Internet & E-commerce
Interactive TV suffers AT&T backlash and Microsoft delays
By Husna Naujeer, Total Telecom
08 June 2001
AT&T has decided to scale back plans to develop an interactive-television service with Microsoft, two years after the plans were first announced.
The U.S. incumbent says it will now roll out a more simplistic version of the software, yet to be jointly developed by Microsoft or rival software maker Liberate Technologies.
AT&T's decision is a blow to Microsoft, which invested US$5 billion in the company as part of a deal to deploy its software TV set-top boxes to as many as 10 million sets, according to The Wall Street Journal. Since then, AT&T has been testing software from a Microsoft competitor, and it concluded that consumers were not ready for many of the advanced features that it had planned to offer, the paper said.
An industry insider told the paper, "It's Internet traffic that will generate the iterative revenue that might yet save AT&T, and not the expensive Microsoft set-top boxes. In the sober light of morning they realized they couldn't afford to build out this network." In April, AT&T reported a net loss of $366 million in the first quarter, or 10 cents a share, compared with profits of $1.74 billion, or 54 cents a share a year ago.
Several executives at AT&T have said the company will pursue an alternative strategy and focus on offering video, telephony, high-speed Internet and other services using several types of appliances, including personal computers, set-top boxes and other devices.
Microsoft declined specific comment on the matter and insisted that AT&T remained a "big strategic partner," said The New York Times.
The attention on the lapsed deal has been somewhat detracted by Microsoft's announcement Thursday that TV Cabo, the Portuguese cable system, will provide the first commercial application of its interactive software. The software giant has also signed two new deals to test its latest interactive TV system in Mexico and Isreal.
Microsoft believes that interactive TV, which has been largely overshadowed by the Internet itself, can still be a viable business if companies can generate services consumers find compelling, according to Reuters. But an anonymous AT&T source told The Wall Street Journal that the latest delays in the Microsoft software have both handicapped AT&T's interactive TV project and led to a round of finger pointing among senior executives.
The executive said part of the problem was that the DCT-5000 was a computer designed by a committee that proved to be an unworkable platform. At one point it was intended to have a Sun Microsystems operating system, which was changed to a Windows CE operating system after the Microsoft investment.
An AT&T spokesperson told The New York Times that the DCT-5000 boxes would be reconfigured as less powerful DCT-2000 set top boxes, the ones currently in use for digital TV, and made available to customers.
Several industry executives have said the AT&T decision to use both Microsoft and Liberate as "preferred" software providers is a bitter setback for Microsoft that, unlike Liberate, does not have a product ready for the DCT-2000 set top box, reported The New York Times.
Analysts warn that despite hefty investments from a number of companies, the market for interactive TV is tiny, especially in the U.S. In worldwide terms, of the 1.5 billion televisions in use, fewer than 30 million use interactive services, according to Microsoft figures.
In spite of this, Ovum Consulting predicts that the number of households worldwide capable of receiving interactive TV will grow from the present 62 million to 357 million by 2006, while revenue from sales is expected to grow from about US$58 million to $44.8 billion.
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