The first major deployment of the software on a cable system.

By agreeing to invest $5 billion in AT&T Corp., Microsoft Corp. has bought itself the rights not only to put its Windows CE software in digital set-top boxes, but also to play a central role in building the infrastructure required to offer e-mail, Internet access and other services through TV sets, according to details of the agreement announced Thursday. Under the deal, Microsoft will buy 100 million AT&T preferred shares at $50 each and get three-year warrants to buy 40 million common shares at $75 each. If Microsoft exercises the options, it will have a 3% stake in AT&T. In exchange, AT&T will install Microsoft_s Windows CE in 2.5 million to 5 million cable TV boxes. The agreement comes on top of a previous deal between Microsoft and Tele-Communications Inc. (now owned by AT&T) to put Windows CE on 5 million set-top boxes. AT&T has also agreed to use Microsoft_s Windows NT server software to handle such critical "back end" functions as billing and e-mail in major deployments of digital cable TV in three cities by next summer. Although Microsoft has a similar system in place to support subscribers of its WebTV Internet service, the deal with AT&T is the first major deployment of the software on a cable system and will provide an important showcase to help sell the system to other cable operators. It also could be a major boost for Windows NT, which is often regarded as the weaker player against more powerful Unix software from companies like Sun Microsystems. In spite of Microsoft_s rapidly growing presence in the field, most experts predict Microsoft won_t dominate the cable industry in the way it has dominated the computer industry. Nevertheless, the Microsoft agreement may be more far reaching than it initially appears. AT&T has now agreed to license Windows CE for a minimum of 7.5 million set-top boxes in coming years. When AT&T completes its recently announced $62.5-billion purchase of MediaOne Group, it will have about 16 million customers.