Back in March, the 3rd largest US cable provider, Comcast, announced plans to buy MediaOne Group, the 4th largest provider, for $45 billion. But before the two could marry, telephone giant AT&T stepped in and bested Comcast's offering by six billion dollars. So, out of the kindness of their own hearts, America Online, Microsoft co-founder Paul Allen and Microsoft stepped in and offered to help Comcast with a higher bid for MediaOne. But that made things complicated, considering that Microsoft already owned 5% of Comcast and a small stake in MediaOne. And MediaOne owns a controlling stake in TimeWarner and its market-leading cable companies, including part of the RoadRunner internet service group that Microsoft also owns 10 percent of. And if that isn't complicated enough, last year AT&T bought 2nd largest US cable provider TCI, which also gave it a stake in TimeWarner and RoadRunner, not to mention AT&T's controlling share of RoadRunner competitor @Home. That meant four of the world's largest companies were circling around MediaOne like a pack of wolves with its tails tied together. As one source close to the negotiations said, "this is one of the most complicated Chess games I've ever seen."
AT&T prevailed in the negotiations, with Comcast finally giving up on its takeover bid and settling instead on about 2 million cable subscribers and a $1.5 billion termination fee from MediaOne. But in typical Microsoftian fashion, Gates & Co. changed the rules of the game and came out the winners anyway. Going from Chess to Monopoly in one step, Microsoft agreed to buy some $5 billion worth of AT&T stock (4% of the company) in exchange for AT&T purchasing 2.5 million copies of Windows CE (on top of the 2.5 million they already agreed to) and some still-undeveloped software to use in TV boxes. Microsoft also agreed to buy MediaOne's 29.9 percent share of Telewest, the United Kingdom's second-largest cable company.
So in the end AT&T got what it wanted, Microsoft got 2.5 million new WinCE users, Comcast got two million new subscribers, TimeWarner got rid of of MediaOne's control over its cable business, and anyone who uses telephones, television or the Internet regularly got shafted. Welcome to Planet Microsoft.

But Microsoft wasn't happy with just that, choosing to continue their string of worldwide buyouts and alliances the next day. First up was an agreement with the @home cable-internet company, where @home will use NT Server on its network in exchange for Microsoft promoting some @home services.
Then The Behemoth announced a $600 million investment for five percent of the Nextel wireless phone company, and described plans to create a version of the MSN.com portal site for Nextel. That portal would give the phone company's customers access to news, weather, stock information and Hotmail messages from portable phones and pagers. The previous week, Nextel had - perhaps not so coincidently - called off merger talks with MCI WorldCom.
Microsoft continued its buying spree by offering the stockholders of Sweden-based Sendit $175 million, 18 times the company's revenue last year. Sendit is valuable to Microsoft because it makes software to send e-mail over cellular phones and handheld computers, similar to the deal with Nextel. Several of the world's largest portable communications companies, including Motorola, Powertel and Ericsson, license Sendit software.
And moving on from communications to music, Microsoft announced an agreement to make some of Sony's music available on the internet in the Ms Audio 4.0 format. According to reports, the struggling Japan-based entertainment and electronics giant plans to make some of its estimated 500,000 individual recordings available for about $4 each over the internet sometime this summer. The two behemoths also have plans to create a competitor to the portable MP3 player using Microsoft's compression format. Sony, for the record, will also continue to support a competing format being pushed by IBM and RealNetworks.
Then at the end of the week Microsoft moved back to communications companies, with rumors circling that The Behemoth is prepared to pay up to $4 billion for one third of another UK cable company, Cable & Wireless' CWC unit. According to the sources, negotiations about that buyout tie into ongoing merger talks between CWC and another company Microsoft owns 30% of, Telewest [see story above]. If Microsoft is successful, it will own stakes in the three largest cable television (soon to be cable internet) companies in Britain: Telewest, CWC and NTL Limited, which Microsoft invested $500 million in back in February [see NewsSource Feb. 1]. If you live in the UK, get ready for 47 channels of MSNBC.

But Microsoft didn't just invest in other companies last week. The Behemoth also decided to invest more in its own work force, creating 10 new employee classes to encourage faster promotions and enlarging the base salary and stock options available to most of its 30,000 employees. Publicly, Microsoft says that the changes are designed to make it easier to compete in the global fight over well trained technology workers. But privately, many say The House That Bill Built needs to make itself more attractive to the workers it already has, lest they leave to work for an employer with more future growth potential. Microsoft has made more employees into millionaires than any company in history, but its prospects for growth aren't looking so cheery, considering that the consumer desktop PC market is nearly saturated. Those stock options don't look so great now that MSFT has stopped growing 80% a year.

