Deutsche Telekom AG (NYSE: DT) has chosen Microsoft Corp. (Nasdaq: MSFT) as its IPTV middleware supplier, and plans to launch a service within months. (See DT Uses Microsoft for IPTV).

DT's own T-Systems International GmbH and Microsoft's IPTV partner Alcatel (NYSE: ALA; Paris: CGEP:PA) will provide integration services for the project. (See Alcatel, Microsoft Confirm IPTV Deal.)

Microsoft says the deal is its biggest in Europe to date and its second biggest ever in financial terms. The software giant's largest IPTV engagement, with AT&T Inc. (NYSE: T) (formerly SBC Communications), is worth $400 million. Neither DT nor the vendor would comment on the value of today's deal. (See SBC Awards Microsoft $400M IPTV Deal .)

Other European carriers using Microsoft's IPTV Edition system include BT Group plc (NYSE: BT; London: BTA), Telecom Italia (TIM) , Swisscom AG (NYSE: SCM), and TDC A/S (Copenhagen: TDC). (See Microsoft Wins at BT, Microsoft IPTV: Now That's Italian!, Swisscom Picks Microsoft IPTV, and Alcatel Lands TDC IPTV Deal.)

The German carrier plans to launch TV and video services using the Microsoft IPTV Edition platform shortly after it switches on its new €3 billion ($3.6 billion) high-speed fiber-to-the-curb broadband network, which is currently under construction. The carrier is using VDSL2 technology for the final link to German homes and businesses and plans to have one million customers in 50 cities hooked up to 50-Mbit/s connections by the end of 2007. (See Alcatel, ECI Land DT Gig and DT Flings Billions at Fiber Access.)

The first, €500 million ($608 million) phase of the new access network aims to connect 2.9 million homes in 10 major cities by the middle of June this year, says spokesman Mark Nierwetberg. He says the IPTV service will be launched "shortly after," and could possibly include high definition TV (HDTV), if the content and appropriate set-top boxes were available, though he wouldn't specify a precise date for the service's commercial availability.

Nierwetberg also wouldn't comment on the technical infrastructure supporting the Microsoft system, in terms of the server and storage capabilities needed to deliver broadcast and unicast services to large numbers of potential customers.

The scaleability of Microsoft's technology has been a major issue with the likes of SBC and Swisscom. A BT executive told Light Reading he had been surprised at the number of servers needed just for service trials.

That issue is being worked at, though, and the number of customers that can be supported per server -- which was said to be around 40, or even as low as 10 in some cases last year -- is now believed to be in the thousands. (See Scaling IPTV: Progress at SBC .)

But the platform's performance still appears to be causing some concerns at Swisscom. The European incumbent, which first announced it would use the Microsoft system in November 2003, was forced to delay its IPTV service launch last year because "the technology currently available is not yet suitable for serial delivery." (See Swisscom IPTV Stall Sends Shivers.)

Today a Swisscom spokeswoman said the service would not be launched until the second half of 2006, a year later than planned. She added that a launch was not possible in the first six months because the technical issues encountered last year had not been fully resolved.

And despite the recent announcement that Telecom Italia is developing its future IPTV services with Microsoft, the Italian incumbent has launched its initial commercial offering with Alcatel's middleware platform. (See Alcatel Lands TDC IPTV Deal and TI Develops IPTV With Microsoft.)

There are concerns in the IPTV industry that such issues are having a negative knock-on effect on the whole sector. Several specialist vendors have told Light Reading that the IPTV sector is about a year behind their expectations, in terms of carrier decisions and deployments. One set-top box middleware and management vendor, ANT plc , which has first-hand knowledge of developments at Telecom Italia, blames Microsoft for the lag. (See ANT Wins at Telecom Italia .)

ANT's head of marketing and product development, Andy Bovingdon, believes Microsoft's entry into the IPTV sector, and its subsequent deployment problems, have caused a lot of delays, as carriers felt they had to at least check out the software firm's technology and evaluations have taken a long time.

And he's damning about the performance of Microsoft's system, which he believes is reflecting badly on the IPTV sector as a whole. He says Microsoft's system "just doesn't work -- it's smoke and mirrors, though it's getting better. But with the Swisscom and Telecom Italia delays, people have probably seen that and decided that IPTV isn't ready yet. So there's still an ongoing education process in the marketplace, because carriers such as Orange (NYSE: FTE) have shown it does work."

Bovingdon's views might be tainted, though, by ANT's close relationship with Myrio, the IPTV middleware company owned by Siemens Communications Group , and arguably Microsoft TV's closest rival. (See Siemens Licenses ANT.)

Given that Microsoft's latest success is in its own back yard, today's news will come as a blow to Siemens, which has built up its TV-over-broadband capabilities through a string of partnerships as well as the acquisition of Myrio. (See Siemens Snaps Up Myrio and Siemens Boasts IPTV Success.)

In a recent interview with Light Reading, Myrio CEO Chris Coles, who has responsibility for Siemens's complete IPTV package, said DT had been "taking a close look at both Myrio and Microsoft."

DT's Nierwetberg said several IPTV systems had been trialed, but he declined to confirm whether Myrio was one of those systems.

Coles could not be reached for comment as this article was published.

— Ray Le Maistre, International News Editor, Light Reading