Microsoft Corp has decided to sell out of its $23m on-line venture with Australian state telephone company Telstra Corp, after the two failed to agree on strategy. The joint venture, On Australia, was set up between the two to provide cheap, fast Internet access for Microsoft users. Australia was seen as the company’s test-bed for its Microsoft Network on-line service, launched last August. Being Microsoft’s only worldwide joint venture with a telecommunications carrier, On Australia was keenly watched by the US parent. Tensions emerged in November (CI No 2,818), resulting in talk of changes to shareholder arrangements and future alliances between Microsoft and other media players. However, the Australian Financial Review claims tensions had been bubbling for longer and despite attempts to negotiate a compromise deal, the parties agreed that Telstra would buy Microsoft’s 50% shareholding in the venture. On Australia will now be substantially restructured, with Telstra assuming 100% control of its equity as well as controlling Internet access. Microsoft will continue to play a role in the venture, however, managing content and other application tools used by On Australia’s 20,000-plus subscriber base. But the Telstra-Microsoft dream of using the On Australia partnership as a gateway to other Asian markets has dissolved, with both parties accusing each other of holding unrealistic expectations for the venture. The decision to exit On Australia is a blow to Microsoft’s hopes of making other global links with telecommunications companies. The main points of disagreement over On Australia were that Microsoft expected preferential tariff treatment for Internet access, which Telstra claims would have been in breach of the law. Telstra also denied Microsoft access to its national subscriber base. Microsoft originally wanted an exclusive partnership with Telstra and was concerned that its joint venture was being undermined by other deals, including Telstra’s pay-television partnership with News Corp.
