EU experts believe Microsoft violated antitrust rules

The experts have proposed two major requirements -- making Microsoft share more proprietary information with its rivals and uncoupling its Media Player audio-visual software from the ubiquitous Windows operating system, sources told Reuters.

The three-year-old probe is the most politically charged competition investigation the EU executive has conducted since its controversial 2001 veto of a planned merger between U.S. corporations General Electric and Honeywell.

Neither the European Commission nor Microsoft had immediate comment. Microsoft shares were up 0.8 percent at $23.14 at 1705 GMT, with the Nasdaq Composite index up 0.2 percent.

The suggested remedies would go beyond changes agreed with the U.S. Justice Department last year after courts found Microsoft abused its Windows monopoly.

The separate EU case is still months from a conclusion, but an internal Commission review of the experts' initial findings has thrown up doubts about whether the recommendations will be watertight both legally and technically, the sources said.

A "devil's advocate" review of draft proposals circulated within the EU Competition Directorate is part of new checks and balances to prepare decisions for senior officials and, ultimately, for Competition Commissioner Mario Monti.

The sources said the experts' recommendations, aimed at ending what they see as Microsoft's abuse of a dominant market position, have not yet reached Monti's desk and are likely to be modified en route.

LEGAL AND TECHNICAL DOUBTS

Acutely aware that the EU's Court of First Instance reversed three Commission decisions last year in high-profile competition cases, the experts are seeking remedies that will benefit consumers but also stand up in court.

Internal reviewers want the remedies improved on both scores.

The first issue relates to the process of signing on to a computer each day at the office using Windows. Workers connect to a central system of servers which, although they are unaware of it, run on Microsoft software or a rival like Linux.

Microsoft has gained ground in the server market and the EU experts are convinced the firm's success is in part because Microsoft has written Windows to work better with its own server software than that of rivals such as Sun Microsystems.

Windows' dominance puts a special obligation on Microsoft to provide a level playing field to rivals. Otherwise, it can illegally leverage its advantage to dominate other markets.

But Commission experts have found it difficult to design ways to force Microsoft to give rivals information needed for consumers to connect as easily to non-Microsoft servers, one source said.

It is hard to write an order so air-tight it cannot be evaded. In the past, Microsoft has differed with regulators and judges over the meaning of agreements and orders.

Commission experts are leaning towards requiring Microsoft to share far more communications protocols -- technical information that would help rivals set up better security systems.

SEPARATE AND EQUAL

A thornier issue involves the proposal to require Microsoft to separate Media Player from Windows, a key grievance of rivals such as Apple Quicktime and Real Networks.

The software permits the playing of radio and television, as well as movies, and can be used to run other applications.

The Commission is evaluating whether the proposed removal of Media Player and the consequent sale of a less functional Windows would benefit consumers.

Microsoft argues that consumers get the widest choice by receiving Windows with Media Player and being able to easily download rival audio-visual software such as Quicktime or Real Player free from the Web.

Microsoft has said innovation depends on being allowed to respond to consumers' demands and include functions they want.

It says computer makers are free to include competitive products and hide those of Microsoft, which U.S. antitrust authorities accepted in last year's court-approved settlement.

But critics say hiding applications from PC owners makes no difference to media content providers who use it, hidden or not. They ask ask why media content providers would spend more money to produce versions that work with Real Player or Quicktime if Microsoft's product is on every desktop.

They say consumers would get as much or more software than now if Media Player were stripped out and computer makers chose which audio-visual software to include. This would increase competition and innovation in audio-visual software, they say.

The same would hold true for software writers, who will write programmes only for Microsoft's universal software and not waste time with others, the critics argue. As a result, the others will fade away as have once-dominant rival word processors, Web browsers and spreadsheets.

Unless Brussels can reach an accommodation with Microsoft, yet to be negotiated, the final decision to order remedies will lie with the Commission on Monti's recommendation.