Microsoft's ambitions in the UK cable television industry were dealt a blow yesterday when the European Commission announced a further investigation into the software group's bid for a large stake in Telewest Communications.

Mario Monti, the EU competition commissioner, referred to fears that Microsoft would use its 29.7% stake in the UK's second-largest cable television operator to increase sales of its own set-top box operating system.

"We will make a detailed assessment of the impact of the transaction on competition conditions in various areas of the digital cable industry... in particular the provision of software for digital set-top boxes in the UK and its impact for the choice of British cable subscribers," he said.

Microsoft had offered to make several concessions, including safeguarding Telewest's ability to choose other set-top box operating systems and allowing other content providers and software developers to make products compatible with its system.

These were rejected by the commission as inadequate. Microsoft, already under fire from an anti-trust action in the US, would take joint control of Telewest as part of last year's $5bn investment in AT&T, the US telecoms group.

Microsoft said it would "continue to work very hard with authorities to reach acceptable terms for an agreement". However, it would fight any condition which weakened its position in the sector. "The market for set-top boxes is very, very competitive," a Microsoft spokesman said.

The EU is likely to make a final decision by early August. Although it rarely rejects a deal outright, it is expected to insist on more concessions to ensure consumers can choose different operating systems for the boxes, which control cable access to the internet.