Microsoft has taken a $5 billion stake in US telecoms giant AT&T in aconcentrated push into digital services. far-reaching deal that will see the software vendor's technology emerging in high-speed digital television and internet services.
The non-exclusive deal follows AT&T's $56 billion bid to buy US cable operator MediaOne, and clears the way for the telecoms company to control cable services in up to 25 million US homes.
In addition, Microsoft has stepped up its interest in the UK digital television services market by purchasing MediaOne's 29.9 per cent stake in the UK's second largest cable company. Telewest Communications, worth about £1.8 billion.
Under the terms of the deal, Microsoft will buy $5 billion of AT&T securities and, in turn, AT&T will increase its use of Microsoft's software in next-generation and advanced set-top boxes. AT&T is already committed to installing Windows CE on five million devices, but the agreement could double that amount.
Both companies have also agreed to work together to showcase digital cable services for interactive television in two US cities in 2000. AT&T plans to use Microsoft software, along with a third-party platform, in an additional unnamed US city.
Microsoft's interest in AT&T began when the telecoms provider considered taking an interest in MediaOne, which had been planning to merge with another cable operator, ComCast, in which Microsoft also has a stake.
Discussions between AT&T and ComCast culminated last week when ComCast agreed to drop its bid for Media-One, in return for the opportunity to buy about two million extra cable customers.
John Moroney, principal analyst at Ovum Group, said: 'Microsoft is trying to buy into end providers because this is where companies need to be full service providers. Software will be marginalised over time and Microsoft has to have a complete service. It wants to achieve what it has done in the PC and media business, although these investments don't guarantee success. There will be other deals like this.'
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