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 NEWSLearning the lessons of antitrust history By Ephraim Schwartz and Ed Scannell April 28, 2000 4:41 pm PT LONG BEFORE THE current Microsoft case, IBM and AT&T traveled down the antitrust road with the Department of Justice -- although their journeys and ultimate destinations were quite different.
In that case, the Justice Department had filed suit against Ma Bell in 1974 and the case dragged on in the courts until Jan. 8, 1982. When the agreement was finally reached, it gave AT&T two years to re-create itself. The company was officially split into AT&T and the seven RBOCs, which came to be called the Baby Bells. Consumer sentiment was that AT&T had its faults, but, "If ain't broke don't fix it." Nevertheless, the Feds decided to fix it anyway, and in the long run the breakup probably benefited the American economy. The divestiture happened at the dawn of the Internet Age just as data was becoming more important for business than voice. "The Internet is everything that AT&T as a regulated monopoly was not. The Internet is global at the outset, renegade in its philosophy, and unpredictable in its technology," said Burke Stinson, an AT&T representative. The breakup allowed the Internet to blossom. And according to one analyst, it also increased employment, competition, and innovation. "Before the breakup, innovation to Ma Bell was the Princess phone," said Jeff Kagen, a telecommunications analyst, in Atlanta. It remains to be seen whether a Microsoft divestiture, if it occurs, will have the same effect. Although IBM was even more powerful and influential during the 1960s and 1970s than Microsoft is now -- and was accused of some of the same illegal practices -- the Department of Justice finally dropped its 13-year-old case in 1982. Chief among the complaints were predatory pricing and IBM's decision not to make the APIs of its mainframe operating systems available to developers. The government tried to limit the number of markets that IBM was allowed to enter. Competitors claimed IBM's practices made it impossible for them to compete technically and financially with it. They also said that the practices allowed IBM to control the pace of technological advancement. Although the Justice Department withdrew its case Jan. 8, 1982, IBM relented and published its APIs, but no summary judgments forced the company to stay out of certain markets. IBM remained intact with no obvious changes to its business practices, but some observers said that the protracted case damaged the company's performance. "As that suit dragged on, personnel were distracted. It had a negative impact on the businesses they were in," said Dwight Davis, an analyst at Summit Technologies, in Redmond, Wash. "I was traveling with an [IBM] executive once who had two briefcases. I asked why he had two, and he said, 'One is for regular work, and the other is for the antitrust case.' It occupied the time of a lot of key executives," said Sam Albert, president of Sam Albert Associates, an IT analysis and industry consulting company in Scarsdale, N.Y. After the case, IBM was also markedly more cautious about the markets it entered, the partnerships it struck, and the companies it wanted to acquire. One industry benefit of IBM's tentativeness was its slow response to Digital Equipment and Data General, which forged the lavishly successful minicomputer market. That market created hundreds of thousands of jobs and drove technology out of the glass house and deeper into those companies. The Justice Department's case may well have also affected IBM's aggressiveness in entering the microcomputer business in 1981. By endorsing Microsoft's DOS operating system for its own PCs while still allowing Microsoft to distribute DOS to competitive OEMs, IBM gave Microsoft great power, and unknowingly gave rise to the next high-tech monopoly. "IBM went through a period in the1980s as a shell of its former self in terms of influence, and became an also-ran among the new breed of software companies led by Microsoft," Summit's Davis said. InfoWorld Editor at Large Ephraim Schwartz is based in San Francisco. Ed Scannell is an InfoWorld editor at large. SPONSORED WHITE PAPERS 
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