Microsoft and BT form Net force

News Analysis: Bill Gates's giant has joined up with British Telecom to test software which allows Internet access for mobile-phone users

MICROSOFT HAS joined forces with British Telecom to test software which will allow mobile phone users to access the Internet while they are on the move.

The alliance, which was formally announced at an industry conference in New Orleans last night, is the latest in a recent flurry of partnerships between British companies and the United States software giant. It underlines Microsoft's recognition of the UK as a market leader in developing and introducing new technologies.

Microsoft is giving BT the exclusive right to test its microbrowser software, which allows users to browse the Internet from mobile phones and other portable electronics devices, outside the United States. Trials are expected to begin almost immediately, and BT is likely to start offering the software to major corporate customers through its Concert venture next year.

BT has investments in a handful of mobile networks around Europe and in the Far East, allowing it to reach a large number of international customers.

The alliance reflects a growing belief that mobile phone networks will be used by workers to access their company's computer networks and the Internet. "We think the mobile phone will become more than a device for voice communications," says Sohail Quaid, BT's director of mobile strategy. "The convergence between Internet and mobile will happen."

Although Microsoft has a stranglehold on the desktop computer market through its Windows operating system, the company is increasingly concerned about the challenge to its dominance from rival devices such as mobile phones, handheld computers and television set-top boxes.

"Microsoft is committed to deploying Internet standards-based services, and, by working with partners, to provide a worldwide, end-to-end wireless solution," said Microsoft vice-president Paul Maritz.

Microsoft has developed a stripped-down version of Windows, called Windows CE, to run on these devices, but other companies have been quicker to take the lead in those markets.

Just as Netscape established an early lead over Microsoft in developing an Internet browser, so NCI - a joint venture between Netscape and Oracle - has raced ahead in providing operating systems for television set-top boxes. All three of Britain's cable operators have signed up NCI for their digital television systems.

Meanwhile Psion, the British handheld computer maker, has already linked up with mobile phone manufacturers Motorola, Ericsson and Nokia to develop an operating system for mobile Internet access. Indeed yesterday's announcement, which is a direct challenge to Symbian, knocked Psion shares 52.5p to 876p.

According to industry analysts, the creation of Symbian left Microsoft with little choice but to court telecom operators with its software, although they added that ultimately consumers would decide which operating system they preferred.

The alliance with BT marks the latest in a number of ventures between Microsoft and British companies. Even as Microsoft has been battling against an antitrust lawsuit in the US, it has been pouring cash into a number of strategic investments which suggest the UK is more important as a market than is justified by its size relative to other countries.

Two weeks ago, Microsoft invested $500m in NTL, the country's third- largest cable operator. Last year Computacenter and ICL, the computer services groups, both signed strategic partnerships to develop software and services based on Microsoft's operating system.

Meanwhile WebTV, the Microsoft subsidiary which has developed an operating system for television set-top boxes, is currently trialing its system in a number of London homes in conjunction with BT and the BBC.

Microsoft is also sinking pounds 50m into a research centre in Cambridge, and has contributed pounds 10m to Amadeus, a fund for budding hi-tech companies run by Hermann Hauser, the venture capitalist.

Andrew Lees, a director of Microsoft UK, said the British market is attractive because it is innovative. He pointed to the deregulation of the telecom and media industries which had put British companies at the cutting edge of developments in their technologies.

For example, Britain was one of the first countries in the world to launch digital television. And if the UK government sticks to its self-appointed schedule, Britain will also be the one of the first to introduce the new generation of mobile phone networks which are capable of carrying data at high speed.

However, BT and Microsoft yesterday played down suggestions that the two might mount a joint bid for one of the licences. Although BT is keen to bid - probably through Cellnet, the mobile phone operator in which it holds a 60 per cent stake - Microsoft said it was not particularly keen to put cash into mobile phone infrastructure.

Bill Gates, head of Microsoft, has also publicly backed Tony Blair's call to create a National Grid for Learning by linking all the schools in the country to the Internet.

By getting involved in these technologies in the UK, Microsoft is putting itself in a prime position to benefit when they are adopted elsewhere. "This competition is going to create a lot of innovation which will spread around the globe," says Andrew Lees, a director of Microsoft's UK subsidiary.

Critics suggest that Microsoft is stifling innovation by buying into a variety of different companies. However, Mr Lees insists Microsoft's strategy of partnership is designed to create the opposite. "Our business model is to create value and innovation in a solution of which we are part," he says.

Industry analysts point out that Microsoft is effectively using its financial muscle to make sure it is involved in any development that could be a threat to its existing business in the future. "They are backing a number of horses which is exactly would one would expect them to do," says Richard Holway, a leading industry analyst. "But then they can afford to back a few losers."

This is hardly new for Microsoft. "Everybody makes Microsoft out to be big innovators," Mr Holway adds. "In fact they are great marketeers who have been particularly good at spotting other peoples' advantage."

What is different this time around is the scale of the investments that Microsoft can afford to take in its attempts to make sure that it knows which way the markets are heading.