Do trustbusters smell blood in the water? Now that the federal government has sued Microsoft Corp. and Intel Corp. for violating the Sherman Act, there's been widespread speculation on op-ed pages, TV finance talk shows, and the antitrust conference circuit that networking giant, Cisco Systems Inc., could be next. "Get ready, John Chambers," one Wall Street Journal guest editorialist warned the company's CEO. "It's only a matter of time before the Beltway show-trial begins."

Certainly, there are plenty of similarities between Cisco and the Wintel duo. The San Jose (Calif.) company, which makes specialized computers that direct traffic across the Internet, is gigantic, manufactures a key piece of America's technological backbone, and dominates many segments of its industry. In the market for high-end routers, for example, Cisco has an 89% share, notwithstanding a history of incursions by rivals such as 3Com Corp. and Bay Networks. Cisco's success has rocketed it to the top of the stock-market valuation charts: Even after falling 38% from its Mar. 27 peak, it's still worth a stunning $383 billion, just behind General Electric Co. and Intel.

That's not all. Like Microsoft, Intel, and many other technology companies, Cisco benefits from what economists call "network effects." That means that the more market share it accrues, the more its products become standards, and the more valuable they become to customers. These days, network effects have become a trigger for antitrust scrutiny because they can give companies so much market dominance. And, just as is the case with Wintel, there are concerns that Cisco abuses that power. Specifically, critics claim that the company sells software called Internetworking Operating System (IOS) with its products that makes them work better with other Cisco equipment than they do with other companies' gear. IOS could help Cisco leverage from routers into other markets where it's not as dominant--much as Microsoft grabbed the browser market by bundling Internet Explorer with the ubiquitous Windows.

BUYING BINGE. Then there's the question of innovation. Justice antitrust chief Joel I. Klein has made protecting it a top priority. Yet some critics worry that Cisco is cornering the market on innovation in networking, in part by having bought more than 50 companies, many of them potential rivals, during the last seven years.

Despite the superficial similarities, though, Cisco is far less likely to run afoul of regulators than its fellow members of tech's top troika. Start with the most critical issue in any antitrust inquiry: market power. Sure, Cisco dominates critical segments of the data networking market. But in most of these areas, it's relatively easy to substitute somebody else's equipment for Cisco's, which isn't always the case with Microsoft and Intel products. That's because networking is driven by open standards--devised by international bodies--that ensure interchangeability among products from different vendors. So it's harder for Cisco to throw its weight around the way Microsoft did.

Indeed, the data networking business is much more fragmented than either PC operating systems or PC processors. There are 14 major sectors, of which Cisco is in a dozen. While it has dominant shares in many areas, such as routers used in corporate networks and those used in the heart of the Internet, most sectors are quite competitive. In broadband networking, for instance, Cisco's share is 15%. All told, it owns about half the overall data-networking market. "Cisco has the largest market share of anybody, but it's not the only kid on the block," says analyst Michael Wolf of Cahners In-Stat Group.

Fact is, competition in the networking business has never been fiercer. In 1999, says researcher VentureOne Corp., venture capitalists pumped nearly $8.2 billion into some 383 networking and communications startups, three times more than they invested the year before. "There's still room in the networking world for smart startups with a better idea to succeed" says Dennis Barsema, chief executive of Redback Networks Inc., a maker of specialized networking gear used by Internet service providers.

What's more, the networking market is rapidly evolving. As data and voice networks start to converge and the Net evolves into the backbone for virtually all communication, Cisco increasingly competes with sellers of traditional telephone equipment, such as Lucent Technologies Inc. and Nortel Networks Corp., that have far bigger revenues and profits. They're all chasing a giant market pegged at about $150 billion annually. Cisco's share of this larger market--including both voice and data gear--is roughly 10%. If prosecutors tried to paint it as a monopolist in data networking, Cisco could counter that it's now a relatively small player in a much bigger arena. "Our relevant market has shifted," says Chief Counsel and Vice-President Dan Scheinman.

LEGAL CLONES. The company's practice of using IOS to lock in customers is also less abusive than it appears. Five years ago, when Cisco's primary market was corporations using a wide array of different networking protocols, the software was critical. But its importance is diminishing. Now, most of the world has standardized on Internet protocol, the lingua franca of the Net. And competitors such as Juniper Networks Inc. have managed legally to clone enough of IOS that their equipment can be used interchangeably with Cisco's, with no less performance.

As for innovation, you can make a strong argument that the company's acquisition binge also turned Cisco into an engine for distributing cutting-edge technologies, many of which it acquires from nimbler startups. This means customers get to use those technologies far more rapidly than if they were being sold by tiny companies with limited market access.

No matter, it's clear that antitrust cops are watching Cisco. In the fall of 1998, the Federal Trade Commission opened a brief investigation into allegations that Cisco had colluded with Lucent Technologies to divvy up the market, but the case was closed nine months later. For now, there's no sign that Cisco is on the verge of being sued by either the Justice Dept. or the FTC. But the Feds have been closely monitoring Cisco's acquisitions. "I've gone to Washington about a dozen times to meet with people in Justice about our mergers," says Scheinman. But he has "always taken these meetings as an opportunity to talk to the DOJ about our market" in general.

Such lobbying won't forestall antitrust action if the company ever abuses its market clout. But it's a much wiser approach to prevention than the disdain Microsoft has shown for the Feds--and could very well help Cisco convince the trustbusters that not all technology titans are cut from the same cloth.

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