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MSN Takes to the Air with Gilat

Microsoft Corp. and Gilat Satellite Networks Ltd. Wednesday announced plans to provide the first consumer two-way satellite broadband offering in the U.S.

It's first time the two companies have teamed up to offer consumers high-speed Internet access via two-way satellite. The deal takes aim at providing high-speed Internet access to areas where landlines fail to deliver.

Gilat (GILTF) has formed a new company, Gilat-To-Home, to deliver two-way broadband satellite access to consumers. Microsoft (MSFT) expects to invest $50 million in the venture and it will initially hold a 26 percent stake in the new company.

In addition to its cash investment, Microsoft has plans to purchase a significant number of very small aperture terminal (VSAT) units.

Richard Belluzzo, Microsoft consumer group vice president, said joining forces with an industry leader like Gilat makes high-speed access a reality for consumers.

"MSN Internet Access via satellite is a tremendous value proposition for our subscribers, especially those who live in areas where broadband connectivity is not an immediate option," Belluzzo said.

Yoel Gat, Gilat Satellite Networks chairman and chief executive officer, said the company needed to team up with a strong player in the market to deliver its two-way VSAT service.

"We've said from the outset that one of the most important aspects for launching Gilat-To-Home is finding a strong Internet brand that would provide rapid access to the consumer," Gat said. "MSN is the perfect partner with which to build Gilat-To-Home."

Gilat-To-Home two-way satellite service users can expect Internet access speeds up to 10 times faster then normal modem speeds. Like landline broadband access, the two-way satellite feed supports and "always on" connection to the Internet.

Trials of the two-way satellite service have begun and the companies expect to deliver wide availability of service by the end of the year.

David Eiswert, Strategis Group, Inc. analyst, said the MSN-Gilat partnership gives the companies first-mover advantage in the satellite segment of the high-speed Internet access market.

"MSN basically said we need two things, we need technology and we need distribution," Eiswert said. "The deal also allows Microsoft to leverage its Radio Shack partnerships for distribution and allows them to address a population that wants high-speed access."

Eiswert added that due to the deal, Microsoft has headed to the front of the class to deliver high-speed two-way satellite access. Other Internet service providers are two or three years behind the two companies in being able to provide two-way satellite services.

In related news, Gilat Wednesday also bought live Web-based training company LearnLinc Corp.

Gilat said it will issue 1.3 million shares in consideration for the purchase. Its stock was trading at 29-1/4 at the time of this writing, which would translate to a deal price of $40 million. Gilat will combine LearnLinc with its broadband TrainNet systems and the Web tools and training services from the recently acquired Allen Communication.



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