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Microsoft buys Qwest stake
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December 14, 1998: 8:37 a.m. ET
Software titan will invest $200M in Qwest's high-speed Web network
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NEW YORK (CNNfn) - Striving to tap the Internet's burgeoning allure to business, Microsoft Corp. Monday unveiled a $200 million strategic alliance with Qwest Communications International Inc. that will offer firms Qwest's high-speed network services built on Microsoft platforms.
The deal creates a formidable digital alliance between the Redmond, Wash.-based software giant and Qwest, a leading provider of Web-based data, voice and image communications for businesses and consumers with 80 sales offices in North America, Europe and Mexico.
But it also signals Microsoft's determination to retain cutting-edge relevancy at a time when the software juggernaut is under fierce scrutiny as the sole defendant in the largest U.S. antitrust suit in recent memory.
Under the deal, Microsoft will license a wide range of its software to Qwest and purchase $200 million of Qwest common stock at $45 a share.
Qwest, for its part, intends to launch a complete high-speed network sometime in the second quarter of 1999 that will offer businesses advanced services including dedicated electronic commerce, Web-application hosting, managed software services and virtual private networking built on Microsoft platforms.
Qwest said it expects the new service to generate roughly $150 million in its first two years, with the brunt of sales coming in 2000. Capital expenditures are expected to match revenue over the same period.
The company foresees earnings before income taxes, plus depreciation and amortization for the new business to be slightly negative in 1999 and slightly positive in 2000.
Qwest will base the new networking services on Microsoft's Windows NT Server operating system and Qwest's forthcoming Macro Capacity fiber optic network, slated for completion sometime in mid-1999.
The deal signals Microsoft's determination to remain innovative and cutting-edge at a time when the software powerhouse is fighting to defend itself against Justice Department allegations that it used its dominance in the market for computer operating systems to stifle competition.
Shares of Microsoft (MSFT) closed up 2-7/16 at 134 Friday on the Nasdaq, while Qwest stock (QWST) stock eased 5/16 to end at 43-3/8.
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