Microsoft is close to launching a new version of its instant messaging service that could link its network with rivals such as Yahoo!, according to sources familiar with the plans. The pending upgrade could hasten efforts to create a single IM standard and break down technology barriers that prevent users of different products from talking to each other. AOL Time Warner subsidiary America Online, the current market leader, has so far refused to open its networks to IM rivals, creating a patchwork of competing fiefdoms. Microsoft will get the interoperability ball rolling when it unveils MSN Messenger 4 in March or April, according to one source close to the company. The first phase of MSN Messenger will allow text exchanges between the Microsoft service and Yahoo! Messenger, with file sharing and more advanced transfers slated to appear in later phases, said the source, who is affiliated with ActiveWin, a Web site that tracks Microsoft software developments. A Microsoft representative declined to comment on the new service. A Yahoo! representative declined to put a time frame on interoperability. Alex Diamandis, vice president of alliance marketing at IM startup Odigo, said the technology and capability for interoperability was tested and "ready". He expects the services to begin communicating "imminently." "I think ideally it will be Yahoo!, MSN and us at the same time," Diamandis said. Microsoft, Yahoo! and Odigo are part of a coalition of AOL competitors that are developing technology to allow their IM services to communicate with each other. Dubbed "IMUnified", the coalition spearheaded an aggressive lobbying effort to convince federal regulators to force AOL to open its IM network as a condition to its merger with Time Warner. Regulators have since approved the merger, but the Federal Communications Commission attached a provision that AOL Time Warner guarantee interoperability in its IM services before offering "advanced, IM-based high-speed services". The IMUnified coalition, whose members include Microsoft, Yahoo!, AT&T, Odigo and Excite@Home, criticized the FCC's provisions as meaningless. AOL representatives said they had no intention of launching any advanced IM services. AOL runs the two largest IM services: AOL Instant Messenger (AIM) and ICQ. Currently, those services allows people to chat only with people on the same service. In other words, AIM users cannot communicate with ICQ, MSN or Yahoo! users -- only other AIM users. AOL executives have said they are committed to support interoperability, but on their terms. The company has warned that interoperability could lead to privacy or security breaches if sufficient safeguards aren't put in place. However, a recent study has shown that MSN Messenger and Yahoo! Messenger are catching up and are adding new members in the United States faster than AIM or ICQ. AOL lobbyists have also pointed to this report as proof to regulators that it holds no unfair advantage over other IM services. Ironically, the study, conducted by Jupiter Media Metrix, concluded that the lack of interoperability created more traction for competitors. The lack of interoperability forced IM users to embrace other IM services simultaneously to chat with their friends. According to the study, Yahoo! Messenger had 10.6 million US members, while MSN Messenger Service hit 10.3 million in August 2000. In contrast, AIM reached 21.5 million customers and ICQ 9.1 million in the United States during the same period. Emily Meehan, an analyst at market research company The Yankee Group, agreed that pooling the IMUnified companies into one instant messaging force could challenge AOL's dominance. "Definitely it could be a threat," Meehan said. "Whatever they can do with that to provide something even better than what AOL provides, they have a chance to wield this as a major subscriber acquisition tool." Have your say instantly, and see what others have said. Click on the TalkBack button and go to the ZDNet News forum. Let the editors know what you think in the Mailroom. And read what others have said.