Reaches 12 Million Homes

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NEW YORK ( -- Microsoft Corp. and Qwest Communications today announced a strategic alliance to offer MSN Internet
Access, content and services via Qwest's broadband Internet network to more than 12 million homes.

Under the terms of the deal, Qwest will spend $100 million over five years on advertising and cross-marketing for its high-speed DSL service on the MSN network. Qwest will market MSN Internet Access and services to its new and existing customers in its 14-state service area.

In exchange, Microsoft's MSN will buy broadband capacity, digital subscriber lines, dial ports, and billing and collection services from Qwest.

The agreement, starting this summer, means that 500,000 subscribers and potential customers will get MSN Internet Access via Qwest DSL service.

Previous partnership
Qwest and Microsoft first partnered two years ago on Web hosting and other services.

Microsoft CEO Steve Ballmer told reporters today by conference call that the deal gives Microsoft the ability to focus on its strengths -- software development and content -- rather than access and infrastructure issues.

"We believe that by combining our dial-up and DSL customer base with MSN, we'll bring a richer variety of services and content," said Qwest CEO Joe Nacchio. Mr. Nacchio projected the deal would bring $1.3 billion and $1.5 billion in new revenue to Qwest.

Keeping up with AOL
MSN currently has more than 5 million Internet Access customers. Mr. Ballmer put the number of high-speed or DSL customers in the "tens of thousands." By comparison, AOL's subscriber count stands at more than 28 million. MSN, however, is the world's largest Internet network with 230 million unique users each month.

The deal, said Yusef Mehdi, vice president of MSN, "is about building [Qwest's] brand with us on the MSN Network." Through the alliance, Qwest will also drive potential customers to its small-business services with targeted advertising on MSN communities. Mr. Medhi indicated that the Qwest deal is "one of a handful" that Microsoft is pursuing across vertical communities and industries.

The deal looks similar to a slew of AOL Time Warner cross-media deals announced in recent weeks, including a relationship with Nortel Networks.

"In some ways it's bigger and more sophisticated than the AOL Time Warner [deals]," Mr. Mehdi said. "The difference is that AOL is doing cross-media sales in traditional media, whereas ours is exclusively online."

The Qwest alliance, Mr. Mehdi explained, is not a cross-media play specifically. "We're selling the best digital experience on the Web, the largest global brand for online services, and we think we start to deliver the elements that do allow you to deliver true brand advertising on the Web," he said.

Souped-up ads
Mr. Medhi emphasized MSN's XML-based ads and tools, and that advertising on MSN communities will feature souped-up video, sound and motion.

Advertisers on MSN communities will have more control over their ability to update content and creative and handle customer-relationship management functions, Mr. Mehdi said.

The next generation ads will "essentially feel like content modules within the page, more integrated with content. Qwest will essentially be able to have a series of headlines that scroll and can be updated," he said.

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