Intel, Nokia Ink Open-Source Set-Top Deal

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Intel Corp. has stepped up its expansion into the
interactive digital set-top-box silicon market through a new development agreement with
Finnish powerhouse Nokia Corp.

Intel has already announced other set-top development deals
under its Home Products Group's strategy for porting the multimedia and
Internet-access capabilities of its semiconductor architecture to non-PC devices, ranging
from televisions to automobile accessories.

But the Nokia agreement marks Intel's biggest foray
yet, due not only to the Finnish company's existing set-top footprint in Europe but
also its ambitions for expanding into new markets --- including the U.S. -- for cable,
satellite and terrestrial-broadcast business.

"It's a global market, not just European,"
said Helmut Stein, chief technical officer for Nokia Multimedia Terminals. "There are
discussions ongoing in the United States" with potential customers.

Nokia, the world's largest wireless-phone maker,
boasts a multimedia set-top business that has deployed about 4 million digital-cable,
satellite and terrestrial-broadcasting boxes, largely in Europe.

It plans to create a set-top -- available in the second
half of next year -- built around Intel's powerful Celeron or Pentium processors and
using software based on freely available "open-source" systems including the
Linux operating system and Mozilla Web browser.

Pentium-class chips running at clock speeds of 266
megahertz and higher pack a wallop that Nokia believes is necessary to support the
applications its box will eventually allow operators to offer. These include Web browsing;
interactive video; recording or time-shifting programming to digital hard drives;
electronic mail; and interactive program guides.

"The need for processing power and software is moving
and growing all the time," Stein said. "For a terminal to access these open
standards and applications we need a processor that's not far away from a laptop
processor."

Stein would not give specific possible configurations for
such a box's memory requirements. But he indicated that the set-top would require
flash memory and dynamic RAM "similar to a laptop," most of which now ship with
32 or more megabytes of RAM.

The new box also will support content based on the Advanced
Television Enhancement Forum, the consortium of electronics, broadcasting and computer
companies led by Intel and supported by Nokia. ATVEF is a royalty-free specification based
on open standards meant to enable developers to write content once for operation on
multiple different platforms, a rival to TV platforms such as that of Microsoft Corp.

Intel also is developing open source-based set-top and
server solutions for Pacific Century Cyberworks' deployment of broadband-video and
Internet services in Asia.

In its other big set-top deal so far, Intel will build
direct-broadcast-satellite receivers for Hughes Network Systems that support the planned
online television service of DirecTV Inc. and America Online Inc., which will not be based
on open-source software.

While Intel said it is operating-system agnostic, some
customers see the open-source model as more flexible and better at fostering innovation
than vendor-driven, proprietary solutions.

"Over time we want to standardize that in a standard
product offering from Intel, which we hope to launch at a later date," said Marta
Hassler, marketing director for the Home Products Group.

Although the Nokia deal focuses on Europe, both companies
say their use of open-source code for key elements such as the operating system will speed
time to market in other lucrative regions, such as Asia and North America.

"As it is built on global standards, it's a
global product," Stein said. "If you have Java or HTML, you can write
applications everywhere in the world."

Another advantage could be cost. According to Paul Kagan
Associates, AT&T Broadband & Internet Services Inc. agreed to pay Microsoft $12
per copy for the up to 10 million set-tops in which it will run the Windows CE operating
system. AT&T also will pay $2 per subscriber annually for maintenance and another 75
cents per sub each month for "server-access fees," according to senior analyst
Leslie Ellis.

While Linux products are not "free" -- only its
source code is available at no cost -- analysts say devices that run a Linux-based OS
still could be significantly cheaper than those licensing proprietary systems such as
WinCE.

"In a consumer-priced arena, you can't afford to
have that high a set-top component in a retail market," said Richard Doherty, analyst
at market-research firm the Envisioneering Group.

Stein said Nokia has demonstrated Linux-based terminals but
would work with Intel to adapt the OS further for the television-oriented platform.

Several other manufacturers already are using Linux in
their multimedia appliances, including TiVo Inc. for its TV-recording device and NetGame
SA for its European cable-TV set-top that also incorporates a standards-based cable modem
for Internet access.

Doherty said the Nokia venture is further indication that
Intel believes it has strong solutions ready for the consumer set-top market, which should
soon include set-top makers for the U.S. market.

"That system doesn't freeze," Doherty said
of the Linux OS. "Once it's been proven, there are others who can do it cheaper
and faster. And there are already dozens of companies making sure that the Intel
architecture works in a consumer environment."

Nokia's choice of Linux for the set-top is a
continuation of a strategy that has shunned Windows CE for "thin" computing
devices. Nokia last week said it would use 3Com Corp.'s Palm Computing operating
system interface and applications for smart phones and other products that will use the
EPOC OS for handheld devices being developed by the Symbian joint venture.

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