ITG's Global Internet, the UK's third-biggest Internet service provider, said the deal would allow it to gain access to business customers and would enable Microsoft to achieve its aim of selling its software on the Internet.
The new service, Small Business Server, went live yesterday and costs pounds 999 for five PC-users, or pounds 1,650 for 25 users. It is aimed at companies with 25 or fewer personal computers.
Laurence Blackall, ITG's chief executive, said: "Microsoft has a great name and a broad reach and can get us in front of customers we wouldn't normally have reached."
This is not the first time ITG has linked with the software giant. Almost exactly a year ago, Global Internet agreed to supply Microsoft's browser software, Internet Explorer 3.0, to all its subscribers. Global Internet has 45,000 customers, 5,000 of which are small and medium-sized companies.
Also yesterday, Microsoft filed a 48-page formal response to the US Justice Department's allegations that it illegally forced computer manufacturers to install its Explorer browser as part of its Windows 95 operating system.
William Neukom, senior vice-president for law and corporate affairs, accused the US government of "stifling innovation" by alleging that Microsoft had violated anti-trust agreements. "It is a very serious matter when any agency of government proposes to extend its regulation to the extent of engaging itself in product design, especially in high technology products. That kind of interference in product design will stifle innovation," he said.