Game On Again For MSN Broadband

Microsoft's Internet access arm beats AOL to the punchline with the debut of version 7.0 and announces it's back in the DSL business.

by Jim Wagner of internetnews.com [October 17, 2001]

The Microsoft Network is officially in the nationwide digital subscriber line (DSL) business again with a high-speed Internet offering initially covering roughly 60 percent of DSL-capable homes in the U.S.

It's MSN's initial move to compete against AOL Time Warner's (NYSE:AOL) vast cable Internet empire for the hearts and minds of dialup Internet users throughout the U.S. Many of these dialup users—more than 33 million users, if you combine AOL and MSN numbers alone—will move within the next several years to a broadband platform, and the number one and two Internet service providers (ISPs) want to be there to capture them.

First to market
In typical corporate one-upmanship, Steve Ballmer, Microsoft Corp. (NASDAQ:MSFT) chief executive officer and Yusuf Mehdi, MSN vice president, also launched MSN 7 Monday, one day before rival AOL's launch of AOL 7.0. MSN's latest release features enhanced services like .net alerts and 30 percent faster Web site navigation,

The second-largest Internet service provider in the nation makes no bones about its distant ranking behind AOL in the dial up Internet business, but says the broadband market makes for a level playing field.

To counter AOL's dominance in the content department, with its vast Time Warner magazine, cable TV and movie holdings, Ballmer & Co. have been developing partnerships with other media companies. These partnerships, Ballmer said, will provide for more equal footing when trying to compete for consumer attention.

"We're able to level a little competitive heat with AOL Time Warner with some of the partnerships we've made," Ballmer said. "You've seen us move aggressively on starting forming relationships with all the rest of the media, like NBC, Vivendi and Sony. So, in a sense, in our flagship, we're carrying not only our own work but an ecosystem of work starting with the media companies and with our enterprise customers."

Countering AOL and its services is MSN's latest version of its popular portal and customer-friendly options. According to officials, MSN 7 boosts performance enhancements (up to 30 percent) that customization won't bog down to its redesigned home page.

With MSN 7, Ballmer said MSN now has the service to match it the high-speed Internet offering is now provides.

"We really have, with MSN 7, a great broadband offer to put in front of the consumer," Ballmer said. "I think that virtually every Internet access subscriber in the U.S., not only our own but those of our competition, will become up for grabs as people move from narrowband to broadband, and certainly the market dynamics are quite different between broadband subscribers and narrowband subscribers and we want to make sure that we have a really exciting offer."

Content gap
AOL made the first successful move when it completed the acquisition of Time Warner earlier this year. MSN, which decided not to get into the acquisition game itself, has been furiously brokering deals behind the scenes with media and telecommunication companies to bridge the gap.

MSN's DSL coverage footprint will jump to 90 percent in roughly three months, as it completes and launches high-speed Internet provisioning through incumbent local exchange carriers (ILECs) Verizon Communications (NYSE:VZ), SBC Communications (NYSE:SBC), and BellSouth Communications.

MSN has been offering a co-branded Qwest Communications (NYSE:Q) DSL service since August, although officials wouldn't comment on the initial success of the program.

The service will cost subscribers "under $50, unlike many high-speed offerings that cost well over that amount," Medhi said. When pressed, he conceded the MSN product would cost $49.95 with two months free service, a free DSL modem and free activation. MSN also provides a self-install disk (or virtual truck) to get started.

This is MSN's second foray into the lucrative, yet exceedingly dangerous industry of high-speed Internet services.

Last year, the ISP offered DSL through data competitive local exchange carrier (DLEC) NorthPoint Communications and managed to garner more than 7,000 customers. Unfortunately for MSN, NorthPoint went out of business, shutting down their network with no notice.

The deal prompted the software giant to shun companies that don't actually own the network, as in the case of now-defunct NorthPoint and other DLECs like Covad Communications and Rhythms NetConnections. Officials quickly penned a juicy deal with Qwest and entered talks with the other ILECs to provide nationwide coverage.

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