Rogers Cablesystems Ltd. became the latest operator to
snare Microsoft Corp.'s largesse, gaining a $400 million investment after it agreed
to license the software giant's interactive-television platform.
Canada's largest MSO -- which said it plans to begin
rolling out basic interactive-TV services, such as Rogers-branded e-mail and Web browsing,
next year -- will use "Microsoft TV" client and "Microsoft TV Server"
software to support at least 1 million digital set-top boxes.
The total will include Scientific-Atlanta Inc.
"Explorer 2000" boxes that Rogers has already begun to deploy.
Rogers plans what it called a "Canadianized"
advanced-services offering, leveraging existing Microsoft products -- such as its
"Hotmail" Web-based e-mail and its MSN portal and search engine -- with
interactive content from Canadian and other providers tailored for viewers in the
"Great White North."
In what the companies termed a separate, nonexclusive deal,
Microsoft agreed to pay $400 million for Rogers convertible preferred shares and
common-stock warrants roughly equivalent to a 9.2 percent fully diluted equity stake in
Rogers executives said the cash would help them to
accelerate the deployment of advanced TV and Internet services, while aiding the heavily
indebted company's push to achieve an investment-grade credit rating.
"You can always use the money to continue the process
of deleveraging our balance sheet, which we're committed to doing, and also to help
finance the different new projects that we're embarking on," Rogers president
John Tory said.
The deal mirrors AT&T Corp.'s agreement to license
Microsoft's client and server software for its own interactive-cable services, with
AT&T promising to put the platform in up to 10 million digital set-top boxes.
In return, AT&T got a $5 billion Microsoft equity
investment. AT&T initially plans to deploy General Instrument Corp.'s
Rogers insisted that there was no quid pro quo between
Microsoft's investment and the MSO's agreement to deploy Microsoft TV -- a
still-developing platform that has not yet been deployed commercially in any interactive
Executives said Rogers evaluated other operating-system
software, but it chose Microsoft TV because it rated it as close to production grade, and
because the AT&T deal created a huge customer base to support the platform.
"I have no doubt whatsoever that the Microsoft
investment in Rogers will show great appreciation over the years and will turn out to be
an astute and great investment apart from any technical agreements we have," parent
company Rogers Communications Inc. president Ted Rogers said during a news conference
announcing the deal.
The deal will likely provide a boost to a Canadian
advanced-cable-services business that by and large is ahead of its U.S. counterpart.
Rogers covers about 89 percent of its 2.8 million homes
passed with two-way networks, and it finished the second quarter with 100,500 Rogers@Home
cable-modem subscribers, making it one of the largest @Home Network cable affiliates.
Rogers had about 2.2 million basic-cable subscribers as of
June 30, along with 1.2 million customers for its third-tier service, "MeTv."
Microsoft indicated that it was in discussions with all
major Canadian MSOs. But Goldman, Sachs & Co. cable analyst Lou Kerner said the
primary benefit to other Canadian operators would be the "halo effect" from the
U.S. cable stocks rallied after Microsoft's 1997
purchase of a stake in Comcast Corp., which investors saw as validating cable's value
as a high-speed interactive-data platform.
"I don't think Microsoft is going to make any
additional investment in cable in Canada," Kerner said. "I think they're
likely to work with the other operators, but they've made an investment in the
largest operator, and they will get some leverage in the deployment of their
Kerner also said that while Microsoft would have a major
position in set-top operating systems in Canada, it was unlikely to dominate because many
other software firms will contribute different elements of the interactive platform.
Shaw Communications Inc. senior vice president of
operations Peter Bissonnette said his company was also looking closely at Microsoft as it
finalized decisions about what to run on its DCT-5000 advanced set-tops.
Shaw expects to begin receiving the boxes by early October
and to begin deploying them later this year.
Like Rogers, Shaw has had strong advanced-services sales,
notching more than 110,000 @Home cable-modem customers and nearly 100,000 digital-video
Shaw has narrowed its operating-system choice to Microsoft
and two other undisclosed providers, Bissonnette said.