Microsoft puts up $5 billion to boost its broadband presence

Microsoft today said it is making a $5 billion investment in AT&T as part of a series of agreements that will deepen the ties the two companies have in the broadband and Internet services markets.

This represents one of Microsoft's most substantial moves into the broadband market, for which they hope to supply software for cable set-top boxes and content that would be moved over those connections. Microsoft also has made a $1 billion investment in cable operator Comcast.

"Clearly Microsoft wants to get a substantial presence in the broadband market," said Paul Dravis, an analyst with NationsBank Montgomery Securities.

In addition to the purchase of $5 billion in AT&T securities, AT&T will expand by 2.5 to 5 million the number of digital set-top boxes they deploy with Microsoft's Windows CE-based operating system. Currently, AT&T has committed to put CE on 5 million set-top boxes. The deal is nonexclusive meaning AT&T can continue to use Java technology, which it has licensed from Sun Microsystems, in some of its boxes.

Although the agreement has a decided consumer bent, it is unclear if there will be spin-offs for business customers. The set-top devices support high-speed delivery of applications that can provide communications and information services, as well as, entertainment.

AT&T also will license Microsoft client/server software that supports a range of digital services such as e-mail and interactive television. The pair plan to deploy the client/server television software in two major cities next year.

The agreement comes on the heels of this week's agreement that AT&T would acquire MediaOne for $54 billion, which, if the deal is approved, would make AT&T the largest cable operator in the nation.

Microsoft also agreed to purchase MediaOne's nearly 30% stake in Telewest Communications, a cable television and telephony operator in the U.K.

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