UPDATED: In its latest move in an ongoing battle with cable companies, SBC Communications today announced a 10-year, $400 million deal to use Microsoft's IP television platform.

It's a crucial piece of the regional telecom's multi-billion dollar plan to use fiber-optic cable to deliver a "triple-play" bundle of television, phone and high-speed Internet services to consumers.

SBC currently offers satellite TV programming through a partnership with EchoStar, but the Microsoft pact gives SBC much greater control over the service.

"Customers will watch what they want, when they want -- from a virtually unlimited and interactive content selection," Edward E. Whitacre Jr., SBC's CEO, said in a statement.

The IP TV service will include customizable channel lineups, video-on-demand, digital video recording, interactive program guides, event notifications and content protection features.

SBC and Microsoft have been testing the service since June. Field trials are slated for mid-2005 and a formal launch in late 2005. Meanwhile, SBC will begin its fiber rollout with a target of reaching 18 million households by the end of 2007.

SBC is talking with content providers about programming for its IP TV service, Denise Koenig, an SBC spokeswoman, told internetnews.com. The company recently hired Dan York, a former HBO executive, to lead the company's video content strategy, she said.

If today's pact helps SBC color in its video strategy, it's also a boost for Microsoft's ambition to run home networks that connect PCs, televisions, phones, PDAs and other devices.

The relationship could provide consumers with "a virtually unlimited opportunity for innovative, cross-device services and entertainment experiences enabled by the marriage of powerful broadband networks with the magic of software," Steve Ballmer, Microsoft's CEO, said in a statement.

For example, caller ID and instant messaging could appear on a user's television screen, as could photos shared from a networked computer. Microsoft's platform, which compresses video content so it can be sent through fiber, has gained little traction in the United States so far.

SBC will also use a switched video distribution system, which streams only the content the customer requests instead of broadcasting all channels to everybody at once. The San Antonio-based carrier said the technology frees large amounts of bandwidth for other applications.

Industry-watchers at SG Cowen & Co. believe SBC has done a good job articulating its fiber strategy, but still have technical and business questions.

For example, will the company's fiber-to-the-node (FTTN) architecture, which takes fiber to within 3,000 feet of homes, have enough bandwidth to deliver advanced services? SBC is using FTTN in existing neighborhoods and fiber-to-the-premise in new developments.

In a research note to investors this morning, SG Cowen analysts also ask whether the price discount needed to reach SBC's goal of taking 20 percent share of the video market where it lays fiber will justify the investment.

SBC's Koenig declined to release pricing information, but said the FTTN set-up would provide enough bandwidth to offer TV, as well as more advanced IP services.

Comcast (Quote, Chart) CEO Brian Roberts recently addressed the television threat from SBC and Verizon, which is also moving ahead with aggressive video-over-fiber plans.

The cable mogul acknowledged that fiber would represent a "meaningful competitor." But from a business standpoint, he also questioned whether it will provide a strong ROI for the Bells because of high up-front costs.

A Comcast spokeswoman was not immediately available to comment on the SBC-Microsoft announcement.