Microsoft says it will be forced to offer European consumers a substandard version of Windows if the European Union makes it re-write its operating system, sources close to the case have said.
Microsoft issued the warning to EU regulators, they said, during a three-day closed-door hearing to consider charges the software giant abused the power that Windows gives it over the personal computer market.
The European Commission has proposed forcing Microsoft to remove its Media Player software from the Windows operating system and imposing a hefty fine, as part of a remedy for allegedly muscling competitors out of the market.
After the company finished its presentation at the hearing, Microsoft General Counsel Brad Smith told reporters he hoped for a settlement in the case.
"We have come to Brussels not only to discuss the issues, but to work things out," Smith said. He added the company would "explore every possible way to come to solutions to the (European Commission's) questions and concerns".
The Commission wants computer makers, rather than Microsoft, to choose which software to install for capturing Web-streaming audio and video on their personal computers.
But from Microsoft's presentation at the hearing, both orally and through a videotaped presentation, it was clear the company ruled out removing Media Player from Windows as part of any settlement, the sources familiar with the case said.
An EU ruling is expected by June, 2004, after which the case could go to court.