Anecdotal evidence suggests that a large number of consoles owned in South-east Asia, Hong Kong and China are mod chipped to bypass security systems so as to allow the use of pirated discs.
Such modified consoles carry hardware signatures that will cause them to be rejected from the Live gaming network, according to Alan Bowman, Asia Pacific general manager for Microsoft's home and entertainment division.
Xbox owners will have to decide between online gaming and paying more for software, or staying off the network and paying much less.
"No proof"
Bowman declined to guess how many Xbox consoles in Asia are of the modified variety, saying that no definitive study had been done.
However, he said that "we acknowledge that some people in Southeast Asia -- just like people in other regions where we have released Xbox Live -- have chipped consoles and will, therefore, not be able to enjoy Xbox Live or authorised aftersales service and support."
Following the launch of Xbox Live in Korea a week ago, the next markets were Hong Kong, Singapore and Taiwan, he said. However, he would not be drawn in specifying the launch schedule.
"We do not anticipate that modified chips will complicate the rollout of Xbox Live to the region. On the contrary, we think the exciting Xbox Live experience will help reduce the interest in counterfeit video games," said Bowman.
Modding is in
A walk though the large Sim Lim Square electronics shopping mall in Singapore showed that most shops will offer to solder a security-breaking chip into a console for under $70 (£41.76), or will sell pre-modified sets.
Pirated discs are not as plentiful as they used to be, but can still be found in outlying areas. They cost a tenth of the original.
Chin Jun Fwu, programme manager of Asia-Pacific online gaming for analysts IDC also declined to speculate on the popularity of modified consoles, but admitted that software piracy is rampant.
"It will be challenging for Microsoft. Southeast Asia is still immature when it comes to legal software," he said.
Microsoft's Xbox Live will have a good chance of success if an online game with adult appeal becomes available, said Chin. Adults can better afford original software and subscription fees, compared with the usual teen gaming crowd, he said.
Microsoft also needs to decide on a sustainable business model, based on either subscription revenue or the upfront price of the game, and organise its resources accordingly.
Chin noted that a cautious Sony has yet to launch its PlayStation 2 online service in much of Asia, despite the firm dominating the console market.
Schelley Olhava, programme manager for interactive consumer services and consumer devices at IDC, said that if it were true that a huge number of Xbox consoles in Asia Pacific were modified, Microsoft might reconsider the ban on such machines connecting to the Live service.
An online gaming Asia
Bowman declared the Korean launch of Xbox Live a success, thanks to factors such as the high rate of broadband penetration in the country. He declined to specify how many Live add-on kits sold, but said that within days of the launch, 90 percent of those with Live kits had logged in.
According to a recent IDC report authored by Chin Jun Fwu, the Korean online gaming market is one of the most mature in the world.
Overall, the online gaming market in Asia Pacific commanded $533m in subscriptions last year, with Korea and Taiwan forming two of the world's largest online gaming markets.
"The subscription revenue indicated that online gamers willingly forked out money to play on the Internet with other gamers," said Chin.
Microsoft has zealously fought efforts to crack security systems built into the Xbox. The company has changed the Xbox configuration, sued a leading mod chip distributor, and used its Xbox live online gaming service to thwart mod chips. The US Department of Justice shut down a mod chip reseller for allegedly violating provisions of the Digital Millennium Copyright Act.
News.com's David Becker contributed to this report.
Talkback
People will always chip there xbox or ps2 because its much cheaper, lets face it games these days are a rip off, 5-10 years ago you could fool people but now we know how cheap it is to produce a game. as long as a person is paying to go on line and paying for the relavent hardware they should be allowed to get involved