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The BBC's Richard Quest reports
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Thursday, 9 December, 1999, 15:27 GMT
Ericsson, Microsoft build the 'poor man's' phone

Microsoft and Ericsson logos

The alliance between mobile phone giant Ericsson and Microsoft will be geared towards the production of cheap low-end phones with internet access.

The planned range of phones using Microsoft's mobile microbrowser would be "the poor man's" phone, said Torbjörn Nilsson, Ericsson's senior vice president in charge of marketing and 'strategic business development' at a news conference in Stockholm.

Torbjörn Nilsson: Torbjörn Nilsson: Ericsson and Microsoft won't invite other companies to join their venture
Mr Nilsson said the company's feature-rich "smart" phones would rely on Epoc, an operating system developed by Microsoft rival Psion. Epoc is currently being adapted for mobile phone use by joint-venture Symbian, which partners Psion with Ericsson, Motorola, Nokia and other phone manufacturers.

No other partners?

Microsoft and Ericsson will create a "joint company" to build and market "mobile e-mail solutions for network operators".

Ericsson will own a majority stake in the firm.

Mr Nilsson said there were no plans to invite other companies to join the venture.

And Ericsson's President, Kurt Hellstroem, promised that both companies would expand their co-operation. "This joint company is just the first step", he said.

Microsoft president Steve Ballmer, though, appeared to be open to suggestions. Speaking at a news conference in Stockholm, he said: "We are in constant contact with all companies in the technology business. Nokia is also a fine company".

And Thomas Koll, vice-president of Microsoft network solutions, said the Seattle software maker planned other mobile phone alliances, although the deal with Ericsson would be "unique".

'Ambitious' plans for Windows CE

Steve Ballmer says Microsoft will strike alliances with other mobile phone companies as well
The Ericsson venture leaves Microsoft's 'mobile' operating system, Windows CE, out in the cold.

Mr Ballmer, though, insisted that the company had "ambitious plans for the enhancement of Windows CE".

He said there was a variety of devices. "Light clients" like the phones produced by Ericsson and Microsoft could work without an operating system.

Mobile internet

Using a new technology standard, the Wireless Application Protocol or Wap, the new generation of mobile phones is designed to allow users access to the internet while on the move.

"The mobile internet is part of Ericsson's vision of convenient and user-friendly information access and wireless e-mail," said Mr Hellstroem.

The two companies agreed to support the development of open industry standards so products from all companies can work seamlessly together.

The new venture will use Bluetooth technology which is a wireless technology standard which links computers to peripherals like printers.

"Mobile internet access and services are crucial for realising Microsoft's vision" of delivering information through computer software to consumers anywhere in the world, Steve Ballmer, Microsoft president said.

Ericsson plays catch-up

Telecoms analysts predict that the alliance will help the Swedish company to catch up with its competitors.

During recent years, the firm had to play second fiddle, yielding to Finnish rival Nokia.

Twice during the past twelve months, Ericsson had to issue profit warnings, as the benefits of a restructuring programme were slow to kick in.

"The deal with Microsoft positions Ericsson strongly for the mobile data market in the long-term" said Peter Knox, analyst with Commerzbank of Germany.

Fierce competition

There has been fierce competition and positioning to set the industry standards for the next generation of mobile phone and other products.

Microsoft's main competition has come from the Epoc operating system, designed by Psion and now being developed by the Symbian joint venture, in which Ericsson is a major partner, along with other mobile phone makers. Psion originally developed the system for its own hand-held computers and personal organisers.

Investors had feared that Ericsson's deal with Microsoft would freeze out Psion, sending the UK firms' shares plummeting 40% on Wednesday.

However, shares recovered after Ericsson confirmed that it remained committed to the Symbian venture and Epoc.

Ericsson shares soared 12% to a record high on the news of the alliance with Microsoft, but on Thursday profit-taking saw prices fall sharply again - dropping 3.5%.

"The enthusiasm with Ericsson and Microsoft was a little overdone yesterday," a Finnish broker said.

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See also:
09 Dec 99 |  Business
The mobile internet race
08 Dec 99 |  Business
Ericsson and Microsoft hook up
21 Nov 99 |  Sci/Tech
Microsoft's mobile challenge
08 Dec 99 |  Sci/Tech
Wap - wireless window on the world
14 Oct 99 |  The Company File
Psion and Palm establish links
27 Oct 99 |  The Company File
BT, Microsoft ally on wireless Internet
29 Oct 99 |  Business Basics
Mobile phones - a growth industry

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