States Target Qwest, Microsoft Relationship

 
 
By Darryl K. Taft  |  Posted 2002-04-29
 
 
 
WASHINGTON, D.C.—Lawyers for the states seeking harsher penalties for Microsoft Corp. on Monday tried to paint an executive with Qwest Services Corp. as little more than a mouthpiece for the software giant whose company would be hurt if Microsoft was punished further.

During a plodding cross-examination in U.S. District Court, John Schmidtlein, an attorney for the nine states and the District of Columbia, challenged Gregg Sutherland, senior vice president of corporate strategy at Qwest Services, on just how much he knows about the concept of "ubiquitous connectivity" and unified messaging and Web services that Sutherland included in earlier testimony.

Schmidtlein also hit Sutherland on Qwests relationship with Microsoft, indicating that stiff penalties against Microsoft could translate to losses for the floundering carrier.

Schmidtlein was unable to rely on anything concrete, other than to indicate a close, mutually beneficial relationship between the two companies.

"Qwest has a very close relationship with Microsoft?" he asked Sutherland, who said Qwest has "a relationship" with Microsoft, but also ones with many other companies in the industry, including IBM and AOL Time Warner.

However, Sutherland acknowledged that Microsoft in 1998 made a $200 million shareholder investment in Qwest, which he said was "insignificant" in that it amounts to less than 2 percent of Qwests overall value.

Schmidtlein then presented a Dec. 14, 1998, press release from Qwest, which called the agreement between the two companies "a strategic relationship that redefine the boundaries for e-commerce, web hosting and other mission-critical applications."

The document also said Qwest expects the deal to generate $150 million in revenues over the next two years.

Sutherland said that "this relationship accounts for a very modest amount of income." He said only one thing remains of that deal, a hosting deal for Microsoft Exchange.

Schmidtlein then produced more documents, including two Form 8-K documents Qwest—a subsidiary of Qwest Communications International Inc.—filed with the Securities and Exchange Commission describing this deal and a subsequent deal in April 2001, in which Qwest and Microsoft agreed that Qwest would migrate a large number of its ISP customers over to Microsofts MSN service.

The latter 8-K said, "Microsofts MSN unit would purchase hundreds of thousands of dial ports and Qwest would expect that to generate millions of additional customers." It also said Quest "expects the transaction to generate between $1.3 billion and $1.5 billion in revenue over the five-year term … more likely the high end of the range."

Sutherland shrugged it off, saying, "So far this is not yet a significant part of our company."

Then Schmidtlein produced a combination of press releases from both Qwest and Microsoft from July 2001 in which Microsoft named Qwest a "Global Hosting Partner of the Year."

Sutherland said that "means we did a good job of hosting that [Exchange] application."

Getting to the heart of the matter, Schmidtlein asked Sutherland: "Will the states remedy have any impact on the April 2001 deal between Microsoft and Qwest?"

Sutherland replied that he was "not aware of any."

Schmidtlein also bore in to challenge Sutherland more aggressively on his area of expertise, getting Sutherland to admit that perhaps his most key experience relating to unified messaging and Web services is a Qwest project that began early this month.

However, U.S District Judge Colleen Kollar-Kotelly admonished Schmidtlein, reminding him—as did Microsoft—that Sutherlands testimony did not say he had direct knowledge of unified messaging services offerings.

The states are seeking harsher penalties than are included in Redmond, Wash.-based Microsofts settlement with the U.S. Justice Department last year.

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