Microsoft TV stumbles again

Microsoft Corp.'s TV software is getting fuzzy reception from cable operators, as one of its first partners in that market said Monday that trials with Microsoft software have stalled in Europe and it is instead shipping set-top boxes with competing software to customers.

United Pan-Europe Communications NV (UPC), one of Europe's largest cable operators, has put on hold plans to use Microsoft TV software, a company spokesman said. Bugs have continually plagued efforts to deploy the trials since Microsoft first teamed with UPC two years ago.

Microsoft would not comment on the status of its deal. However, it said Friday that it has conducted a trial with UPC, and that its system met UPC's technical standards. UPC confirmed a field trial with Microsoft's software in Amsterdam earlier this year, but wouldn't say if it was a success.

"Microsoft has not made it beyond the trial stage," said Bert Holtkamp, a UPC spokesman in the Netherlands who declined to say if the company was still considering rolling out set-top boxes with Microsoft software.

The cable operator has, however, made headway on trials with software provided by Microsoft rival Liberate Technologies Inc. At the end of its third quarter, UPC had delivered 50,000 set-top boxes to customers in Austria, Sweden, Norway and the Netherlands, Holtkamp said. All of those boxes, manufactured primarily by Motorola Inc., use Liberate software, he said.

"We really started our rollout after Sept. 30," Holtkamp said.

An industry source close to UPC's trials said that the company plans to ship another 50,000 set-top boxes with Liberate software to customers in Norway and Sweden for self-installation during the holidays.

Microsoft's TV platform includes software that runs on the servers of cable operators as well as the set-top boxes connected to a customers' television set. Built to be distributed with various features, the more advanced software Microsoft is testing through partners enables users to surf the Web, download media to a TV set and perform digital video recorder functions such as pausing and rewinding live programming.

Microsoft also serves customers with its MSN TV and Ultimate TV services, which offer such features as e-mail, Web browsing and instant messaging.

While its products are being tested in cable markets worldwide, Microsoft has lagged behind competitors that have commercially available software products such as those from Liberate, said Shayna Malnak, a financial analyst with Williams Capital Group LP, based in New York.

"Liberate has a finished product," Malnak said. "It (the software) has been finished for a long time, it has been tested, and it is actually successfully running on networks in Europe and to a lesser extent in the U.S."

Microsoft has not been so successful, Malnak said. For instance, a Portuguese cable operator that had agreed to roll out Microsoft's TV platform, announced earlier this month that bugs in the systems have delayed rollout plans. TV Cabo Portugal SA, a subsidiary of Internet and cable TV operator PT Multimedia, began rolling out Microsoft's advanced set-top box technology in June, and planned to deploy the boxes to nearly 100,000 of its customers by year's end.

However, PT Multimedia, the country's largest cable operator with roughly 2 million customers, recently said that only about 2,500 units had been deployed. Microsoft confirmed that figure.

In June, AT&T Corp. scaled back a deal with Microsoft to deploy advanced set-top boxes to U.S. customers. Citing lack of consumer demand for advanced features, AT&T opted to initially roll out simpler technology from Liberate. "Eventually Microsoft will get it right and eventually it'll have a product. That's for sure," Malnak said.

Microsoft invested $300 million in Dutch cable operator UPC in June 1999 when it first began working with the European provider, and has since purchased shares that brought its ownership in UPC to about 6 percent. But its cable TV investments with UPC and others, including AT&T, haven't fared well technically and economically.

In total, Microsoft has invested $11 billion to help network operators worldwide install the high-speed cable and other broadband infrastructure needed to offer interactive television, the company said. But Microsoft financial results showed investment losses of $980 million in the first quarter of the current fiscal year and $2.6 billion the fourth quarter of the previous fiscal year, primarily due to sour investments in cable and telecommunication.

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