Microsoft Acquires Skype: One Small Step Forward at the EU

Recently Skype CEO Tony Bates confirmed that the major step required to complete the Microsoft acquisition of Skype is approval by the appropriate European Union competition authorities. Keep in mind:

  • Skype, LLC is a Luxembourg-based company (Is Luxembourg the Delaware of the EU?)
  • Microsoft will be doing the acquisition using cash from outside the U.S., taking advantage of a tax situation.

Today we learned that, in Reuters’ September 5 report on EU mergers and takeovers:

NEW LISTINGS: — U.S. software company Microsoft (MSFT.O) to acquire video chat service Skype (notified Sept. 2/deadline Oct. 7)

Don’t know what stage this takes the approval process to but it sounds like the European Commission should be saying something about the approval by October 7; one of:

  • passing on any further investigation allowing the acquisition to proceed
  • approval, possibly with conditions
  • announcing that there would be further investigation, or
  • denying approval

Whereas the FCC basically ruled that this was a “transaction granted early termination”, effectively saying they had no objection nor desire to investigate further, the European Commission has been much tougher on Microsoft with respect to previous rulings regarding its Windows operating system, including a massive €833 million fine in 2008.

On the other hand it appears that EU anti-trust Commissioner Neelie Kroes, who was heavily involved in imposing that fine, is more sympathetic to Skype, especially when it comes to competing with wireless carriers and their excessive roaming charges. According to David Zielenziger on the Business & Law blog:

Last year, Kroes discussed her affinity for Skype, which she said lets anyone with a connection communicate. “Vote with your feet and leave your mobile provider,” she told a conference. “The message will be all the more powerful when it comes from the bottom up and not the top down.”

David goes on to attempt to position the role of the Google acquisition of Motorola Mobile in all this. Really it’s a bit of a crap shoot where the real villain appears to be the wireless carriers in Europe.

Jean-Jacques Sahel, Skype’s Government Relations Manager for Europe, Middle East and Africa, had more to report on the EU’s attitude towards Net Neutrality and a potential role for Skype last fall:

Last week in Brussels, European Commissioner Neelie Kroes highlighted her use (and enjoyment!) of Skype, and encouraged consumers to boycott those operators that don’t allow Skype. A lot of you might want to follow her call to action. If you can.

But he also points out the many barriers to switching in a real world and suggests what action the European Commission can take towards adopting the much mangled “net neutrality”.

Has the role of WiFi as the “stealth” carrier been considered? On my recent trips to Europe, I was able to find enough WiFi access points to leave my iPhone in Airplane mode and use my BlackBerry for voice calls sparingly.

One final question: what are the advantages of calling Skype “a video chat service”? While there has certainly been a strong emphasis on video calling in Skype’s recent promotions, it’s obviously a lot more than simply video. Is there a “hidden” agenda in this description of Skype?

Ah, the joys of being a government interloper with lots of economic theory to justify! If only consumer demand for what amounts to a “free” service that has brought pricing to zero could participate in the discussion. Will technology triumph over bureaucracy? Will Skype’s role in overcoming barriers to worldwide communications be considered?

Meanwhile we’ll await the next word from the European Commission in early October (or earlier?).

I’m no expert on these issues (although I have participated in a few acquisition due diligence exercises). I have probably not covered all the issues. If you have more to contribute to the conversation, please speak up in the Comments.

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About Jim Courtney

Bringing over thirty years' experience in the sales, marketing and management of cutting edge technology businesses.

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