At&T Buys Philips Boxes

Seeking to spur competition among cable set-top box (STB) manufacturers and to gear up for retail sale of boxes, AT&T Broadband signed big order with Philips Electronics for advanced digital cable boxes last week. Nonexclusive deal calls for Philips to supply AT&T with at least one million digital boxes over 3 years, starting next year and for 2 companies to form "a new business alliance" to boost "the competitive retail marketplace" for advanced STBs, key goal for AT&T. "I'm very passionate about retail," said Tony Werner, AT&T Broadband chief technology officer, in Aug. 14 call with reporters and analysts. "It drives me nuts that cable doesn't have a presence there."

New advanced STBs from Philips will offer such possible features as personal video recording, high-speed Internet access over TV, electronic commerce, video-on-demand, other interactive services, easy interoperability with DVD players. "They've [STBs] got such a powerful processing platform," said Chuck Kaplan, Philips vp-gen. mgr., N. American cable. "The net effect is that the set-top box is transformed into a home entertainment center." Companies declined to disclose prices but boxes could cost upward of $500-$600 apiece, placing total order in $500-$600 million range.

With Philips order, AT&T will make major switch from its total reliance on Motorola for STBs, just as it did with cable modems 2 weeks ago when it signed big deal with Thomson Multimedia (TVD Aug. 14 p7). MediaOne Group, large MSO recently taken over by AT&T, had ordered earlier generation of digital set-tops from Philips and had started deploying them, but AT&T never had. Philips, like Sony, Thomson and other major CE manufacturers, is using cable's move into digital interoperable devices to break industry duopoly of Motorola and Scientific-Atlanta. "I think there'll be more [manufacturers] over time," AT&T's Werner said.

However, Motorola quickly moved to maintain its dominance in cable set-top and modem markets by signing extended, broadened deals with AT&T Broadband for both types of equipment. In contract also announced Aug. 14, Motorola will continue to supply more than 50% of digital cable set-tops to AT&T through end of 2003, or roughly 1-2 million each year, for $300-$600 per box. "The commitment is that we will be the majority supplier," said Geoff Roman, corporate vp, Motorola Broadband Communications Sector. Pact also calls for Motorola to supply AT&T with 700,000 interoperable cable modems over next 18 months, identical to MSO's Thomson deal.

In its announcements with Philips and Motorola, AT&T also revealed that it would delay its widely heralded plan to start interactive TV service in up to 3 markets this year. Instead, Werner said, nation's leading MSO will conduct interactive pilot in single, undisclosed market in fall and begin commercial deployments in 2001. He disputed notion that Microsoft, AT&T's main supplier of interactive software, was backing away from TV market despite company's software delays. "I think our relationship is unwavering with Microsoft," he said. "I believe they are still fairly committed to their set-top strategy."

On cable telephony front, AT&T and Motorola disclosed plan to develop voice-over-IP service. It calls for AT&T Broadband to begin testing Motorola's Switched IP access technology in up to 3 or 4 major markets in fall, then roll out service commercially in 2 markets next year. AT&T is conducting lab tests of IP telephony technology with Motorola, which also is testing service quietly with other major MSOs. "We're bullish on voice-over-IP in the long run," Werner said.

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