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MSFT bows to EU regulator
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July 7, 2000: 11:04 a.m. ET
Software firm agrees to limit participation in UK cable operator
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LONDON (CNNfn) - Microsoft Corp. bowed to European regulators Friday and agreed to scale back its plan to take joint control of U.K. cable operator Telewest Communications.
Microsoft had intended to purchase a 29.7 percent stake in Telewest for £2 billion ($3 billion). Together with a 22 percent stake held by a Microsoft ally, that would have given the firms control of Britain's No. 2 cable player. In a statement released Friday the Commission said Microsoft had agreed to give up "any rights which would have given it decisive influence over decisions at Telewest." Microsoft's stake in Telewest will be diluted to 23.7 percent when the cable firm's takeover of broadcaster Flextech goes through.
The European Union had expressed fears that Microsoft could gain dominance in the software for the digital decoders that facilitate high-speed Web access and interactive services, as it has in the market for software that runs personal computers.
Earlier this week the Seattle-based software firm submitted a new proposal to the European Commission, the Brussels-based executive arm of the European Union, in the hope of getting the deal through. The Commission had indicated it would block the deal in its original form.
By agreeing not to take joint control of Telewest, Microsoft's shareholding in the company no longer comes under Commission jurisdiction, so the deal can proceed.
Cable networks are expected to become a key battleground in accessing the Internet, and the software used in digital decoders could be a lucrative market. Telewest currently uses software made by Microsoft's main competitor, Liberate.
The stake in Telewest is being sold by MediaOne, after that company was acquired by AT&T Corp (T: Research, Estimates). The issue is muddied by a recent deal whereby Liberty Media, another unit of AT&T, sold its 25 percent holding in Telewest to United Pan-Europe Communications NV. UPC is an ally of Microsoft, and Microsoft owns an 8 percent stake in the Netherlands-based cable operator. Microsoft also has a small holding in Telewest's only real rival in the U.K., NTL Inc. (NTLI: Research, Estimates).
Microsoft is involved in several other disputes with regulators, and was recently the subject of a U.S. court ruling that the company break itself in two to prevent it abusing its monopoly position. The European Commission is probing the company for evidence that is has monopoly power in the business software market.
Telewest (TWT) stock was unchanged at 227 pence in late London trading Friday, while Microsoft shares rose 3/4 to 81-11/16. 
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