EU quashes Cisco complaint on Skype sale

The General Court of the European Union rules Microsoft’s $8.5bn acquisition of Skype adheres to competition rules

Microsoft’s 2011 acquisition of Skype sticks to competition laws, the General Court of the European Union ruled today following on-going complaints from rival firm Cisco.

Redmond-based Microsoft made an $8.5bn offer to buy Skype in May 2011 and the deal closed in October the same year. The agreement saw its own MSN messenger system closed down and its services incorporated into the Skype platform for consumers, while bringing together its enterprise Lync service with the well-known Voice over IP (VoIP) solution.

Networking colossus Cisco – which has a number of its own hardware and software solutions for business level VoIP – complained to the EU, claiming the deal would have anti-competitive effects on the market and give Microsoft an 80% to 90% share of consumer communications and an advantage with corporate customers.

However, in October 2011, the European Commission disregarded the complaint and gave the go ahead to Microsoft and Skype.

Cisco was unwilling to let its issues rest, though, and in February 2012 brought an action to the General Court, seeking to annul the decision and claiming the Commission had approved the acquisition without carrying out an in-depth investigation.

Today the court made its final ruling on the matter and sided with Microsoft and Skype.

“The consumer communications sector is a recent and fast-growing sector characterised by short innovation cycles in which large market shares may turn out to be ephemeral,” it read. “Moreover, Microsoft, which has traditionally held a very large share of the PC software market, is less present on new operating devices, such as tablets and smartphones, which are becoming increasingly important on the consumer communications market.”

“Any attempt to increase prices of communications for users of PCs might encourage them to switch to alternative devices. Furthermore, since services on that market are usually provided free, a commercial policy of making users pay would run the risk of encouraging users to switch to other providers continuing to offer their services free of charge.”

The Court concluded Cisco and fellow complainant Messagenet had failed to demonstrate why such concentration of market share would damage the consumer industry, the merger under examination would be “compatible with the EU competition rules.

It also threw out the complaints about the corporate side of Cisco’s argument, rejecting the argument Microsoft would give preferential interoperability into its Lync system to Skype.

“The attainment of interoperability between Lync and Skype and the successful marketing of the new product resulting from this – which might, in theory, enable Microsoft to restrict competition – still depend on a series of factors in relation to which it is not certain that they might all occur in a sufficiently near future,” continued to ruling.

“Lync faces competition from other large players on the enterprise communications market, such as Cisco, which alone holds a larger share of the market than Microsoft. That circumstance considerably reduces Microsoft’s ability to impede competition on that market.”

We contacted Cisco for comment on the ruling but it had not returned our request at the time of publication.

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