And unlike past payraises and stock option increases, this one will also apply to Microsoft's large 'temporary' workforce. A judge ruled last Wednesday that Microsoft must offer equal benefits and pay to temps that have the same duties as full time employees. The ruling could cost Microsoft more than $15 million since 6,000 of its 20,000 employees in the Seattle-area are permatemps.
The ruling results from a class-action lawsuit filed against Microsoft by several hundred former temporary employees, some of whom worked in the company for several years but were still considered temps [see NewsSource, Nov. 23 '98]. An earlier court decision forced Microsoft to extend its stock option plan to some temporary workers, but another court order limited that to about 500 former employees. The new decision overturned that judge and opens up the stock plan to 10,000 people who worked more than 20 hours a week for the company since 1986. Additional courts are still deciding if the former and current temps are entitled to 401(k) retirement and health insurance benefits.

COURT NOTES: After pushing the resume date back several times, US District Judge Thomas Penfield Jackson has apparently decided that the Microsoft antitrust trial will resume on June 1. The trial took an extended recess in February and was originally scheduled to continue in April, but Judge Jackson delayed it several times because of conflicting schedules and to force the two sides into a settlement. But since no settlement was reached, the trial will now start back in about two weeks.
Meanwhile, Microsoft and the Department of Justice have continued preparing for the trial, finally announcing their list of rebuttal witnesses. Microsoft plans to call America Online Senior Vice President David Colburn as a hostile witness to discuss the Netscape/AOL merger, along with former Symantec president/CEO Gordon Eubanks. Microsoft will also call economist Richard Schmalensee back to the stand, which is a surprise considering how much his previous testimony hurt their case [see NewsSource, Jan. 25]. The government intends to recall its own economic witness, Franklin Fisher, and former IBM director Garry Norris.

Microsoft called an earlier legal filing by Caldera "pulp fiction," and attacked it on a number of legal technicalities and for its lack of admissible facts. But between May 5 and May 11, Caldera filed three stunning briefs that present an impressive array of facts solidly backed by Microsoft's own internal documents and numerous legal citations. The briefs were filed in response to a motion by Microsoft asking the court to dismiss the suit without a trial.
Caldera is suing Microsoft for allegedly using illegal tactics to smash DR-DOS, an MS-DOS competitor. Caldera claims Microsoft illegally used restrictive licensing agreements, engaged in a smear campaign to sow fear, uncertainty and doubt (FUD) about DR-DOS' capabilities, and that Microsoft refused to share any Windows 3.1 Betas with DR-DOS' then-owners Digital Research and Novell (Novell bought DRI and later sold DR-DOS to Caldera).
According to the documents, Microsoft put a fake error message in the Windows 3.1 beta to make users believe that it wasn't compatible with DR-DOS. While the error message was removed before Windows' final release, beta testers and early reviewers had already spread the word about problems running Windows 3.1 on DR-DOS. What's more, Caldera alleges that Microsoft instructed its tech support staff to give out misleading information, and - by withholding their beta code - prevented DRI from refuting the claims in time to prevent any damage.
Microsoft's response this go around is far less bucolic than last - no accusations of 'pulp fiction' this time around. Instead of contesting many of the facts, Microsoft is relying on technical arguments as its primary strategy. How the judge will decide upon some of these legal technicalities next month will give us a taste of how the rest of the trial will turn out.
One of the key points will be whether or not Microsoft can convince the judge that it is not a monopoly. By advancing an argument that the 1996 consent decree with the Department of Justice proves it is not a monopoly, Microsoft hopes to be able to sharply lower the standards applied in the case. Caldera, of course, argues the opposite, pointing out that Microsoft made concessions in the 1996 decree that prove it was and should be judged as a monopolist.
Other key points of contention will be whether Microsoft merely had to refrain from making "knowingly false" statements against DR-DOS, or whether it had a responsibility to refrain from any type of organized campaign against the product. Microsoft argues for the "knowingly false" standard, traditionally a difficult standard for plaintiffs to prove, but Caldera presents compelling legal arguments for the latter. Under the more stringent guidelines, Microsoft would be judged on the basis of whether or not there was an orchestrated campaign to shut out competition.
One message Caldera quotes from an OEM account sales team reads "please advise whomever put together the two documents about DR DOS ... that THEY saved this deal (so far) for Microsoft. ... as FUD is our witness, we will never go hungry again."
The smoking gun is code in the Windows 3.1 Beta that produced an error message whenever DR-DOS was the operating system. Microsoft stringently denies the purpose of the code was to FUD DR-DOS. Microsoft's Brad Silverberg said "It has never been the practice of this company to deliberately create incompatibilities between Microsoft system software and the system software of other OS publishers. The intended purpose of this disclosure message was to protect the customer and reduce the product support burden from the use of Windows on untested systems."
But in September 1991, MS-DOS and Windows product manager David Cole outlined the plan to write the code in a memo to Silverberg, then Microsoft's senior executive responsible for MS-DOS and Windows: "It's pretty clear we need to make sure Windows 3.1 only runs on top of MS DOS or an OEM version of it. I checked with legal, and they are working up some text we are suppose to display if someone tries to setup or run Windows on a alien operating system. We are suppose to give the user the option of continuing after the warning. However, we should surely crash at some point shortly later."
Caldera presents evidence that this was the start of an orchestrated campaign to discredit other DR-DOS, and traces the evolution of the error code along with Microsoft's plans to use the results to cast FUD on DR-DOS. When beta users called the beta support group for help with DR-DOS, Silverberg instructed the support group to "post a nice SOL [shit out of luck?] message." And to tell customers that the "bottom line is that he needs ms dos - something that is compatible with windows."

