Microsoft is to invest $5 billion in AT&T in a bid to push its Windows CE operating system and accelerate next generation broadband and Internet services - but the software giant will not get the exclusive software deal it was after.
AT&T has managed to pull off the deal without being locked into an exclusive software contract, which is initially what the software giant wanted. Instead, AT&T will install Microsoft's Windows CE operating system in 2.5 to 5 million of its settop boxes. This doubles AT & T's earlier committment.
Both companies have also agreed to work together to showcase digital cable services in two US cities by second quarter 2000.
"This will accelerate the work we're already doing with many other software and hardware companies," said AT&T Chairman and chief executive Michael Armstrong.
"Our agreement today represents an important step in Microsoft's vision of making the Web lifestyle a reality," said Microsoft chairman and chief executive Bill Gates in a statement. "Working with AT&T, a leader in the delivery of cable and telephony technologies, we will expand access to an even richer Internet and television experience for millions of people."
Microsoft has made no secret of the fact that it wants to push its Windows CE operating system beyond computers and into consumer devices such as telephones, in-car systems and settop boxes. AT&T, however, has said it intends to use settop software from multiple suppliers.
Upon the completion of AT&T's proposed merge with Mediaone and following the previously announced cable swaps and sales negotiated with Comcast it will have a presence in around 25 million US homes.
AT&T will also license Microsoft's client/server software that supports a range of digital services, such as email and interactive television entertainment.
Microsoft will pay $5 billion for newly issued AT&T convertible trust preferred securities and warrants. AT&T will use the proceeds to fund working capital and capital expenditures.
In addition, as part of these agreements, Microsoft will purchase Mediaone's 29.9 per cent interest in Telewest Communications through a tax free exchange of Microsoft shares, subject to certain approvals.
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