Dec 17th 1998: New-generation US telco Qwest will use a $200m investment from Microsoft to fund the launch of application rental and hosting services next year, it revealed this week.

The two companies jointly announced Monday (14th Dec) that Microsoft had agreed to buy $200m worth of Qwest Communications stock at $45 per share. In return, the Denver-based telco will build a networking and data centre infrastructure based exclusively on Microsoft's Windows NT server platform.

Qwest is due to complete construction of its high-bandwidth, 18,500-mile Internet protocol (IP)-based fibre optic network spanning the USA, Canada and Mexico during 1999. It is in a joint venture with Dutch telco KPN to build a similar network in Europe.

Hosted applications will be a centrepiece of Qwest's NT-based services, the company revealed. Microsoft and third-party applications ranging from e-commerce and email to human resources and finance will be rented to customers from Qwest data centres, called 'cybercentres' by company insiders.

Rental licensing is explicitly allowed for in the agreement with Microsoft, a Qwest spokesman confirmed yesterday to ASP News Review. The telco is developing support services which complement application rental, such as instant technology upgrades and usage-sensitive billing.

Qwest will also offer outsourced systems, network and desktop management services as well as more traditional new-wave telco services such as Virtual Private Networking (VPN) and streaming media for video delivery.

The company believes the breadth of services it plans to offer will be a unique. "You don't have anyone offering a one-stop shop for all services, from VPN to ecommerce to streaming media," said the spokesman. The 2.488 gigabit-per-second bandwidth on its OC48 backbone will boost the appeal, he added.

Qwest is creating a new business unit called Internet and Multimedia Markets to operate and market the operation. It is due to start work in January 1999 and will begin offering services in the second quarter of the year.

Yesterday Qwest named the management team which will run the operation. Mostly headhunted from Internet and related technology backgrounds over the past four to eight weeks, the roster of six new VPs includes John Charters, formerly VP of Internet services and applications development at leading telco US West and a long-standing proponent of network-delivered applications. Other notable names include John Kirkpatrick, formerly with Teligent and previously ICG/Netcom and AT&T;, and James Becker, formerly with Uunet.

Qwest expects the service to generate approximately $150 million in revenues during the first two years, most of it in 2000 when it plans to turn a small profit. Capital expenditures over the two years will amount to a similar figure. The alliance with Microsoft had cut time to market "by as much as 12 months," said Qwest president and CEO Joseph Nacchio in Monday's announcement.

The Qwest infrastructure will be the first end-to-end IP network operated by a backbone carrier exclusively with Microsoft's Windows NT platform (due to be renamed Windows 2000 in its next release). The Internet industry has traditionally favoured Unix, and there has been considerable surprise at Qwest's decision to go with NT end-to-end.

Qwest believes that using Microsoft software will give it a considerable cost edge over competitors, particularly in view of Microsoft's $200m equity sweetener and the favourable licensing terms negotiated as part of the deal.

In return, Microsoft will be able to showcase its technology in Qwest's high-performance IP-based telecommunications environment. It also intends to use the implementation as a vehicle for stress-testing NT in a high-performance network and ironing out any issues that emerge.