Ericsson AB (ERICB) is in talks to buy Microsoft Corp. (MSFT)’s IPTV business, which makes software used by phone companies such as AT&T Inc. (T) to deliver television over the Internet, people with knowledge of the matter said.
The transaction could be announced in a few weeks, said one of the people, who asked not to be identified because the discussions are private.
Ericsson, the largest maker of wireless networks, is seeking to cater to phone companies that are competing with cable, satellite and Web-based providers. The move will also help Ericsson step up its emphasis on software and services amid accelerating competition in hardware. Microsoft, the biggest software maker, intends to focus on delivering TV through its Xbox game console, a person familiar with its plans said.
“As a bolt-on acquisition, this would make sense for Ericsson as it provides for a more complete offering,” said Alexander Peterc, an analyst at Exane BNP Paribas. “Still, the technology started to get hyped about 10 years ago and may have reached its peak already so I don’t see this as a growth market.”
IPTV allows telecom carriers to have a voice, broadband and TV offering allowing them to compete with cable companies and over-the-top services like Netflix, which are increasingly popular for broadband users, Peterc said.
Kathy Egan Wummer, a spokeswoman for Stockholm-based Ericsson, didn’t respond to requests for comment. Melissa Havel, a spokeswoman for Redmond, Washington-based Microsoft at Waggener Edstrom, declined to comment.
Microsoft became a leader in the market for Internet-TV software in the past decade as phone companies ramped up efforts to woo TV subscribers to grab share from cable companies, such as Comcast Corp. (CMCSA)
The sale of IPTV, which Microsoft calls MediaRoom, marks a strategic shift, said Colin Dixon, chief analyst of nScreenMedia, a digital media consultant.
“MediaRoom has gone from being a centerpiece of Microsoft’s TV strategy to a kind of sideshow,” Dixon said.
AT&T, the largest U.S. telephone company, uses Microsoft’s IPTV in U-Verse, which combines television with other communications services, such as Internet access. AT&T had 4.5 million U-Verse video subscribers at the end of 2012.
Microsoft has focused in recent years on delivering TV- related entertainment services via its Xbox console, striking distribution deals for Xbox Live with such partners as Viacom Inc. (VIAB) and Walt Disney Co.’s ESPN.
Ericsson shares rose 0.9 percent to 81.95 kronor in Stockholm at 9:17, and it has climbed 26 percent this year. Microsoft closed at $28.16 in New York yesterday; it’s advanced 5.4 percent since the beginning of the year.
Separately, Ericsson said today it finished its planned reduction of its business in Sweden. It cut 1,399 positions, according to the statement, and the 1.5 billion kronor ($231 million) in restructuring costs will affect the company’s first quarter results.