NEW YORK (CNNfn) - AT&T Corp. confirmed reports Friday that it is scaling back its plans to develop a sophisticated interactive-television service with Microsoft Corp. in favor of simpler TV set-top boxes.
"We're taking a broader approach so it is not 'one size fits all,'" AT&T spokeswoman Tracy Baumgartner told CNNfn Friday.
"We're really trying to develop an enhanced video service to meet a wider range of customer needs," Baumgartner added.
The move comes two years after AT&T (T: up $0.31 to $21.90, Research, Estimates), the nation's largest long-distance phone company and cable operator, said it was collaborating with Microsoft (MSFT: down $0.79 to $72.89, Research, Estimates) on the venture.
Citing executives from AT&T's broadband division, both the Wall Street Journal and the New York Times reported the shift in strategy Friday. The shift has been characterized as a blow to Microsoft, which invested $5 billion in as part of the deal to deploy its software in set-top boxes on up to 10 million TVs.
The set-top devices were expected to deliver services such as digital TV, telephone service and high-speed Internet access to AT&T's cable TV customers.
But after testing Microsoft's software, as well as software from rival software maker Liberate Technologies (LBRT: up $0.86 to $8.84, Research, Estimates), AT&T decided that consumers were not ready for many of the advanced features it had initially envisioned offering, Baumgartner said.
The company has now asked both Microsoft and Liberate to develop the software for a simpler set-top box, she said.
"We continue to work with Microsoft," Baumgartner said. "They are a strong partner."
Microsoft on Thursday made its foray into the fledgling interactive television market when Portugal's TV Cabo became the world's first cable company to deploy advanced set-top boxes running Microsoft's new TV software.