Antitrust Fallout for Microsoft to Be Felt By Industry More than Customers With BC-Microsoft-Chronology

NEW YORK (AP) _ Everyone noticed when the Justice Department last wiped out a major monopoly because it changed the monthly phone bill.

The department's move this weekend to loosen Microsoft Corp.'s hold on an important part of the software industry won't affect every American the way the breakup of AT&T did a decade ago.

But the legal agreement could stir competition in an area of software - operating systems for personal computers - that Microsoft dominates.

That may hurt the company's vaunted profits but won't diminish its position as standard-bearer for the world-leading U.S. software industry.

''I don't think the particular things they singled out are what has led to Microsoft's success,'' Esther Dyson, president of EDventure Holdings, a New York computer consulting firm, said Sunday. ''And so stopping them isn't going to lead to a whole lot of difference in their success.''

Faced with the prospect of government lawsuits in the United States and Europe, Microsoft agreed to change the way it sells operating systems to PC makers. An operating system is a program that controls the basic functions of a computer, like opening files.

Since 1988, Microsoft offered the best prices for its MS-DOS and Windows operating system to PC makers who paid a royalty on every computer they made, even those using a different system.

The practice would be like Goodyear forcing General Motors to pay it for every vehicle produced, including those that have Michelin's tires.

The arrangement gave PC manufacturers little incentive to sell other operating systems since they had to pay Microsoft and the other software firm.

Ann Stephens, president of PC Data in Reston, Va., said ending the practice ''puts everything on an even playing field. I think Microsoft will be doing fine in that environment.''

Assistant Attorney General Anne Bingaman, who leads the Justice Department's antitrust division, noted Microsoft began requiring per machine contracts after its products became the industry standard.

''Microsoft is an American success story, but there is no excuse for any company to try to cement its success through unlawful means,'' she said.

Microsoft's core operating system, MS-DOS, was chosen by IBM for its first personal computer, which went on sale in 1981, and was gobbled up by rival PC makers who cloned IBM's design and wanted the same software. Including Windows, which gives MS-DOS a graphical look, the system is in 80 percent of the world's 150 million PCs.

William Neukom, Microsoft's senior vice president of law and corporate affairs, said the company's revenue would not be hurt by the settlement. MS- DOS and Windows account for about one-third of the company's annual $4 billion in sales.

But the products are very profitable, particularly MS-DOS since it has had little cost associated with it for years.

Microsoft earned $784 million on sales of $3.35 billion in the first nine months of its current fiscal year, the period that ended March 31.

''In a more constrained environment, Microsoft is going to find it difficult to maintain those virtually pure profit revenue streams,'' said William Zachmann, president of Canopus Research, an industry research firm in Duxbury, Mass.

IBM and Novell Inc. are perched to take advantage of the change. IBM plans to roll out this fall a version of its advanced OS-2 operating system that requires less memory, making it accessible to many more PCs.

Novell makes the leading system used for linking PCs.

''We have been hopeful this relief would be forthcoming,'' said David Bradford, Novell's chief counsel. ''In so anticipating, we continued to put important development resources behind our desktop operating systems.''

Adding pressure to Microsoft is a delay in the new version of Windows. First expected this spring, it has been delayed to the end of the year at least.

In the settlement, announced Saturday, Microsoft also agreed to shorten the length of sales contracts with PC makers and loosen restrictions on software companies that create programs like word processors that work on its operating systems.

The agreement follows three years of work by the Federal Trade Commission, which produced no action, and a one-year Justice Department investigation.

Some rivals told the agencies Microsoft had a competitive advantage for programs like word processors or spreadsheets since it controlled the operating system standard. But authorities took no action on the complaints.

''This was the case that was there after thousands of hours of work,'' Bingaman said.