On June 7 the government delivered its final ruling in the case against Microsoft, calling for a company break-up to generate competition in the operating systems market. The government’s plan sounds simple at first blush—a symmetrical split of the company into two parts along product lines. But this split-up scheme is ridden with complexities that could fire off a host of dangerous unintended consequences.

The government argues that turning Microsoft’s supposed monopoly in the operating systems market into a separate company will bring about lower prices in the market. But that’s an unlikely prospect. In fact, a company selling only Windows might be more likely to raise its price, since the company would no longer have to worry about the negative effect that a price hike could have on the applications market.

Not only that, but the government’s ruling could bridle the pace of innovation. Under the plan, the operating systems company would be prohibited from working closely with the applications company to create software unless the companies’ discussions were "simultaneously published" to the computer industry at large — a logistically unworkable task.

That means that the seamless functionality of Microsoft products will become a relic of the past. And inventions of such magnitude as the Windows platform—conceived in the 1980s through an orchestrated effort by the Office team and operating system developers—may be stymied by the government’s ruling.

As many high-tech companies have discovered, two products fused together are often more functional than a single product. That’s why Microsoft chose to integrate its Internet Explorer into the Windows operating system. Competing firms are following the same trend. Sun Microsystems, according to its website, is wagering a "big bet" on creating "an integrated hardware and software stack" in which the "microprocessors, storage, system software, and middleware [are] seamlessly integrated."

The government’s plan, however, would discourage Microsoft from competing through product integration. The ruling will force Microsoft to strip technologies that have been a part of the operating system for years—such as the Internet Explorer web browser—and transfer them to the applications company.

If the plan is implemented, the operating systems company will be free to license software programs back from the applications company and integrate them into the operating system, as long as the company provides a version of Windows without those products. But the government’s insistence upon requiring Microsoft to create a stripped-down version of Windows rests upon the shaky premise that operating systems are static.

Like most technologies, operating systems evolve over time as new features are added. The first Windows program was an integration of the MS-DOS personal operating system with a graphical interface which allowed users to "point and click" instead of having to type in DOS commands. Windows 95 and 98 took it a step further, with the introduction of browsing capabilities. Microsoft is currently working on fusing speech, voice, and handwriting recognition software into Windows. And the union of middleware, such as multimedia viewing software, with the operating system is a likely future prospect.

Forcing Microsoft to continue making outdated operating systems is about as pro-consumer as requiring Ford to produce cars without power-steering, air conditioning, or a stereo. Consumers will have no need for a stripped-down model operating system, but they will be paying for it nonetheless in the form of reduced market efficiency.

Trustbusters are trying to pawn off the break-up plan as the remedy that will involve the least amount of government oversight. But like many of the anecdotes floated to support company divestiture, that one is pure bunk.

If the government succeeds in dismembering Microsoft, the company will require constant government monitoring to determine whether a product fits into the category of operating system or application. In the seamless world of technology, this is a nearly impossible task, and one guaranteed to cost taxpayers a bundle.

The government is poised to enforce a break-up scheme with ripple effects that could produce vast dislocations with no benefit to consumers. If the government is truly concerned about consumer welfare, it should rely not on its own logic, but on the wisdom of the market to fuel innovation and competition.

* Helen Chaney is a public policy fellow in the Center for Freedom and Technology at the California-based Pacific Research Institute for Public Policy.

For additional information, contact Helen Chaney at (415) 989-0833.