Microsoft Connects with AT&T in Exclusive Smartphone Launch

After taking a beating in the smartphone market, Microsoft (MSFT) is expected to formally debut its retooled mobile operating system on a gaggle of new smartphones on Oct. 11, according to a Wall Street Journal report. And the software giant is teaming up in an exclusive deal with AT&T (T), which is expected to carry the phones beginning Nov. 8, the Journal noted.

For some industry observers, the unveiling of Microsoft's Windows Phone 7 on smartphones is the equivalent of watching a movie rerun. Since debuting Windows Phone 7 in February, a peek here and a peek there have revealed various handset makers testing out Microsoft's mobile operating system, such as LG and HTC.

With Windows Phone 7, Microsoft is aiming to recapture some of its previous mobile mojo, which was virtually neutered by Apple's (AAPL) iPhone release three years ago. According to research firm Gartner Group, Microsoft Windows Mobile dropped to a 5% market share in the second quarter, compared with 9.3% a year earlier. The software giant also saw its industry ranking fall to fifth place from fourth, as Google's (GOOG) Android zoomed ahead to capture 17.2% of the market share in the second quarter, from 1.8% a year earlier. Ouch.

That misstep in keeping up with the iPhone and all the iPhone knockoffs cost Microsoft market share, as well as a portion of Microsoft CEO Steve Ballmer's annual bonus. Last year, Microsoft's Windows Mobile 6.5 was launched as an effort to gain ground and tide people over until Windows Phone 7 was good to go, but that effort fell short.

Deutsche Bank analyst Jay Goldberg noted in a previous DailyFinance interview: "Microsoft fell behind because of Windows Mobile 6.5 and Windows Phone 7 will keep them in the game a little longer."

Investors may want to watch for any action in the stock come Nov. 8 when the phones become available via Microsoft's exclusive arrangement with AT&T. Microsoft apparently had little choice except to do an exclusive deal with AT&T, as Verizon wasn't willing to support the new mobile operating system until 2011.