A Contest Is On in Britain to Revolutionize Cable TV
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Microsoft Positions Itself as a Key Player
By ALAN COWELL
ONDON -- Something is stirring behind Britain's television screens and its name is Microsoft.
Just as this country's networks prepare for a satellite-versus-cable battle over the spoils of high-technology digital television, the American software giant is positioning itself as a dominant player in a contest that will revolutionize Britain's cable industry and shape the oft-foretold era when the cable in the living room delivers not just soaps but high-speed Internet access, interactive shopping, telephony and e-mail.
"We are seeing a blurring of the frontiers between personal computer services and television services, a kind of convergence of service options," said Jerome Steenbrink, a vice president at the AT Kearney consultant firm in Paris. "Given that Microsoft dominates the personal computer world, it's clear that they also want to impose some sort of standard" on the future of cable services, in Britain, Continental Europe and the United States.
"It's part of a worldwide expansion," said Howard Anderson, managing director of Yankee Group, a research firm in Boston. "Microsoft has made something like 31 technology investments, almost all in the U.S. Now it's the time for Europe."
Just since January, Microsoft has taken a $500 million, 5 percent stake in NTL Inc., Britain's third-largest cable company. It has agreed to buy a $300 million stake in United Pan-European Communications in Amsterdam, Europe's largest cable TV provider.
Last week, as part of a deal with AT&T, Microsoft also committed itself to buy 29.9 percent slice of Britain's Telewest Communications cable operator, currently controlled by Mediaone Group. And Wednesday The Wall Street Journal reported that Microsoft was negotiating for a 30 percent stake in Cable and Wireless PLC's cable-TV company, Cable and Wireless Communications. Neither company would publicly confirm the deal.
Between them the British cable companies have relatively low penetration into a British pay television market where Rupert Murdoch's B Sky B's satellite television has the lead with 3.45 million subscribers. The cable companies' subscribers number around 2.22 million -- equivalent to between 10 percent and 15 percent of the market, according to Steenbrink in Paris.
But, far more significantly, the companies' cable networks pass 12.3 million homes and, because the cable industry was developed much later in Britain than in the United States, the networks are more technologically advanced, offering a range of telephony, television and high-speed Internet access services.
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"The U.K. cable companies are still in the construction and deployment mode, so they have been able to deploy relatively up-to-date technology compared to companies with much older networks," Steenbrink said. With its entry into this tangled realm, Microsoft is bound to have a major impact, providing the cable industry with capital and clout to fight B Sky B for the digital market, and pushing the individual cable companies into consolidation that analysts had seen as inevitable.
Even before word of Microsoft's reported interest in Cable and Wireless Communications, Cable and Wireless had been in talks with Telewest on a merger. What Microsoft wants, Anderson said, is a beachhead in a still uncertain technological era. "No one is sure what this world will look like," Anderson said in a telephone interview, referring to Microsoft's recent acquisitions not just in cable but also in wireless technology companies.
"Figure it like a Las Vegas game," Anderson said. "I may have most of my chips on computers, but I'm also putting a few chips on wireless and a few on cable." In that way, Microsoft's charge into the British cable market runs parallel with its maneuvers with AT&T in the United States to deliver Internet services by cable.
"AT&T is going to be Gates' partner in the U.S., but Gates wants to move overseas," Anderson said, referring to Bill Gates, the Microsoft chairman.
Some analysts argue that Microsoft's strategy for cable is to dominate the operating systems of cable set-top boxes as a vehicle for licensing versions of their existing Internet software. That may produce conflict. The major British cable companies had earlier signed up with the Oracle Corp. -- a Microsoft rival -- for the operating systems to be used in the digital television set-top boxes that would essentially be the gateways into homes for the projected new cable services.
The British companies, moreover, are locked in battles on various other fronts. By offering packages of television programs and telephone services, for instance, the cable companies are in direct competition with British Telecommunications PLC, which also has a deal with Microsoft to develop wireless technology.
The contenders range from B Sky B with its dominance in pay-television sports and movies, to the much smaller On Digital, a 30-channel land-based service that started up last November offering a blend of programs that includes some of B Sky B's, but is delivered through the familiar roof-top antenna.
But what has really upped the stakes, analysts said, is the contest to lure customers from analog to digital TV. That is where cable's lower prices and edge in delivering interactive services will pose what Murdoch has called the biggest challenge to satellite TV.
Just last week, B Sky B announced that it would give away the $320 set-top boxes needed to convert old, analog TV sets to digital's enhanced sound and vision for a new 140-channel B Sky B digital TV service begun last October. This put pressure on On Digital to follow with free set-top boxes, evoking memories of the price wars initiated by Murdoch's News Corp. -- which controls B Sky B -- in the battle for readership of his British newspapers.
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