The Xbox X-Factor

12:30 PM -- As promised, a post on what Microsoft Corp. (Nasdaq: MSFT) may be thinking, leading up to CES 2009:

First, let me tell you what I've seen already. At TelcoTV 2008, Calix Inc. (NYSE: CALX) showed -- for the first time anywhere, I think -- the Xbox 360 Elite console, which is being used as a full-featured set-top, running a live broadcast TV service, and is capable of media sharing in the home network, using Microsoft's Mediaroom software.

Geoff Burke, Calix's director of field marketing -- and the telco industry's most famous bald guy -- says that actually any green label Xbox can be used as a primary set-top, thanks to one of the latest updates to Mediaroom, as made available to Microsoft licensees.

The demo Calix ran at TelcoTV looked just like AT&T's U-verse service, though not branded as such. "We were demoing about half a dozen HD and SD broadcast channels with picture-in-picture and instant channel change, about a dozen HD and SD VoD assets, and search functionality across all content," Burke says in an email to Light Reading.

Most impressive, though, was that you could easily flip between the broadcast TV service and the Xbox's other fun features, like music and movies on-demand in Xbox LIVE. A few more clicks and you could access media assets -- home movies, pictures, music, etc. -- that were stored on an external Windows Media Center PC.

I checked the plugs myself: The Calix guys were showing live media-sharing using nothing more than a standard PC, a home network, and a gaming console that millions of people already have.

So iTunes music format issues aside, it's reasonable to assume Microsoft could possibly leapfrog Cisco's media adapter efforts and the sainted Apple TV in one fell swoop, while requiring no additional hardware in the home.

Service providers should care because this kind of functionality coming from one living room device is (1) unavailable from cable and satellite companies and (2) a huge driver for fiber-to-the-home.

Will Microsoft put the pieces in place to make telcos stand out as entertainment providers? And will their service provider partners support this, as BT Group plc (NYSE: BT; London: BTA) has done in the U.K.?

Well, we'll all know by this time next week. In the meantime, I can make more reasonable assumptions based on what I've seen. I'll do that in an upcoming post.

— Phil Harvey, Editor, Light Reading