AT&T Broadband sidesteps Microsoft in set-top box deal

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by Ben Hammer

(IDG) -- In a blow to Microsoft's interactive television business, AT&T Broadband said Thursday that it plans to test Liberate Technologies' software in set-top boxes later this year and will deploy the boxes commercially if all goes well.

Microsoft and Liberate, based in San Carlos, Calif., are competing to provide the standard software platform for interactive television in the U.S. As the largest U.S. cable TV provider, with 16 million subscribers, AT&T could have a major impact on the industry's technological future.

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It's not clear what effect the announcement will have on Microsoft's work for AT&T. Last year, Microsoft invested $5 billion in AT&T and received a contract for 7.5 million ITV systems with an option to add 2.5 million more. But Microsoft, based in Redmond, Wash., has delayed its delivery to AT&T until the beginning of 2001. If AT&T awards Liberate a large set-top box contract, the move would send the software giant's ITV group reeling.

AT&T Broadband, a unit of AT&T and based in Englewood, Colo., did not release details about the size or location of the test nor the financial arrangements with Liberate.

Liberate's win comes at a low point in Microsoft's ITV software dealings. Microsoft has also fallen behind on ITV work for Europe's largest cable provider, United Pan-Europe Communications. Earlier this month, Liberate won the contract to provide software for UPC's set-top boxes, even though Microsoft owns 8 percent of the company. Liberate already has agreements in Europe with cable operator NTL and Telewest in the U.K., almost 25 percent owned by Microsoft.

"We're clearly the beneficiary of Microsoft's challenges," said Liberate CEO Mitchell Kertzman. "We seem to be the only people in the marketplace that can really deliver."

Microsoft, for its part, said it was not fazed by the news. A company spokesman said the software giant is building a more complex platform that is much more ambitious than Liberate's project. Microsoft's integration with other vendors slows down the project, he acknowledged, but in the end will make Redmond's technology the accepted standard.

In a press release Thursday, AT&T Broadband CEO Daniel Somers said the company selected Liberate for its quick product delivery, its reliance on open standards and because its technology supports content delivery across multiple platforms.

Although the battle for the dominant position in interactive television technology is far from over, Thursday's announcement marks another step forward for Liberate in its efforts to jump ahead of Microsoft in the set-top box software game.

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