News

Microsoft's Skype Acquisition Gets European Approval

• By Kurt Mackie
• October 07, 2011

Microsoft is one step closer to finalizing its $8.5 billion acquisition of Skype with this week's approval from the European Commission.

In terms of dollars, Skype represents the biggest acquisition in Microsoft's history. During the deal's announcement in May, Microsoft CEO Steve Ballmer said that Skype's technologies could be extended into Microsoft Outlook, Messenger, Hotmail, Lync, Xbox and Kinect.

U.S. regulatory approvals were completed a month after Microsoft announced the Skype deal. With the European Union approvals completed, Microsoft can now begin implementing its business plans.

"We look forward to completing soon the final steps needed to close the acquisition, bringing together the employees of Microsoft and Skype, and creating new opportunities for people to communicate and collaborate around the world," said Brad Smith, general counsel and executive vice president at Microsoft.

Microsoft's relations with the European Commission have been bumpy in recent years, especially when Microsoft racked up fines in anti-competition cases. Microsoft was found to have used its Windows monopoly to distribute Internet Explorer unfairly in EU countries in a case that echoed past U.S. antitrust litigation against the company. However, this time with Skype, there appeared to be no objections from the European Commission. The Commission surprisingly dismissed the possibility that bundling Skype with Windows could prove anti-competitive.

"As regards the risk of tying or bundling, the Commission noted that the vast majority of consumers who acquire a PC with Skype already installed are registered Skype users and that most of them subsequently download a version different from the pre-installed one. Therefore, the proposed transaction will not change the current situation," the European Commission explained in a press release.

Skype is considered to be a consumer product that overlaps somewhat with Microsoft's Windows Live Messenger product and Google Voice, according to the European Commission. However, the Commission indicated it had no competition concerns since the market has "numerous players." Similarly, it did not expect that Microsoft would degrade interoperability with competing services. Ballmer promised back in May that Skype would continue to support other platforms, such as Apple's iOS and Google's Android.

The Commission also dismissed the possibility that Microsoft would use Skype unfairly in the enterprise market.

"As regards enterprise communications services, the Commission found that Skype is currently not an enterprise product, therefore its interoperability is not decisive for competitors and a bundle or a tie between Skype and Microsoft's products will not be a must have product for enterprises," the Commission explained in the press release. "Furthermore Lync faces competition from other strong players in enterprise communications, such as Cisco."

Microsoft will gain access to 170 million Skype subscribers, although it's likely that most are consumers who use the free version of the product. Skype also offers paid services that allows low-cost calling to phones and mobile devices, on top of its free peer-to-peer computer VoIP connections. The paid services also enable SMS text messaging, the ability to connect via Wi-Fi hotspots and group video calling, among other features.

Forrester analyst Ted Schadler commented back in May that Microsoft will be able to leverage a popular consumer brand while preventing Cisco and Google from acquiring Skype. Microsoft will have the capital to develop services such as "local phone numbers, three-way video conferencing, business administration, and making calls to real phone numbers" that Skype lacked the means to pull off. He also suggested that a future Lync-to-Skype integration might enable a better way to connect with people outside an organization, such as video calls to customers and partners.

According to the acquisition's terms, Skype will operate in a new division at Microsoft, led by Skype CEO Tony Bates.

Related:

• Microsoft-Skype: What the Acquisition Means for Microsoft's UC Future