Ericsson will own the majority share of the new company. As part of the strategic partnership, Ericsson will provide Microsoft with its Wireless Application Protocol format--which allows content from the Internet to appear in the window of cellular devices--while adopting Microsoft Mobile Explorer for Internet phones.
Microsoft and Ericsson said they also agreed to collaborate in their support of developing open industry standards, hoping to allow next-generation wireless solutions to work more seamlessly with local area networks (LAN) and other electronics products.
Shares of Ericsson surged more than 9 percent on the announcement today to a new 52-week high. Microsoft stock gained slightly on the news but ended the day lower.
Microsoft, along with a host of wireless telecommunications firms and makers of handheld devices, has been competing furiously as the once-separate markets--software, telecommunications, palm devices and e-commerce--continue to converge at a breakneck pace.
Computer data and voice communications are increasingly traveling the same route--whether wireless, cable, DSL, satellite or regular telephone landlines--and being accessed by a growing array of devices, including handheld computers, cellular phones and television.
The software giant has especially been flexing its financial might, cutting several deals with telephone companies around the world. Among a growing list of its investments is a 50-50 venture with NTT DoCoMo, Japan's No. 1 cellular company, which is hoping to allow users to retrieve files from office or home, personal computers over the phone, read email and view calendars and schedules using Microsoft's Windows CE operating software.
Earlier this year, Microsoft announced a deal with British Telecommunications to roll out wireless Internet services in Europe beginning with a trial involving about 1,000 mobile phone users. The company has also pumped money into wireless player Nextel and emerging carrier Qwest Communications International.
Despite such aggressive moves, antitrust experts said there is no reason to think the Microsoft-Ericsson deal would be affected by the landmark Microsoft antitrust trial. Windows CE and wireless are not part of the government's case against the software maker.
The race for positioning in this converged world is not one-sided. Nokia, the world's largest maker of cellular phones, and Palm Computing, Microsoft's bitter rival in the handheld device operating-systems market, have teamed up to create devices that combine wireless voice and data access with mobile information management and handheld organizer capabilities.
Rival cellular phone maker Nokia slipped almost 5 percent after the announcement, but closed the day down less than 2 percent. Shares in Psion on the London Stock Exchange took an especially hard beating as investors, worried about what the deal could mean to Psion's fledgling Symbian platform, dumped the stock.
Symbian--a joint venture among British handheld computer company Psion, Sweden's Ericsson, Finland's Nokia, Motorola and Japan's Matsushita--is being developed to build products around Psion's EPOC operating system for the next generation of smart cell phones and handheld computers with Internet access.
As the largest stockholder in the Symbian joint venture, Psion had hit a lofty valuation primarily on the belief that the Symbian platform would be adopted as the format in the Internet-enabled devices of most wireless firms. Ericsson said today that it remains committed to the Symbian effort, which presents stiff competition to Microsoft.
"Mobile Internet access and services are crucial for realizing Microsoft's vision of empowering knowledge workers and consumers through software anytime, anywhere and on any device," Steve Ballmer, Microsoft president, said in a statement.