Microsoft to invest in wireless giant

$600 million stake in Nextel gives access to more Internet users


May 11, 1999|By BLOOMBERG NEWS

REDMOND, Wash. -- Microsoft Corp. said yesterday that it will invest $600 million in nationwide wireless phone company Nextel Communications Inc., giving the world's largest software maker a toehold in the emerging market for wireless Internet users.

Microsoft is buying 16.67 million Nextel shares, or a 4.25 percent stake, for $36 a share in cash. The investment comes less than a week after No. 2 U.S. long-distance phone company MCI WorldCom Inc. ended negotiations to acquire Nextel.

The agreement will give Nextel's business customers access to the Internet via their telephones and could also give Microsoft's MSN online service an advantage as Internet companies jockey for position on wireless networks. Microsoft is pushing to get its software in new Internet devices in an attempt to replicate the influence it has had in the personal computer market.

"Microsoft is attempting to cover all the bases right now," said Michael LeConey, an analyst at Security Capital Trading Corp.

Microsoft edged out rival Net-scape Communications Corp., a subsidiary of America Online Inc., to provide the services. Nextel, based in Reston, Va., had agreed in February to use Netscape's Internet portal.

Thomas Kelly, Nextel's vice president of marketing, said his company will still use some Net-scape software, though Microsoft will be Nextel's exclusive link to the Internet. Microsoft shares yesterday rose 62.5 cents and closed at $79.6875. Nextel shares rose 56.25 cents to $36.9375. The Nextel investment follows Microsoft's agreement last week to invest $5 billion in AT&T Corp., which is set to become the largest U.S. cable television company, to help make sure its Windows CE software is used in set-top boxes to offer TV, telephone and Internet access.

Microsoft, based in Redmond, Wash., also said it is planning to make available this year a version of its MSN Internet service tailored to wireless devices, such as phones, pagers and hand-held computers.

Microsoft is looking beyond personal computing on the desktop and into computing on Internet devices ranging from TV set-top boxes to wireless phones to personal organizers. The software powerhouse has said it expects sales of wireless phones with Internet access to surpass laptop computers next year.

The company also invested $200 million in December in Qwest Communications International Inc., the No. 4 U.S. long-distance provider, to help Qwest develop services for corporate data networks.

Nextel's customers include businesses with large groups of mobile workers such as salespeople and construction companies. The company, one of three U.S. wireless providers with a coast-to-coast network, added a record 415,000 U.S. customers in the first quarter, giving it more than 3 million total subscribers.

The agreement comes as more wireless phone users are demanding data services that can help them connect with corporate networks and the Internet. Forrester Research estimates that consumer spending on wireless data services will surge to $8.4 billion in 2005 from $100 million this year. The market for businesses is expected to be more than double what consumers pay, Forrester said.

Microsoft and others are betting that Nextel will be able to sell the new services faster than more consumer-oriented providers.

"Over half of wireless users have an interest in wireless data, and Nextel customers are among the best target market," said Mark Lowenstein, an analyst at Yankee Group, a market research company.

The new services will give Nextel customers access to MSN, including e-mail, calendars, address books and Web-based content. Nextel expects to begin selling phones made by Motorola Inc. for the services this year.

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