NEW YORK (CNNfn) - In a snub to Microsoft, AT&T Corp. said Thursday it has chosen Liberate Technologies Inc.'s interactive software in its pilot tests for broadband television services.|
AT&T Broadband said it will use Liberate's (LBRT: Research, Estimates) TV platform software to deliver interactive TV via Motorola's (MOT: Research, Estimates) set-top boxes in tests to start later this year.
The move is a blow to Liberate rival Microsoft (MSFT: Research, Estimates), which bought $5 billion of AT&T stock in May 1999, in a move to secure greater access to the long-distance carrier's newly acquired cable networks.
That alliance expanded an earlier AT&T-Microsoft partnership in which the telecommunications leader agreed to use Microsoft's Windows CE-based systems in 5 million set-top boxes.
However, AT&T reportedly decided to go with Liberate because of delays in Microsoft's interactive TV software. United Pan-Europe Communications NV, (UPC), Europe's second-largest cable company, also has decided to use Liberate's interactive technology rather than Microsoft's due to the delays.
UPC recently secured $1.2 billion in funding from investors including Motorola and AT&T unit Liberty Media (LMGA: Research, Estimates).
Credit Suisse First Boston analyst Todd Raker said in a research note Thursday that while the AT&T/Microsoft contract was not exclusive, "we believe Microsoft's well-publicized product delays created a key opening for Liberate."
"Liberate has been the chief beneficiary of Microsoft's product delays - Microsoft's second largest interactive television customer and investee, UPC, announced plans to deploy Liberate to subscribers in Austria just a week ago," Raker noted.
Liberate's software will deliver AT&T Broadband's interactive services via television, including enhanced television, e-mail and chat. Financial terms of the deal were not disclosed. The companies said if the trials are successful, a commercial launch will follow.
Liberate's customers include America Online (AOL: Research, Estimates), Cox Communications (COX: Research, Estimates), CableVision (CVC: Research, Estimates), MediaOne (XVF: Research, Estimates) and Qwest Communications (Q: Research, Estimates).
"This [deal] further solidifies Liberate's leading lineup of U.S. design wins, particularly among cable companies ... We expect deployments to accelerate in the coming months as AOLTV, with middleware exclusively from Liberate, rolls out nationally in the fourth quarter," CSFB's Raker said.
In afternoon trading Thursday, shares of AT&T slipped 6 cents lower to $29.94. The company will hold a two-day board meeting beginning Thursday, seeking to improve shareholder value.
Shares of Liberate gained 94 cents, or 3.3 percent, to $29.62. The company is slated to report fiscal first quarter 2001 results after Thursday's market close.
CSFB's Raker, who has a "buy" rating on Liberate, said he is expecting the company to post $8.3 million in revenue and an operating loss of 22 cents a share.