Siemens tackles Microsoft IPTV dominance

As complications cloud Microsoft's IPTV tests in Europe, Siemens could advance in the market there, in Asia and in the rural U.S.

Recent speculation about problems with Microsoft's new Internet Protocol television software could give Siemens, the German telecommunications equipment giant, just the opportunity it's looking for to break into the emerging IPTV market.

Siemens, which makes equipment used by phone carriers to deliver broadband Internet access, claimed its stake in the IPTV market in April when it announced it was buying a small software company called Myrio, which specializes in IPTV software.

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What's new:
While Microsoft tries to remedy problems with its Internet Protocol TV tests in Europe, Germany's Siemens is using technology from newly acquired Myrio to prepare its own package of IPTV software.

Bottom line:
Because it offers a complete selection of IPTV applications, Microsoft is the current leader in that emerging market. But Microsoft's current IPTV troubles could give Siemens the opening it needs to become a serious competitor in Europe, Asia and the rural U.S.

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The next step is taking on Microsoft. The software giant is already considered by many to be the leader in this nascent market, with a software package that manages distribution of video content from the time it's picked up from a network until it reaches the set-top box in the home.

Though dozens of smaller companies offer pieces of the IPTV software solution, Microsoft is the only one that offers one-stop shopping for all the necessary applications. Microsoft offers software that lets operators acquire broadcast and on-demand programming from multiple sources, such as ESPN or HBO. It also sells software that manages the content and subscribers, and an operational- and billing-management system. On the consumer side, Microsoft also provides the software that sits in set-top boxes and provides viewers with a multimedia program guide.

Microsoft is also teaming with hardware makers to help the whole IPTV system work. Earlier this year, it announced a partnership with Alcatel, which, like Siemens, provides equipment that helps a carrier deliver broadband access. It has several partnerships with companies that make hardware products that encode and compress television signals, including Scientific Atlanta, Tandberg and Harmonic, and it has a deal with Motorola to include Microsoft software in Motorola 's set-top boxes.

"It's Microsoft's game to lose."
--Adi Kishore, analyst, The Yankee Group

"It's Microsoft's game to lose," said Adi Kishore, an analyst with The Yankee Group. "It would be difficult for Siemens to break into the North American market, but if Microsoft really screws up, it could allow someone else in the door."

There could be cracks in Microsoft's IPTV plans. Problems at Switzerland's Swisscom, the first carrier to test Microsoft's service with actual customers, have stirred speculation that other carriers may face similar technical problems getting Microsoft's IPTV solution to work.

Swisscom said recently it will delay the full deployment of its IPTV service until after it has worked out some "technical" issues, according to several news reports. If these problems result in significant delays, it could give Siemens, the new kid on the IPTV block, the opportunity it needs, say some analysts.

Microsoft denies that there is anything wrong with its software, but executives acknowledge that the process is complicated.

"The software is on track and will be fully baked this fall, as we have stated all along," said Ed Graczyck, director of marketing for Microsoft TV. "The operators set their own timetables and schedules for deployment. And the integration really varies from carrier to carrier. They all have different pieces of the puzzle that must fit together, so it's a complex issue."

Through the acquisition of Myrio, Siemens now has the brains of its IPTV solution.

So far, Siemens is the only company that has come close to matching Microsoft's offering. Siemens competes head-to-head with Microsoft's infrastructure partner Alcatel. Through the acquisition of Myrio, Siemens now has the brains of its IPTV solution, said Susan Schramm, senior vice president of carrier markets for Siemens. And with this piece of the IPTV equation in its portfolio, the company has firmly planted its foot in the market.

Unlike Microsoft, Siemens doesn't yet have all the software pieces in place. While Myrio gave it the "brains" of its solution, it is still missing some parts. For example, Myrio provides subscriber and content-management software and software for the set-top boxes. But Siemens is missing software that can get content from either satellite or archived sources into an on-demand format.

So far, the largest carriers in the U.S. seem to be more interested in the all-in-one solution from Microsoft. Three of the four Bells--SBC, Verizon and BellSouth--have committed to testing Microsoft's IPTV solution.

Analysts say Siemens might have a better chance of winning deals in Europe and Asia and among rural carriers in the United States. Even before Siemens acquired Myrio, the two companies worked with each other to deploy an IPTV solution for Belgacom, Belgium's main telephone company. The service serves nearly 1 million subscribers.

"Breaking into big North American carriers is going to be difficult for Siemens," Kishore said. "But there is a whole host of phone companies that are smaller, and an increasing number of them are deploying Myrio. Siemens is well positioned in that market."

Myrio already has about 70 customers that are either testing or have deployed its IPTV solution. Most of them have been small, rural telephone companies, such as MBO, based outside of Tulsa, Okla. The company, which serves about 13,000 customers in four states, has been using the Myrio IPTV package since 2002. Compared with SBC's planned IPTV network, which could serve 18 million customers, MBO's installation is tiny--only 300 residential subscribers and 25,000 subscribers through wholesale agreements.

The Yankee Group's Kishore said Siemens could make a good business out of catering to smaller service providers. But the company says it is going after bigger fish, too.

"We have a long history in telecom," Schramm said. "And we understand how to make a (network) work."

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