Steve And Jorma Make The Hard Cell
By Mark Halper

(FORTUNE Magazine) – Steve Ballmer, Microsoft's 100-decibel chief executive, delivered a contrite pledge to Europe recently. Speaking to 2,500 attendees at the CeBIT technology exhibition in Hanover, Germany, last month, Ballmer promised that Microsoft will become a more "respectful and open competitor."

A kinder, gentler Microsoft? That can mean just one thing: The Redmond giant wants to soothe anxieties as it moves to dominate yet another market. This time around Microsoft's foe is mighty Nokia. The two are battling to control the platform for accessing Internet services via cellphones and personal digital assistants (PDAs). Whichever company wins in Europe--the cradle of cellphone civilization--will likely set the standard for the world to follow.

As Europe's mobile-phone operators upgrade from today's second-generation technology to third generation, phones and PDAs will require software to support Internet access, e-mail, and audio/video features. Microsoft's grand plan is to put its slimmed-down Windows operating system into mobile devices that use the Internet Explorer browser to link to an MSN portal--a strategy that jostles Nokia, widely considered the mobile trendsetter among European consumers, out of the picture. The stakes are enormous: In Western Europe alone the wireless-data market is expected to leap from $7.3 billion this year to $51.5 billion in 2005, according to International Data Corp.

Ballmer is off to a good start. Having already struck deals with Cingular, Verizon, and Voicestream in the U.S., he announced at CeBIT that T-Mobile, the No. 1 cellular service in Germany, Europe's top market, will offer Microsoft-powered phones and PDAs. MMO2, the British Telecom spinoff, has also committed to the Microsoft platform, as have France Telecom's Orange, Spain's Telefonica, and Britain's Vodafone.

To ally with operators, Microsoft is seizing on concerns that the Finnish giant is trying to siphon service revenue from them, says Keith Woolcock, an analyst with Nomura Equities Research in London. Nokia vice president Niklas Sayander counters that Microsoft is attempting to "hold the industry at gunpoint" by taking top-to-bottom control of phones and PDAs. Nokia backs an open environment based on an operating system from Symbian--which it jointly owns with a slew of tech heavyweights--and Java.

Mobile operators want to support the winner, and at the moment they're still unsure which company will share more of the spoils. Right now, the only other game in town is Japan's NTT DoCoMo, but its unique operating system, browser, and handset make it unlikely to find allies. Too bad, because in this battle the company with the most friends wins.