Exclusive Interview With Bill Gates:

By WALTER ISAACSON

Late Saturday evening, after talks with the Justice Department had broken down, Microsoft chairman Bill Gates spoke by phone from Redmond, Wash., with managing editor Walter Isaacson.

Q: This suit is going to be messy. Are you upset?

A: It's amazing it got to this point. It's very disappointing the government would do this.

Q: The government wants you to include Netscape's browser as well as Microsoft's with Windows. What's wrong with that?

A: When they demanded that, we asked them to repeat it out loud. The government was trying to advantage a competitor of ours. That's really unprecedented. Netscape was able to get the government working on its behalf.

Q: Can Netscape compete if the browser is in the operating system?

A: In fact, Netscape seeks to use their browser to beat us as an operating system. That's what they're trying to create.

Q: That's why it's important for you to build a browser in?

A: It's a huge priority for us to integrate browsing technology into Windows. When we talk to consumers and to computer manufacturers, they ask us to make the system simpler. That requires more integration. Preventing us from doing that would be a step backward.

Q: By that argument, you could integrate whatever you want into new versions of Windows.

A: Innovation is part of the process of building a better operating system. The heart of this dispute is that the Justice Department wants to make it illegal for us to be able to put new functions into our operating system. When we asked them, "What will you let us put in?", they never had an answer. The only right we've asked for is to be able to listen to customers and add new capabilities based on that input. Was putting a graphical interface in Windows a good thing? Font management? File-system management? I think so.

Q: But isn't such tying or bundling illegal?

A: The law is 100% on our side. The ability of a successful company to add functionality to its product has long been upheld. There is no precedent for taking a technology product and breaking it into pieces.

Q: Does that mean you'll someday tie such products as speech recognition into Windows?

A: A natural interface is part of what an operating system should have. The future of Windows is to let the computer see, listen and even learn. That is why this company is spending billions to develop new functions.

Q: But won't that wipe out any other company trying to develop speech recognition?

A: We work with a lot of partners. But it's like building car engines. If you want to build engines, you've got to team up with someone building cars or be prepared to build the car yourself.

Q: What about Justice's demand that you not require computer makers to display Windows when a computer is turned on?

A: Computer manufacturers display quite a lot of things when a computer is turned on. But when you get Windows running, you should get to the Windows desktop.

Q: What will happen if the government gets an injunction?

A: Blocking Windows 98 would be a bad thing for consumers and the industry. They say the Microsoft browser should be ripped out. We don't have time to do the engineering of that.

Q: What do you think the government's motive is?

A: I'm not an expert in politics. I do sometimes shake my head and wonder why is this happening. I just don't understand.

Q: Any chance for a settlement now?

A: We worked hard to settle. I wish we had been able to. I'll seize every opportunity to do so.