Microsoft Corp has acquired another foothold in the personal digital assistant/smart phone market after UK mobile operator Orange Plc announced plans for a Windows CE-based videophone that will be developed by a group of UK suppliers.

The palm-held device, to be launched in the second quarter of next year, is designed to provide full video and audio communication. It will also offer PDA functionality, including email access, internet browsing, handwriting recognition and MS Pocket Office applications.

Orange, arguably the most innovative mobile operator in the UK, says that after talking to suppliers throughout the world, it decided to build its own handset. The advantage of this approach is that it can offer a device that competitors will find difficult to match in the short-term.

However, Microsoft – concerned that the Symbian consortium might leave it marginalized in the new generation of wireless internet access devices – has been wooing other telcos. It formed an alliance in October with UK incumbent British Telecommunications Plc to develop what it calls handheld interactive wireless devices and a multimedia service. This suggests that BT’s Cellnet mobile arm could launch its own handset at about the time when Orange hopes to leapfrog the market.

Orange talked up the fact that most of the skills had been found in the UK. Cambridge Consultants, a technology company that is part of the Arthur D Little group, will lead the design work while the phones will be made by Celestica, the electronic products manufacturer.

Video compression software, developed by the University of Strathclyde in Scotland, will enable images to be compressed to the point where they can be transmitted at up to 12 color frames a second.

Bristol, UK-based Motion Media will develop the video specific application software but central to the whole device is Windows CE that will be set up by NMI, a West Midlands-based company. NMI, a 25-strong outfit, says it is one of Europe’s leading Windows CE Authorized Systems Integrators. The company was reluctant to give details about what CE modules would be loaded onto the new device.