Microsoft, Alcatel Enter
Global Collaboration Agreement for IPTV

As [itvt] reported in our last news issue, Microsoft has entered a global collaboration agreement for IPTV with French telecommunications equipment giant, Alcatel, whose Digital Subscriber Line Access Multiplexers (DSLAM) and other broadband and triple-play technologies are widely deployed around the world.

The deal calls for the companies to integrate Microsoft's IPTV Edition software platform -- which has already been chosen by a major US telco, SBC, to support commercial roll-outs of video services expected to begin later this year, and which is currently being trialed by several other telcos around the world, including Bell Canada, BellSouth, Reliance Infocomm, Swisscom and Telecom Italia (note: another major US telco, Verizon, plans to deploy a Microsoft TV solution that supports both IP and Cable QAM infrastructure) -- with Alcatel's various broadband and IP networking products (which are already used by SBC) to provide a joint solution that the companies claim will reduce deployment costs and shorten time-to-market.

The companies say they will collaborate on several joint initiatives as part of their partnership. These include: developing and customizing new ITV applications targeted at the unique needs of different markets and cultures around the world; enhancing application and network resilience for improved reliability in large-scale deployments; integrating content, security and digital rights management; managing quality of service through intelligent video packet handling; and integrating management systems end-to-end for their application platforms, and all components of the network, including the home network.

According to Microsoft TV's director of marketing and communications, Ed Graczyk, Microsoft and Alcatel are already working on integrating their respective solutions:

"Our agreement says that we are the preferred providers for each other's solutions, but this is about more than just joint marketing: there's actually a deep level of integration that we've already started doing between their solutions and ours, and that we're not doing with any other partner," he told [itvt].

As a result, he explained, the companies plan not only to market their joint solution to new customers, but also to make it easy for existing Alcatel customers to migrate from the latter's Open Media Platform IPTV middleware (the core of which was acquired through Alcatel's $27 million purchase of Nova Scotia-based iMagicTV in 2003) to Microsoft's IPTV Edition software:

"For all future sales activity, we will essentially be going in and marketing, hand-in-hand, this integrated solution that consists of Alcatel network access equipment, IP routing systems and integration services, and the Microsoft TV IPTV Edition software platform," he said. "We'll also be going jointly to eah of their existing customers, and presenting them with a migration path from the Alcatel software platform of before to the new, integrated solution that we're jointly marketing. Now, Alcatel has said that they will obviously continue maintaining and supporting their existing customers--and, of course, it's the customer's decision whether or not to migrate up to the new solution. But the overall goal is to migrate broadband service providers to the new platform and to market the new platform to all new sales opportunities."

Graczyk cautioned, however, that the agreement, "wouldn't, of course, preclude Microsoft from working with a competitive network access provider, or Alcatel working with a different software solution." Note: [itvt] also contacted Alcatel for comment on the future of its Open Media Platform:

"We will continue to support the Open Media Platform," a company spokesperson told us. "However, Alcatel and Microsoft will market an integrated solution consisting of Alcatel's network access and systems integration solutions with the Microsoft TV IPTV platform, and will provide a migration path to all customers. So, both companies are really confident that this integrated IPTV solution will be the most compelling offering out there available for broadband service providers."

Graczyk told us that Microsoft and Alcatel also plan to sign an OEM agreement: "As part of our cooperation agreement, we've agreed to do an OEM agreement as well," he said. "When that agreement is done, they essentially become a reseller of our software. So, while our primary focus will continue to be the tier-one telcos, this gives us an opportunity to reach out to a whole second and third tier of network operators around the world that we wouldn't otherwise have been able to reach out to, or at least not to reach out to as quickly." [itvt] asked Graczyk why Microsoft considers the deal with Alcatel important:

"They've got huge experience in the space and they have relationships with broadband operators all around the world," he said. "They're the marketshare leader when it comes to providing the types of services that they're providing under the agreement: roughly 70 percent of the US telco DSL market is running on their solutions, and roughly 50 percent of the worldwide DSL market. Now, I think one of the advantages that we've always provided to the telcos is the fact that, in contrast to Orca, Myrio, Kasenna, SeaChange and all the other companies that play in IPTV, ours is the only real end-to-end software platform. So the deal with Alcatel allows us to take it to the next level, by integrating the software with the underlying network elements, and then wrapping it together with systems integration."

[itvt] asked Graczyk whether many telcos might nevertheless prefer to have the option of assembling their IPTV infrastructure out of what they might consider "best-of-breed" technologies from multiple vendors:

"I was on a panel with the CTO of SureWest, and one of the things he was talking about was how they had found that they had to play the role of systems integrator much more than they'd ever imagined, because when they went to market, their only option was to pick and choose these independent, discrete pieces, and cobble them into an end-to-end platform," he said.

