Redmond plays underdog in wireless land

It's an unfamiliar and uncomfortable role for the company, which has used its dominance in the PC market as a foundation for success in other corners of the computing world. The software giant has been forced to scramble for partnerships with others that do wield real mobile power in one of the fastest-growing technology markets worldwide.

This week, CNET News.com learned that the software giant was close to signing deals with Sprint PCS and AirTouch Communications to allow its MSN Mobile Web portal to be featured prominently on those company's services. The company is also in negotiations for a still-confidential "major deal" with British Telecom and AT&T, according to an internal email inadvertently sent to a CNET editor.

"This might be one of the first times where they've come into an industry and they can't just throw their weight around," said Larry Swasey, vice president of Allied Business Intelligence, a communications consulting firm. "They're not the dominant player here. They're a new player."

The scramble for partnerships and subscribers across the wireless industry is heating up daily, as adoption of wireless phones and non-PC Net devices explodes. The communications carriers themselves are leading the charge, trying to establish huge footprints as quickly as possible. Britain's Vodafone just moved ahead of the game, today cementing its stock deal valued at $198 billion to buy Germany's Mannesmann, which has extensive wireless properties all over Europe.

Driving the intense interest are staggering growth figures for the industry worldwide. Analysts expect that close to 1 billion mobile phones will be in use by the year 2003. By 2002, the industry predicts that between 80 million and 100 million of these devices will be connected to the Internet in some way.

It is the technology potential of these new phones that is sparking so much cross-industry attention. Today, a mobile phone is largely a voice tool. But with advances in technology that will make wireless downloads nearly as fast as a cable modem, the entire world of the Internet and all of its informational and e-commerce opportunities will open up. Even with today's molasses-slow connections, Japan's NTT DoCoMo is signing up about 150,000 wireless Net subscribers a week.

That marks a dramatic shift in the industry that has given Microsoft its dominance. Already more wireless phones are sold than PCs on an annual basis worldwide--and if the software company wants to retain its market leadership, it has to establish a strong footprint in this wireless world.

Trouble is, that's proved harder than it sounds.

Microsoft initially thought its Windows CE software--a stripped-down version of its Windows operating system for PCs--would make an easy translation into the wireless device world. But adoption has been slow even on handheld computers, and the system is much too large to fit on a mobile phone.

"The fundamental problem with CE was that they set out to make a lightweight, versatile operating system," said Summit Strategies analyst Warren Wilson. "But it wasn't optimized for handsets, and they suffered as a result."

A rival handheld operating system produced by a coalition of companies called Symbian has instead taken a majority of the world market, while Palm's operating system has also seen success, Wilson said.

Microsoft also has tried to push its own technology for wireless Web browsing, but has found little success thus far attracting large communications carriers as customers. Its Microsoft Mobile Explorer browsing software trails far behind a competing browser created by start-up Phone.com, for example. Other companies also are pushing their own services.

That means the company needs partnerships. In the last few months, it has begun talking more seriously with the giant phone carriers that have the tightest links with mobile subscribers.

Microsoft--and the rest of the budding mobile content and technology world--badly needs those carriers' endorsements, analysts say. But the next few years are going to be tense as the carriers, content and technology players vie for their portions of the market and the loyalty of customers.

"In this battle, the carriers have customer relationships and other advantages," said Reed Hundt, the former chairman of the Federal Communications Commission, who now serves as a communications-focused venture capitalist. "There will be a knock-down battle between them and the content providers to see who has the better relationships with users."

But the carriers don't have all the cards. In order to drive use of their wireless data services, the companies need to make users as comfortable as possible--and some analysts say that's where Microsoft begins to wield its leverage.

"To the extent that people are familiar with the Microsoft interface...that's going to be an advantage," noted Herschel Shosteck, chief executive of Herschel Shosteck Associates, a wireless consulting firm.

And Microsoft is now making the right moves, partnering with everybody in sight. In addition to the possible Sprint, AirTouch and AT&T deals, it's already struck close technology relationships with Ericsson, Nextel and Japan's NTT DoCoMo, one of the largest mobile players in the world.

It's joined an industry group formed by wireless browsing competitor Phone.com, and accepted that company's technology as a temporary standard--even if it still wants its own favored technology to take over in the long term.

A new set of network-based software dubbed the Next Generation Windows Services is on the way, which will allow customers access to Microsoft Applications over fast wireless connections, according to the company. This will be boosted by the software partnerships with the phone manufacturers like Ericsson, analysts say.

These partnerships are taking the company all over the wireless map--but that's what needs to happen in this early stage, analysts add.

"They are being prudent now, by cooperating with others more than is their public image," Shosteck said. "It's an example of the uncertainty and risk of the future. All this cooperation is basically insurance."