Bill Gates’ tricky power-player role, which he displayed in AT&T’s giant media makeover deal, is scaring Washington more than ever.
By investing $5 billion in AT&T – of a total $23 billion of cash on hand – Microsoft gets an inside track on controlling two-way television sets of the future – plus a nice chunk of AT&T.
It is Gates’ biggest investment among dozens he’s already made across the media landscape.
Also yesterday, Microsoft plunked down $2 billion for a 30 percent stake in London’s Telewest Communications, the U.K.’s No. 1 cable company. That investment, Microsoft’s fourth in Europe, has the same aim as its AT&T maneuver: to get its Windows CE software into the next generation of set-top boxes.
Many in the telephone and telecom business see telephone, television and the Internet merging in the future into a one-service provider, via cable wires.
Gaining control, or at least a foothold, of the software market for the smart set-top boxes will be lucrative.
Gates, and Microsoft, gained entry into the AT&T/MediaOne cable system, the No. 1 system in the country, after making it appear as if the company might partner with Comcast to gain control of the cable boxes.
While the $5 billion investment is a lot less expensive than helping to buy MediaOne outright, and can get Microsoft’s software into 10 million AT&T cabled homes’ set-top boxes, it is not an exclusive deal.
Rivals like Scientific-Atlanta and Sun Microsystems, maker of Java, will push hard to gain the upper hand, as well.
That has unnerved some lawmakers, who might press to hold hearings on the cable business.
“There’s nothing sinister about what Gates is doing, but it certainly gives his enemies many more issues to sound their alarms about,” said Will Roger, Washington, D.C. bureau chief of Interactive Week.
“There will be a lot more people gunning for him now. Now he’s really in the crosshairs of the Senate.”
Gates is already under attack from antitrust regulators over the way he muscled computer manufacturers into using Microsoft’s Internet Explorer web search engine, effectively closing the door for other search engine competitors.
“This new win for Gates is going to turn up the heat on him,” said Roger, an expert on Microsoft’s regulatory troubles.
“Regulators are scared because they’ve seen how Gates has leveraged his opportunities in the past.”
“This is Microsoft’s business to win or lose,” said Blake Bath, an analyst at Lehman Brothers Inc.
“If they prove themselves a good partner it seems like they will have the vast majority if not all of the business.”
Armstrong – aware that regulators will be breathing down their necks – insists that Microsoft doesn’t have an advantage over any of the other firms competing for the set-top box programming, including Microsoft archrival Sun Microsystem’s Java.