PointCast plight reveals Microsoft plans

In the wake of the collapse of broadband talks between PointCast and telephone companies, it has emerged that Microsoft was a key player in their endeavors.

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In the wake of the collapse of broadband talks between PointCast and telephone companies, it has emerged that Microsoft was a key player in trying to create a flashy new high-speed Internet service for consumers.

Until very recently, it appeared that Microsoft had yet to put together a coherent broadband strategy despite making large investments in cable companies, analysts said.

America Online and other ISPs made aggressive moves early in the year to take their services onto the telephone companies' high-speed DSL networks, signing partnership deals with SBC Communications and Bell Atlantic. Meanwhile, Microsoft made considerable investments in cable systems but was silent on DSL.

That has changed in recent weeks, as Microsoft has finally made its own public steps toward DSL access and using the technology to extend the use of its Web content.

But the final collapse of talks between PointCast and a coalition of local telephone companies yesterday gave a glimpse into the company's early hopes for a grander service that could have helped link it much more closely to the technology's success.

The Newnet dream
Since early last fall, PointCast and a consortium of big local telephone companies had been in talks to create a consumer-focused, high-speed Net service that linked PointCast's content and push technology with the telcos' high-speed DSL networks.

Dubbed "Project Newnet," the idea was to create a national, high-profile broadband service that would compete with the cable companies' @Home and Road Runner services. The group went as far as signing a letter of intent and by mid-February had even shopped the idea around to ad agencies to help develop a branding campaign.

According to sources close to the negotiations, Microsoft played a key role in this consortium and indirectly helped trigger its collapse.

"The telcos brought Microsoft to the table early on," said a source close to the PointCast negotiations. "But then the telcos felt Microsoft wanted too much control, and Microsoft fell out of the deal in mid-February."

Microsoft's presence was important enough to the deal that the company's departure destabilized the agreement, sources said. After the software giant left the coalition, BellSouth began looking for new partners to give the group the scale it needed to be a national organization.

BellSouth's other partners, US West and Bell Canada, were willing to go through with the deal even without Microsoft, sources said. But BellSouth wanted an exit clause if SBC or Bell Atlantic didn't sign up, sources added, and the deal ultimately fell apart.

Meanwhile, it wasn't long after Microsoft's reported departure from the coalition that a smattering of other DSL announcements began popping up for the first time.

In mid-March the company announced that it would take a small stake in Rhythms NetConnections, a start-up DSL provider that focuses on business customers. Microsoft also would create a series of customizable broadband portal pages for Rhythms' clients using its MSN Web portal, the company said.

Last week the company finally said it would roll out DSL trials for MSN Internet Access customers in four cities and that it plans to expand the service later this year. That effort is being made through MCI WorldCom's UUNet, which in turn buys its DSL access from other local providers.

Some analysts said the PointCast and later MSN deals were most likely on different tracks within the company, however.

"I surmise that Microsoft's role [with Newnet] would be to provide content and back-end systems," said Abhi Chaki, a senior analyst with Jupiter Communications. "That's very different from Microsoft Network and getting those customers high-speed access."

Microsoft is now focused on bringing its MSN Internet subscribers broadband access through telcos' DSL lines, despite its investments in cable companies and the Road Runner cable Net service.

"Right now DSL seems to be the best way for us to reach our subscriber base," said Will Diefenbach, group product manager for MSN's Internet Access division.

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