Microsoft searches for its future

Feb 1st, 1999

Microsoft searches for its future

Wrapping digital TV, computers, and the Internet into an attractive package looks like a major goal for Microsoft, but it will not succeed unless it pushes for fiber infrastructure and more bandwidth.

By Stephen N. Brown

The television industry is a large, lucrative market whose successful transition from analog to digital TV (DTV) will entail approximately $200 billion of consumer expenditures, in addition to the expenses incurred by program producers, TV stations, and cable operators. Any company that positions itself to serve all the industry`s segments has a rosy future.

Microsoft understood this long ago and has tried in various ways to get an edge in DTV markets. In the spring of 1997, it formed a triumvirate with Compaq and Intel to persuade TV networks to adopt a digital display standard that matched the standard used by computer monitors, the so-called 720 progressive scan. In that event, personal computers (PCs) could double as TV sets and give the trio a larger market for its chipsets, microprocessors, and software.

But the coordinated effort failed because the rest of the computer makers had their own strategies and most broadcast networks could not be persuaded to abandon their commitment to the best DTV standard--the so-called 1080 interlace scan.

Most broadcasters adhere to their DTV standard because they feel it provides far better picture-resolution than the other standard, but both require substantial bandwidth. For example, a 1080 interlace color picture that is not compressed requires a transmission rate of nearly 2 Gbits/sec. An uncompressed 720 progressive color picture requires a transmission rate of nearly 900 Mbits/sec. Thus, Microsoft advocated a standard needing only half the bandwidth required by the broadcasters. Set makers such as Mitsubishi and Thomson also preferred the 1080 standard, believing it would provide a more attractive picture display to consumers.

The TV-set foray is just one of Microsoft`s explorations of video markets. In the past few years, the company has invested in MSNBC (a cable-TV network), Comcast, and an Internet software firm called Real Networks whose product links Web TV and audio to PCs. None of these activities represent investments to expand local-network bandwidth. But the company`s recent $200-million investment in Qwest--a small amount by Microsoft`s standards--may signal a new strategy where bandwidth is a higher priority in the business plan. Qwest is the long-distance company that by itself has laid more miles of fiber in the United States than had been cumulatively installed through 1994.

One way to interpret the Qwest card is to say it fits with Microsoft`s interest in Real Networks, which could be capable of developing software to manage video-server storage technology and giving Microsoft an edge in the video-on-demand markets. For example, in the Federal Communications Commission`s ongoing DTV "must carry" docket CS 98-120, the company told the commission, "DTV services will embrace far more than just audio, video, and closed captioning....It will raise new possibilities regarding when content can be carried....Program-related data might not always be carried in real-time, [which] could have profound implications." Qwest`s fiber network may one day interconnect video servers over a large area, giving anyone with an Internet connection access to high-quality video streams from all over the country or perhaps the world.

Given Microsoft`s long-standing interest in DTV, its earlier efforts to capture a share of the TV-set market, and the potential to use Qwest`s fiber networks, it is surprising the company aligned itself with cable operators opposing the expansion of DTV in the FCC`s "must-carry" rules. In its opening remarks, the company emphasized the imminent convergence of technologies: "DTV is poised to add the power of computing and the Internet to television programming." But it did an about-face and returned to its 1997 theme of PCs doubling as TV sets and thus requiring less bandwidth. The company told the FCC in late 1998, "There are a handful of technical questions that remain open and that make digital must-carry technically unfeasible at this point....The [FCC] should expressly permit cable operators to convert...DTV signals as they deem appropriate to conserve bandwidth. A 720-line progressive-scan HDTV [high-definition TV] picture has in fact been demonstrated to be superior in quality to a 1080-line interlaced picture."

Microsoft clearly put itself at odds with TV-set makers such as Thomson Consumer Electronics, which told the FCC, "Should any cable operator be permitted to convert a...1080 interlace format digital broadcast signal into a lesser digital format with lower picture resolution? The answer...must be a resounding `No.` Technological innovation and competition will be severely hindered if broadcasters and DTV manufacturers remain subject to the consent of thousands of different cable operators for the retransmission of true HDTV."

Apparently, Micro soft is content to live within the constraints of the cable and telephone systems because nowhere in its filing does it advocate more bandwidth or even acknowledge that more bandwidth is genuinely needed in communications networks. This approach puts a different light on the Qwest card. It may just be a case of Microsoft diversifying its portfolio with no strategic goal in mind rather than a deliberate step to incorporate bandwidth as a notion vital to the company`s overall business plan.

That would be a missed opportunity, because Microsoft could be a potent advocate for expanding bandwidth, growing its market by re-orienting software toward the management of bandwidth abundance and counter-balancing the local telephone companies` continuing refrain that bandwidth is limited and the country has to live with it. This scarcity theme pops up in magazines and speeches often. But it surfaced again at a government-sponsored tutorial, "The Internet and the Public Switched Telephone Network," hosted by the FCC`s Office of Engineering and Technology and presented by the chief scientist of Bellcore`s Internet Architecture Research Laboratory.

The tutorial compared the two networks` performance for call processing, security, and emergency services support. But interspersed were several slides with short phrases describing the Internet: "Internet congestion," "uncontrolled demand," "congestion happens," "detection of congestion," "options for reacting to congestion," and "access control scheme solves 90% of the problem."

These characterizations of the Internet are puzzling in view of Microsoft`s view that "DTV is poised to add the power of...the Internet to television programming." A congested mess cannot be good for the television industry. If Microsoft really wants to play a positive role in uniting DTV, computers, and the Internet, the company must be an advocate for more bandwidth. As for the tutorial, it left an impression with the audience that the local telephone industry is more interested in solving Internet congestion by controlling access to existing bandwidth rather than expanding it by building new infrastructure.

Unfortunately, this narrow view governs too much research and product development. mPhase Technologies` recent announcement about its DTV product for phone companies said it "will provide telephone companies nationwide with the capability to offer their customers digital cable-television service...without major modification of existing telephone infrastructure and...will level the playing field between telephone and cable companies as they compete to increase revenues from broadband services." Bell Atlantic recently trumpeted its pleasure over its patent on rate-adaptive digital subscriber-line technology that will work for "millions of homes...[through] existing telephone lines [providing] new forms of interactive, TV-like communications."

Can existing phone lines really provide TV-like communications and digital cable-TV service over an Internet congested by uncontrolled demand, where the corrective action is rationing access rather than building new infrastructure? A communications future where local telephone companies dominate video markets and stretch out the life of their existing plant may not be Microsoft-friendly. In an FCC hearing during January 1997, a phone company vice president described Microsoft as writing "bloatware." A marriage between a fiber-optic infrastructure and Microsoft would certainly give the company a better shot at living happily ever after the antitrust trial. q

More in Market Research