I wonder if this will cause Microsoft to shift its video strategy our way.
June 8, 2001
AT&T Won't Develop Set-Top Box
By JOHN MARKOFF
Suggesting that sophisticated interactive television will remain a distant dream in the United States, AT&T's broadband division has dropped its commitment to an advanced set-top cable box that was supposed to showcase Microsoft's interactive television software.
Currently, most cable subscribers in this country have basic cable systems, and a smaller number subscribe to digital cable services that offer an electronic on-screen program guide and multiple pay-per-view channels that approximate video-on-demand. But for the past decade, computer and media industry executives have held out the promise of a future with true interactive television that would allow viewers to do a range of things including banking, shopping, sending electronic mail and surfing the web.
That future has been aging in AT&T warehouses. About 240,000 of the advanced set-top boxes, known as the DCT-5000, have been stored for a year and a half waiting for Microsoft to complete the software, which is intended to blend television and many of the things PC users now do with the Internet.
Several executives at AT&T and elsewhere in the cable industry said yesterday that AT&T has recently decided to pursue an alternate strategy, focusing instead on "packing the pipe" and offering a variety of video, telephone, high-speed Internet and possibly other services on a range of devices including set-top cable boxes, personal computers and futuristic appliances.
"It's Internet traffic that will generate the iterative revenue that might yet save AT&T, and not the expensive Microsoft set-top box," said Richard Doherty, a computer and cable industry consultant who is president of Envisioneering, Inc., based in Seaford, L.I. "In the sober light of morning they realized they couldn't afford to build out this network."
The shift is a disappointment for Microsoft. It invested $5 billion in AT&T two years ago and has been struggling recently to show that it has a viable interactive television strategy, of which the AT&T project was a cornerstone. Last fall, A.T.&T. said that despite the software delays the company remained committed to Microsoft and the advanced set-top box.
As part of its investment, Microsoft had a licensing arrangement with AT&T covering between 7.5 and 10 million set-top boxes. As an additional disappointment, the original Microsoft investment is worth about $1.14 billion today.
Microsoft declined specific comment on the set-top boxes but said AT&T remained a "big strategic partner." Microsoft's president, Steven Ballmer, flew to Portugal yesterday to announce that his company had found a customer for its interactive television service. The Portuguese cable system, TV Cabo, will provide the first commercial application for the Microsoft interactive software.
The delays in the Microsoft software have both handicapped AT&T's interactive television project and led to a round of finger pointing among Microsoft executives and AT&T executives in Denver, where the company's broadband division is headquartered, said an AT&T executive, who spoke on the condition he remain anonymous.
Part of the problem, the executive said, was that the DCT-5000 was a computer designed by a committee and proved to be an unworkable platform. It was originally conceived by TCI, the forerunner to AT&T Broadband that was controlled by John Malone. At one point it was intended to have a Sun Microsystems operating system, but that was changed to a Windows CE operating system after the Microsoft investment. An AT&T spokesperson said today that the DCT-5000 boxes would be reconfigured as less powerful DCT-2000 set top boxes, the ones currently in use for digital TV, and made available to customers.
AT&T has 16 million cable subscribers, of whom 3.1 million have digital service. AT&T has conducted trials in several cities involving upgraded software that permits the system to limited interactive features, such as news tickers and games.
AT&T also said today that it is now designing what it calls a midrange cable box which will add features to the DCT-2000 such as increased memory and a hard disk, to permit the set-top box to function as a personal video recorder.
However, the company said it was not ready to announce when that system would be commercially available.
The company said that consumer trials over the past six months had convinced it to shift its strategy to a more eclectic and open approach.
"The idea long term is to be very customer-friendly, this is no longer a one-size-fits-all approach," said Tracy Baumgartner, an AT&T spokesperson.
What is less clear is what the decision will have on the bitter rivalry between Microsoft Corp. and Liberate Technologies, the two "preferred" software providers for AT&T's interactive cable network.
Several industry executives said the AT&T decision was a setback for Microsoft because the software giant does not have a software product ready for the DCT-2000 set top box, which Liberate does.
A Microsoft executive disputed this, saying the company was developing software in this area. "There is a abosutely a role for us in what we call the low end," said Ed Graczyk, director of marketing for Microsoft TV.
It is possible that Microsoft will not be locked out of the new AT&T strategy, according to the AT&T executive. He said the company was reviewing its contract with Microsoft to determine whether it was obligated to make room for it as a result of the original DTC-5000 committment. |
