'To heck with Mario Monti'

After getting nowhere with the European Union's competition commissioner last week, Microsoft CEO Steve Ballmer offered a few humble comments and then headed home to await the worst.

What he instead should have said is, "To heck with Mario Monti."

To be sure, the tangle with Janet Reno's Justice Department over antitrust charges in the 1990s taught Microsoft's brass to avoid making inflammatory statements in public.

And so to prevent worsening an already bad situation, Ballmer dutifully stayed on message. Word to Microsoft public relations: In this case, the politic thing would have been for Ballmer to wrap himself in the American flag and cry foul.

If you don't think politics is behind the EU's muscle flexing, I've got a bridge in Brooklyn to sell you. Monti, who finishes out his term this year, has bagged the biggest enchilada of his regulatory career. Forcing Microsoft to bow to the will of a pan-European governing body stands in stark contrast to the U.S. Justice Department's feckless attempt to rein in the software maker only a few years ago. What's more, it establishes the EU's primacy as an arbiter of the technology business.

That's why Microsoft has been fighting tooth and nail to resist the Brussels bureaucrats, who want to decide what should go into Windows. Step away from the immediate controversy, and you see that the exclusion of Media Player from the operating system is small potatoes, compared with the precedent such a decision might set.

The European Union's sanctions against Microsoft are:

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For Microsoft, the prospect of the European Union having veto power over "Longhorn," the next big version of Windows, constitutes a veritable nightmare. With plans to take a run at Google, Microsoft won't willingly compromise its freedom to include new features, such as search technology, in the operating system. "That was the reason there was no agreement," one company insider told me prior to the ruling, still hopeful that the stripping out of Media Player may be the extent of the EU's intrusion into Microsoft's business.

Wishful thinking. If the EU gets its way, Ballmer better develop a liking for moules et frites, because he'll need to spend plenty of time in Brussels over the next few years.

At the heart of the EU case is a philosophical dispute about the future and who should get to decide the contours of a still-amorphous landscape. During this old-new debate, Microsoft has bloodied many a rival--browser maker Netscape being the most famous example--by incorporating similar functions into the Windows operating system. That was one of the considerations that convinced the Justice Department to bring an antitrust lawsuit in 1998.

Microsoft has had uneven luck making its case. During the antitrust trial in the United States, company lawyers presented a stripped-down version of Windows that malfunctioned. That "evidence" supposedly proved the defense's argument that the Internet browser could not be separated from the operating system. The presentation was a fiasco, and the presiding judge was not persuaded.

If Microsoft fails to block the EU's designs, it can't again afford to play cute by purposely rigging an inferior Media Player-less version of Windows. A better strategy is to let the market force the politicians to step aside. Bureaucratic dictates will be less telling than original equipment manufacturers' decisions. And the fact is that Microsoft's Media Player is as good, if not better, than RealNetworks' player.

Not that this is going to be a cakewalk. The behind-the-scenes bargaining promises to be intense. Some PC makers may hold out and demand discounts from Microsoft in return for stocking separate versions of the software. Certainly, no computer maker will pay for the inclusion of Media Player--not when consumers can simply download the software from the Internet. But if customers think the "OS complete" version is a better deal, Microsoft can still come out ahead.

And there's not much Monti or the European Union can do about that.