Microsoft appears to have finally released a service pack for NT 4 that doesn't contain more bugs than it corrects. Windows NT 4.0 Service Pack 5 was made available on May 5th by download from Microsoft's web site or on a $14.95-plus-$5.00-shipping CD. Unlike previous Service Packs, SP5 contains no new features, just bug fixes. And boy does it have bug fixes. On top of 800+ patches from the first four packs, Microsoft has included 75 new fixes for NT on x86 machines, and 50 for users of NT Alpha.

As usual, another security hole was discovered in Internet Explorer 5 last week. The latest hole concerns passwords, specifically when multiple users share a browser and visit Unix-based sites using the .ht secure access method. After someone visiting a site that uses the .ht method has exited the browser, anyone else with access to the system can view the page. This hole is one of the simplest we've seen, requiring only that you enter a page URL, click 'cancel' when the login window pops up and then hit the forward button. Explorer then loads password protected pages from its cache.
Microsoft says that anyone using a shared machine and concerned about security should manually clear their browser cache before exiting the browser, or use an option in the advanced settings that clears the cache each time the browser is closed. Internet Explorer product manager Michael Nichols says that the browser can be configured to reload pages each time, which would also prevent pages from loading out of the cache.
A company spokesman said they they were looking into the possibility of issuing a patch, but made no promises.

Back in 1997 when Cisco signed an agreement to produce hardware optimized for Microsoft's ActiveDirectory, that system was scheduled to ship in less than a year. But now nearly two years later, that product is still undelivered and Cisco's contract is about to expire. According to our sources, once that contract dies you can expect Cisco to announce a new alliance with Novell, integrating all its products with NDS. Last year Novell and Cisco agreed to work together on directory standards, but Cisco's contract with Microsoft prevents any further alliances until this summer. While a new alliance wont affect the shipment of Cisco Networking Services for ActiveDirectory (CNS/AD) software, Cisco's embrace of NDS will be company-wide. Looks like it's time to start buying those NOVL shares again..

According to several reports, a unit of the US Army in charge of battlefield technology have dumped Microsoft's Outlook and Windows NT because of security concerns about those products. Now Microsoft is concerned that other military units may start doing the same, replacing Outlook with Lotus Notes. Microsoft has reportedly started working with a contractor to develop a version of Outlook for Unix before the mail client's marketshare across the military starts to drop.
Army spokesman Terry Edwards said that they chose Lotus over Microsoft since security is "a paramount issue" because of the military's wireless transmission of data to soldiers. Lotus Notes is, according to Edwards, "a far more technically superior product." However, he went on to say that the Army could reconsider using Outlook if Microsoft can provide a more secure implementation of it. Microsoft had no comment on the Unix rumors, but did say that the products in question would be perfectly secure if configured correctly.

Microsoft announced on May 6th that Windows 98 SE has been completed and sent to manufacturers. The $19.95 "upgrade" includes Y2K patches, Internet Explorer 5 and enhanced hardware support, all of which can be downloaded for free separately. The only unique component of 98 SE is Internet Connection Sharing, which enables users with a network to run multiple Internet connections through a single modem.
While Microsoft was trying to make itself into a mutual fund by buying half the companies on earth, Bill Gates and Microsoft cofounder Paul Allen both sold several hundred million dollars of their Microsoft stock. Representatives of Allen and Gates said that the sales were routine moves to diversify their stock portfolios.
Even though retail stores won't have the product for sale until June 10, manufacturers like Compaq and Dell have already began preloading Office 2000 on their desktop machines. In stores, the software suite's flavors will cost $309 to $799 for new users.

_{Malicious hacker steals Hotmail passwords
Windows CE faces technical hurdles
Rematch at the NT vs. Linux corral
Concerns as AT&T Strikes Deal With Microsoft
IIS, Site Server vulnerable to hackers}