BT and Microsoft to get it together ..?
March 1998

It's one of those things that you simply have to pause a moment to take in.

Did I hear that correctly? Is this a wind up? Apparently not. There was some talk of it being a ever-so-slightly encouraged by a BT shareholder who wanted to see what happened to the price, but let's ignore that - in case it spoils a good story!

When he's not collecting pies in the gob from Belgian pranksters, Bill Gates is being rumoured to be looking seriously at acquiring British Telecom. For a world growing ever more accustomed to increasingly monumental take overs now that all pretence at control of monopolies seems to have been abandoned, Microsoft acquiring British Telecom is well within the bounds of credulity.

And as Lloyd Grossperson would say, the clues are all there. Consider the events leading up to the announcement - which, if we dismiss the share hype theory for a moment, has the subtlety of an effort to sound out reaction to a rather significant commercial undertaking.

The fact that internet has attracted a generation of proactive users who would prefer to get their entertainment their own way, and not in the form of the lowest common denominations of the broadcast media has not gone unnoticed.

Everything that Microsoft does these days (since that famous "hardcore about the Internet speech) is predicated upon connectivity, which means telecommunications. Microsoft has shown a lot of interest in content and delivery of "streaming media", which many observers conclude is to stake out a territory for the Holy Grail of "video on demand".

In it's failed efforts to acquire MCI, British Telecom has shown all the negotiating skills of a man with a nervous twitch playing poker in the big league. Nevertheless, BT still hankers after "global reach"., and leagues don't come any bigger than Bill Gate's current ambitions to find ways to corral the Internet and media convergence in general.

In its world famous Martlesham Heath research facility, (an academic's throw from Cambridge where Gates has recently caused enormous excitement but dropping a little loose change to set up the first Microsoft R&D facility outside the USA) BT has a jewell that Bill Gates probably prizes highly. The "futurologists" of BT not only seem to have ideas, vision and technology, they have something else that is close to Mr Gates heart: a jolly handy monopoly, where a number of the original constraints and controls now appear to be negotiable with a government that will happily suck up to anyone rich and famous, willing to help out Our Leader's cherished objectives in the field of education.

For whilst the deregulation of the telco scene has diluted some aspects of BT's once unitary grip on the phone business, it is still so significantly larger than all its competition put together as to have sufficient monopoly influence to warm the cockles of Bill Gates heart.

Microsoft is presently somewhat beleaguered in the US courts, not just at Federal level, but also in a growing number of states, that are starting are taking pot shots at its business. At least with BT in the UK, they would only have to spend time and attention to smooze the Oftel regulation process.

Much of the rest of the US IT industry has begun to get it's message home to the people and the government, that far from being a benefactor to the crucial US information economy, Microsoft has outlived its purpose of rounding up a few unruly standards, and should now divest itself of large chunks of its core business - the operating system - and allow progress and technical excellence a chance once again. The US government has reputedly had problems with countries like Russia, China and India balking at the idea of paying the "Gates Tax" on every computer, and the US industry faces a very real chance of finding these market wrenched away as other countries adopt indigenous versions of perfectly viable freeware operating systems like Linux. Yankee go home, indeed.

If Gates were to control the influence and resource of BT with its existing strategic alliances, he would have much less need of continued control of the operating system anyway, and could concentrate on securing the markets for his content and applications. And we can expect to see another famous sudden about-turn to embrace the idea of the network computer once he owns the network and what the network has to deliver.

Bill Gates has been round to number ten in the wake of other celebrities. Presumably not to check if some previous visitor has left a half-smoked spliff in an ashtray, but to play power politics over deals for schools. And as we have seen, Tony Blair's good offices with Zipper Clinton might be seen as presenting a handy opportunity to present the benefits of bending over and adopting the position with Microsoft, to both leaders at once.

As I said at the outset of this piece, I do hope that there isn't a BT shareholder who started the rumour, reading this and laughing aloud. It would indeed spoil an otherwise good story...