News

Cisco's Challenge to Microsoft-Skype Deal Rejected by EU

• By Kurt Mackie
• December 15, 2013

A European Union court recently dismissed Cisco's antitrust challenge to Microsoft's acquisition of Luxembourg-based Skype.

The General Court of the European Union determined last week that Microsoft's purchase of Skype does not restrict competition in the consumer video or business video communication markets. The court essentially confirmed the European Commission's October 2011 approval of the deal.

Microsoft bought Luxembourg-based Skype, which provides voice-over-IP (VoIP), video and instant messaging services using peer-to-peer computer networks, for about $8.5 billion. While Skype is a consumer service, it works alongside Microsoft's Lync unified communications solution designed for business use. Lync competes with some of Cisco's networking solutions. Cisco had complained to the European Commission in February 2012 that Microsoft could establish vendor lock-in by integrating Skype and Lync. Moreover, Cisco indicated that the Commission should have imposed conditions on Microsoft before approving the deal to ensure standards-based interoperability on Microsoft's Skype network.

In past legal actions, the European Commission had pursued Microsoft for using its Windows monopoly to push Internet Explorer and Windows Media Player, as well as not enabling interoperability on Windows Server. Cisco might have been echoing those themes with its complaints, but European Union regulatory authorities and the Court didn't see it that way.

"The Court takes the view that, even if the acquisition of Skype enables Microsoft to hold an 80 to 90% share of a segment of consumer communications…, the high market shares…are not indicative of a degree of market power which would enable Microsoft to significantly harm effective competition in the internal market," the Court argued, in a released statement (PDF).

Microsoft claimed back in September that Skype use represented about a third of all international phone traffic. Cisco was joined in its complaint by Milan-based Messagenet S.P.A., a competing provider of VoIP and Internet faxing services.

The Court also rejected Microsoft's ability to use the free and paid Skype consumer services to boost Lync, saying that the ability to restrict competition in that way depended on a "series of factors."

"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," the Court's released statement explained.

Cisco could still appeal the Court's decision to the European Court of Justice. A Cisco spokesperson indicated that an appeal isn't ruled out. Moreover, Cisco wants Microsoft to work on an open interoperable standard for video communications.

"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," a Cisco spokeswoman told Reuters. "We have no comment about an appeal."