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Microsoft, TCI sign set-top deal

After several months of negotiations, Microsoft and TCI seal an agreement for using Windows CE in digital set-top boxes.

After several months of negotiations, Microsoft and Tele-Communications Incorporated have sealed a deal for using Microsoft's operating system software in digital set-top boxes.

The close of the deal was announced by Microsoft chairman and CEO Bill Gates at the National Cable Television Association trade show in Atlanta today, marking the company's official entrée into the world of cable set-top boxes.

"We're going to invest literally billions in driving Windows CE to be the same type of standard on these devices as it is on the PC," Gates said at the cable confab.

In January, TCI and Microsoft reached an agreement to use Windows CE in at least 5 million interactive TV set-top boxes but left some terms of the arrangement open to discussion. These boxes, currently simple devices, would gain advanced features such as video on demand, email service, and Internet browsing. Cable operators are eager to add these services in order to gain new sources of revenue.

The discussions hit snags as TCI sought to ensure that it could finance the deployment of the expensive new digital set-top boxes while simultaneously keeping Microsoft from being able to exert the kind of sway that it now holds over the PC industry. (See related story).

Terms of the nonexclusive license were not disclosed. A Microsoft representative noted only that the details, the terms, and conditions for delivery and deployment of the Microsoft software had been hammered out. Other cable companies that use TCI's service distribution network will be eligible to license Windows CE under the same terms.

"This means that TCI and Microsoft will start the process of putting all the hardware and software pieces together," a spokesperson said.

At the NCTA show, Gates dismissed reports that the two companies were feuding over financial terms as rumors. "That's going very, very well," he said of the negotiations.

But he sought to reassure cable operators that Microsoft has no desire to displace them through control of operating system software in new cable systems.

"There's no need for paranoia," Gates noted, promising cable operators they would have complete control over how Microsoft software appeared to their consumers.

Cable operators continued to view Gates with some wariness, however. Paul Schonewolf, owner of a small upstate New York system, said after hearing Gates that the question remained, "Is he a partner or competitor?"

Schonewolf, also a member of the National Cable Television Association board of directors, said he was confident that "the cable industry can hold its own," adding: "This represents just another step in a very young technology."

Reuters contributed to this report.