Set-top setback

Microsoft exec challenges AT&T on consumer appeal of advanced features
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In the wake of AT&T's decision to scale back deployment of advanced set-tops, Microsoft is challenging AT&T's assessment that consumers aren't eager for advanced services.

Working with AT&T's Broadband division, in which it invested $5 billion, Microsoft had put most of its Microsoft TV R&D efforts behind advanced features to take advantage of Motorola's high-powered DCT-5000. When the cable giant said it would deploy only less-featured (and less expensive) boxes, Microsoft was left to rethink that development.

Ed Graczyk, director of Microsoft TV Platform Group, urges network operators to think about the future instead of short-term goals.

"An advanced platform gives you the ability to make money on new services that you can't do on the lower-end platforms," he says. Services like broadband data and home networking, in addition to a richer level of services for things like gaming and electronic program guides (EPGs), are limited on the DCT-2000 box from Motorola, he says.

Many in the media have blamed a delay in the delivery of Microsoft's interactive software for A&T's decision, but Graczyk says that his company's software is being deployed internationally and that other U.S. operators have announced plans to move forward with other companies' advanced software.

He cites the recent deployment of the Ultimate TV platform on Samsung set-tops in Globo Cabo in Brazil and others, but he names no U.S.-based cable customers at this point (Charter Communications is said to be experimenting with the Microsoft TV platform).

"The market has changed, specific to AT&T, and that's why they're re-evaluating their position," he says. "There are other network operators that are moving aggressively with deployment of an advanced set-top box. We're ready to go when they're ready to go.

"We still feel the advanced platform is the one that is going to bring the biggest return on investment for the operator," he adds.

Graczyk acknowledges that currently deployed "thin client" boxes can accommodate basic applications, and, in fact, Microsoft offers several options for cable operators building out with these boxes. The options includes a basic software package and the company's Access Channel Server, a software application that enables delivery of interactive services and various Windows-based content to set-top boxes.

In announcing their revised set-top strategy, AT&T spokespeople cited several test markets in which consumers were not using advanced features like digital video recording and Web access via a built-in DOCSIS modem. AT&T's Tracy Baumgartner says it doesn't make sense to invest in the more advanced boxes when, so far, few subscribers are willing to pay for the interactive services. In some test markets, though, both DVR and Web access showed promise, she notes.

Graczyk says he sees great interest in interactive features from both consumers and cable operators. "I think part of the challenge is how you define 'interactive service,'" he says. "People are definitely interested in EPGs and enhanced broadcasting. For us, interactive TV is moving forward in the U.S., and we're right in the thick of it."

Discussing the DVR category, into which Ultimate TV falls, Graczyk notes that the marketing challenge in educating consumers needs to be addressed. "In general, consumers still do not know what a DVR is."

Along with DVR functionality, Ultimate TV also integrates two channel tuners, a satellite receiver, interactive TV decoder and Web browser in one box.

Citing Microsoft's $5 billion investment in AT&T, Graczyk notes that the company still feels strongly about working with AT&T and will work hard to develop software that the MSO wants to develop for a "mid-level" box.

"The investments are not about specific products," he stresses. "We're not a near-term–focused company."

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