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Telecom Italia Rejects Microsoft IPTV

After years of working with the technology development team at Telecom Italia (TIM) , Microsoft Corp. (Nasdaq: MSFT)'s IPTV team has found its Mediaroom platform left on the shelf at the Italian incumbent, according to industry sources.

It seems the decision to step away from the long-planned deployment has been precipitated by pressure from the Italian incumbent's new investor, Telefónica SA (NYSE: TEF), which, having finalized its investment in April 2007, almost immediately began exerting its influence. (See Telefónica Takes Stake in Telecom Italia.)

Microsoft first announced its engagement with Telecom Italia back in 2004, when Mediaroom was known as the Microsoft TV IPTV Edition, and has since invested a lot of time and resources, working side by side with Telecom Italia Lab , developing its capabilities to suit the carrier's needs. (See Microsoft IPTV: Now That's Italian!)

While that development took place, Telecom Italia needed to launch a service, Alice Home TV, so that it could get a triple-play service (IPTV, broadband, VOIP) to market to compete with the offering from Fastweb SpA (Milan: FWB), which launched its TV-over-broadband service in 2003, using an IPTV service platform it had developed in-house. (See TV Over DSL Over Italy .)

In July 2005 Telecom Italia trialed some services using a combination of the Open Media Suite (OMS) -– also known as the Open Media Platform (OMP) –- IPTV service delivery and management system from Alcatel (before the Lucent marriage), as well as Microsoft's IPTV Edition software. (See Telecom Italia Trials IPTV.)

By that time, Alcatel and Microsoft were already key IPTV allies. (See Alcatel, Microsoft Confirm IPTV Deal.)

But when Telecom Italia launched commercial services in late 2005 and early 2006, it used only Alcatel's system.

Industry sources say when it came to migrating Microsoft's technology -- video server capabilities housed on HP hardware, service delivery capabilities, middleware, EPG (electronic program, guide), and applications -– from the labs and into Telecom Italia's commercial network, the move was repeatedly delayed until the idea was killed off last year, when Telefónica stepped in.

Telefónica reportedly wants to see harmony between its IPTV system and Telecom Italia's –- and the Spanish giant now delivers its IPTV services using AlcaLu's MiViewTV platform. Telecom Italia's IPTV plans are now believed to be based on AlcaLu's MiViewTV platform as well.

The MiViewTV middleware and applications platform itself is based on the Imagenio IPTV system that Telefónica initially developed in-house, and which it then handed over to Lucent in 2006 for further development. (See Lucent Unveils MiViewTV and Lucent, Telefonica Team on IPTV.)

Resulting delays, missed targets
The indecision and delays have held back Telecom Italia's service developments and were a key reason why the carrier, which has more than 6.4 million broadband customers, failed to meet its IPTV subscriber target of 200,000 customers by the end of 2007. Telecom Italia added only 50,000 Alice Home TV customers last year, taking its total to just 80,000 at the end of the year.

During last week's investor presentations, the carrier noted it had missed its target "due to slight delay on IPTV platform stabilization."

The carrier had not responded to repeated requests for comment as this article was published, while Microsoft stated, in an emailed response to questions, that: "We are in active discussions with Telecom Italia, which remains a strategic partner of Microsoft.”

Of course, that comment contains information that's not disputed: Microsoft continues to work with the Italian operator -- it's just that its IPTV system hasn't made the cut in Telecom Italia's fixed-line network. (See Microsoft, T Italia Team Up and TI Develops IPTV With Microsoft.)

Now Telecom Italia has set itself a new target of 300,000 IPTV subscribers by the end of 2008, a target made even tougher by the introduction of Wind Telecomunicazioni SpA to the telco TV market in 2007. Wind has opted to deploy its services on Microsoft's platform. (See Wind Joins Euro IPTV Surge.)

For Microsoft, Telecom Italia's decision is clearly a blow. But it has other carrier partners that have deployed its technology in commercial networks, including AT&T Inc. (NYSE: T), BT Group plc (NYSE: BT; London: BTA), Deutsche Telekom AG (NYSE: DT), Swisscom AG (NYSE: SCM), and a number that plan to deploy the Mediaroom system. (See MTS Picks AlcaLu & Microsoft, BT Adds to Its IPTV Options, Swisscom Still Dogged by IPTV Issues, Microsoft Seals $500M IPTV Deal, Singtel Does IPTV, AT&T Launches HDTV, and Microsoft Wins IPTV Deal at DT.)

— Ray Le Maistre, International News Editor, Light Reading

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