EU prepares second case against Microsoft

European competition authorities are preparing a second probe into alleged anti-competitive behaviour by Microsoft, the world's largest software company.

Mario Monti, the European Competition Commissioner, will rule on Wednesday that the company abused its near monopoly in the PC operating-system market. The ruling, which centres on Microsoft's Media Player software, will come after talks over a possible settlement broke down last week between Mr Monti and Microsoft's chief executive, Steve Ballmer. Microsoft now faces a fine of up to €2.5bn (£1.7bn).

But this ruling will open the door to a fresh European investigation into wider claims that the company violated European laws though its Windows XP operating system. The complaint was made by Computer & Communications Industry Association (CCIA), a trade organisation whose members include Oracle, Sun Microsystems and Yahoo!

A spokeswoman for Mr Monti said: "We are in preliminary investigations."

Ed Black, the president of CCIA, said: "We are pleased that the EC didn't settle as this will allow the European authorities to deal with future Microsoft cases. The Commission is taking our complaint seriously. It has sent the letters to us. The process is going on.

"A lot of people do not want to live in a Microsoft-only world. Microsoft has a way of making its anti-competitive tools support the monopoly efforts in other areas. If the commission finds the scheme anti-competitive then it will need to impose sweeping, structural remedies."

Microsoft said of the CCIA allegations: "We will look at the issues when they are raised and address them if necessary."

Wednesday's ruling will see the commission force Microsoft to produce two versions of its operating systems: one with the Media Player and a stripped down version without it.

PC makers will then have the choice of buying the basic operating system and doing a separate deal with one of Microsoft's rivals to supply software to play music and videos.

However, it is unclear whether the commission will force Microsoft to sell the stripped-down version at a lower price. "If there is no difference in price then the ruling will have no impact," said David Smith, a research fellow at Gartner. He also cast doubt on Microsoft's potential fine: "Even if Europe imposes the highest fine then Microsoft has the money. It would be a bump in the road."

Microsoft is expected to appeal against the ruling. A Microsoft spokesman said: "Microsoft and the commission have agreed to disagree. But we need to find a single rule on how to address future issues of technology integration. One way to do that is to take it to the courts and test it."