Microsoft heeds the call of wireless

Microsoft has joined with AT&T Wireless in a deal that could open new channels for its .Net services and extend the Windows operating system into new markets.

As expected, the software giant announced the deal Wednesday. The alliance encompasses three broad areas: getting Microsoft software onto new devices, simplifying access to corporate information over wireless devices and enabling location-based services.

The deal is an important first step for bringing to mass market Microsoft's Pocket PC Phone Edition, which the company officially unveiled in February. Microsoft and AT&T said that they were at the late stages of product development and would deliver devices using the software in the fourth quarter.

"This thing is real," said John Zeglis, AT&T Wireless CEO, during a Wednesday morning conference call about the partnership. "We have joint working groups focused solely on developing these new wireless data solutions. We also have customer trials under way, and we commercially will launch the first set of services before the end of this year."

AT&T Wireless will release devices based on the Pocket PC Phone Edition operating system and, eventually, those based on Microsoft's Smartphone operating system. Smartphone devices aren't expected to reach the market until as late as mid-2003, Zeglis said. The company also will release wireless modems for notebooks and Microsoft's forthcoming Tablet PC.

"An important part of our agreement is a commitment for AT&T Wireless to deliver Windows-powered wireless devices, and that will include, among others, a new, cool, voice-enabled PDA that should be out later this year," Zeglis said.

The AT&T Wireless executive said that the company would announce manufacturers for the devices "very shortly."

Microsoft on the offensive
The announcement reflects a surge by the software maker into a new arena, analysts said.

"Microsoft is executing on its strategy to be a major player in the wireless device/operating system space," Technology Business Research analyst Christopher Foster said. Microsoft now has deals in place with AT&T Wireless, Verizon Wireless, VoiceStream, Sprint PCS, mm02 and Vodafone, among others, he said.

"Device manufacturers, especially Nokia, are feeling the pressure of the momentum Microsoft is gaining on both the operating system level and the device-manufacturing level," Foster said. "The profitability of mobile phones is in the operating system and application layers, which is where Microsoft hopes to displace Nokia."

Jupiter analyst Michael Gartenberg said that the deal is a significant one for Microsoft. "This brings their mobile platform some of the legitimacy that they have been looking for," he said.

He noted, however, that since AT&T Wireless is not likely to use Microsoft's Smartphone until the middle of next year, competitors have another year to stake out their ground.

Microsoft CEO Steve Ballmer told conference call participants that the alliance developed about nine months ago, around the time that Ballmer took over direct oversight of Microsoft's Mobility Group. Seattle-area neighbors Ballmer and Zeglis found that both companies were interested in delivering wireless data and services to handheld PDAs and notebooks, as well as traditional cellular handsets.

"Rather than think about this narrowly, as something that's only about phones, we said, 'Boy, there are these three existing devices, and all of them are going to need mobile data,'" Ballmer said.

Those service and products would not just be for wireless phone networks but also for 802.11b, or Wi-Fi, systems that connect portables to a local area network without the need of cables.

"We kicked off a partnership, probably roughly six months ago, then after some initial discussions," Ballmer said. "The project we kicked off, we named after the freeway that links Microsoft and AT&T both in Redmond, Wash.--Project 520."

Location, location, location
While the devices will be available to consumers and businesses, many of the services will focus on corporate access to data. The companies also want to knock down the barriers that hamper companies' efforts to provide wireless devices or handsets to their employees.

"We are developing products and software that make it stunningly simple and instantly usable for all of our business customers to get their employees up and running on reliable, ready-to-use wireless data devices," Zeglis said.

To use a device powered by Pocket PC, users will simply have to "open the box and turn it on," he continued. "That's it. Wireless data settings will be preconfigured by the IT department and ready to be downloaded over the air...That's going to make employees productive immediately."

Analysts said the two companies have their work cut out for them.

"While Microsoft has had great success on the wired enterprise side, there's been a lot of confusion on the wireless side," Gartner analyst Phil Redman said. Microsoft has launched a number of wireless products, he said, "but none of them stuck. They certainly don't have a lot of experience in the wireless space."

AT&T Wireless, by contrast, has wide experience in that area, but "at the same time has not been able to get into the enterprise data side," Redman said. "So these guys are really going to be co-dependent on each other to put together solutions for enterprise data space."

Redman sees an uphill battle to selling businesses on wireless, location-based services, at least initially.

"For the average mobile road warrior, there haven't been many compelling applications," he said.

What Microsoft wants for the business market is to make it easier for mobile data users to quickly access information or services in conjunction with its existing products.

"There's a lot of work Microsoft has done," Ballmer said, "so that somebody could sit on any of these devices in a tool like Outlook and very quickly and very easily access their corporate e-mail servers, their corporate Outlook contact list, their corporate information."

In practical terms, he said, that means "laptop users will get simple, point-and-click buttons" in the toolbars of their existing Microsoft applications to connect them to information over AT&T Wireless.

Global positioning
AT&T Wireless also plans to deliver location services to handsets, handhelds and laptops using Microsoft's .Net Compact Framework technology and MapPoint .Net mapping service. Ballmer described them as "presence services," which also take advantage of the location capabilities of GSM (Global System for Mobile Communications) and GPRS (general packet radio service) networks. Microsoft's .Net Messenger would also be used for delivering these services, Ballmer added.

"GSM/GPRS is used by the vast majority of all the world's wireless customers," Zeglis said. "That is great news for our business customers."

Many of the new services will require those communication services. "You will need a GPRS SmartPhone or PDA to take advantage of wireless data," Ballmer said.

But AT&T Wireless has not yet extended the network to all its customers. To date, only about 60 percent of the company's customers can access the network in the United States. Chicago, Dallas, Las Vegas, Miami, Phoenix, San Diego and Seattle are among the major metropolitan areas served by GSM and GPRS.

And AT&T Wireless has been rapidly adding new locales to that network, "practically all of which will be turned on by next quarter, when we will be offering services to around 170 million of the United States population," Zeglis said. "Customers would start seeing the first set of services from this alliance around the same time."

Ballmer said that Microsoft sees a big opportunity for delivering location services using AT&T Wireless' GSM and GPRS network capabilities.

"Show me a map where I want to go to next," he said. "Show me a map that tells me where all my buddies who are online and want to share that information with me, where are they on the map."

Ballmer said that the deal between the two companies isn't exclusive. "I don't think that AT&T is going to stop offering devices from other handset makers with different software than ours, and we're going to continue to work with other wireless carriers."

But some specialized features, initially at least, would be exclusive to AT&T Wireless. "Frankly, there is some exclusivity for the easy-open activation and the one-button sync-up with Outlook," Zeglis said.

News.com's Ian Fried contributed to this report.