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Microsoft chairman Bill Gates is stepping down this summer from a full-time role at the company, which is again under investigation by antitrust watchdogs. ((Ted S. Warren/Associated Press))

Microsoft Corp.'s proposed $44.6 billion U.S. takeover of Yahoo Inc. is going to get a long, hard look from antitrust regulators, experts said Friday, simply because, well, it's coming from Microsoft.

The Redmond, Wash.-based software giant's fights with antitrust agencies in the United States and Europe over the past 10 years have resulted in the company having a bad reputation among regulators.

That reputation won't serve the company well as it tries to pitch its latest move to those same agencies, said John Clifford, a Toronto-based competition lawyer with McMillan Binch Mendelsohn.

"The agencies will have a high incentive to take a very close look at this and be suspicious of Microsoft," he said. "Microsoft would not get the benefit of the doubt given its history with the agencies."

Agencies warn of impact on privacy, competition

Microsoft's main competitor, Google Inc., also on Sunday warned that the merger would be bad for the internet by diminishing competition.

"Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the internet that it did with the PC?" wrote David Drummond, Google's chief legal officer, on the company's public policy blog. "While the internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies — and then leverage its dominance into new, adjacent markets."

U.S. antitrust authorities pounced on the potential merger of the two companies almost as soon as it was announced.

"We will need to scrutinize the deal carefully to ensure that it will not cause any harm to the competitiveness of what has been a vibrant high tech marketplace, nor negatively impact the privacy rights of internet users," said Senator Herb Kohl, chairman of the Senate Antitrust Subcommittee, in a statement issued Friday morning.

Microsoft first ran afoul of antitrust regulators in 1998, when the U.S. Department of Justice and 19 states filed lawsuits charging the company had used its monopoly position in computer operating systems to hurt web browser rival Netscape. The company settled with the department in November 2002 and agreed to change its business practices, which would be overseen by a court for five years.

Earlier this week, a U.S. judge extended that oversight until 2009 and chastised the company for delaying documentation required by the court.

Justice Department to review Yahoo deal

The Department of Justice also told the Associated Press that it will review Microsoft's move on Yahoo on antitrust grounds.

Microsoft is also in hot water with the European Commission, which in September ruled the company had used its monopoly to shut out other makers of operating systems. The EC hit Microsoft with a record 497-million euro ($732 million Cdn.) fine and, earlier this month, launched two new investigations into whether the company has been using its position to hurt office software and web browser makers.

Despite Microsoft's bad reputation with regulators, industry analysts said combining the company with Yahoo ultimately would not lessen competition and was thus likely to get approval.

The two companies have been fighting a losing battle with Google and would have only a combined 32 per cent of the search market, with the lion's share of the remainder going to their rival.

Ordinarily, three competitors in a market contracting to two generally warrants close attention from competition watchdogs, Clifford said. "But when the number three is so weak that they're really not having any significant impact on the market today, [regulators] probably won't get too concerned about it," he said.

Merger could energize search and ad market

The merger could actually improve online search and advertising competition, according to Matt Rosoff, an analyst with Directions on Microsoft, an independent firm that tracks the company. In the past, businesses felt they had to advertise with Microsoft, Yahoo and Google to reach the widest audience, but with Google's ever-increasing share of the market, many have decided it's not worth the effort to continue with the others. A combined Microsoft-Yahoo could re-energize the market.

"Advertisers will once again have to split their search spend between at least two players," he said.

For the every-day user, the merger is expected to have minimal impact since most of the services the two companies offer — such as search and e-mail — are free while other options are plentiful.

The merger is likely to have an effect on internet service providers, many of which have signed mutually beneficial deals with one of the two companies. Bell Canada, for example, is allied with Microsoft and points its customers to the MSN home page in exchange for Microsoft providing those subscribers with services such as e-mail and security. Rogers has a similar deal with Yahoo.

"I can't help but believe a large part of the synergies they're talking about will come from the places where there's the biggest overlap," said telecommunications consultant Mark Goldberg. "MSN and Yahoo have a great deal of overlap."