Tech Industry

MS pact bigger of two TCI deals

TCI agreements with Sun and Microsoft show the cable industry is beginning to lean heavily on a number of computer heavyweights.

Last week's agreements between Tele-Communications Incorporated (TCOMA) and Microsoft (MSFT) and TCI and Sun Microsystems (SUNW) show that the cable industry is beginning to lean heavily on a number of computer heavyweights as the suppliers of key technologies, raising the specter of raging turf battles.

With Microsoft's inclusion as the operating system (OS) technology in TCI's set-top boxes, some fear that the software giant will extend its dominance of desktop PC operating system market into a new market that could range in the tens of millions of customers, even as Sun strives to maintain the upper hand with its Java technology.

TCI is brokering deals with Microsoft, Sun, and several other companies to put in place the building blocks of next-generation TV set-top boxes. In short order, the basic, no-frills cable TV boxes of today will metamorphose into full-fledged set-top computers.

These set-tops would be able to offer video on demand, the ability to send and receive email, perform basic computer tasks, browse the Internet, and one day play back high-definition television signals. Priced between $200 to $500, the "information appliances" would be within range for anywhere from 60 percent to 80 percent of U.S. households, according to International Data Corporation.

TCI's interest in Microsoft certainly came about because of the potential of the Windows CE operating system to attract a vast number of software developers who already write software for the Windows 95 and NT operating systems.

"The TCI deal was a coup for Microsoft," says Van Baker, director of consumer research for Dataquest.

Still, Microsoft shouldn't spend too much time congratulating itself. The difference between a Web page and a software application is shrinking, according to Baker, meaning that programs are more often available directly as a part of a Web site, not as a proprietary application. Enter Sun and Java: Unlike most Microsoft software, Java applets are downloaded via a Web browser.

Such trends are decreasing the importance of writing directly to an operating system because Internet content is largely standards-based, and the hardware used by digital set-top boxes will include other standardized technology such as MPEG-2 for the playback of video, which is not pegged on Microsoft technology.

Microsoft can still hope to gain a piece of transactions that take place between the set-top box user and the outside world, but its ability to impose conditions on the cable industry is--so far--less certain than in the PC industry.

"To the extent that cable companies can impose standards, that limits Microsoft's ability to control the transaction. If protocols are all set for the platform, it's going to be difficult for Microsoft to emerge as a dominant player," said Baker.

The cable companies agree, and are working on the OpenCable initiative, which is attempting to set specifications for what digital set-top boxes can do and how they will interoperate with the cable company's computer equipment.

The greater imperative for the cable companies is making different kinds of software available to end-users, which minimizes the importance of a single, monolithic OS, says Don Dulchinos, director of business development for CableLabs. Dulchinos is head of the OpenCable project.

Dulchinos notes that TCI isn't setting a de facto standard by beginning work with Microsoft, Sun, and other companies. All technology suppliers will have to have CableLabs certify that their equipment is interoperable based on a platform specification available in mid-1998.

Additionally, cable companies have a lot of work left to do before deploying the boxes, according to analysts.

"Cable companies need to make sure the return path [which sends data back to centrally located servers] is in place and functioning; all of this is very expensive and [slows down] the deployment of digital services," said Cynthia Brumfield, an analyst with market research firm Paul Kagan & Associates.

Cable operators are in the process of upgrading the "headend" equipment that distributes video and data to the new set-top boxes. Headend equipment, as well as the network cable and other materials needed for two-way services, needs to be installed at a number of cable company plants, says Brumfield. Most of this should be ready for the widespread deployment of digital set-top boxes.

Consumers shouldn't hold their breath for the new devices, however.

While Microsoft and TCI expect that they will begin to deploy digital set-top devices in late 1998 or early 1999, retail availability of such devices is not expected for another three to five years, according to analysts.