AT&T, Microsoft Expand Cable Alliance

May 10 2000

NEW ORLEANS - ATT announced Wednesday that it will use more technology from Microsoft as it rolls out advanced digital set-top boxes to its millions of cable-television subscribers.

The announcement builds on a previous deal last year in which AT&T committed to buying up to 10 million boxes running Microsoft software in return for a $5 billion investment from the software giant. Now AT&T will use Microsoft software on the back-end to manage the connections between the boxes and its cable infrastructure.

A Microsoft official said the companies also agreed to dump a planned experiment that would have offered AT&T cable customers in an unspecified city set-top boxes running Microsoft software connected to back-end systems from other providers. Two other planned experiments that use Microsoft products from end to end will continue as planned.

"The whole nature of the showcase cities has changed," said Phillip Goldman, manager of Microsoft's TV platform group. "Essentially, from top to bottom, they're using Microsoft TV."

The latest twist leaves Sun Microsystems and Oracle out of AT&T's plans, along with others who had hoped to offer serverlike products to cable operators. Currently the second-largest cable operator, AT&T will jump to No. 1 once its merger with MediaOne Group is approved by the Justice Department and the Federal Communications Commission.

Microsoft CEO Steve Ballmer said at the National Cable Television Association's conference on Wednesday that his company had total commitments from cable operators to buy 15 million set-top boxes. He predicted that all of the boxes, which run a variant of the Windows CE operating system that has additional television and Internet-specific features, would be deployed by 2003.

"If you look at everything we do in this area, the investments we make, they're all about cementing in the kinds of partnerships and technologies that will really boot-strap this phenomenon," Ballmer said.

All of the top players at the conference drove home the point that the convergence of cable television with the Internet and digital technologies is upsetting old ways of doing business and empowering consumers.

"I've heard the old notion in the old media world of gatekeepers, controllers," America Online CEO Bob Pittman said. "There is no controller in this world."

But opponents of AOL's planned merger with Time Warner argue that the combined company will be a de facto gatekeeper, limiting the ability of consumers to reach other companies' Web sites, TV channels and entertainment offerings.