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European Judges Reject Cisco Argument on Skype Acquisition by Microsoft

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December 13, 2013

European Judges Reject Cisco Argument on Skype Acquisition by Microsoft

By Ed Silverstein
TMCnet Contributor

A potential road block was removed so Microsoft (News - Alert) can go ahead with its acquisition of Skype despite Cisco’s concerns.

Cisco Systems had tried to block the deal and the approval for the acquisition that had been given by European Union (EU) regulators in 2011. Eventually, the dispute wound up before Europe’s second highest court. On Wednesday, the EU's General Court in Luxembourg upheld the EU regulators’ decision to approve the $8.5 billion deal.

Cisco (News - Alert) wanted the deal stopped because it would lead to a monopoly. In response, the EU court said Cisco did not prove that the deal would have hurt competition.

“The merger doesn't restrict competition either on the consumer video communications market or on the business video communications market,” the judges said in their ruling.

"Microsoft's acquisition of Skype (News - Alert) is compatible with the (European Union's) internal market," the judges added.

In addition, the court said Skype users could always use other video and telephone services if Microsoft increased prices, according to a report from the Deutsche Welle (News - Alert) news agency.

The judges also found that in the market for consumer video communications on Windows-based PCs, Microsoft’s and Skype's combined market share of 80 to 90 percent “was not indicative of market power given the particular characteristics of the market in question, which is marked by short innovation cycles and products which are free. Therefore, if Microsoft started to make PC users pay for such a product, this would only encourage them to switch to other providers that continue offering their services free of charge. Furthermore, in that quickly evolving and fast growing market where strong competitors are present, account should also be taken of the increasing use of mobile phones and tablets, where Microsoft was a relatively small player,” according to a European Commission (EC) statement.

Microsoft Lync competes with Cisco's TelePresence – so it was logical that Cisco would look for ways to block the deal. Messagenet also sided with Cisco in the case.

Cisco had argued that Microsoft would have incorporated Skype into a bundle with Microsoft's own products, or tie Skype to Microsoft's products, or lessen interoperability, according to EC statements. Cisco had sought regulators to impose concessions from Microsoft – as part of the deal.

In reviewing the case, Reuters (News - Alert) said Cisco’s hardware for video conferencing is more expensive than Skype’s, whose users only need a basic computer and webcam.

Cisco could still appeal the recent ruling to the European Court of Justice. At first, Cisco said it would not appeal, but Reuters News Agency reported that Cisco “later withdrew that comment.”

The news about the ruling was welcome by the European Commission.

“Today's judgment by the EU General Court (GC) confirms that the Commission was correct in its assessment that the acquisition of Skype by Microsoft would not significantly impede effective competition in the European Economic Area (EEA),” according to an EC statement released this week. “The Commission will continue to ensure that competition in nascent and fast evolving markets is maintained.”

In a statement after the ruling, Cisco said it wants to see more interoperability among competing services – using open-standards.

"We are hopeful that in the interest of customers and consumers, Microsoft and others in the industry will join us and continue to rally around this ideal and work together to achieve an open, interoperable video community," the company was quoted by Reuters. "We have no comment about an appeal." And in a statement to the Verge, Cisco said the company was “disappointed that the Court did not require the Commission to revisit interoperability requirements for the Microsoft/Skype merger, however we remain committed to interoperability and will continue to work to make video calling as easy as making a phone call or sending an email.” 

And what do some consumers think about the ruling?

In a public comments section on the Verge website, one reader called “talont” said, “Cisco has everything to worry about considering how much simpler and better Lync is.” On the other hand, another reader called “ratedtforthor” said, “Cisco has nothing to worry about considering how terrible Skype is.”

One recent estimate said that about one-third of all voice calls use Skype. It has more than 280 million users who spend more than 100 minutes a month on the service, according to March statements by Microsoft.

Interestingly, Cisco could find itself having declining market share because of Skype. The Verge also speculated Microsoft could see its Xbox One be turned into a video-conferencing system, with a 1080p Kinect camera. That has possible use in boardrooms and for other business meetings. And that could concern Cisco, as well.

Edited by Alisen Downey

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