Why Cisco Is Challenging Microsoft-Skype Merger

Cisco Systems has asked the European Commission (EC) to revise the conditions under which it approved Microsoft's $8.5 billion acquisition of Internet calling service Skype, arguing that Skype's planned tight integration into Microsoft's Lync unified communications platform would inhibit the growth of video calling overall. Instead, Cisco says, Microsoft should embrace open standards for video calling so that making a video call becomes as easy as making a phone call or sending an e-mail.

One industry analyst says that interoperability of different video calling systems is possible today, but that the onus is on end users to make it work.

Cisco filed an appeal with the General Court of the European Union on Wednesday, well within the deadline for filing an appeal in the wake of the EC's approval of the merger. It was approved in the United States as well, and the deal officially closed in October 2011. Cisco is not seeking to reverse the merger, but thinks the EC "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," wrote Marthin De Beer, senior VP of Cisco's video and collaboration group, in a blog post on Cisco's website.

De Beer argued that because the only video calling technology that would work in Lync would be Skype, the effect would be to "lock-in businesses who want to reach Skype's 700 million account holders to a Microsoft-only platform."

[ Microsoft/Skype was one of the biggest deals last year. See what else made our list of the Top 10 Tech Acquisitions Of 2011. ]

Microsoft issued a statement that said, "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. We’re confident the Commission’s decision will stand up on appeal."

While it is technically possible for a Lync user to use a video calling service other than Skype, it may not be easy, said Henry Dewing, a principal analyst at Forrester Research.

"If Lync/Skype were to not embrace open industry standards ... then the responsibility to configure and maintain a set of capabilities would be on the individual customers," Dewing said. "Technically this interoperability is possible today, but leaving the responsibility to maintain interoperability [to customers] is likely to lead to failures."

Dewing said those failures, due to a lack of open standards and easy interoperability, will hinder the wider adoption of video calling, a point made by sources speaking on background about the decision to file the appeal. They also said that Cisco had been in discussions with Microsoft to try to get the software company to voluntarily adopt open standards but that Cisco decided to file the appeal after it was unable to reach an agreement with Microsoft.

Messagenet, a European VoIP service provider, has joined Cisco in the appeal.

"Cisco believes that the right approach for the industry is to rally around open standards," De Beer wrote on his blog, a position that many might find ironic given Cisco's reputation for engineering proprietary technology into its routers, switches, and other equipment.

"There's a definite pot-calling-the-kettle-black scenario here," said Zeus Kerravala, principal analyst with ZK Research.

However, although there are still instances in which it pushes proprietary technology, Cisco has made progress over the past three or four years, in adopting open industry standards, Kerravala said. Dewing concurred, noting that Cisco shared its TelePresence Interoperability Protocol (TIP) with the IEEE standards body.

Kerravala agrees with Cisco that if Microsoft/Skype supports an open standard for video calling with other services than Skype, adoption of video calling will increase for everyone.

"Frankly, it's in [Microsoft's] best interest to do it because it winds up becoming a rising tide that lifts all the boats in the industry because [video calling] has a lot of potential," he said.

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