COMMENTARY: HOW SWEET IT IS (AGAIN) FOR CHAIRMAN BILL
AT&T's(T) C. Michael Armstrong and Tele-Communications Inc.'s (TCOMA)John Malone were in the spotlight, but the high-tech exec having the best time on June 24 was--without a doubt--William H. Gates III. The AT&T-TCI deal, which promises to give Microsoft Corp.(MSFT) a new high-speed ''platform'' on which to sell products and services, was icing on the cake for Gates in a week that brought him a stunning victory in a Washington appeals court, the launch of Windows 98, and a new record for Microsoft's stock and his vast fortune.
For months, Gates has been under assault as America's high-tech bully. Now, he's racing down the Infobahn--once again in the driver's seat. The rebound began on June 23, when the U.S. Court of Appeals struck down an injunction banning Microsoft from forcing PC makers to carry its Internet Explorer browser as a condition of licensing Windows 95. The court ruled that U.S. District Court Judge Thomas Penfield Jackson erred when he issued the injunction last December, charging that Microsoft was trying to put rival browser maker Netscape Communications Corp. (NSCP)out of business. Not surprisingly, Microsoft is jubilant. Says Chief Operating Officer Robert Herbold: ''This is a great day for consumers and a great day for anyone who cares about the high-tech industry.''
Well, for Microsoft, at least. The ruling is widely interpreted as a huge setback to a key claim in the federal antitrust suit filed in May. One of the suit's central allegations is that by bundling a browser with Windows 95, Microsoft illegally stunts competition. The 2-to-1 decision essentially backs Microsoft's assertion that it can add anything it wants to Windows as long as consumers get some benefit from it. Says Hillard M. Sterling, a Chicago antitrust attorney: ''The ruling shakes the pillars of the government's larger case.''
Trustbusters, however, don't agree. Justice Dept. officials point out the feds' case is much broader--that it includes charges of using exclusionary contracts with Internet service providers and pacts with computer makers that bar them from making changes to the opening PC screen.
How does the AT&T-TCI deal help Gates? A year ago, Microsoft invested $1 billion in Comcast Corp.--whose stock has nearly doubled since then--to goad the cable industry into faster deployment of high-speed, two-way networks for delivering new services such as video and Net programming. He also bought WebTV to deliver the Web over cable TV. A week ago, Gates upped that ante, joining with Compaq Computer Corp.(CPQ) to invest $425 million for a 20% stake in the Road Runner cable access venture.
The common goal: to expand the market for everything Microsoft makes. That means Windows software and programs for PCs and cable-TV set-top boxes; backroom ''server'' software to deliver video and Internet content; not to mention a plethora of E-commerce and Net service offerings, from car buying to travel sales.
Bill's fairy-tale week wasn't over yet. On June 25, Microsoft was set to launch Windows 98. Until the court ruling, Win98 hadn't caused much of a stir in the market. But, says Webb McKinney, general manager of Hewlett-Packard Co.'s Home Products Div.: ''The government turned what was a modest enhancement into a major event.''
MORE AMMO. Make no mistake: Gates won't soon pop the Dom Perignon. Justice insists it has lots of legal ammo left. With the June 23 ruling, Gates has a way to approach Justice to settle the remaining charges, analysts figure. ''That would be a brilliant move and show a little modesty,'' says Deutsche Bank Securities' Michael K. Kwatinetz. ''And DOJ could walk away without being totally embarrassed.''
And while the prospect of a new superhighway from the AT&T-TCI deal gives Gates something to celebrate, it also poses tactical problems for Microsoft. AT&T is a longtime ally of Microsoft rival Sun Microsystems Inc.(SUNW), which has a contract with TCI to supply software for new digital set-top boxes. Oracle CEO Lawrence J. Ellison thinks few cable companies will use technology from Microsoft--which has a similar set-top-box agreement with TCI--for fear of giving up their control: ''They're scared to death of Microsoft.''
Still, Gates can rest a little easier. He's got a wee bit more personal spending money. His week of glory pumped Microsoft's stock up to an all-time high of 104 15/16, making this Infobahn racer's stake worth almost $57 billion.
By Robert D. Hof
Updated June 25, 1998 by bwwebmaster
Copyright 1998, Bloomberg L.P.