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Bill Gates’ timing was perfect. Just as BSkyB’s decision to give

away free digital set-top boxes elicited knee-jerk predictions of

satellite TV’s supremacy, Microsoft struck back with a deal that turned

the TV industry on its head.

One minute it looked like Rupert Murdoch had done it again - dealt a

killer blow which would cripple BSkyB’s competition (and Sky’s own

profits) - the next, Gates tightened his grip on global communications

and seemed to slap a sell-by date on the satellite TV industry.

From this side of the Atlantic, the enormity of Microsoft’s deal with

the telecoms giant, AT&T, might not be immediately obvious. It is

complicated.

First, AT&T - which already controlled US cable operator, TCI - paid

dollars 57 billion for the cable TV company, MediaOne, beating its rival

bidder, the cable giant, Comcast.

Then Microsoft, which happens to have a stake in Comcast, ploughed

dollars 5 billion into AT&T in a new alliance which will give Microsoft

a platform for introducing internet technology via cable networks.

Microsoft now has a finger in three out of the top four US cable

companies.

In a further twist, the terms of the alliance give Microsoft a 29.9 per

cent stake in the UK cable company, Telewest, previously held by

MediaOne.

As Microsoft already has a 5 per cent stake in the UK’s third-largest

cable operator, NTL, and Gates has held tentative talks with Cable &

Wireless, the implications for the UK TV market are enormous. Real

consolidation in cable is inevitable, with NTL, Telewest and CWC heading

for merger talks and Gates providing the glue.

Cable here has relentlessly failed to live up to its potential, with

satellite TV stealing its thunder, thanks to Murdoch’s superior business

nous and bullish marketing. This despite the fact that cable offers

cleaner, quicker access to interactive services and multi-channel TV, as

well as cheaper phone bills.

History shows that superior systems often fail in the face of better

marketing and more aggressive expansion strategies. In the UK, cable has

been beset by fragmentation, sluggish development strategies, poor

marketing and appalling customer service. And, to date, content has

driven uptake, not technology.

But for all the fireworks of last week’s Sky announcement, the content’s

the same and, ten years on, still only 3.4 million homes have signed up

to satellite. In the next round, the killer application will be

interactivity - and that’s one area where technology is key.

Microsoft has been developing software to run in TV set-top boxes,

enabling customers to access interactive services, including the

internet. Cable presents a real opportunity to turn convergence from a

buzzword into a reality. For the moment, though, Sky’s winning the hype

war and it’s surely time for cable to revisit its marketing effort.