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Microsoft buys into Road Runner

Microsoft and Compaq will invest a combined $425 million in the high-speed cable Internet access service.

Microsoft and Compaq will invest a combined $425 million in high-speed Internet access via cable service Road Runner, the companies said today.

Road Runner is a joint venture of Time Warner, Advance/Newhouse, and MediaOne.

Under the terms of the deal, Compaq will produce and ship cable-ready PCs, and Microsoft will bring to the table its experience in Internet, client-server, and application software. Both companies will make a $212.5 million investment in Road Runner and receive a 10 percent stake in the venture.

Time Warner will have about a 9 percent stake, and Time Warner Entertainment's cable division--in which Time Warner and MediaOne Group are partners--will have about a 20 percent stake. MediaOne Group will have about a 25 percent stake, and TWE-Advance/Newhouse will have about a 26 percent stake.

"This new venture enables us to take advantage of the converging technologies of the Internet, computers, and broadband services to deliver vastly improved data access and services to consumers," Compaq president and CEO Eckhard Pfeiffer said in a statement.

Added Microsoft chief executive Bill Gates: "This venture brings the right combination of technology and Internet access to make high-speed Internet connectivity a reality for consumers." (See related story)

Under the terms of the deal, there are no exclusive technology agreements with Microsoft and the venture in the contract, said Steve Guggenheimer, Microsoft's group product manager for digital TV.

"Our investment is [designed] to help enable high-speed data access to catch on," he said.

Although Road Runner is not required to use Microsoft's Internet Explorer 4.0 as its browser, the service currently offers it as its default, said Sandy Colony, a Road Runner spokeswoman.

"We'll likely continue to use it, since we have been really pleased with it," she said.

And for Road Runner's back-office operations for its service in Hawaii, the company uses Microsoft's Windows NT server software and servers from Digital Equipment, which recently was acquired by Compaq.

Although there are no requirements to continue the use of this technology, Colony said it likely will continue in the future.

"Microsoft and Compaq were selected as our partners because they're the best of the class, and there's terrific strategic synergies," she said, adding that Compaq will provide a multitude of benefits to the Road Runner service.

For example, during the winter quarter, Compaq will begin installing Ethernet cards into computers that will use the Road Runner service, eliminating Road Runner's responsibility for that task. Later this year, a standard for cable modems is expected to emerge. Compaq then will begin installing high-speed cable modems with that standard in its computers. Those modems will be built to work with Road Runner, @Home, or any other cable services, Colony said.

The Microsoft-Compaq investment rounds out Road Runner's plans to create a national broadband network that provides high-speed Net access via cable.

The Time Warner company announced in December that it would team up with MediaOne Express, creating a giant that would rival @Home in size.

But the deal, which needed other investors to close, was delayed as other potential investors were sought, and officially closed today with the Microsoft-Compaq investment announcement.

Other suitors who had been in the running included Oracle and chip giant Intel. But the joint investment effort by those two companies was nixed last month as Microsoft made a last-minute play, sources said. The two companies were in New York, ready to sign the deal and make an announcement, when Microsoft came in with its substantially better offer, an industry source said. Nonetheless, Oracle-Intel continued to try to negotiate a deal after the New York incident.

Oracle and Intel officials declined to comment on the Microsoft-Compaq announcement.

The service, which will be marketed under the Road Runner name, will cater to 90,000 customers. It also will provide access to 27 million homes with cable. @Home has 90,000 subscribers in North America, according to its March quarterly financial results.