Deutsche Telekom has signed a deal to use Microsoft's IP TV software to deliver television programmes and videos on-demand later this summer.
The Deutsche deal is the biggest IP TV contract Microsoft has so far signed in Europe. The company is also developing a similar service with BT for the UK market.
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Microsoft said it now had 13 IP TV contracts with various service providers, with the biggest one being with AT&T, covering the US market.
Deutsche plans to use Microsoft’s technology to launch its "T-Home" television service offering over a newly upgraded IP network being built to handle such bandwidth-hungry content.
It is intended to make the service available to around 50 German cities by the end of next year, serving 1m customers.
To be able to get the programmes, viewers will be equipped with broadband lines to their home that can access the network at up to 50mbps.
Typical UK broadband speeds are currently 2mbps, although BT plans to quadruple its basic broadband service to 8mbps from the end of this month.
Telecoms companies are looking for alternative sources of income to make up for falling voice call charges.