Cisco: Microsoft's Deal With Skype Is Monopolistic

Cisco Systems, the world's leading network equipment maker, asked an EU court on Wednesday to annul the approval of Microsoft's purchase of Skype, saying EU regulators were wrong to allow the creation of a monopoly.

Cisco's challenge at the Luxembourg-based General Court follows the European Commission's approval of the $8.5 billion deal in 2011. Microsoft was not required to make any concessions for buying the Internet video and voice messaging company, which Cisco argues has given Microsoft/Skype an unfair advantage.

A third of the world's voice calls are now on Skype while over 280 million users use the service more than 100 minutes every month, Microsoft chief operating officer Kevin Turner said in March. Skype had 170 million users at the time of the deal.

The case is important as Internet-based voice and video has become a vast market, with many consumers and corporates abandoning traditional fixed-line and mobile as a result, and is an area in which Cisco had hoped to expand its presence.

The Microsoft acquisition "marked a tipping point in the video communications market,'' Cisco's lawyer, Luis Ortiz Blanco, told judges at Europe's second-highest court.
"The merger created an effective monopoly and condemned competitors to a niche. The reasoning applied (by the commission) incurred numerous errors,'' he said.

Corneliu Hoedlmayr, a lawyer for the commission, said Cisco's arguments were unconvincing.

"The applicants have failed to provide evidence of competitive harm,'' he told the court, citing the existence of other rivals to Skype such as Google Talk and Cyprus-based calling and messaging servicer Viber.


"Other technologies are emerging. If these succeed, it may render Skype a relic,'' he said.

Cisco is appealing together with Italian fixed-line and Internet telephone provider Messagenet SpA.

udges will rule in the coming months. Their verdict can be appealed to the European Court of Justice, the EU's highest court.

The last successful challenge to a commission merger-approval decision at the court was in 2002 in a case involving the Sony Music and BMG record labels. In the vast majority of cases, the court rules with the commission.

Cisco's challenge is one of four cases against the European Commission's rulings in merger cases, underlining the increasing willingness by companies to challenge decisions which they disagree with.

Deutsche Boerse last year filed an appeal against the commission's rejection of its merger with NYSE Euronext while UPS has also gone to court against a regulatory veto of its proposed TNT buy.

Ryanair has similarly said it will fight the commission's veto of its plan to buy Aer Lingus.


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