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Microsoft makes its first DSL stake

Microsoft invests $30 million Rhythms NetConnections, and will provide Rhythms a Microsoft Network-branded portal page for its business customers.

Microsoft said today it would take a $30 million stake in high-speed Net access company Rhythms NetConnections, and will provide the company with a Microsoft Network-branded portal page for its business customers.

The deal is Microsoft's first with one of the new high-speed digital subscriber line (DSL) startup companies. It is also the latest example of the software giant's push into broadband.

The announcement adds considerable momentum to the two-year-old Rhythms, which won another $30 million stake from MCI WorldCom in January. The company also filed last month to raise close to $165 million in an initial public offering of shares.

Microsoft previously has spent hundreds of millions of dollars investing in cable-based companies, including Comcast and the Road Runner high-speed cable Net coalition. It recently invested $200 million in Qwest Communications International in a deal analysts said would help create a new distribution network for its business software.

The agreement comes as other Web portals are looking for ways to carry their content brands into the broadband world. America Online recently has signed deals to carry its service over Bell Atlantic and SBC Communications' high-speed Net lines, while Excite agreed to merge with high-speed cable service @Home Network.

Today's deal is the Microsoft Network's first foray into broadband.

The agreement is much more business-focused than the other portal deals, however. Rhythms caters primarily to telecommuting, small business and corporate clients, and the new MSN deal will focus on creating a co-branded start-up site for these clients.

In its early stages, the portal pages will essentially be the existing MSN service, offering such features as free email from Microsoft's Hotmail and use of the company's Passport electronic wallet technology. Further down the line, the company said it plans to integrate multimedia capabilities such as videoconferencing into the pages, along with a kind of "virtual laboratory" that allows client companies to test or showcase other high-bandwidth applications.

Microsoft does plan to move the rest of MSN squrely into the high-speed world, however.

"The business audience is an exciting one for us, and it is one we have been making more moves towards and migrating to," said Jeff Sanderson, general manager of strategic partnerships for MSN. "But clearly moving consumers to broadband is one of our missions."

Rhythms is one of a handful of small, data-focused competitors to the traditional telephone companies that have sprung up in the last several years. As with rivals like Covad Communications and NorthPoint Communications, the firm offers high-speed Internet access over DSL.

DSL is a technology that allows existing telephone lines to be used simultaneously for high-speed Internet access and voice calls. It has won slower consumer acceptance than has cable Internet alternatives, but has picked up speed in recent months as the big telcos have begun rolling out their own services more at a faster clip.

Rhythms is scheduled to go public later this month, according to investment bank Hambrecht & Quist, a co-manager of the offering.