Microsoft inks DSL pacts with Bells

Deals could represent a turnaround
in ISP's broadband initiatives

Microsoft's ISP arm, MSN, will be able to offer nationwide DSL service by the end of the year through deals struck with all four RBOCs, according to an MSN project manager. The agreements mark a major step forward for the software giant's previously floundering broadband initiatives.

MSN's deal with Qwest Communications is the only one of the four agreements about which details have been revealed, but it is likely the closest relationship the ISP has established with an RBOC.

Under the terms of the deal, MSN will serve as Qwest's customer-facing ISP for consumers. All current residential users of Qwest.net the incumbent's current ISP must transfer to MSN or choose another ISP by November when Qwest.net ceases consumer operations. MSN does not have a commercial arm, so Qwest's business ISP will continue.

In addition, MSN has “reached agreements with the other RBOCs, and we have [other deals] pending,” said Mark Wain, product manager for MSN. “We're constantly looking for others to team with us in a strategic way.”

The agreements with BellSouth, SBC Communications and Verizon Communications have not been announced, and details were unavailable at press time.

A Verizon spokesman confirmed his company's wholesale agreement with MSN but was unable to provide details. A BellSouth spokesman was unable to confirm an agreement, while representatives with SBC did not return requests for comment.

According to analysts, though, any DSL deals MSN strikes with BellSouth and SBC will likely follow the wholesale model rather than the tight coupling MSN has established with Qwest.

“I don't think [MSN is] going to get exclusive relationships unless Verizon online and BellSouth.net fold,” both of which are stronger than Qwest.net, said Rob Lancaster, Internet market strategies analyst for The Yankee Group.

MSN's deal with Qwest Communications is likely the closest relationship the ISP has established with an RBOC.

The agreements with all four RBOCs mark an important reversal for MSN. Until now, the company has had difficulty enacting broadband initiatives. It has been criticized for not being aggressive enough in pursuing a place on cable operators' networks. And in what analysts consider an attempt to deal with only one DSL provider for the entire country, MSN used competitive DSL provider NorthPoint Communications to provide broadband services, only to see NorthPoint go bankrupt in March.

But the RBOC deals complete a significant portion of MSN's broadband strategy. The agreements mean MSN and AOL Time Warner are roughly even in the rollout of broadband services to ISP customers, with AOL slightly ahead, said Greg Mycio, director of broadband analysis for New Paradigm Resources Group.

Even though it has assembled a nationwide DSL distribution system, MSN has said DSL is not its final broadband solution. “We are transport-agnostic,” Wain said. “We are not limiting ourselves to only dealing with DSL.”

Indeed, a look at the companies Microsoft has attempted to partner with or has a stake in reveals relationships the company could attempt to leverage to offer several different last-mile solutions (see figure).

Microsoft's possible broadband channels, past and future
Company	Relationship
Rhythms NetConnections	Owns 6.5% of this recently bankrupt DSL provider
Teligent	Member of a consortium that invested $500 million in the bankrupt fixed wireless player
NorthPoint Communications	Had been using defunct DSL provider for broadband connectivity
DirecTV	Member of the News Corp.-led consortium attempting to acquire the parent of DirectTV, Hughes Electronics
Comcast	Owns 11% of the cable operator that recently made a bid for AT&T Broadband
Source: Companies

But Keith Kennebeck, analyst for The Strategis Group, cautions against depending on those relationships to provide MSN with broadband access solutions. “Microsoft is trying to cover all bases, [but] those are mainly just investments,” he said.

Still, most analysts agree this is not the time for MSN to become complacent, saying the company should continue to pursue broadband access opportunities with cable, fixed-wireless and satellite broadband providers as well as DSL.

“Just being able to offer DSL is not good enough for MSN,” said The Yankee Group's Lancaster. “Even if they have ‘national coverage’ of DSL, they're still missing a huge percentage of the country that does not have DSL at all.