle its Internet Explorer Web browser from the Windows 95 operating system. Microsoft has appealed that injunction.

It is also a sign of grass-roots concerns about Microsoft that, separately from yesterday's brief, at least 10 state attorneys general are investigating Microsoft business practices.

For example, Connecticut Attorney General Richard Blumenthal said that his office has received complaints about Microsoft's power and licensing practices from manufacturers, retailers and consumers.

The current public outcry about Microsoft's huge influence on the computer industry was sparked by the DOJ lawsuit against Microsoft filed in October 1997, when the agency asked the district court to find Microsoft in contempt of court for violating a 1995 consent decree. The decree allows Microsoft to integrate software into its Windows operating system, but not to force companies to license Windows on condition that they also accept a second, separate product.

But while the consent-decree case moves forward, the DOJ is also examining broader antitrust issues. It has issued civil investigative demands - the equivalent of subpoenas - requesting information from third-party content providers listed on Microsoft's Active Desktop, according to content providers and DOJ sources.

With today's hearing, the debate about Microsoft is growing into a broader examination of the role of government in regulating the high-tech industry, as it becomes an increasingly bigger part of the world economy.

IT lends itself to monopolies more naturally than other businesses, said economist Brian Arthur, a professor at the Santa Fe Institute, at a conference on Microsoft last November sponsored by consumer advocate Ralph Nader.

Because of IT's increasing value in allowing people to communicate with each other, there is a natural tendency for the market to support a vendor of, for example, an operating system, in order to allow different applications to interoperate. This catapults the operating system to a de facto standard, which can lead to a monopoly.

The big question now is whether computer industry technology - more so than older, "smokestack" industry products - lends itself to natural monopolies and how society determines what's fair and most beneficial for consumers.

The hearing today is one effort to answer that basic question.