Delays In Microsoft IPTV Debut Alarming

Dec 5, 2005  •  Post A Comment

Fueled by two delays in deployment by two European telephone companies, speculation is swirling that Microsoft’s software to manage telco entry into widely offered video services may be in trouble.

At the Consumer Electronics Show earlier this year, Microsoft’s demonstration of TV services its software could deliver was seen by many observers to be cool, sexy and cutting-edge. But as the year draws to a close, Microsoft’s clients and competitors are having second thoughts as to whether the technology powerhouse can pull off the magic for real in a relatively short time frame.

AT&T (formerly SBC) and BellSouth had both hung their emerging media hopes on the Microsoft TV IPTV Edition. “IPTV” stands for “Internet protocol television.” The primary component of IPTV is a two-way digital TV signal received via a broadband connection. Usually a set-top box is required and the system requires software as well.

That’s where Microsoft fits in. Its IPTV edition features instant channel change, multiple picture-in-picture, video-on-demand and digital video recorder services as well as the guts of IPTV services such as security and rights management.

But now both telcos have asked other TV technology vendors about providing alternative solutions to fill in the holes in case Microsoft is unable to fulfill its TV technology promises, according to executives with knowledge of the situation.

“Everyone who said they were going with Microsoft [for IPTV] is either hedging when they are going to deliver the service or saying they are going to wait,” said Brahm Eiley, president of Convergence Consulting Group in Toronto.

Microsoft has been trying to break into the television business for more than a decade, and clearly the wide deployment of IPTV services represents a significant opportunity, so any major delays or problems with its IPTV Edition would be a blow to the Redmond, Wash.-based software giant. Microsoft has very few TV deployments to its name. It has tried to launch interactive TV software, and it also made a $1 billion investment in Comcast in 1997 that has not panned out beyond a deployment in Seattle.

Conversely, any delays by Microsoft could be a boon for smaller technology players that already are fast becoming rising stars in the TV business, in large part because of their “best of breed” philosophy. That means service providers, including phone companies, can pick and choose different interoperable pieces to power a TV launch rather than being beholden to one vendor for most of the solution, as is often the case with Microsoft’s partners.Furthermore, any long delay also means the predicted entertainment slugfest between cable and phone companies will likely take longer to heat up as the telcos scramble to make their TV solutions work.

Publicly, both Microsoft and AT&T deny any problems.

Ed Graczyk, director of marketing for Microsoft TV, characterized the sources’ information as “rumors” and called them “patently false.”

When told that sources have said that Microsoft is having trouble delivering on whiz-bang features that generated excitement at CES, like rapid channel changes, Mr. Graczyk said, “Instant channel change is one of the key features we have that no one else has,” he said. “It’s done very well in trials.”

As to the notion that sources also have said that Microsoft’s IPTV solution could require thousands of servers, rather than the hundreds Microsoft has touted, thus increasing costs and potentially making the system hard to manage, Mr. Graczyk said, “The idea we need thousands of servers is just ludicrous.”

AT&T denied that it’s looking for options if Microsoft’s IPTV solution isn’t as robust as promised so the telco could slide in additional parts from other providers to plug in the gaps.

“Microsoft is ready to launch this,” said Michael Grasso, assistant VP of marketing for AT&T.

“We aren’t talking to other vendors about backup plans.”However, he did say that AT&T is talking to vendors who could provide additional services that ride on top of an IP network, such as gaming and interactivity, as ways to enhance the service over time.

He also pointed out that the company recently completed a successful test of the Microsoft IPTV solution in San Antonio with 40 homes.

But, critics note, 40 homes does not prove that Microsoft’s software is scalable to large numbers.

AT&T plans to begin its video rollout in San Antonio as a “controlled launch” with a limited number of customers before it moves to a wider rollout in the middle of 2006, Mr. Grasso said.

AT&T has said publicly that it is working with additional vendors such as Alcatel for networking equipment and entrenched cable set-top box players Scientific-Atlanta and Motorola. But in the cable space, S-A and Motorola have long been viewed as a duopoly with proprietary solutions that have hampered innovation. Alcatel is arm in arm with Microsoft and is even referred to by insiders as “Alcasoft.”

Despite AT&T’s public position that it’s confident in Microsoft, sources insist the telco is telling Microsoft and Alcatel that they must integrate with alternative providers.

Having backup options is a prudent solution for any new video entrant, said Craig Moffett, VP and senior analyst for U.S. cable, satellite and broadcast at Sanford Bernstein. “It’s a complicated infrastructure,” he said. “You do have to wonder how long the capital markets will let the telcos continue to spend this kind of capital on ventures that have at best uncertain and at worst horrific returns.”

Other Hang-Ups

However, the problem does not lie solely with Microsoft, Mr. Eiley said. Many telcos are using a mix of fiber and traditional copper to deliver video, and that’s part of the problem, he said. Verizon, on the other hand, relies solely on a fiber architecture, which allows for more capacity.

“It’s like the difference between an eight-lane highway and a four-lane highway,” he said.

Verizon began its video rollout in Keller, Texas, and is using Microsoft’s Foundation TV product, a TV software that has had some success in cable deployments, including with Comcast in Seattle.

