Microsoft May Drop Internet Access Business

SEATTLE — After months of customer complaints about poor service, undelivered e-mail and incessant billing problems, Microsoft Corp. executives have begun discussing whether the company should get out of the Internet service provider business, company sources say.

Microsoft denies it has plans to drop its Microsoft Network business “at this time.” However, Jeff Sanders, marketing manager for MSN, admits he “can’t guarantee” whether Microsoft will be in the Internet access business for the long term.

In the meantime, Sanders said Microsoft is committed to offering quality service. “Even if access is not a long-run business,” Sanders said, the software giant still needs to develop the sophisticated billing technology it needs to sell its online products. “If we are going to do it, we want to do it right.”

There already are signs, however, that Microsoft’s focus is on offering MSN as a content package for other ISPs. MSN will be offered, for example, on the @Home Network, which is developing a cable modem service for high-speed Internet access. Deutsche Telecom, Germany’s phone monopoly, will offer MSN with its Internet service.

While the communications side of the Internet is far less important strategically for Microsoft than the content, pulling out of the ISP business would nonetheless mark a rare and humbling retreat for the voracious software giant.

If Microsoft does end its role as an ISP provider, it’s unclear whether the company would continue to market its ISP service and merely subcontract key functions, or restrict itself to offering the content alone.

Since relaunching MSN as an Internet-based service last year, Microsoft has rapidly built up the business and now has 2.3 million customers. But with competition increasing, few firms are making money providing Internet access service.

And Microsoft’s own service has repeatedly run into problems. In April, the company disrupted customers’ lives by shutting down its e-mail service for several days to increase its capacity, prompting a flood of complaints. In March, customers with addresses starting with the letters T through Z didn’t get mail for days when the server handling those addresses was temporarily down. And many customers also find Microsoft’s e-mail software hard to use.

Sanders says MSN has worked through its billing and capacity problems and will install new e-mail software sometime this summer. He also insists the company is “generating accurate bills.”

But tell that to victims of MSN’s billing service. Placido Torres of Fresno says he was shocked to get a $281 bill last fall after signing up for what he thought was a $19.99 unlimited-use charge. Microsoft agreed to take the charge off his bill at the time. Sanders then canceled his service. Then in April Torres received a bill for $386 and in May another bill for $175.

Even Microsoft employees, who are now charged for Internet access over MSN, are apparently having problems with bills. One employee received a bill for $4.95 after not receiving any bill at all for months.

“Billing is their Achilles’ heel,” says Jesse Berst, an editor at ZDNet, an online technology magazine.

An ex-Microsoft manager told Berst he was having so much trouble getting a response from customer service on an overbilling matter that he had a friend hand-deliver his message to the appropriate person at Microsoft. Even then, Microsoft couldn’t resolve the problem and insisted the customer continue to pay his monthly fee, pending resolution of the issue, Berst said.

“The underlying lesson here is that providing Internet access is not trivial,” said Sky Dayton, chairman of Earthlink Network, a Pasadena-based service provider and MSN competitor. “You don’t do it as a side business.”

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Leslie Helm ([email protected]) covers technology from The Times’ Seattle bureau.