Microsoft's Lightspeed: Moving In Slo-Mo

With great fanfare, Microsoft Corp. (MSFT ) Chairman William H. Gates III premiered SBC Communications Inc.'s (SBC ) groundbreaking television service, dubbed Project Lightspeed, at the Consumer Electronics Show in January. The service, which uses Microsoft's Internet protocol television IPTV) software, dazzled onlookers, showing how baseball fans could keep tabs on three games in tiny windows on their TVs while watching the game that mattered most to them.

Just five months later, it looks like Microsoft's IPTV effort is moving at anything but the speed of light. On May 26 the first customer for the technology, Bern-based Swisscom (SCM ), said it will delay the launch of its service from the end of this year to 2006. And SBC, which plans to offer its service this year, says it will make the deadline, but only in one market. Microsoft acknowledges its efforts aren't moving as quickly as expected. ``We're probably a little behind where we thought we'd be, probably a quarter,'' says Moshe Lichtman, the vice-president who runs Microsoft TV.

Still, if the dates slip further, Microsoft could take a hit to its already threadbare credibility in this arena; for nearly a decade, it has been trying to bring interactive TV to fruition. More delays also could be a setback for SBC, which hopes to use the technology to help prevent customer defections to cable. They could also become a factor as players like BellSouth (BLS ) weigh the decision to roll out IPTV.

Most analysts believe Net-delivered programming is the future of TV since it potentially will allow providers to deliver many more channels than are currently available. Right now, cable systems shoot all their channels to a set-top box at the same time, but the boxes can only handle 250 channels tops. IPTV, by contrast, sends one program at a time. When a viewer changes channels, a new stream of content shoots down from the IPTV operator's computer servers. That allows nearly limitless programming choices.

Sounds great, but IPTV poses some big technical challenges. Indeed, the largest of the Bells, Verizon, anticipating hiccups, has opted initially to roll out technology that more closely resembles conventional cable systems. ``We did have doubts that IPTV would be delivered this year,'' says Verizon Communications (VZ ) spokesman Eric W. Rabe. Microsoft's Lichtman declined to discuss the problems the company is experiencing. But one issue, according to Swisscom, is that the current system doesn't let users watch one program while recording another. And Goldman, Sachs & Co. (GS ) analyst Tim Boddy, who recently visited the IPTV lab of key Microsoft partner Alcatel (ALA ), says the technology still doesn't let multi-TV households watch shows on more than one set. Without such features, IPTV operators can't roll out their services.

Other technical challenges abound. Microsoft's partners, rivals, and analysts say the complex chipsets required to power IPTV set-top boxes aren't ready either. Daniel M. Maloney, who runs the Motorola unit that makes set-top boxes, says it has taken longer than expected for its partners to develop chips that handle millions of viewers. Similar problems are slowing the development of the compression technology that squeezes video into copper phone wires.

Despite all the problems, it's unlikely that SBC and other telcos will walk away from Microsoft. While a handful of companies, including Siemens, have versions of IPTV up and running, none are at the scale that SBC is planning. ``We're not going to change horses midstream,'' says SBC Chief Operating Officer Randall L. Stephenson. Still, some customers wouldn't mind if Microsoft picked up the pace.

By Jay Greene in Seattle and Roger O.Crockett in Chicago,with Spencer E. Ante in New York

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