Microsoft Corp. wants to block an effort for a shareholder vote forcing the world's largest software maker to explain its support for Internet network neutrality, according to a company letter obtained by Reuters on Tuesday.

The Free Enterprise Action Fund, a mutual fund that says it offers both financial and ideological returns, wants Microsoft shareholders to seek a report on the company's rationale for backing Net neutrality, which the group says would result in expanded government regulation of the Internet.

The debate centers on whether high-speed Internet providers like AT&T Inc. and Comcast Corp. should be barred from charging companies like Microsoft or Google Inc. to carry their content or guarantee service quality.

Microsoft and Google fear broadband providers would block access to their content and have sought legislation barring those extra charges. AT&T and other broadband providers have denied they would block access to the public Internet.

The Free Enterprise Action Fund, which owns stock in companies on both sides of the debate, proposed that Microsoft prepare a report analyzing the business and economic rationale, regulatory impacts, legal liabilities and any effects on product development and customers.

We feel they should be worried about innovation and competition rather than perhaps running to the government for regulation, said Tom Borelli, a portfolio manager at the fund, which has about $5.5 million in assets and more than 4,000 Microsoft shares.

However, Microsoft asked the Securities and Exchange Commission if it could exclude the proposal from its annual shareholder vote without facing enforcement action by the agency.

The company argued that the Net neutrality debate was part of its normal business operations and securities rules permitted Microsoft to exclude such proposals from a shareholder vote.

Simply because a proposal touches upon a matter with public policy implications does not remove it from the realm of ordinary business, Microsoft Assistant Secretary John Seethoff said in the July 14 letter to the SEC.

Borelli said that one of its previous proposals seeking a report on another subject by J.P. Morgan's board received 24 percent of the shareholder vote and another at General Electric Co. received 6 percent.

What are they afraid of? If they have thought this through and they know what they're doing, what's wrong with a report to your shareholders explaining your rationale, he said.

Microsoft has not yet indicated when it plans to hold its annual shareholders meeting. Public companies typically file proxy statements with the SEC well in advance of annual meetings to disclose issues to be put before shareholders for a vote.

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