BellSouth has not committed to Microsoft beyond trials.

“BellSouth is currently exploring the possibilities of IPTV in conjunction with Microsoft and is testing IPTV’s capabilities in delivering interactive video content,” said BellSouth spokesman Brent Fowler. “We are encouraged by the potential of our broadband network in potentially delivering IPTV or some other advanced video service, but want to better understand the entire business case for IPTV.”

The phone providers know that video is critical now, said Matt Cuson, director of product marketing at Minerva Networks, one of the best-of-breed players.

“While [telcos] are making decisions to go with Microsoft, they don’t necessarily feel comfortable putting everything into the hands of Microsoft so they are looking at ways to manage risk and bring in bits and pieces from other vendors,” he said.

Meanwhile, the smaller, scrappier vendors are choosing whether to align or compete with Microsoft.

Mark Gray, CEO of TV technology firm Kasenna, said he’s squarely in the competitive camp on the applications and infrastructure side.

“We are the enemy,” he said. But he said Kasenna may also partner with Microsoft for its VOD content.

Tandberg Television, which provides compression and VOD services, is a friend of Microsoft and has been working with the company for a few years to integrate its encoding technologies into Microsoft’s IPTV solution, said Reggie Bradford, president of Tandberg Television.

However, despite that partnership, Tandberg hangs its hat on the best-of-breed philosophy and has gained expertise with more than 35 telco deployments internationally via that approach.

“I don’t think any customers on the planet want to be beholden to one single vendor ever again [as in cable],” Mr. Bradford said. “People have learned the
hard way from the proprietary environment in cable.”

Microsoft contends that its Microsoft TV IPTV Edition is also built on open standards and is designed to allow telcos to integrate with other technology vendors.

Other vendors scoff at that notion of openness. “Microsoft talks about this open system and it is the most closed proprietary system. It is open because they have a few partners who don’t do what they do,” Mr. Gray said.

Even vendors who are proponents of the best-of-breed approach are trying to cozy up to Microsoft.

VOD server maker Entone said it’s working with operators and Microsoft to offer Entone as a low-risk, field-proven alternative that runs on a Microsoft platform and would co-exist within the Microsoft TV solution, said Entone CEO Steve McKay.

“Every small company in the IPTV space needs to make a conscious decision whether to compete with [Microsoft] or collaborate with them,” he said.

Speculation circulated that Microsoft had trouble with scalability after Switzerland telephone company Swisscom and Australian telco Telstra did not deploy Microsoft as planned earlier this summer.

Swisscom said in a statement on its Web site that it will launch to employees this year and commercially next year.

Microsoft’s Mr. Graczyk said the Swisscom launch was delayed due to challenges in “all the pieces of the ecosystem coming together.”

The Telstra launch was delayed due to issues involving “network readiness,” Mr. Graczyk said. He also said Microsoft is the only company that can handle the demands of large phone companies. AT&T, for one, has said it plans to reach 18 million homes with TV by the middle of 2008 and has turned to Microsoft for its so-called end-to-end approach.

In fact, the software company’s large phone partners have remained in lockstep with Microsoft. Most industry observers expected AT&T to have already begun its video rollout this year. However, AT&T said the launch has not been delayed and the company plans to offer service later this year or early next year.

But critics point out that Microsoft is unproven.

Smaller phone operators have real customers and have rolled out faster, said Bo Ferm, general manager with Irdeto Access, which provides content security solutions.

Microsoft is dismissive of small, best of breed launches.

“None of those have deployed to the scale even our smallest customer is deploying to,” Mr. Graczyk said.

Most experts and analysts still believe that AT&T at least will go forward with Microsoft as a partner for its IPTV deployments.

Indeed, the phone companies have invested billions of dollars to deploy video services in an effort to compete with cable and satellite operators and are loathe to risk reneging on their promises.

As a result, Microsoft’s hiccups could represent real opportunity for smaller technology providers to step up, save the telcos’ day and add cachet-if not actual business-to their shops.Despite AT&T official denials, sources said that as the deployment dates inch closer for San Antonio-based AT&T to begin its rollout in its hometown, AT&T has reached out to a handful of smaller TV technology firms that have proved that their technologies work in domestic cable VOD launches, as well as telco TV deployments with smaller telcos in the United States and larger telcos abroad.

In many of those launches, such as with Surewest in Northern California, Consolidated Communications in Illinois and Texas and many international deployments, smaller phone companies have demonstrated they can deliver the triple play without Microsoft, instead bringing in so-called best of breed options from TV tech vendors such as Tandberg Television, Kasenna, Minerva Networks, Irdeto Access, Amino, Myrio, Big Band, Entone and Widevine.

The success of such firms suggests that indigenous TV technologists with track records are more likely to succeed than outsiders like Microsoft, which is trying to cross over into a new business.

That’s also because a best-of-breed approach favors the distributor, said Matt Cannard, VP of marketing with content rights technologist Widevine, a Microsoft competitor. With an open system, the distributor has leverage over every single vendor and can easily boot someone if it’s not working out, he said.