MCI and Microsoft team up to market on-line services 'We are pushing our boat into the water'

WASHINGTON — WASHINGTON -- MCI Communications Corp., switching its Internet strategy, said yesterday that it will team up with Microsoft Corp. to jointly market and develop services for the burgeoning on-line industry. Financial terms of the agreement weren't disclosed.

Washington-based MCI will promote Microsoft Network (MSN), the No. 4 U.S. on-line service, and sell Microsoft's Internet software through its SHL Systemhouse unit. In exchange, Microsoft will market MCI services, such as conferencing, and use MCI as an Internet access and telecommunications provider.


MCI's move is a step away from its relationship with News Corp., whose Delphi on-line service, with 200,000 customers, is about a quarter the size of Microsoft's MSN.

"For MCI to be able to label some of their services with Microsoft is certainly good for them," said Craig Ellis, analyst at Wheat First Butcher & Singer. "The same thing applies for Microsoft, which is gaining access to MCI brand."


By linking with the world's largest personal computer software maker, MCI will gain visibility as it moves beyond telephone services. Microsoft, in turn, will get access to the No. 2 long-distance provider's distribution channels and its 20 million small business and residential customers.

News of the alliance sent MCI shares up $1.75 to a 52-week high of $29.25. Microsoft's shares slipped 12.5 cents to close at $90.375.

MCI said it will scale back its participation in a 50-50 joint venture with News Corp. to provide on-line entertainment and news services.

"They are certainly altering their on-line strategy, which they were just starting to develop [with News Corp.]," said Frank Governali, an analyst at CS First Boston. "MCI realized that it was best to move its position to one of greater strength."

"We are pushing our boat into the water, going with the Microsoft products and Internet ventures as we go forward," said Bert Roberts, MCI's chairman and chief executive.

MCI is in talks with other unspecified companies about adding them to its on-line joint venture with News Corp., which would reduce its stake, said Frank Walter, an MCI spokesman.

MCI isn't abandoning its support of Delphi, said Mr. Walter. He stressed that the joint venture with News Corp. was concentrating more on developing new services for the World Wide Web part of the Internet.

The Microsoft partnership, however, leaves the future of MCI and News Corp.'s proposed on-line service, iGuide, up in the air, analysts said. The consumer on-line service was going to offer news and an Internet directory.


Under the agreement with Microsoft, Washington-based MCI will sell a "customized" version of MSN called "MSN from MCI" that will give customers access to the Internet and MSN content. MCI said it may add its own content to MSN for MCI customers.

MCI will use telemarketing, direct mail and advertising to sell MSN. It also will sell Microsoft software through its newly acquired SHL Systemhouse unit.

For MCI, Mr. Governali said, the agreement "might be a step toward a broader relationship with Microsoft."

The Microsoft alliance will give MCI more products as it tries to provide "one-stop shopping" from software and on-line services to traditional long-distance and wireless phone services, said Guy Woodlief, an analyst at Dean Witter Reynolds.

"The more services and products that a company can sell to a customer, the less likely that customer is to change vendors," Mr. Woodlief said.

Five-month-old MSN has about 750,000 customers. It and No. 1 America Online Inc., which has 4.5 million subscribers, are the fastest growing on-line services in the nation.


MCI also will use Microsoft Internet Explorer browser software as part of its Internet products and market other Microsoft Internet products.