At long last, I can find something positive to say about a cable equipment company. While Harmonic (NASDAQ:HLIT) has had its problems recently, I have always been optimistic because of the promise of the underlying business.

Today, Harmonic added a little good news to the mix. On top of announcing two equipment deals (one in Canada, one in Japan), the company said it's expanding its working relationship with Microsoft (NASDAQ:MSFT).

The two companies will work together to integrate the Microsoft TV IPTV Edition software with Harmonic's DiviCom encoding technology. Cutting through the technospeak that accompanied the announcement, the combination will allow customers to deliver more feature-rich digital TV content while gobbling up less bandwidth.

Although this sort of arrangement will likely be most attractive at first to telephone companies, everybody who tries to send information over wires is looking for ways to send more information without laying more wires. Nevertheless, this technology allows for TV to be transmitted over DSL lines and IP networks and could represent an avenue for telcos to compete with cable companies in the TV space. And after all, because cable TV players are getting into the digital phone service game, isn't it only fair that telcos try to respond in kind?

Nobody should expect this agreement to bring immediate change to either company. For Microsoft, it's another small step toward its corporate goal of providing software outside the obvious computer worlds. For Harmonic, it's another incremental enhancement that should ultimately expand its market and product offerings.

I'll leave it for other Fools to debate the merits of buying Microsoft today, but I am still deeply curious about the prospects for cable equipment players like Harmonic and C-COR (NASDAQ:CCBL). With cable, phone, and broadband companies trying to squeeze ever more data down the same pipes, I just have to believe that the market as a whole has real potential.

Harmonic has some definite challenges to face -- a big quarterly disappointment is fresh in investors' memories -- and it plays in a tough market. But if it can get things together, I think patient shareholders might like what they see.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).