Microsoft played an important behind-the-scenes role as the third-largest U.S. cable TV provider, Comcast, acquired nation-leading AT&T Broadband in a deal worth US$72 billion. Microsoft also invested US$500 million in a South Korean telephone company and announced a delay in the sale of travel site Expedia to content company USA Networks.

Microsoft in the Comcast-AT&T Deal

Microsoft, which already had a stake in both Comcast and AT&T, cleared the way for Comcast’s purchase of AT&T Broadband by agreeing to lighten the debt load of the combined company. Specifically, Microsoft agreed to convert its AT&T preferred securities-which it purchased for US$5 billion in May 1999, and which required AT&T to pay Microsoft a yearly dividend-into regular shares of the new company. By converting the shares, Microsoft reduces the new company’s dividend obligation (which can be viewed as debt) and leaves it more cash for building new business and acquiring new customers. The new company will have approximately 21 million cable TV subscribers in 41 states, 2.2 million cable Internet access subscribers and, according to AT&T Chief Financial Officer Chuck Noski, is expected to bring in US$18 billion in annual revenues.

Microsoft is attempting to bolster adoption of the .NET platform with an investment in a collaboration software ISV. The company has also dropped out of a joint venture to create wireless applications.

Groove Investment Bolsters .NET

Microsoft has invested US$51 million in Groove Networks, an ISV that specializes in peer-to-peer (i.e., no server required) collaborative software for businesses. Founded by ex-Lotus Notes head Ray Ozzie, Groove was an enthusiastic early supporter of many technologies that are core to .NET, including XML and Simple Object Access Protocol (SOAP), and it was one of the five companies that announced support for .NET My Services (HailStorm) when they were launched in Mar. 2001.

The investment is part of a formal strategic relationship between the two companies. Although the two companies did not announce any specific co-development projects, it is likely that Groove’s applications will provide an early testing ground for various parts of the .NET platform, particularly the .NET Framework and .NET My Services.

Microsoft has boosted its strength in wireless services, games, and Web services for consumers and businesses as a result of investments in the second half of FY’01. Most notably, Microsoft invested US$127 million in New Zealand’s Telecom and purchased gaming software company Ensemble Studios.

Telecom Could Boost Wireless Strategy

On May 11, Microsoft announced that it was investing NZ$300 million (about US$127 million) in Telecom, New Zealand’s formerly state-run postal and telephone company, which was privatized in 1990. As part of the deal, Telecom’s Xtra portal, which provides national news and information to approximately 370,000 users, will be merged with MSN New Zealand and will offer MSN services such as Hotmail, MSN Messenger, and MSN Search.

Telecom, which also owns number-three Australian telephone company AAPT, is a wireless leader in its region. It provides wireless phone service to more than 1.2 million subscribers and has recently entered a joint venture with a Hong Kong company, Hutchison Whampoa, to roll out next-generation (3G) wireless phone services in New Zealand and Australia. Microsoft is anxious to find buyers for its wireless-phone technologies for carriers, such as the Mobile Information Server, and to find carriers willing to sell smart phones based on the “Stinger” platform. The Telecom investment could provide it with a welcome test market.