Microsoft 'should be split in two'

Microsoft could be split into two competing companies under proposals put forward by the US Government on Friday.

The Justice Department is asking a federal judge to break up the software giant, which was found guilty earlier this month of breaking anti-trust laws.

But Microsoft responded that such a move would hinder innovation and harm consumers.

One of the new companies would sell the various Windows operating systems and the other would do everything else, such as produce software applications and the Internet Explorer browser.

The operating systems business would have to develop its own browser to compete with Internet Explorer.

The companies would be barred from colluding or from distributing each other's products, and could not reunite for 10 years.

These proposals would have a chilling effect on innovation in the high technology industry

Bill Gates

A number of conduct restrictions would take immediate effect.

Neither Microsoft nor the new companies would be allowed to threaten personal computer makers for using rival products or to withhold licenses and technical support needed to use the former Microsoft products.

The Justice Department also wants a ban on tying future use of Windows to any other Microsoft products.

Stimulating competition

The 17-page document had the support of 17 of the 19 states which were also involved in the landmark case.

"This is the right remedy at the right time," Attorney General Janet Reno said in a statement.

"Our proposal will stimulate competition, promote innovation and give consumers new and better choices in the marketplace."

What happens next?

10 May - Microsoft will give its response

17 May - The government files its rebuttal

24 May - Judge holds remedies hearing

Dates could change if Microsoft gets more time to prepare

Microsoft now has until 10 May to submit its counter-proposals to these "remedies".

The government's reply comes a week later, with the remedy hearing due on 24 May.

But the timetable could be delayed to give Microsoft more time to prepare its response.

Share price hit

Judge Thomas Penfield Jackson could make a ruling as early as the summer.

But Microsoft has made it clear it will appeal, and the trial is likely to drag on for years.

Microsoft's chairman Bill Gates said in a recorded statement: "These proposals would have a chilling effect on innovation in the high technology industry.

"Microsoft could never have developed Windows under these rules."

Assistant Attorney General Joel Klein countered: "Under our proposals, neither the heavy hand of ongoing government regulation nor the self-interest of an entrenched monopolist will decide what is best for consumers.

"Rather, consumers will be able to choose for themselves the products they want in a free and competitive marketplace."

Shares in Microsoft have plummeted recently on growing speculation that the company will be split up.

On Monday alone they dropped a further 15% or $12 to just over $66, wiping tens of billions of dollars from its market value and affecting the rest of the tech sector.

The shares - currently at about $69 - have fallen 43% from their peak of nearly $120 at the beginning of the year.

If the break-up proposal were accepted by the judge, Microsoft would have to come up with a way of implementing it within four months.

Executives would be allowed to have shares in only one of the companies, although ordinary shareholders could have stock in both.

Well-known precedents

Microsoft would not be the first business to be broken up after falling foul of anti-trust legislation.

It happened to John D Rockefeller's Standard Oil in 1911 and to AT&T in the 1980s.

Microsoft was accused of using its domination of the operating system market to restrict competition.

The judge heard from a succession of rivals about their dealings with Microsoft, which highlighted the threats and rewards offered to boost the market position of its products.