"Ericsson's long-time relationship with Chinese telecom carriers and TV broadcasters will help the company expand in the nation," said Zhang.

Ericsson entered China's broadcasting sector about four years ago and is operating in 17 provincial-level regions. The company has a research and development team in Shanghai, specializing in broadcasting projects.

Mediaroom employees in China are worried that the acquisition may impact their future.

"There was a little excitement at the beginning and then lots of concern," said an anonymous source at Microsoft who is familiar with the matter.

The source added that few of the Mediaroom employees will be fully focused on their work over the next few months until the deal is completed.

"It's too early to discuss staff arrangements because we have only reached an agreement, and the details are yet to be settled," said Gao from Ericsson.

Mediaroom has about 40 full-time employees and 40 to 50 outsourcing vendors in China.

Analysts said overseas IPTV providers will face intense competition from local players.

Zhang from Analysys International said China's IPTV market remains in its infancy as every player is busy beefing up its presence.

"It will be impossible to estimate the market scale of IPTV in China because Internet companies, provincial-level telecom carriers and companies such as Microsoft are rolling out similar Internet TV platforms and do not disclose sales figures," he said.

Earlier this year, Chinese online video portal LeTV.com started to sell the LeTV box, an Internet TV platform similar to Apple Inc's Apple TV. LeTV.com said it sold 50,000 sets on the first day.

Mark Hughes contributed to this story.