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7 August 2003 The European Commission's latest antitrust warning to Microsoft will make little difference to the software company's ability to do business in the near term, say analysts.

But, at the same time, rivals who object to Microsoft's practice of bundling key components free of charge into Windows believe a key milestone has been reached. Eventually, they believe, Microsoft will be forced to sell programs such as media players and instant messaging separately.

The EC earlier this week said that Microsoft had abused its dominant position, stifled innovation and restricted consumer choice by bundling its Media Player software into Windows free of charge. It said it was also concerned that Microsoft's non-disclosure of interface information was damaging competition in the low-end server market.

Microsoft has two months to respond. Brussels is expected to deliver its verdict on the long-running case in early 2004.

Despite the toughly-worded EC statement, Microsoft shares barely moved. This is partly because, allowing due process and appeals, the EC's action against Microsoft is unlikely to be resolved for at least another year; and partly because the remedies the EC has now restricted itself to are not seen as particularly damaging, say analysts.

Microsoft could be forced to sell the Media Player separately, they say, or to distribute rival products as Real Player and Apple Quicktime with Windows. The software giant might also be forced to disclose more interface information. It could also face a fine of up to $3.2 billion, representing 10% of annual revenues.

Many investment analysts have described the tangible sense of relief in the US that the EC had backed away from talk of a break-up - leaving the way clear for Microsoft to begin distributing some of its $49 billion cash hoard to shareholders.

But the EC statement still sparked a frenzy of speculation about how the case might be resolved.

Many observers have drawn direct parallels with the way that Microsoft, by bundling in its Internet Explorer product with Windows, marginalised Netscape, the early market leader in browser software. By the time a US antitrust action against Microsoft was eventually settled, the market battle had already been lost.

The EC is likely to take a harder line, say legal experts, and force Microsoft to unbundle its media player and instant messenger functions from Windows. If this happens, Microsoft is likely to do this on a global basis, not just in Europe.

By then, fear rivals, much of the commercial damage will already have been done to Real Networks and Apple, suppliers of competing products. However, the markets for instant messaging and for wireless data services are still wide open.

In February 2003, the Computer and Communications Industry Association, a trade group representing companies such as Nokia, AOL and others, filed a separate complaint to the European Union, asking that Microsoft be broken up. The EC's investigation into the complaint is continuing.