AT&T is latest MS ally in Net assault

Microsoft's distribution deal with AT&T announced today represents the latest step in an aggressive bid to gain market share for its Web browser in which the company is showing no qualms about leveraging its clout in the PC arena to become a major player on the Internet.

Under Microsoft's agreement with AT&T, the telco will distribute the Internet Explorer browser to users of its WorldNet dial-up Internet access services. In return, Microsoft will bundle WorldNet services directly with versions of Windows 95 shipping this fall. WorldNet has more than 300,000 subscribers, but a spot in Windows 95 could potentially give millions of users easy access to the service.

But AT&T, which currently bundles Navigator with its WorldNet access software, is quick to point out that it's not dropping the Netscape Communications browser. Company representatives wouldn't go into specific distribution details, such as whether Explorer will be promoted as the service's preferred browser, saying only that both Navigator and Internet Explorer will be options for subscribers. America Online and CompuServe have cut comparable deals with Microsoft, making Internet Explorer their "preferred browser" in exchange for company icons in the Windows 95 desktop that would provide greater access to the online services.

Microsoft did not return phone calls by press time.

"Nothing we announced today affects the existing contract that we have with Netscape," said Tom Evslin, vice president of AT&T WorldNet. "We made it clear that [our contract with Netscape] was mutually non-exclusive. It's always been our intention to offer other browsers."

Today's deal sounds good for both parties on its face but could also raise a familiar specter that has haunted Microsoft in years past--antitrust--this time on the Internet.

No one has publicly mounted a legal challenge to Microsoft's Internet expansion, but some are saying the distribution deals may compose anti-competitive behavior in a new, rapidly evolving marketplace.

"There are most certainly antitrust implications," said Gary Reback, a leading antitrust lawyer with the firm Wilson, Sonsini, Goodrich, & Rosati. "Microsoft has a monopoly on the desktop. It's the only one who can sell AT&T and AOL real estate. As a consequence, it's able to use its monopoly to endanger competition in the Internet in much the same way that AT&T used its monopoly over the local switch to endanger competition."

Reback--whose firm represents Microsoft's chief Internet rival, Netscape--successfully led a challenge to Microsoft's acquisition of financial software company Intuit.

And AT&T executives acknowledge that the promise of being bundled with Windows 95, the operating system used on the vast majority of all PCs, is a persuasive argument. "Obviously, [Windows 95] is a very, very powerful distribution mechanism," Evslin said.