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Microsoft IPTV in Germany

Microsoft today announced its largest European Internet TV contract.

Deutsche Telekom said it will use Microsoft TV IPTV Edition software to bring television to 50 German towns by the end of 2007.

While the two companies didn't release terms of the contract, the agreement is the software giant's second largest IPTV pact next to a $400 million deal with AT&T signed in 2004, Microsoft said in a statement.

Deutsche Telekon said it will use Microsoft TV software to power the telecom's "T-Home" 50 Mbps VDSL service, bringing video to subscribers in 50 German cities.

After launching this summer in 10 cities, including Berlin, Hamburg, Cologne and Munich, the broadband video offering will expand to 40 more locations by the end of 2007, according to the two companies.

The IPTV service will deliver more interactive television features, digital video recording and on-demand video, according to the German telecom company.

IPTV is expected to reach 16.7 million Europeans by 2010, according to Gartner Research.

Microsoft CEO Steve Ballmer in a statement called today's announcement "a very significant milestone" and an agreement that will "create a revolution in TV entertainment for consumers across Germany."

Gartner IPTV analyst Patti Reali told internetnews.com that what might be most significantly is that Deutsche Telekom chose Microsoft over competitor Siemens.

Reali called the announcement a win for Microsoft and their IPTV intentions. "It's really jelling and coming together for them."

Reali described the German market as "weird." In a landscape with a mixture of over-the-air broadcasts and satellite subscribers, Europeans are not as infatuated with on-demand, pay per-view or cable television. However, France and Spain are offering robust IPTV services, Reali said.

British Telecom said Monday its BT Vision IPTV service, which uses Microsoft TV software, will be available this summer.

"It's imperative that a lot of these operators get into this," Reali said. Dwindling revenue from the voice side has become a problem for telecoms.

In the U.S., telecom providers are testing IPTV. AT&T plans to test in Atlanta later this year. And Verizon has its fiber-to-the-home service, Fios TV.

"IPTV is not a major force in the U.S.," said Todd Chanko, an analyst with JupiterResearch. With 89 percent of American households either cable or satellite subscribers, Chanko called IPTV's chances for success at pretty slim. (JupiterResearch and internetnews.com are owned by Jupitermedia.)

With U.S. companies only in the trial phases, IPTV is considered still a startup. Adoption will be driven by low prices, according to Chanko.

However, although trials will start out in the thousands of participants, as the IPTV roll-outs reach full-scale, Microsoft could encounter problems.

While today's announcement puts Microsoft at the top of the IPTV heap, "it's now about execution," said Reali.

Microsoft requires 600 servers to deliver IPTV to a million people, the analyst said. The AT&T program is expected to cover 18 million people. The Deutsche Telekom contract will cover even more.

"This is absolutely false," Microsoft TV spokesperson Jim Brady said. While he said he couldn't comment on the number of servers it would take to cover a city, he said "it will be competitive."

Judging how IPTV implementations will work is difficult because most haven't reached beyond the trial stage.

Hong Kong is one exception, though. In November, Pacific Century CyberWorks, the broadband arm of Hong Kong Telecom, announced its Now TV surpassed 500,000 IPTV subscribers.

While IPTV is gaining ground in Europe and the U.S., the outcome isn't guaranteed. "There's still a lot of uncertainty," said Reali.