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Microsoft software to incorporate AT&T IP services

The two companies are co-developing technologies that more tightly incorporate new Net applications such as telephony.

CHICAGO--Targeting large businesses, Microsoft and AT&T are co-developing messaging, word-processing and other technologies that more tightly incorporate new Internet applications such as telephony, the two companies said Monday.

The pact sets the stage for the most substantial collaboration yet between the two companies. Financial details of the five-year development deal were not released.

Taken in a larger context, AT&T is essentially opening up its global Internet Protocol network so the estimated 6.5 million developers using Microsoft software can more easily use the network to their advantage, AT&T Vice President Eric Shepcaro said in an interview here during Supercomm 2005, a major telephone trade show.

"We're changing the rules of the game," Shepcaro said.

One of the first goals of the pact is for Microsoft to incorporate AT&T's Internet telephony services into Microsoft's hosted services for businesses. In an interview, Shepcaro said to expect products to begin filtering out to the market by next year.

The deal also seeks to help solve the problem telephone companies have with the thin profit margins on the sales of enterprise-data IP services, such as Internet protocol virtual private networks. The remedy, experts say, is fairly straightforward but not necessarily easy to implement: The phone companies need to develop and sell more add-on IP VPN products and services to boost their returns.

To some extent, the pact between the two companies was predictable because they are serving complementary sectors of the same market. Microsoft's software dominates the information technology that businesses purchase, while AT&T, which has retreated from the home-phone market, is now focusing mostly on its abundant enterprise customers.