AT&T, Microsoft Hit the Road

Microsoft Corp. (Nasdaq: MSFT) today announced a joint project with AT&T Wireless Services Inc. (NYSE: AWE) that could mark a significant development in its "mobile worker" initiative (see Microsoft, AT&T Join Forces).

AT&T, the third largest carrier in the U.S., says it will start to offer Microsoft smartphone and Pocket PC devices, while both companies will work on data services for business customers and simple location-based applications, which are expected to be on the market before the end of the year.

The deal could be bad news for Canadian wireless email provider Research In Motion Ltd. (RIM) (Nasdaq: RIMM; Toronto: RIM), which cut a deal with AT&T Wireless back in January.

On the conference call to introduce the partnership, which Microsoft and AT&T are calling "project 520" (a reference to being "on the road" -- on highway 520 that links the two companies' HQs), Microsoft CEO Steve Ballmer described the deal as particularly aimed at the business user. The two firms are working on making it easy to connect to a user's Outlook inbox via a mobile device.

Providing an always-on link to corporate Exchange or Notes email has been RIM's bread-and-butter market for several years. Now, with always-on GPRS devices coming on the market, Microsoft looks as if it may be trying to grab a slice or two of RIM's action.

"At best for RIM, it shows divided loyalty from AT&T Wireless," comments William Crawford, senior analyst at US Bancorp Piper Jaffray.

We're still going to have the RIM device," says Rich Blasi, a spokesperson for AT&T Wireless. "Different solutions for different companies; they'll decide which one suits their needs."

It is the huge installed base of business users that Microsoft has with its Outlook/Exchange email systems that carriers covet. "Technically, its all about Exchange," comments Seamus McAteer, principal analyst at the Zelos Group LLC.

AT&T Wireless will be able to offer one button connection to Outlook and over-the-air provisioning on GPRS handsets as Microsoft rolls the functions of its Mobile Information Server (MIS) software into the next version of Exchange, which is due in the fourth quarter.

All of which fits in fine with Microsoft's plans to develop more business- and consumer-oriented services to be run over mobile networks. "This [deal] gets things moving in the .Net direction," says Crawford.

The firms are even working on primitive location-based services for the fourth quarter. These services, described by Ballmer as "a little bit of sizzle", will use Enhanced Observed Time Difference (E-OTD) technology, but initially only be able to location a user within a cell site (as per Phase I of the Federal Communications Commission (FCC) e911 directive -- see Wireless Location Technologies).

This means that Microsoft's MapPoint.Net software will be fed user location data from AT&T's network that enables it to plot a map to within a few city blocks in a town like New York or three quarters of a mile in Seattle. AT&T has not given a definite date for when it will implement phase II of the FCC requirements -- the ability to locate a person to within 100 meters on the network. Blasi says the operator is still looking at technology for the more demanding location requirements.

AT&T Wireless says it will offer wireless device using the Pocket PC operating system next quarter and Microsoft smartphones early in 2003. The firm looks likely to use at least some of the same vendors that have already signed up to make devices -- namely, Sendo and HTC Corporation.

It is hard to tell exactly how much headway (if any) Microsoft is making against handset makers like Nokia Corp. (NYSE: NOK). Many carriers have agreed to offer the Microsoft products, but in what quantity and at what price it is not clear.

However, Redmond's strategy is quickly evolving in this area, as the AT&T deal shows. Rather than just relying on the Microsoft brand to shift units, the company is starting to bring targeted software and services (albeit linked to the mobile OS) to the table. It’s a package some carriers might find hard to resist.

"They can cut deals much broader in scope than any other wireless company can," says Crawford. It is this breadth that might eventually give Microsoft the edge it so clearly craves in the wireless data market.

— Dan Jones, Senior Editor, Unstrung
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