Microsoft Reportedly Mulling T-Online Stake

Microsoft Corp. might take a 25-percent stake in
Europe’s largest Internet service provider (ISP), according to a German
business magazine.

On its Web site, Capital reports Deutsche Telekom has
offered Microsoft a partnership with its T-Online subsidiary share that
would include up to a 25-percent share of the ownership. The deal would
alleviate some of the pressure on Deutsche Telekom’s balance sheet, which is
groaning under $60.5 billion of debt. Deutsche Telekom, which spun off
T-Online in the waning days of the Internet boom, still owns 82 percent of
its shares. T-Online currently has a market capitalization of about $12.6

Spokespersons for Microsoft and T-Online declined to comment. Officials at Deutsche Telekom were unavailable for comment.

Valentina Barnfather and Annelie Powell, research analysts with JP Morgan, said in a research note that the deal was “a definite possibility.”

“We believe that T-Online is an attractive proposition because it would provide Microsoft with access to Europe’s largest fixed portal business as well as to a blossoming broadband business,” they wrote.

If consummated, the partnership would create a challenge to AOL by extending
the reach of MSN, Microsoft’s Internet unit. AOL has struggled in Europe
through its ambitious AOL Europe partnership with German media giant
Bertelsmann, which sold its stake back to AOL in March 2000. Last year, AOL
Europe racked up a $600 million net loss on $800 million in revenue.

Microsoft has set its sights lower, concentrating on building its portal. In
April, MSN was Germany’s 10th most-frequented site, with 4.6 million unique
visitors, according to Nielsen/NetRatings. AOL sites had 5.9 million
visitors. Meanwhile, T-Online, which has about 11 million subscribers,
recorded 9.8 million unique visitors as the No. 1 site.

In addition to its German-language ISP, T-Online owns ISPs in Spain (
and France (Club Internet). Last year, the company reported a little over $1
billion in revenue, but recorded a net loss of $705 million.

In March, Microsoft inked a deal with Deutsche Telekom to offer T.Net, which will provide mobile XML Web services.

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