Microsoft to Offer Version of MSN on Sprint PCS

Microsoft (MSFT) will offer a version of MSN, its network of Web sites, through the wireless phones of the Sprint PCS Group(PCS), the companies said Thursday.

Neither company would comment on the financial terms of the deal, under which users of Sprint's phones would have access to MSN services like MSNBC, a news channel, and Expedia.com, a travel service. The services will be provided through MSN Mobile 2.0, a version of the network modified into a sort of portal just for wireless devices.

The promotional agreement between Microsoft and Sprint PCS is not exclusive to either party. Indeed, like a high-stakes poker game with no up cards, the emerging wireless Internet market has drawn a raft of nonexclusive alliances. But because it involves Microsoft, famous for its domination of Internet software on the PC, the deal seemed peculiar for all it was not.

"Everyone's doing everything with everyone," said Bill Benton, an analyst for William Blair & Co.

Crowded Field

Microsoft's network will join a multitude of providers that vie for customers' attention, including the portals AOL.com, owned by America Online (AOL) and Yahoo!, owned by its namesake (YHOO).

Last year, Microsoft bought 16.67 million shares of Nextel Communications(NXTL), a Sprint PCS rival, for $600 million, just days after investing $5 billion in AT&T (T). Those deals were intended to promote MSN, and Nextel chose Microsoft over Netscape Communications, a unit of AOL.

As the battle to provide Internet services on wireless devices has taken shape, Microsoft and Netscape, the famous foes in the browser battle, have effectively been trounced by Phone.com (PHCM), whose UP.browser is embedded in the phones used by Sprint PCS, Nextel and AT&T Wireless customers.

Windows CE, the miniaturized version of Microsoft's operating system for handheld devices, competes for market share in the handheld computer market, but the relatively simplistic services offered on wireless phones have so far required no operating system.

Microsoft has effectively become just another content provider in the wireless phone arena, left to play a game described by analysts as difficult due to of fluctuations in the perceived balance of power.

"We're in the early days of this stuff," said Perry Walter, analyst for Robinson-Humphrey. "No one's quite sure what's worth what."

Positioning on the phones has measurable value, several analysts said, though the companies have never disclosed the price of space on the dial.

Benton, the William Blair analyst, estimated that AOL paid around $50 million for its position on the front screen, but that Yahoo! was paid by Sprint PCS.

Sprint's View

Paul Reddick, vice president of product management and development at Sprint PCS, said MSN would appear prominently on the phones. Asked whether it would be on the first screen that callers would view, he said, "You're a few days away from knowing."

"It's a negotiation between us and Microsoft," he said. "It drives a lot of traffic for them as far as where they're placed. It's common knowledge people are paying for placement."

David Freedman, an analyst for Bear Stearns, said Sprint PCS needs to gather all the content it can to offer its customers plenty of choices.

From the phone company's perspective, "Why do I want to exclude anybody?" Freedman said. "MSN might want to be exclusive, but I don't see the benefit to Sprint unless someone is going to pay me a lot of money."

As of June 30, Sprint said it had 7.445 million subscribers. Of those, approximately 2 million to 3 million own phones containing browsers, Freedman estimated. Sprint has said 500,000 people used the wireless Internet service every month this summer.

Sarah Lefko, Microsoft's product manager of MSN, also declined to comment on any financial terms of the deal.

"We continue to work with carriers and provide customers with the most choice," she said. "We're really excited to be working with Sprint because they are one of the leading providers."

MSN's main attraction was its cache of email customers, Reddick said. Email service has been among the most popular early uses for the Internet phones, and it is an effective introduction to the service for new customers, he said. There are 70 million users of Hotmail.com, Microsoft's email service, according to the company.

Reddick said there is no "near-term linkage" between the MSN deal and potential uses of Microsoft's browser or other software.

"Not to dilute the MSN deal at all, but we plan to announce a new partner every two or three days," he said.

Microsoft finished Thursday regular trading down 19 cents at $55.25. Sprint PCS shed 75 cents, or 2%, at $35.50.

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