The European Commission has announced an in-depth investigation into the planned joint acquisition of Telewest Communications by Microsoft and Liberty Media, a wholly-owned subsidiary of AT&T.

The investigation gives the Commission four months to verify its concerns. The Commission is worried that the transaction will not only restrict competition in the market for software for digital set-top boxes by requiring Telewest to buy Microsoft software, but also strengthen Telewest's dominant position as the supplier of cable services to consumers in its UK franchise area.

As required by European Union antitrust rules, the companies notified the Commission of their plans on March 1, 2000. At that time, Microsoft and Liberty vowed to preserve Telewest's independence, but these undertakings proved insufficient to meet all the Commission's concerns about the deal reducing competition in the market, according to a Commission statement.

Under EU merger control rules, the Commission must prevent any operation from creating or reinforcing a dominant position.

"This is all about the Commission's paranoia as regards Microsoft," one analyst, who asked not to be identified, remarked. The EU is also investigating Microsoft for alleged monopolistic practices with its Windows operating system.