MS: Telewest Deal to Promote Broadband Access

BRUSSELS (05/02/2000) - Microsoft Corp.'s interest in buying Telewest PLC, the U.K. cable company, reflects its ambition to promote the introduction of broadband technology, and it is willing to modify terms of the acquisition to help quell European Union concerns about the deal, according to a company official.

"It (the planned acquisition) is a good investment because the company is interested in spurring competition to get wide-band going," John Frank, Microsoft's Paris-based Director of EU Law and Regulatory Affairs, told IDG last week. "The telcos already have DSL (digital subscriber line) technology and will roll it out eventually. But if we get one industry going (in broadband), it will spur the telcos to move rapidly into providing this service as well," Frank said.

DSL technology allows high speed Internet transmission over traditional copper telecom wires. Although the technology exists and some European telecom operators do offer the service, the high prices attract few takers in the European Union.

Rolling out DSL is also one of the objectives of the European Commission's Recommendation, issued last week urging EU countries to terminate by the end of this year the exclusive rights that the former monopoly telecom companies currently hold over the local loop -- the last segment of a network that carries communications from a central switch direct to the home or office.

Microsoft's plans to buy shares in Telewest are, however, facing an in-depth investigation by the European Commission, prompted by concerns that Microsoft could use its dominant position in operating systems as leverage to gain market share in the television desktop box sector. The risk is taken seriously due to indications that many Europeans will eventually access the Internet over TV cable and not by computer.

The 2000 edition of the European Information Technology Observatory predicts that while 60 percent of the EU population will rely on computers to access the Internet, 40 percent will rely on alternatives, notably mobile telephones and cable television.

Microsoft is however willing to offer undertakings that would resolve Commission's concerns, Frank said. He declined to provide further details about these undertakings. At the earlier stages of the competition investigation, Microsoft had already promised that it would leave Telewest free to chose its software, but this was not sufficient to avoid the in-depth investigation, which the Commission opened on March 22.

Under EU competition rules, all major mergers affecting the EU market require Commission clearance. Although the Commission generally approves ventures, it regularly requires modifications in the structure of a deal to eliminate concerns about competition. It does have the authority to block planned mergers and acquisitions. EU rules require the Commission to ban any merger or acquisition that risks reinforcing or creating a dominant position.

The Commission has until Aug. 4 to reach a decision on the Microsoft/Telewest acquisition.

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