Microsoft Takes Plunge Into Cable

Hastening its expansion into all corners of the Internet, Bill Gates’ Microsoft Corp. agreed Monday to invest $1 billion in cable giant Comcast Corp. in a deal that could bring high-speed online access to millions of U.S. homes.

Microsoft’s biggest-ever outside investment is aimed at boosting sales of its array of online and interactive software and services by creating a vast captive market in Comcast’s 4.3 million cable customers.

More broadly, Microsoft’s 11.5 percent stake in the nation’s fourth-largest cable company aids its ambitions to be the major player in nearly all aspects of a huge high-tech trend - the merging of computer and entertainment functions in the same digital equipment. Microsoft, the No. 1 maker of software for running personal computers, is seeing growth slow in its main market.

“It’s all geared toward Microsoft casting themselves as a massive information company for the next century,” said Stephen Auditore, president of Zona Research Inc.

“By investing in Comcast, they are essentially going to get themselves something of a captive delivery mechanism for content.”

Microsoft two months ago paid $425 million for Web TV in a bid to bring the set-top gizmo for cruising the Web to the masses. But Gates recently has expressed frustration at the pace with which cable and telephone companies are modernizing their networks to carry new Internet services.

Now Microsoft gets a chance to address the nagging threat to the popularity of the World Wide Web: Bottlenecks in telephone lines that have bogged down online connections and delayed people from logging on and downloading Web pages.

With $1 billion from Microsoft, Comcast plans to accelerate construction of fiber-optic cable to expand high-speed Internet access. Comcast, with a potential market of 6 million customers, is currently testing modems that would hook people’s computers to the Internet via cable.

With its investment in Comcast, the Redmond-based Microsoft gets a ready market for a version of the Web TV device it’s developing to hook into the Comcast cable system.

The Web TV software, which lets TV watchers cruise the Internet and exchange electronic mail, eventually may be put inside new set-top boxes that cable operators buy for customers, potentially putting channels for cable TV alongside Internet access.

Microsoft also is developing software to enable personal computers to be easily hooked up to cable lines for Internet access.

The first Microsoft products are expected to go into test markets in little more than a year from now.

“We think Comcast will be an excellent partner to roll out these services,” Gates said.

In addition, Microsoft is eyeing a new market for its expanding line of interactive online services, such as Sidewalk, an entertainment and activity guide and Expedia, one of the three largest on-line travel services.

Another possibility for Microsoft is enabling computer users to make telephone calls across the Internet for far less money than via traditional land lines.