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Microsoft, Excite@Home may team for enhanced TV

In what is shaping up to be a furious battle to bring interactive television to consumers, the two firms say they are in talks for an alliance to develop enhanced TV services.

In what is shaping up to be a furious battle to bring interactive television to consumers, Microsoft and high-speed access provider Excite@Home today said they are in talks to develop enhanced TV services.

The announcement, made at the cable industry's Western Cable Show conference in Los Angeles, calls for the two companies to further their two-year relationship to focus on the development of enhanced television services for set-top boxes and other devices.

With today's announcement, Redwood City, Calif.-based Excite@Home plans to develop a broadband TV portal and other applications to work with the Microsoft TV platform.

The race to connect consumers to the Internet over devices other than the PC has become increasingly cutthroat. America Online is quickly gearing up to be one of the largest opponents to Redmond, Wash.-based Microsoft in the enhanced television arena.

In its push to develop AOL TV, the Dulles, Va.-based Internet giant has been busy carving out deals with set-top box makers and other interactive television firms. AOL has invested in, or formed alliances with, companies such as DirecTV, Hughes Network Systems, Philips Electronics and Gemstar International Group.

Excite@Home first revealed its plans to offer an interactive television service in February.

Microsoft also has been busy positioning itself in the market. Just yesterday, sources said Microsoft is preparing to provide video on demand, telephony and online messaging in tandem with its TV offerings.

Microsoft has split its television strategy into two separate offerings. On one side is its TV product line, which it plans to market to certain television service providers. On the other is its WebTV business, a set-top box service offering limited Internet access and enhanced television programming.

To boost its participation in interactive TV, the software giant made See related story: The new world order a $5 billion investment in AT&T earlier this year. That deal gave Microsoft the right to put its scaled-down Windows CE operating system into set-top boxes for AT&T's next-generation broadband services. AT&T, a majority shareholder in Excite@Home, is one of the largest cable operators in the United States.

"Excite@Home is in a unique position to support the ambitions of the cable industry to tap into a whole new range of consumer services," Phil Goldman, general manager of the TV platform division at Microsoft, said in a statement. "By building atop the Microsoft TV platform, Excite@Home would have the kind of powerful tools it needs to deliver a complete TV service right away."

Yet some analysts noted that to a certain degree, Microsoft has had to encourage the use of Windows CE by buying its way into cable companies.

"From very early on, cable operators have been scared to deal with Microsoft because they have seen how the software company conquered the desktop space," said Eric Melloul, an analyst at equities research firm Argus Research. "Cable companies didn't want to be in the same situation where they would lose the right to their own platforms."

The companies said they expect to offer enhanced TV services starting in 2000.

Excite@Home already claims more than 20 cable partners in North America for its broadband Net service, the company said.

"The challenges of realizing enhanced television's market potential are enormous; it will take both of us, utilizing our respective strengths in support of our cable industry partners, to quickly realize the full potential of this new industry," Adam Grosser, president of @Home subscriber services, said in a statement.

Shares of Excite@Home climbed 2.68 percent in trading on the news, while Microsoft shares added 9.69 percent on heavy volume, close to a new record high.

The stock has climbed since yesterday on rumors of a settlement in the landmark antitrust suit waged against the software maker by the government. A Justice Department spokeswoman called the rumors "unfounded."