September 21, 2000 9:15 AM PDT

AT&T taps Microsoft rival for interactive-TV software

Liberate Technologies today announced that AT&T will begin testing its interactive-television software on set-top boxes later this year, striking another blow to Microsoft's efforts in this field.

As previously reported, Liberate has been in talks for the past month to provide interactive-TV software for AT&T's upcoming cable set-top boxes. These negotiations occurred amid reports that AT&T was unhappy with its existing partner, Microsoft, whose own TV-software development effort has been repeatedly delayed.

AT&T agreed to use Microsoft TV, the software maker's server software for cable and satellite providers, after Microsoft invested $5 billion in the telecommunications company last year. However, Microsoft's TV group has suffered several setbacks, notably a management shake-up earlier this summer and delays in releasing set-top boxes to Europe's UPC, another cable partner.

Mitchell Kertzman One analyst highlighted the importance of the move both for the companies involved and for the interactive-television market as a whole.

"We believe this is significant, given the magnitude of the contract and that this is the second win against Microsoft (an investor in AT&T) after Microsoft's system was delayed," said Gene Munster, a US Bancorp Piper Jaffray analyst, in a note to investors today. Munster estimated that AT&T will have about 10 million interactive customers.

"Given the brand name appeal of AT&T," he added, "we expect a domino effect in the coming year of new cable and satellite companies committing to actual deployments of interactive services."

As Microsoft wrestled with troubles in completing its software, AT&T exploited the nonexclusive nature of the relationship to hold talks with Liberate, sources had said, speculating that AT&T might have been trying to motivate Microsoft to finish its software work.

"This didn't just happen. We've been talking to AT&T for quite a long time," said Mitchell Kertzman, CEO of Liberate, acknowledging that Microsoft's troubles "sped up the process."

Liberate recently signed a similar deal with UPC that also was spurred by Microsoft delays, Kertzman said. "We had been in conversations with both companies for a long time, but Microsoft's challenges accelerated it," he said.

The Liberate-AT&T trials will start later this year, and if they succeed, Liberate hopes for a commercial release in 2001, he said. "However, doing business with cable companies carries no guarantees--as Microsoft has found out."

Those familiar with both Liberate's and Microsoft's software have said that Liberate is attractive to AT&T not because its product is technically superior to Microsoft's, but because it is complete and available.

One scenario being floated was that AT&T would use Liberate boxes as an alternative or secondary technology to Microsoft's. AT&T began approaching third-party software developers earlier this summer to ascertain whether their products would work with Liberate's software as well as Microsoft's, sources have said.

New York-based AT&T said today's news does not affect its ongoing relationship with Microsoft. "This is in addition to what we're doing with Microsoft," an AT&T Broadband spokeswoman said, noting that AT&T offers both ExciteAtHome and Time Warner's RoadRunner broadband services to its customers. "Our plan all along is that we would be multivendor, and we're still investigating technology."

The Liberate trials will take place late this year on Motorola set-top boxes, according to Liberate, which is based in San Carlos, Calif.

"AT&T Broadband is committed to driving the development and deployment of innovative broadband services utilizing multiple technology providers as it makes sense," Daniel Somers, CEO of AT&T Broadband, said in a statement today. "The Liberate platform will help us offer a wide variety of interactive services we know our customers are waiting for."

The set-top boxes will offer email, chat, enhanced TV and Internet content via the television, according to Liberate. Microsoft TV offers similar features.

 

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