EU launches full anti-trust investigation into Microsoft's 29.7% stake in Telewest

Microsoft's plans to play a lead role in cable television set-top box technology were put on hold yesterday when the European Commission extended its anti-trust probe into the software giant's acquisition of a 29.7 per cent stake in Telewest Communications, Britain's second largest cable operator.

Mario Monti, European Union competition commissioner, referred the acquisition, proposed last May, to a second-phase investigation. The extended inquiry, which will last four months, coincides with Brussels' investigation into the launch of Windows 2000.

"We will make a detailed assessment of the impact of the transaction on competition conditions in various areas of the digital cable industry ... in particular the provision of software for digital set-top boxes in the UK," Mr Monti said. "The Commision must ... ensure that this technology is not used to restrict the choice of services."

The phase-two investigation comes as Telewest prepares to unveil its digital cable television products at a presentation in London today, coinciding with its 1999 results. The company is expected to unveil continued heavy losses associated with its investment in cable infrastructure and digital technology.

Microsoft executives expressed confidence yesterday about the Telewest investment. The deal sprung from a complex three-way venture last year, which saw AT&T acquire MediaOne, the US cable group, with Microsoft also agreeing to supply set-top box software to the firm. Michel Lacombe, president of Microsoft Europe, said: "We remain committed to the partnership. We are open to discuss terms [and] we guarantee Telewest's independence over the choice of set-top box software."

An oddity of the phase-two inquiry is that Microsoft trails other technology companies in the cable set-top box market. Among the key players are Motorola of the US, Britain's Pace Micro Technology and ST Microelectronics of France.

The Commission turned down concessions offered by and Liberty Media on 1 March, which had been designed to preserve Telewest's independence over its choice of television set-top box operating system software. The concessions had also sought to reassure Brussels that content providers and software applications developers would have access to technical standards related to Microsoft's set-top box software.

The news came as Microsoft unveiled a £80m investment to create a European dot.com group to service both established and start-up online companies.