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To: Claude Edelson who wrote (1852)	1/9/1998 11:07:00 AM
From: SteveG	Read Replies (1) \| Respond to of 4134

<A> WSJ: Microsoft Battles Sun Over TCI Set-Top Boxes By Leslie Cauley and David Bank Staff Reporters of The Wall Street Journal Microsoft Corp. is waging an 11th-hour battle in a bid to stop Tele-Communications Inc. from including Sun Microsystems Inc.'s Java software in a new generation of digital set-top boxes. Microsoft is close to an agreement with TCI to supply the operating system for the devices, but the cable giant is taking steps to contain Microsoft's influence by bringing in rival software companies as well. According to people familiar with the negotiations, Sun also is said to be close to a deal with TCI to include its Java software to control some software applications in the television set-top devices. These people said Microsoft and Sun were trying to gain an edge over each other as discussions continued late yesterday at TCI's headquarters in Denver. Some executives cautioned it was still too early to call the outcome, and both companies could wind up with a piece of TCI's business. A deal to install a version of Microsoft's Windows operating system on the millions of digital set-top systems TCI plans to purchase during the next several years would be a significant boost to Microsoft's ambitions to extend its reach beyond the 40% of the nation's households that have personal computers. But Microsoft has been frustrated by TCI's reluctance to allow it to play a larger role in defining the technology for the new boxes, which could set standards for all digital television. In small, inexpensive devices such as set-top boxes, the operating system's role is generally smaller than it is in a full-fledged PC. Microsoft executives were upset yesterday to learn that TCI was close to signing a deal with Sun to use its PersonalJava software in addition to Microsoft's Windows CE, people familiar with the matter said. Such a deal would be a major coup for Sun, which has been seeking to establish Java as an alternative to Windows as a foundation for new software applications. To prevent any single supplier from gaining a lock on the new market, TCI and the rest of the cable industry have decided to employ different vendors for different layers of the box's technology, and to insist that components for one layer be interoperable with the others. Picking Sun's Java software as a standard would theoretically prevent Microsoft from using its control over the operating system to gain a significant competitive advantage in application development, as it does in the personal-computer industry. By late yesterday, the outcome of the negotiations remained uncertain. TCI and Sun were working on a deal for PersonalJava, and Scott McNealy, Sun's chief executive, hoped to announce the agreement today during his keynote address at the Consumer Electronics Show in Las Vegas. At the same time, Microsoft and TCI were negotiating final terms for TCI's use of Windows CE, which Microsoft Chairman Bill Gates hoped to announce in his own speech in Las Vegas on Saturday. In addition, Microsoft apparently had given up its earlier notion that it would receive transaction fees for the use of its software and had agreed to sell its products on a per-unit royalty basis, the people said. Playing Sun and Microsoft against each other could be a master stroke because of the intense and often personal rivalry between the two companies. Sun has filed suit against Microsoft in federal court, alleging that Microsoft violated the terms of its licensing agreement for Java by releasing a version of the software that doesn't pass Sun's compatibility tests. Sun claims Microsoft is seeking to disrupt development of a software platform that could compete with Windows. "The cable industry by and large is very wary of Microsoft and very wary of any proprietary standards in the set-top arena, so it makes a lot of sense for them to be talking with us on PersonalJava," said George Paolini, a Sun spokesman. Mr. Paolini declined to comment on the status of negotiations. The discussions come as Microsoft's business practices and market power are under intense scrutiny and are the subject of an antitrust lawsuit by the Justice Department. Steve Ballmer, Microsoft's executive vice president, said in a recent interview the company was taking steps to soften the company's harsh image, but declined to comment on whether the current controversy had affected the negotiations with TCI. Other Microsoft and TCI executives also declined to comment on the company's continuing negotiations. On Wednesday, Craig Mundie, the Microsoft vice president who has spearheaded the company's TV efforts, said he expected the company to win a share of the cable industry's business. Winning a piece of TCI's order is crucial to both Microsoft and Sun, as well as other technology companies, such as Intel Corp. and Oracle Corp. Cable companies, led by TCI, recently agreed to buy at least 15 million advanced set-top boxes from NextLevel Systems Inc., and the number could increase to 25 million or more. TCI has yet to select suppliers for the computer chips and graphics capabilities for the new boxes.