Microsoft Corp's plans to sell new services and software through speedy Internet connections may be aided by Comcast Corp's agreement to buy AT&T Corp's cable-television business, analysts said.
Microsoft, which will own 5 percent of the new AT&T Comcast, said it will work with the cable company to deliver interactive TV, fast Web access and software services to its 22 million customers.
The sale to Comcast removes concerns that Microsoft rival AOL Time Warner Inc might buy the AT&T unit, which could have blocked the biggest software maker from using those cable lines, analysts said.
Microsoft is counting on growth in Web services to make up for slumping demand for personal computers. The company's MSN Internet access service, Xbox game console and .Net content-delivery strategy require access to users over high-speed connections.
Microsoft's biggest competitor in these new markets will be AOL Time Warner, which owns the biggest Internet service.
"Microsoft really needs to participate in new markets and this [transaction] is one very important brick in the wall they're building," said Sarah Mattson, an analyst at RBC Capital Markets.
The shares of Redmond, Washington-based Microsoft gained US$0.78 to US$67.54. They've climbed 56 percent this year. New York-based AOL Time Warner lost US$0.41 to US$32.37 and has declined 7 percent this year.
Katy Fonner, a Microsoft spokes-woman at public-relations firm Waggener Edstrom, declined to elaborate on the software maker's plans for partnerships with AT&T Comcast.
Under the terms of Comcast's US$72 billion acquisition of AT&T's cable unit, Microsoft will convert a US$5 billion investment it made in AT&T in 1999 to a 5 percent holding in AT&T Comcast. That was a "huge help" in allowing Comcast to assume more of AT&T's growing debt, Comcast Chief Executive Brian Roberts said yesterday. Comcast offered US$58 billion for the unit in July.
Analysts had speculated that Microsoft was probably talking to Comcast and Cox Communications Inc about joining their bids for the AT&T business, trying to help them top any offer from AOL Time Warner. AOL, the second-biggest US cable-TV provider with 12.7 million subscribers, may try to buy another cable operator now that it lost the bid for AT&T's business, analysts say.
Microsoft's MSN is the No. 2 US Internet service and chief competitor to AOL's America Online in the race to deliver fast access over cable-TV lines. Scott McAdams, chief executive at McAdams Wright Ragen, a Seattle-based brokerage that owns Microsoft shares, expects MSN to begin offering service through AT&T Comcast in the next several months, thanks to the new stake.
"It was in Microsoft's best interest for this thing not to go to AOL," said Greg McClenon, an analyst at Hotovec, Pomeranz & Co.
"As opposed to it being a huge upside, it's just not a downside for Microsoft."
Sales of high-speed Internet access are expected to grow in the next few years, while sales of slower dial-up access decline.
Microsoft's commitment to Comcast was a "market-based transaction" that came with "no strings attached," Roberts said.
The investment is unlikely to make Microsoft an exclusive supplier of services or software or land the company new contracts immediately, analysts said. Even with the stake, it will be hard for Microsoft to convince cable companies to switch to exclusively using its programs, such as interactive-television software, because both Comcast and AT&T have agreements to use competing products.
"It's way too early" to say exactly what partnerships will emerge from the deal, said Melissa Eisenstat, an analyst at CIBC World Markets.
"The software that the cable companies are going to be using is going to be stuff they already have."
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