Microsoft invests with an eye toward Asia

As world trade officials meet this week to review rules that could affect the company's growing telecommunications investments, the software giant is looking to boost its presence on the far side of the Pacific.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
4 min read
Microsoft is hoping it can open more Windows into Asia.

As world trade officials meet this week to review rules that could affect the company's growing telecommunications investments, the software giant is looking to boost its presence on the far side of the Pacific.

Microsoft has spent much of the last year investing in telecommunications and cable TV companies worldwide, looking to help spread the use of its software. In recent months, however, the company has focused on the booming Asian market. Internet use in the region is growing almost as fast as in Europe, and governments are gradually opening their telecommunications markets to foreign investment.

Microsoft is but one of many technology and Net-related firms waiting to get into China and other Asian markets. Other firms, such as online rivals America Online and Yahoo, already have dipped into their coffers for a piece of what is expected to be a booming Chinese market once trade agreements are ironed out.

Strict regulatory regimes in China and other fast-growing countries have kept foreign telecommunications and Net companies on uncertain footing, however. World trade officials meeting this week in Seattle hope to change this situation with a new set of international trade agreements.

Analysts say Microsoft is spreading seed money around the world to gain a foothold with firms that are building high-speed data networks. But Asia has a particular attraction, as broadband networks could facilitate online distribution of software, which could help stifle rampant software piracy.

That's been just one factor in Microsoft's plans as it increasingly looks to help speed deployments of high-speed Net access in Asia, analysts say.

Reports from Japan say the company is negotiating to buy a majority share in a Japanese cable TV company. Late last week, the company also confirmed that it had completed joint venture plans with undersea fiber optic cable company Global Crossing and Japan's Softbank Ventures to build a seven-country high-speed regional data network.

Microsoft executives could not be reached for comment.

"This is a good fit," Giga Information Group senior industry analyst Brownlee Thomas said of the Global Crossing venture. "You've got someone with lots of bandwidth, and Microsoft, which likes to build applications that use as much bandwidth as possible."

Officials from the World Trade Organization plan to gather this week to discuss whether to open a new round of trade liberalization, which would likely include telecommunications issues. If completed, this could spark a new round of investment in networks worldwide, boosting Net traffic and the value of existing networks.

See related story: The new world order The officials are also considering whether to allow China to join the trade group, a move that would help open that country to foreign investment in the Internet and telecommunications markets.

All of this is potentially exceptionally good news for Microsoft, which has spent much of the last several years investing in high-speed network companies around the world. The company has taken stakes in cable and telecommunications companies in Europe, Latin America, Asia and the United States, capped by its $5 billion investment in AT&T.

But one of its most ambitious projects is the Asia Global Crossing network, initially planned to link seven of the quickest-growing countries in the region with a high-speed underwater backbone. The project would provide high-speed Net connections in the region's major cities.

This project will largely be run by Global Crossing, the Bermuda-based firm that already has invested in fiber networks that span both the Atlantic and the Pacific oceans. The network will link to Global Crossing's trans-Pacific cable, giving the countries high-speed connections to the United States and Europe for data, banking, e-commerce and other applications.

By 2004, the region will have 95.2 million Net users who are expected to spend a total of about $87.5 billion a year online, research firm International Data Corp. (IDC) predicts. These figures exclude Japan, which is already the second-largest Net economy in the world.

"It's a case of hedging their bets all around the world," Forrester Research analyst Jeanne Shaaf said. "We are talking about a world economy here."

Gates outlines his high-speed strategyBut Microsoft isn't interested primarily in the data transport business. Since it's a software company, analysts say Microsoft is investing in these companies with an eye to increasing the use of its products--servers, operating systems and business applications that can be sent over high-speed lines.

The problem is that Asia has been a center of software piracy for years, and the fastest-growing markets are at the hub of the problem. According to the Business Software Alliance, 97 percent of business software in Vietnam is pirated, followed by 95 percent in China and 92 percent in Indonesia. The industry as a whole lost $3 billion due to piracy in the region in 1998, the group said.

These statistics make the high-speed Net look attractive. More bandwidth means more chances for Asian companies to get their applications online. That's still an unproven business model, but if it catches hold in Asia, it could put a substantial dent in piracy rates.

But analysts say this is a long-term strategy. China, for example, has only just promised to open its markets to foreign telecommunications expertise, and the world of hosted applications is still a long way off, experts say.

"They have to be realistic about how much they can get right away," IDC analyst Jared Peterson said. "But I think Microsoft in Asia is willing to make moves in markets just because they want to be doing something. They're long term investments."