United Pan-Europe Communications (UPC), Europe's largest cable operator, has publicized delays in Microsoft's TV software and has chosen Microsoft competitor Liberate for a trial of interactive TV services. The moves are a setback but are not fatal for Microsoft's multibillion-dollar campaign to promote broadband Internet access and sell software for interactive TV services.

UPC is one of a set of cable companies worldwide (including AT&T in the United States, NTL in the United Kingdom, Rogers in Canada, and TV Cabo in Portugal) that have received significant investments from Microsoft and are evaluating the Microsoft TV Advanced software. This software enables a cable operator to deliver interactive television (which integrates Web content into television programs) as well as Internet services such as e-mail, chat, and Web browsing. A component that runs on the set-top box attached to a user's television communicates with Windows 2000 servers at the cable operator's "head end." (See "Microsoft’s TV Platform Targets Markets Beyond Interactive TV" on page 18 of the July 2000 Update.)

UPC expected to bring the full Microsoft TV Advanced product to 30,000 trial subscribers in the Netherlands this fall. Instead, development delays have forced Microsoft to roll out a limited version that supports some interactive functions (such as an electronic program guide) but not the full gamut of planned services. Although Microsoft has an 8% equity stake in UPC, the delay has encouraged UPC to give competing vendors a second look before its full rollout of interactive services in the first half of 2001. According to UPC Chief Executive Mark Schneider, "We're hoping that Microsoft—who has, we believe, the most sophisticated services—are ready, but if they are not, we will use one that's appropriate."

Microsoft’s chief competitor in the market is Liberate, an Oracle spin-off whose products UPC recently agreed to use on a trial basis in its Austrian network. UPC Chief Operating Officer Gene Musselman commented in a prepared statement, "Selecting the Liberate software platform as part of our multi-vendor strategy is a natural step, given the fact that it has already been deployed, and it will give our subscribers a compelling choice of interactive services." In the Austrian trial, those services will include e-mail, Web browsing (in a closed "walled garden" network), chat, e-commerce, and online banking.

Microsoft acknowledges that its software has been delayed, but denies that delays had much impact on UPC's plans. "The bottom line is, they said they would have an open, multi-vendor network," says Alan Yates, director of marketing for Microsoft TV. Indeed, cable operators like UPC have been reluctant to commit to a single vendor, because they aren't sure yet what software or services they need, and because their networks are highly decentralized, making it feasible to support different software in different regions. Consequently, early stumbles won't necessarily lock Microsoft out of the market. According to Yates, "We see it as a really competitive marketplace in the future, not one where one vendor automatically becomes the standard."

The real test will come in 2001, when Microsoft expects its "showcase" cable partners will bring out interactive services for paying subscribers. That's when Microsoft will find out how much market several billion dollars will buy.

Based in Amsterdam, UPC is majority-owned by United GlobalCom, with Microsoft and AT&T subsidiary Liberty Media among its major investors. UPC's Web site is www.upccorp.com. The Microsoft TV Web site is www.microsoft.com/tv.