European Commission wallops Microsoft

As widely expected the European Commission issued a precedent-setting ruling against Microsoft Corp. Wednesday for anti-competitive practices.

The Commission has imposed a fine of Euro 497 million (US$613 million) and ordered Microsoft to offer versions of Windows without Windows Media Player within 90 days and release up-to-date documentation of application interfaces for its server software to rivals within 120 days.

"Dominant companies have a special responsibility to ensure that the way they do business doesn't prevent competition on their merits and does not harm consumers and innovation," said Mario Monti, European Competition Commissioner. "Today's decision restores the conditions for fair competition in the markets concerned and establishes clear principles for the future conduct of a company with such a dominant position."

Naturally, Microsoft disagrees and will appeal against the decision in the Luxembourg Court of First Instance.

The fine, while the largest the Commission has ever imposed in an anti-competitive ruling, will not make much of a dent in Microsoft's $53 billion cash mountain. More important for consumers is the order to 'unbundle' Windows Media Player (WMP) from the Windows operating system.

Microsoft will have to offer two versions of Windows, one with and one without WMP. And there must be no incentive (such as a discount) for PC makers to install or retailers to sell the version with WMP. But neither will there be a disincentive.

Bundling -- integrating utilities such as firewall, anti-virus software and applications to play music and video in the basic operating system -- is an essential part of Microsoft's strategy, an important part of innovation that benefits consumers, Microsoft argues.

During the months of negotiation leading up to Wednesday's decision Microsoft offered numerous remedies, including bundling a choice of three media players with Windows.

Undoubtedly having a pre-installed media player that deploys automatically makes using a PC easier for consumers. But, says the Commissioner, it is unfair that it should be Microsoft's and not a rival media player, such as RealPlayer Inc. or Apple Computer Inc.'s QuickTime. The market must be open evenly to all.

The next area that all personal computer makers and especially Microsoft wants to move into is digital home entertainment, playing not just on PCs but on set-top boxes that provide digital TV and DVD playing and recording. If Microsoft is already the de facto media player it would give the company enormous advantage as this market expands. The EC ruling gives the competition a chance of surviving and challenging Microsoft's dominance.