Microsoft, Yahoo Line Up Behind DSL

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Microsoft Corp. and Yahoo! Inc. outlined highly divergent
strategies last week for achieving much the same end -- exploiting broadband technology as
aggressively as they can in ways that pose serious challenges to cable.

In Microsoft's case, the company's
Internet-service-provider unit, MSN Internet Access (MSNIA), said it was embarking on a
four-city trial of high-speed consumer services over DSL (digital-subscriber-line)
facilities in preparation for commercial rollouts in 20 or more markets by this fall.

At the same time, Yahoo completed a widely anticipated
agreement to buy Broadcast.com Inc. in a stock deal valued at $5.6 billion.

The common link is the opportunity afforded by the use of
IP (Internet-protocol) software and network infrastructure in conjunction with high-speed
transport to supply content that the parties believe will eventually compete with all
types of cable services -- TV entertainment, as well as data content and applications.

"A year from now, there won't be any question
about the quality of [IP-based] video," said Todd Wagner, CEO of Broadcast.com.

By that time, he added, video streamed in real time over IP
networks at 500 kilobits per second to 1 megabit per second will be widely available.

"Whether you have a DSL modem or a cable modem, that
is TV," he said, noting that even at a mere 300 kbps, technical advances have
achieved VHS-quality video in the IP format.

Yahoo, with a user base of more than 50 million, provides a
vast market base for linking the broadcast radio and TV and other content that
Broadcast.com has aggregated over its four-year existence, Yahoo chief operating officer
Jeff Mallett said.

Mallett added that the combination of the Broadcast.com
streaming infrastructure and Yahoo's market reach sets the stage for "Turbo
Yahoo" -- the broadband version of the portal, where tight integration of interactive
video, audio, text and graphics will make the IP platform the most compelling medium in
consumer and business markets.

Cable engineers view such talk more as hype than reality,
noting that the digital TV enabled by MPEG-2 compression outperforms IP video by every
measure, including picture quality, bandwidth efficiency, market domination and ease of
storage and transport.

Moreover, they noted, DVD and high-definition television
are going to raise the quality bar, putting the cable-TV platform even further beyond the
capabilities of IP video operating in the 1-mbps range.

But Microsoft is shooting higher in terms of the access
speeds that it hopes to support over DSL, said Mike Lucero, group product manager for
MSNIA. "We'll probably average 2 mbps," he added.

The company will be operating from the DMT
(discrete-multitone) modulation platform -- a standardized version of DSL that supports
transmissions at up to 8 mbps for distances of 10,000 feet to 12,000 feet, backing off to
slower speeds at longer distances or with any deterioration in line conditions.

The combination of ever-improving compression technology in
the IP domain and these higher speeds could significantly alter the video-quality
parameters as Microsoft's WebTV Networks and other entities provide a means of
porting the DSL data stream to TV sets.

"Rather than guaranteeing access at 284 [kbps] or 356
[kbps], we'll let the system operate at maximum rates on a contention basis,"
Lucero explained.

With a new generation of miniature digital-signal
processors, it's becoming easier to pack DSL-access multiplexers with sufficient
capacity to avoid severe rate drops as more users connect. This means that anyone offering
DSL services to consumers will be able to support higher average transmission rates within
the next year or so.

In its consumer DSL trials, MSNIA will use facilities
supplied by BellSouth Corp. in Atlanta, by Pacific Bell in San Diego, by GTE Corp. in
Seattle and by competitive local-exchange carrier NorthPoint Communications Inc. in
Chicago, Lucero said.

He declined to discuss details of content development with
unnamed partners, but he made it clear that Microsoft expects to offer broadband-enhanced
content and applications of every description through its ISP and its MSN content portal.

These include such things as interweaving IP voice and
video telephony into e-commerce and chat applications and supporting high-quality video
streaming and fast-action multiplayer games.

With its $1 billion stake in Comcast Corp. and a $250
million stake in Road Runner, Microsoft is well positioned to exploit high-speed cable
connections in the distribution of any of the broadband applications that it develops with
its partners, Lucero acknowledged.

"Ultimately, the content that's compelling over
our DSL links will work over cable, as well," Lucero said. "It's real safe
to say that ultimately, MSN will have many faces."

But, he added, in the "co-opetition" model of the
fast-changing Internet-business infrastructure, Microsoft is also intent on challenging
cable directly through MSNIA.

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