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Microsoft Cozies Up to Vodafone

GENEVA -- ITU Telecom World 2003 -- Bill Gates, chairman and chief software architect of Microsoft Corp. (Nasdaq: MSFT), today announced a partnership with the world’s largest mobile operator, Vodafone Group plc (NYSE: VOD), as part his firm's continuing effort to make an bigger splash in the world of telecom software and mobile operating systems (see Vodafone Touts Alliance With Microsoft).

The two companies will jointly create mobile Web services standards based on XML (eXtensible Markup Language). These standards are for developers to link PC applications with services formerly reserved for mobile devices, such as messaging, location, billing, and authentication. In this way, Microsoft is trying to make sure its legacy in the PC applications business is carried over to the mobile world. However, Microsoft's attempt to woo carriers with its software is proving to be a long process. So far, only Orange UK (London: OGE) actually offers its customers the option of Windows-powered smartphone service, a deal that was originally announced over a year ago (see Orange Uncovers Its SPV). T-Mobile International AG also said in February that it planned to start offering a Microsoft smartphone, then delayed the launch and has yet to detail when it will introduce the phone.

Industry analysts say today’s deal with Vodafone is essentially an exercise to step up Microsoft’s visibility among mobile carriers. Similarly, Microsoft recently forged a partnership with telecom billing provider Portal Software Inc. (Nasdaq: PRSF), giving it a backdoor into carriers’ back offices (see Portal Gets Jiggy With Microsoft).

Still, Microsoft does have a monopoly in the desktop operating system market and at least one operator Boardwatch spoke to thinks it’s just a matter of time before it becomes the incumbent OS provider for mobile handsets. “In two to three years it will have the same dominance in handheld devices as it does in PCs today,” says a manager for Emirates Telecom Corp., the incumbent operator in United Arab Emirates.

The manager, who declined to be named, said there are too many competing standards, from the likes of Symbian Ltd., Nokia Corp. (NYSE: NOK), and Sun Microsystems Inc. (Nasdaq: SUNW), which creates an opportunity for Microsoft to come in with its software expertise and create something that is simple and which everyone is familiar with from using PCs. “It’s a no-brainer,” he says.

However, there is little evidence of this happening yet. Sun claims that millions of handsets now on the market can run mobile Java (J2ME) applications, while the Symbian OS and Nokia Series 60 OS are available on a growing number of phones.

In contrast, Microsoft's smartphone OS has been rebranded once since its launch in 2002 and is the subject of an ongoing lawsuit between Microsoft and early hardware development partner, Sendo Ltd. but has seen little carrier pickup (see MS Hops on Hotspot Hoopla and Sendo Sues Microsoft).

However, although initial sales of the Orange smartphone have proved disappointing, Microsoft claims about 22 operators around the world plan to announce their versions of the phones in the coming months and years. [Ed note: Where are they then?].

In addition to flogging Microsoft’s mobile message, Gates also talked about the company’s newly announced IPTV compression software which enables service providers to pump TV programs over DSL lines. BellSouth Corp. (NYSE: BLS) and Reliance Infocomm Ltd. in India have signed up to test the software (see Bell Thinks Outside the Box).

”This is better than today’s TV as it’s video-on-demand and provides an interactive TV guide, it relies on the performance of networks going up, but it’s coming,” Gates said.

Microsoft was heavily involved in the development of MPEG 4 version 10 with the International Telecommunication Union (ITU), which enables TV over DSL networks. However, according to an insider in the ITU’s standards group, the software giant is in fact using its own proprietary technology, Windows Media 9 codec compression, instead. “It is discouraging that Microsoft is not supporting the industry standard in these products,” he said.

It raises the question: How open is today’s "open-standards" message for the mobile handset market?

— Jo Maitland, Senior Editor, Boardwatch

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