Analyst: Suit Marks End of Alcatel/Microsoft

The recent lawsuits filed by Alcatel (NYSE: ALA; Paris: CGEP:PA) against Microsoft Corp. (Nasdaq: MSFT) may signal the unraveling of the IPTV alliance between the two giants, according to one analyst.

"With the situation as it stands today, the Alcatel/Microsoft partnership seems headed for a messy court battle and a very public collapse of the IPTV industry’s most visible partnership," analyst Colin Dixon of The Diffusion Group wrote in an opinion piece published Monday. He's referring to two suits filed by Alcatel Nov. 17 in U.S. District Court in Texas. Alcatel claims Microsoft is violating seven patents, some of which pertain to IP video.

Three of those patents involve capabilities such as fast-forward and rewind in IP video. Some senior members of the Oracle Corp. (Nasdaq: ORCL) video server group team eventually went to work for Microsoft's IPTV division in Mountain View, Calif. well after Oracle had sold off the patent rights to their work to Thirdspace in 2000. Thirdspace would eventually be acquired by Alcatel in 2003.

Dixon supposes those engineers simply inserted the Oracle-developed video functions into the Microsoft TV product, under the cover of an amiable relationship between Alcatel and Microsoft. (See Small IPTV Carriers Find Life After Alcatel.)

(A Diffusion Group spokesman noted that Dixon's analysis was based entirely on public information; he doesn't have an inside track on the root cause of the Alcatel lawsuits.)

With or without patent disputes, the Alctael/Microsoft relationship isn't all wine and roses any more, Dixon says.

He thinks the partnership was "more tactical than strategic," aimed at pleasing marquee customer AT&T Inc. (NYSE: T) more than anything else. But it was Scientific Atlanta , rather than Alcatel/Microsoft, that got picked to do much of the integration work for AT&T's U-verse IPTV rollout. (See It's a Small U-Verse for AT&T.)

Cisco Systems Inc. (Nasdaq: CSCO), Scientific Atlanta's parent, confirms this in an email to Light Reading: "Scientific Atlanta’s SciCare Broadband Services division is also working closely with Alcatel and Microsoft on the video systems integration for AT&T’s Project Lightspeed." (See Sci-Atlanta: Cisco's IPTV Lifeline?) Dixon says the Scientific Atlanta selection was a major blow to Alcatel, which was billed as the chief integrator on the project. Scientific Atlanta's involvement also downgraded Microsoft's importance to Alcatel, he writes: "In that context, the Microsoft IPTV solution was just becoming one of many technology products and pieces to integrate."

Alcatel has other reasons to be questioning the partnership, Dixon writes. He notes that Alcatel finds itself with two in-house IPTV middleware platforms that are more battle-hardened than Microsoft's product: its own iMagic product and, with the pending Lucent Technologies Inc. (NYSE: LU) merger, the MyViewTV package. (See Alcatel Lucent: Nearly There, Alcatel Denies iMagic Fadeout, and Alcatel's IPTV U-Turn.) Further, the Microsoft TV platform has shown scaleability problems, a claim borne out by multiple Light Reading sources. (See AT&T Still Has IPTV 'Jitters' and IPTV's High-Def Holdup.)

"With integration and deployment delays at AT&T (not the least being the recent HDTV-related setbacks), clearly Alcatel is getting far less from this partnership than Microsoft," Dixon writes. "Indeed, senior management at Alcatel must be wondering why they need Microsoft at all with two in-house software solutions that are proven and scalable." (See IPTV MiddleWARs: Far From Over.)

So, Dixon surmises, the patent lawsuit and the following messy court battle will provide a public forum for the slow death of the Alcatel/Microsoft alliance. He thinks Alcatel will end up all the better for it. "Alcatel seems very well positioned to emerge from the debacle with a robust solution, a strengthened technology portfolio, and a market advantage over its former partner/emerging competitor, Microsoft."

Bold statements indeed, and not ones on which Alcatel and Microsoft were quite ready to comment directly.

Alcatel is saying it believes the issue could come to a friendly conclusion. "This lawsuit was initiated to preserve Alcatel’s rights to fair compensation for its intellectual property rights used by Microsoft," the vendor says in a statement. "Alcatel hopes that the matter can be resolved by further discussions rather than by the courts."

Microsoft says it's not even sure the suits concern its IPTV software. "The issue with this sort of patent case is that people file complaints with a list of patents you've infringed. What they don't, of course, helpfully tell you is where you've infringed them," says Microsoft spokesperson Guy Esnouf.

Esnouf then deferred to Microsoft's boilerplate comment on the suit, which basically says "Our lawyers are trying to figure out what it means and how to respond to Alcatel." The Alcatel statement says the two companies are already in discussions.

— Mark Sullivan, Reporter, Light Reading

Mark Sullivan 12/5/2012 | 3:33:50 AM
re: Analyst: Suit Marks End of Alcatel/Microsoft Ironically, AT&T rolled out HD video to its U-verse customers in San Antonio today.

incredulous 12/5/2012 | 3:33:48 AM
re: Analyst: Suit Marks End of Alcatel/Microsoft Your article caught my eye, I did wonder why Alcatel would bring a suit against Microsoft, unfortunately given the quality of Mr. Dixon's "analysis" I'm no closer to an answer.

It seems the only thing that Mr. Dixon got right was the names of the three software engineers who worked for Oracle/Thirdspace.

Most glaring of his mistakes, Scientific Atlanta did not win the integration of the Lightspeed network. They won, as they should have won, the integration of the video head end. As it turns out what SciAtl doesn't know about video isn't worth knowing but what they don't know about networking fills volumes. The integration became a joint effort using Alcatel equipment. Alcatel won the total integration project outright.

Alcatel for its part, did not continue to sell OMP, it did not continue to develop OMP, it did however, continue to support OMP and tried to entice existing customers to switch to MS IPTV.

The Alcatel/Microsoft agreement allowed Alcatel to enter into one of the largest service and equipment contracts in its history. Even Lucent, who has historically screwed up its share of acquisitions couldn't be blind enough to screw this up. I'm still left wondering what is behind the law suit, perhaps just a bargaining strategy on the part of Alcatel?
jcrawshaw 12/5/2012 | 3:33:47 AM
re: Analyst: Suit Marks End of Alcatel/Microsoft My best guess would be that the patent law suit is a red herring - a minor issue unrelated to the bigger question about the longevity of the Microsoft-Alcatel alliance.

From what I've heard, Alcatel is doing a lot more than keeping OMP on the back burner. My understanding was that they were putting a lot more resources into OMP in case major operators grew tired of the difficulties with MSTV and wanted an alternative.

But it would be risky for Alcatel to pull the plug on its Microsoft partnership just yet. This would provide Cisco with a great opportunity to round out its IPTV ecosystem.
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