The European Union's executive commission said it had been unable to persuade Microsoft to mend its ways and would announce sanctions next Wednesday.

But Microsoft said it would appeal the verdict to the European Court of Justice, in what could be a long and costly battle, while still holding out hope for a settlement at a later date.

The five-year EU probe represents the last hope for Microsoft's rivals after the company largely settled its anti-trust problems in the United States.

It revolves around allegations that Microsoft has unfairly crushed competition in Europe for popular multimedia applications and for low-end servers, which enable computers to hook up to a network.

"A settlement to the Microsoft case has not been possible," EU Competition Commissioner Mario Monti told reporters, after the collapse of talks with Microsoft chief executive Steve Ballmer.

"We made substantial progress towards resolving the problems that had arisen in the past, but we were unable to agree on commitments for future conduct," the Italian commissioner said.

Monti won the unanimous backing of EU member states this week for his draft verdict in the investigation. Next Monday he will decide with the governments the level of fines -- possibly running into hundreds of millions of euros.

In the final verdict two days later, Microsoft will be ordered to detach the Windows Media Player from its operating systems in Europe, according to the commission's draft findings.

The media player handles sound and visual data, such as radio and TV streams and MP3 files -- a function that has become all the more important for PC users in the multimedia age.

Rival companies such as RealNetworks and Apple complain that their media players cannot compete fairly because of Microsoft's practise of attaching its player to Windows, which comes pre-installed on 90 percent of PCs.

In the United States, Microsoft was accused of similarly unfair practices in attaching -- or "bundling" -- its Internet browser program with Windows.

The company is also likely to be ordered by the EU to provide interface information so that its rivals can offer products that interact with its low-end servers.

Microsoft insists that bundling its products into one package is to the strong benefit of the consumer and enables groundbreaking innovation in PCs.

And the company fears that being forced to unbundle Media Player from Windows could complicate the addition of future software to its lucrative operating system.

"Perhaps the courts will provide the clarity that is necessary to resolve these issues," Microsoft's chief lawyer Brad Smith said in a statement.

"There needs to be consideration of the needs of consumers for new innovations. Consumers must be part of the equation."

But the EU commission argues that the bundling strategy unfairly squeezes out rival products and wants to give the consumer a proper choice.

A coalition of anti-Microsoft companies, the Computer and Communications Industry Association (CCIA), applauded the announcement that the US software giant will be punished in Europe.

Having lambasted the US government's settlement with Microsoft in November 2002, CCIA chief executive Ed Black said next Wednesday's verdict would be a "watershed" for fair competition.

"It will be a first step to restoring consumer choice and innovation in multiple markets subject to the stranglehold of a monopolist," he said in a statement.

SPACE.WIRE