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Alcatel and Microsoft say 'business as usual' despite patent spat

Let's stay together for the children's sake

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While Microsoft talks about 16 live accounts for its service, Telecom Italia this week confirmed to Faultline that it does not have a single line of code from Microsoft in its system, and that it used OMP and that it sees no reason to upgrade, but maintains its stance that it has a "continuing dialog" with Microsoft.

So, with the odd exception, Microsoft and Alcatel appear set to complete the projects that they have begun working on, and if they failed to do that both would lose all credibility in the IPTV market. But as for bidding in the future for new IPTV deals together, this legal action appears to make that no longer a viable option for either company.

So if they are staying together for the sake of the children, at least we know there will be no more children.

The worrying thing is that there have to be more deals for both of them. The network upgrades that are driven by IPTV are the lifeblood of Alcatel, and Microsoft will need its hand held by a major telecoms integrator if it wants any more contracts, and that means that it must declare allegiance to another telco equipment supplier in order to make any more bids.

That cannot be Cisco, which is seen as too competitive with Microsoft and it is this animosity that has driven Microsoft to work exclusively with Nortel in the enterprise and that may limit Microsoft's options to Nortel in the future for IPTV. It is too openly hostile to Nokia Siemens and they offer their own platform, and Ericsson has already begun to cut deals with Kasenna and anyway is mostly wireless, as is Motorola.

So while Alcatel can bid for more business, it would be suicidal to try to explain to a new potential customer why it was suing the partner it is bidding with. It will instead have to bid with either OMP or the system that Lucent has inherited from Telefonica (Imagenio) and it would be sensible to begin the gradual harmonization of the two. In fact, it is likely that a decision to harmonise them may have already been taken.

Lucent hasn't got the in-house software skills to re-write Imagenio as a package, from an in-house system, while what's left of the OMP team at Alcatel do.

If Microsoft tries to enter new bids before all of its existing clients have built out, then it risks going public with a new partner while justifying staying with Alcatel for existing deals. This means Microsoft must temporarily hold fire on new activity in the market for a while. Also the Microsoft system required tight integration with the Alcatel kit, and this would take time.

Perhaps some of this bust up came from the now dominant Lucent executives who are set to take charge at the merged Lucent Alcatel. They may have remained annoyed at having had a partnership with Microsoft on IPTV cancelled, when fickle Microsoft turned to Alcatel two years ago.

Alcatel worked with Microsoft because it wanted a way into the US, which it now realises Lucent ownership can provide. Comments published from Alcatel officials suggest that it will seek an out of court resolution to the litigation once it has served its purpose, saying that it only filed it to preserve Alcatel's rights.

Competing IPTV services have been largely relegated to second and third tier telcos since the partnership between Alcatel and Microsoft began, and there has been a complete absence of activity in top end players since that effort ran into delays. The news may well be used successfully by rivals to unblock the market.

In the middle of all of this AT&T announced that, like other recent Microsoft customers, it is now ready to ship High Definition TV services on 25 channels to its San Antonio, Texas subscribers. It has gone on record as not wanting to roll out too many set tops until it had HD working.

AT&T says it will also release new capabilities such as scheduling DVR programs via the seb, which come bundled on the new Motorola HD set tops. At the moment each set top can only access one HD stream at a time per household, which will rise to two some time next year. HD will be billed at an extra $10 a month.

Copyright © 2006, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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