MSN will not renew agreements to resell broadband Internet access on DSL lines leased from regional telephone companies BellSouth and SBC, and it has modified its agreement with Qwest so that the ISP will handle all billing. The changes continue Microsoft's exit from the broadband ISP business so it can focus on the MSN client software and associated online services.

MSN 8 Marked Strategy Shift

Until 2002, MSN's broadband strategy was to lease DSL lines from regional and national providers, then resell DSL access to customers under the MSN Broadband brand, while handling billing and support. MSN's main partner in this strategy was NorthPoint Communications; after NorthPoint went bankrupt in 2001, MSN signed similar "tariff" deals with BellSouth, Qwest, SBC, and Verizon.

However, the release of the MSN 8 client in fall 2002 marked a significant strategic change for MSN. Now, Microsoft wants to strike agreements with ISPs under which the ISPs redistribute the MSN client to their broadband customers, add the cost of the MSN client into customers' monthly billing statements, and split the revenue from these customers with Microsoft. (The MSN client is also sold on a "bring-your-own-access," or BYOA, basis—that is, users of any ISP can pay Microsoft a monthly fee to use the MSN client—but this is less profitable for Microsoft than the redistribution agreements.)

Qwest and Verizon are transitioning to the new model: both ISPs redistribute the MSN client to all broadband customers, and Qwest agreed in July 2003 to handle billing for MSN Broadband customers (Verizon already handles billing). But MSN has so far been unable to strike similar agreements with BellSouth and SBC, and it will not renew its tariff agreements with these companies when they expire. (Notably, SBC also resells content and Web-based services provided by MSN competitor Yahoo.)

MSN Broadband subscribers who receive service via BellSouth have until Nov. 12, 2003, to switch their accounts to BellSouth or another provider. All affected customers may continue using the MSN 8 client for one year at no charge. MSN has confirmed that the deal with SBC will also end, but has not revealed the end date.

For background on MSN 8 and the concurrent strategy shift, see "MSN Refocuses on Client Software" on page 24 of the Sept. 2002 Update. For the latest on MSN, see "MSN Client Splitting into Two Versions" on page 31 of the Oct. 2003 Update.