The European Commission is to ask IT companies whether Microsoft's latest proposal for changing its business practices will be effective before deciding whether to hit the company with a fine of US$5 million a day for noncompliance.

Microsoft had been given until midnight Tuesday to present its final proposal for how it plans to implement the changes demanded by the Commission to correct its anti-competitive behavior. The Commission is the European Union's anti-trust regulator.

"Microsoft has submitted its proposals to the European Commission and we await their response," Microsoft spokesman Tom Brookes said Wednesday.

Discussion between the regulator and Microsoft continued until late into the night, Commission spokesman Jonathan Todd said.

"The Commission will now carefully analyse what's on the table to assess whether or not Microsoft is in conformity with the March 2004 decision," he said.

The Commission set 31 May as the cut-off point for a final submission on how it would carry out the measures it requested last March, when it ruled that Microsoft had abused its dominant position in the PC operating system market. Among the measures, Microsoft was required to offer a version of Windows without Windows Media Player (WMP) software and license certain workgroup server protocols to competitors on fair and equal terms.

While the Commission is understood to be broadly satisfied with Microsoft's proposal for a version of Windows without WMP, called "Windows XP N", the two sides have been locked in disagreement over the licensing terms for the communications protocols.

Microsoft proposed earlier that developers who license these protocols to pay a fee on every sale of a product that uses its intellectual property. But the Commission is sympathetic to the view of open source developers who argue that the terms are impossible to fulfil, because of the principle of not charging for free software and because of their inability to monitor all of the software's end users.

The Commission confirmed that it will now ask a wide range of companies what effects Microsoft's latest proposal would have in the marketplace. That consultation process, due to last a couple of weeks, will involve one of Microsoft's biggest rivals in the media player market, Real Networks, as well as open source software developers and PC makers.

It will likely take the Commission "several weeks" at least to assess Microsoft's response but a final decision will be taken before the end of July, Todd said.

When the Commission has received responses from those organizations it will decide whether Microsoft's offer complies with its ruling.

If it decides that it does not, the Commission can fine Microsoft the equivalent of 5 percent of its worldwide daily turnover, estimated at $5 a million a day. Before doing that, Neelie Kroes, the EU's competition commissioner, would have to inform Microsoft of its intention and the company would have a set period of time in which to respond. It would also have to consult competition policy experts from the European Union''s 25 member states and obtain backing for the move from the entire 25-member Commission.

Microsoft can appeal in the European courts against a decision to impose the fine.