A $1 billion capital infusion from Bill Gates’ Microsoft Corp. will help cable giant Comcast Corp. accelerate construction of a fiber-optic cable network to expand Internet access to millions of Americans.
In purchasing an 11.5 percent stake in Comcast, the nation’s fourth-largest cable company and also a provider of cellular telephone services, Gates is hoping to boost sales of Microsoft’s array of online and interactive software and services among Comcast’s 4.3 million customers.
Philadelphia-based Comcast also is a partner in Sprint Spectrum L.P., which holds licenses to offer nationwide digital wireless service. It is still unclear how the new alliance might affect Comcast’s wireless interests.
The Microsoft-Comcast agreement-Microsoft’s largest-ever outside investment-was completed June 9.
Gates’ investment in Comcast will be in the form of $500 million of class A special common stock and $500 million in series B convertible PIK preferred stock.
A major motivating factor behind the new alliance is Gates’ frustration at the sluggish pace with which cable and telephone companies have been modernizing their networks to carry new Internet services. With its new stake in Comcast, Redmond, Wash.-based Microsoft will have a major opportunity to combat the bottlenecks in telephone lines that have bogged down online connections and delayed users from logging on and downloading Web pages.
In addition to constructing a fiber-optic cable that will expand high-speed Internet access, Comcast also is said to be testing modems that would connect home computers to the Internet via cable. Meanwhile, Microsoft is developing software to connect personal computers to cable lines for speedier Internet access. “We think Comcast will be an excellent partner to roll out these services,” Gates said.
While the first of Microsoft’s new products is expected to be introduced in test markets within the year, the company also is expected to take advantage of its new alliance with Comcast to market its expanding line of interactive online services and is reported to be working on software that would allow computer users to make telephone calls via the Internet at substantially lower costs than traditional land lines.
News of the alliance sent Comcast stock rocketing 17.5 percent higher to $21.43 while Microsoft stock rose about 1 percent to $125.25. The announcement also caused Moody’s Investors Service to “place on review for potential upgrade” the debt ratings of Comcast and its subsidiaries.
