Little Cable Impact from Microsoft

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Microsoft Corp. probably won't see its broadband cable
ambitions dimmed soon by the stunning setback suffered in its landmark federal antitrust
fight.

U.S. District Court Judge Thomas Penfield Jackson's
Nov. 5 finding that Microsoft abused its virtual monopoly power in personal computer
software to prey on the industry set the stage for years of further rulings and appeals,
or a possible settlement that conceivably could dramatically reshape or break up the
company.

This probably means there will be no clear answers for a
while regarding the impact on Microsoft's television-oriented strategies, which are
based largely on winning deployments of its "Microsoft TV" platform for digital
set-top boxes and cable headends.

Regardless of how Microsoft emerges, a number of observers
said the broadband cable landscape is so hotly competitive right now -- and so rich in
potential business -- that it was unlikely that the company would have to scale back its
presence there.

"Microsoft is nothing of a monopoly in the set-top
space. They're actually a latecomer," said Gerry Kaufhold, an analyst for
Cahners In-Stat Group (a sister company to Multichannel News). "There's
plenty of competition in the set-top space."

By the same token, major cable operators such as AT&T
Broadband & Internet Services and United Pan-Europe Communications N.V. (UPC) -- which
are already deep into development of Microsoft's "Windows CE" as the
operating system for many or most of their advanced set-tops -- indicated no plans to
change.

"We are awaiting further information on how, if at
all, the ruling and Microsoft's plans affect our relationship with them,"
AT&T Broadband spokeswoman LaRae Marsik said. "We continue our activities and
development with Microsoft and a host of other companies, as we did prior to the
ruling."

Microsoft competitors and other critics crowed that
Jackson's finding validated their fears that the company was trying to amass the same
muscle in cable that it had in the PC business.

Nemesis Sun Microsystems Inc. called on the government
specifically to bar Microsoft from "buying the distribution channels of the
future," namely cable or wireless operators.

Ironically, Sun followed that up with an announcement of
plans to work with Sony Corp. to develop digital consumer appliances for accessing
Internet content and services -- an end-run around Windows-based computers or set-tops.

But Microsoft has already invested billions of dollars in
AT&T Corp., Comcast Corp., Telewest Communications plc and the Road Runner cable-modem
service, in the process landing deals to supply software to AT&T Broadband and others.
Rivals said they expect Microsoft chairman Bill Gates to maintain an aggressive posture in
the cable world.

"Their sole purpose is to get WinCE on as many devices
as possible," said Dave Limp, senior vice president of corporate development at
multimedia-software firm Liberate Technologies. "The same way they treated their
partners in the PC industry will happen in the cable industry and with set-top-box
providers."

Others argued that cable has avoided the same trap,
pointing to an insistence that the upcoming generation of advanced digital services and
equipment be based on "open" hardware and software standards, instead of
proprietary architectures.

"The only relevant factor here is that the Windows CE
operating system is being used by some operators," said one high-level cable
engineer, who asked not to be identified. "OpenCable is operating system-agnostic, so
there's clearly competition for the operating system in the cable industry.
There's not a monopoly."

The industry's OpenCable set-top-box development
project is aimed at creating a standard architecture and set-top operating platform using
freely available application-program interfaces, creating interoperability among hardware
and software and opening those elements up to widespread application development and
competition.

"If anybody were to get dominant or predatory,
you'd have other places to go," said Ted Henderson, cable analyst at
Denver-based Janco Partners. "That's the whole beauty of OpenCable. If you look
at the relationships operators have with Sony, GI [General Instrument Corp.] and
Scientific-Atlanta [Inc.], there's enough places to go for functionality in the box
in terms of hardware and interoperable software."

Microsoft contended that the cable industry has been savvy
enough to protect itself from future reliance on a dominant vendor, adding that it has
been open with its customers and prospects from the start about its plans to deeply
penetrate broadband.

"The cable industry has been sort of hypersensitive to
having multiple vendors and multiple suppliers at each end of the food chain, given their
historical dependence on GI and S-A in the United States," said Alan Yates, director
of platform marketing at Microsoft's WebTV Networks unit.

"They created OpenCable to deal with some of the
important issues, such as how do they balance standards and multiple suppliers as they go
into a retail environment," Yates added.

In fact, Microsoft rivals acknowledged that the nascent
broadband base has nurtured a hotly competitive market in which companies such as Liberate
and OpenTV Inc. gained early advantages with deals to supply operating systems, middleware
and applications for advanced set-tops.

Liberate, for example, has won major licensing deals for
its middleware with Cox Communications Inc., MediaOne Group Inc. and Comcast. And last
week, Cable & Wireless Communications plc deployed a two-way, interactive
digital-cable network using the Liberate platform.

"I think OpenCable is the most credible and best step
I've ever seen to fight off someone as powerful as Microsoft," Limp said,
"but I do not underestimate Microsoft's ability to work around this."

Others pointed to the head start rivals such as OpenTV had
on Microsoft by putting software into millions of deployed direct-broadcast satellite and
terrestrial-broadcast set-tops.

"I think they have their work cut out for them,"
said Neil Gaydon, Americas president for set-top maker Pace Micro Technology plc, of
Microsoft. "They do have the financial market to ease their way in, but if their
products don't perform and people don't like using them, there are a lot of
other choices."

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