Microsoft Expands Broadband, Wireless Investments

With billions of its dollars already invested in broadband and telecommunications companies, Microsoft Corp. is showing no signs of slowing down its push into the broadband market.

The latest in a string of investments took place in mid-December in conjunction with several prominent investment firms, including Credit Suisse First Boston Equity Partners L.P. (www.corp.csfb.com) and Welsh, Carson, Anderson and Stowe VIII L.P. (www.welshcarson.com). The conglomeration will invest a total of $900 million in Winstar Communications Inc. (www.winstar.com) to fund the company's business plan and expand its network, products, and services.

Part of Winstar’s new business plan is an alliance with Microsoft (www.microsoft.com) to deliver and promote broadband applications for new and existing general business, e-commerce, and multimedia applications services.

Microsoft will license its applications to Winstar on an application service provider (ASP) basis. Winstar, which is already a member of the Microsoft Office Online beta pilot, will provide Office 2000 and other application services to Winstar customers using its national-local, end-to-end, high-speed broadband network and its locally distributed Internet data centers. This will allow Winstar customers to access the remotely hosted application software.

Microsoft and Winstar will pursue a multifaceted technology relationship in which Winstar will participate in the Microsoft Partner Solution Center (MPSC) on the Microsoft campus in Redmond, Wash. The focus of this participation will be on developing new bandwidth-intensive services such as on-demand IP videoconferencing based on Microsoft software. The companies also plan to offer Microsoft's BizTalk e-commerce and media streaming initiatives over Winstar's broadband network.

Thomas Koll, vice president of the network solutions group at Microsoft, says his company and Winstar share a mutual vision of how to deliver applications over the broadband network.

Koll also says the two companies plan to expand the number of ways that applications are delivered to and used by knowledge workers.

A recent report from market research firm Current Analysis Inc. (www.currentanalysis.com) says the investment is good for Winstar, but expresses concern about Microsoft as a partner.

Carl Garland, principal analyst of network services at Current Analysis, cautions in the report that cable and DSL broadband service providers should brace themselves for the coming storm, because this partnership represents another channel for Microsoft to participate in the ASP space.

The report goes on to say that considering Microsoft's telecommunications and cable investments over the past two years now exceed $8 billion, the company is clearly intent on diversifying to create a broadband access platform for its own applications.

In the report, Garland says, "From an industry perspective, any deal concerning Microsoft and its extremely deep pockets is more than a little disconcerting. The company's focus on alternative broadband local access providers, and fixed wireless in particular, should be cause for consternation among ILECs and other DSL vendors."

The Winstar deal in December closed out an eventful year for Microsoft in the broadband and telecommunications arena.

In December 1998, Microsoft bought $200 million of stock in Qwest Communications International Inc. (www.qwest.com). The two companies announced a joint initiative to enable business to have high-speed network services for e-commerce, Web hosting, and other mission-critical business software and application services.

In March 1999, Microsoft invested $30 million in Rhythms NetConnections Inc. (www.rhythms.net), a provider of high-speed networking solutions for remote access to private networks and ISPs. The two companies also agreed to provide Rhythms’ customers with access to services, such as HotMail, via a cobranded MSN portal.

Then Microsoft dropped $5 billion into AT&T Corp. (www.att.com) securities in May. In return, AT&T increased its use of Microsoft's TV software platform in advanced set-top devices. Both companies are working together to showcase new digital cable services in U.S. cities. That same month, Microsoft infused $600 million into Nextel Networks Inc. (www.nextel.com) to advance the deployment of wireless Internet services.

In November, Microsoft and capital investment firms provided Teligent Inc. (www.teligent.com) with $500 million, which resulted in a deal between the two companies designed to speed deployment of digital broadband communications networks.