MSN-Charter deal, a threat to AOL

SEATTLE: Microsoft Corp. has entered into a deal with Charter Communications Inc., No. 3 U.S. cable television operator, to promote and market the software giant's MSN 8 Internet service. The deal, the first major cable tie-up for Microsoft's Internet service, is a shot across the bow of MSN rival AOL, which has been striving to pursue more high-speed subscribers.

MSN has already signed deals with Verizon Communications Inc. and Qwest Communications International Inc. to deliver MSN services over their high-speed DSL lines, which connect users to the Internet at broadband speeds over phone lines.

Charter Communications, which has about 1 million broadband cable subscribers, is controlled by Microsoft co-founder Paul Allen. "It's the first big cable deal that we've announced with MSN 8, and that's a big deal for us," said Bob Visse, Director of MSN marketing.

The deal is also welcome news for Charter, which recently fired its top executives amid a criminal probe into its accounting and a 93 percent slide in its stock price over the past year. Last October, analysts and investors had been anticipating a cable deal along with the $300 million dollar launch of MSN 8, but Microsoft made no announcement at the time.

A cable pact, backed by Microsoft's deep pockets, puts pressure on AOL at a time when it is suffering from a sharp decline in advertising spending, slower-than-expected migration of its members to high-speed services like DSL and slower subscriber growth.

Asked if any other cable deals were in the pipeline, Visse said, "I certainly look forward to securing additional deals, however we don't have anything to announce at this point." Microsoft has also revealed that Charter's customers will be able to subscribe to the new service for $9.95 a month, beginning from the second quarter of 2003, with a free service for two-months as a promotion.

Shares in Charter closed down 3.4 percent at $1.16 while Microsoft shares fell 2.8 percent to $54.24.

© Reuters