Cisco: Microsoft-Skype Merger Bad For Customers, Needs Conditions

Cisco is appealing the European Commission's approval of Microsoft's $8.5 billion acquisition of Skype, on grounds that Skype's platform doesn't interoperate with other vendors' video communication systems, and that a move by Microsoft to integrate Skype exclusively with its Lync unified communications (UC) platform would be bad for customers.

It's a sign of increasing tension between Cisco and Microsoft, who are strategic partners in some areas, but also competitors in the UC and video spaces. Cisco is asking European regulators to put conditions on the Skype deal, and Cisco's top video executive said Wednesday that if Microsoft integrates Skype only with Lync, Microsoft "could lock in businesses who want to reach Skype's 700 million account holders to a Microsoft-only platform."

"We do not take this action lightly," wrote Marthin De Beer, senior vice president of Cisco's Emerging Business Group, in a post to Cisco's corporate blog Wednesday. "We respect the European Commission and value Microsoft as a customer, supplier, partner and competitor. Cisco does not oppose the merger, but believes the European Commission should have placed conditions that would ensure greater standards-based interoperability, to avoid any one company from being able to seek to control the future of video communications."

[Related: Microsoft's Skype Acquisition: 10 Burning Questions ]

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De Beer said that a European VoIP provider, Messagenet, has joined Cisco's appeal.

"Cisco believes the right approach for the industry is to rally around open standards," De Beer wrote. "We believe standards-based interoperability will accelerate innovation, create economic value and increase choice for users of video communications, entertainment and services."

Reached by CRN, a Microsoft spokesperson said Microsoft is confident the Commission's decision will stand up on appeal. "The European Commission conducted a thorough investigation of the acquisition, in which Cisco actively participated, and approved the deal in a 36-page decision without any conditions," the spokesperson said.

Microsoft in May 2011 said it would acquire Skype for $8.5 billion, a deal that represented Microsoft's largest acquisition ever. Microsoft partners and other UC solution providers said at the time they were concerned about how Microsoft would integrate Skype into its own platforms.

The U.S. Department of Justice approved the deal in June, and the European Commission approved the deal in October, saying it would not affect competition in the European market. Skype officially became a Microsoft business unit on Oct. 13.

Microsoft hasn't been hugely forthcoming about its plans for Skype integration, but Gurdeep Singh Pall, former corporate vice president in charge of Microsoft's UC and Lync efforts, shifted to a new role last fall to manage that process.

During Microsoft's second quarter earnings call in January, Microsoft CFO Peter Klein said development teams were working on integrating Skype across Microsoft, "and we will share more as we get further along with the [product] road maps."

The software giant is widely expected to debut a Skype app for the Windows phone platform sometime this quarter, and is also said to be working on integration between Lync and Skype, and XBox Live and Skype.

According to Cisco, Microsoft is doing customers a disservice if it makes Skype integration exclusive to Lync.

"For the sake of customers, the industry recognizes the need for ubiquitous unified communications interoperability, particularly between Microsoft/Skype and Cisco products, as well as products from other unified communications innovators," De Beer said.

News Web site AllThingsD Wednesday cited sources familiar with the matter as saying Cisco had wanted to work with Microsoft to ensure its video products would work with Skype, and that Cisco and Microsoft could not reach a deal to do so.

Cisco was among vendors rumored to be in the mix to acquire Skype, along with Facebook and Microsoft archnemesis Google. Tony Bates, Skype's CEO and now president of Microsoft Skype Division, is a former Cisco senior vice president.