"Now, not using an end-to-end solution certainly gives you some flexibility, but I think there's a definite downside to that, in that not only do you as the network operator bear the integration burden, but the solutions often aren't designed to work together. VOD is a great example," he continued." I mean, look at cable today: as valuable as VOD is proving to be, the customer experience for VOD is somewhat complex: you're either in the VOD user interface or you're in the broadcast channel's user interface. You navigate VOD channels totally differently than you navigate broadcast channels.

Now if cable could go back in time and say, 'Looking forward, do we want to have VOD as this add-on, with a slightly different user experience, or do we want to build on-demand into the core platform?,' they would naturally choose the latter option -- which is how we treat it in our IPTV solution. So, among other things, having an end-to-end solution gives you a better customer experience, because its designed from the ground up to be seamlessly integrated: if, for example, you search for 'Jack Nicholson,' with our IPTV interactive program guide, you're going to pull up Jack Nicholson movies that are on broadcast channels, on the VOD service, and even stored on your DVR. You've also got issues of scalability: our end-to-end platform is designed to scale to millions of subscribers. That's a much different selling proposition than working with one company's client software, another vendor's VOD server, yet another vendor's broadcast server, and yet another company's IPG. Who knows what all that's going to look like collectively?"

When Microsoft TV's early attempts to penetrate the cable market met with little success, many observers believed that a contributing factor in the failure of those efforts was that cable operators were afraid of committing to a vendor that is known for dominating the industries it enters, and thus were concerned that using Microsoft technologies could impinge upon their flexibility to develop their services in future as they saw fit. We asked Graczyk whether telcos have expressed such concerns:

"We've certainly heard those charges in the past, but this is a much different world than the PC world," he said. "The network operator is in control here -- we've designed our platform as an open platform, so that other people can play. This is the case even down to the video codec: we're not mandating that people use VC1, even though we think there are a lot of advantages to distributing content in VC1. If the network operator wants to use MPEG-4, that's fine; if they want to mix and match, that's fine as well. I think we've done a good job of convincing the telcos that we're building a core software platform, on top of which they and all their other partners can deliver services, extend and add applications, and so forth. So they're not locked in. Our platform's designed on all these open standards. It's not proprietary. A lot of our services--even in the case of .NET, which is one of the core application development environments--are based on open standards: XML and what have you. So it's a whole different world today compared to the way the PC industry evolved." As a result, he continued, "the doors are open for our customers and third parties to develop apps for our platform."

According to Graczyk, Microsoft's partnership with Alcatel should, over the long-term, not be viewed as being solely about digital interactive TV:

"The deal is definitely also about the triple- and even about the quadruple-play," he explained. "That's a huge part of both our visions and a huge part of what our respective solutions are designed to enable. So right now, while the primary focus is on the video part of the triple-play, Alcatel provides the underlying network that enables the rest of the triple-play--high-speed data service and VoIP--and, certainly, it's always been part of our vision not only to provide triple-play services, but to integrate those services across the television set, the PC, the mobile phone and the landline phone."

[itvt] asked Graczyk whether Microsoft believes telcos' IPTV services will eventually become a significant competitive threat to the cable industry, just as satellite TV has become:

"I think that's the $64,000 question," he said. "They don't have a huge legacy investment that they have to worry about: they don't have set-top boxes in the field that they're still amortizing. They can start from scratch and basically roll stuff out very quickly. Also, their potential customer base is huge: the other day, we added up just the potential number of Microsoft IPTV end-users based on telcos we've established relationships with, and, not counting end-users that could come to us through the Alcatel partnership, they totaled 179 million access lines.

Cable's advantage," he continued, "is, of course, that they own all those video customers today. So the telcos are going to have to come up with a pretty compelling reason why you'd want to switch from cable to telco TV. On the other hand, satellite has managed to figure that out pretty well, so, in light of that, the telcos are certainly something the cable industry worries about."

Cable companies, Graczyk stressed, "are not resting on their laurels: they realize that having your video plant on a proprietary architecture is a disadvantage in a world where triple-play services can all be delivered over a common network infrastructure. You frequently hear Comcast executives and other people in the cable industry talking about all-IP networks. So the question the cable industry is asking itself isn't so much 'Is IPTV the direction cable's going?'; it's 'How do we get there? How do we finance it? And, in light of the fact that we've spent billions on the infrastructure we have, how are we going to justify spending billions more to move to an all-digital IP network?' So I think it's fair to say that cable's really interested in IPTV and likes a lot of what IPTV would enable them to do. As a result, we've talked to every major cable operator in the States about our IPTV products. After all, when IPTV Edition was a little, five-person skunk-works project, it was envisioned as a cable solution."