Microsoft: Ericsson's New Weapon In The Wireless War

The mobile-phone fight is shifting to software. Look out, Nokia

In the end, there was no blocking Microsoft from the next great frontier of cyberspace--the mobile Internet. Sure, the Europeans tried. A year and a half ago, wireless powers Nokia Corp. and Ericsson pulled together other phone manufacturers into a software joint venture, Symbian. This, they said quietly, would permit the European-led industry to turn its phones into computers by developing an operating system--free from the dominance of Microsoft Corp. Later, Microsoft Chairman William H. Gates III referred to Symbian as one of his company's greatest threats.

Now, Microsoft at last has found a way to storm Europe's mobile citadel. On Dec. 8, the software giant announced a Swedish joint venture with Ericsson to develop software for the wireless Internet. No, Microsoft is not unseating the Symbian operating system. Instead, the new venture will attack the market with a browser--the Mobile Explorer. This means that while Gates may never succeed in putting Windows CE on the 1 billion Internet-connected cell phones that are expected in the next decade, he is positioning Microsoft to become a dominant mobile portal, the America Online or Yahoo! for the wireless Net.

If he succeeds, Microsoft could lay claim to precious real estate on the mobile Net: the tiny screen that links phone surfers to their mail, their stocks, sports highlights, even the mobile mall. "This is a beachhead," says Ilkka Rauvola, an analyst at Paribas in London. "Microsoft will expand on this to have a major a share of wireless applications."

Microsoft's arrival could well mark a major shift in the industry, one that could threaten market leader Nokia. As phones evolve from simple talking machines into Net devices, software grows increasingly important. With time, U.S. software makers, with their Internet knowhow, could wrest control of the industry from hardware manufacturers. To defend their positions, European phone makers are likely to start shopping like mad in the U.S., perhaps landing marquee portals or e-merchants in coming months. "It's Internet applications where the Americans excel," says Jacob Hamacher, CEO of Ehand, a Stockholm phone-software startup.

For Ericsson, Microsoft offers plenty of help against rival Nokia. The Finnish company is building on its lead in cellular phones with 60% growth, and it has raced past BP Amoco PLC as the most valuable company in Europe. Ericsson, meanwhile, went through a management shakeup earlier this year after sales of its mobile phones slumped. But under its new president, Kurt Hellstrom, Ericsson's stock has doubled in the past three months. By teaming with Microsoft, Hellstrom moves the battle away from Nokia's strengths in design and branding. "The focus is shifting to applications," says Robert L. Muglia, vice-president for business productivity at Microsoft.

SMART NETWORKS. Microsoft and Ericsson plan to launch the joint venture, controlled by Ericsson, early in 2000. They predict that within a year, the new company will be offering a host of Web-phone applications. Muglia says scheduling programs and e-mail will be the initial "killer applications" of the mobile Internet. And since Ericsson is the world leader in wireless networks, the new venture will be able to bundle its Web browser not only into the phones but also into the transmission systems sold to phone companies worldwide. Such smart networks would be a big selling point to telecom customers.

The potential is formidable. But the fight for the wireless Net will be a fierce one, as phone companies, software makers, and Internet outfits all jump into the fray. Says a Nokia official: "The winner will be the one who can combine all the different technologies into something that works." And that winner may yet turn out to be the newcomer from Redmond, Wash.