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Cisco appeals EU's approval of Microsoft/Skype deal

The Cisco logo is displayed at the technology company's campus in San Jose
The Cisco logo is displayed at the technology company's campus in San Jose

By Nicola Leske and Foo Yun Chee

(Reuters) - Cisco Systems Inc has challenged EU clearance of Microsoft Corp's acquisition of Internet voice and video service Skype at Europe's second highest court, saying the commission should have put tougher conditions on the deal.

"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," Cisco said on Wednesday.

Cisco launched its appeal in the EU's General Court in concert with Italian fixed-line and voice over Internet protocol (VoIP) telephone provider Messagenet SpA, a Skype rival.

Microsoft said it was confident the decision would 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," a spokesman said.

The Luxembourg-based General Court generally backs the Commission in antitrust cases, but it has on occasion overturned decisions.

Nevertheless, challenging the Commission's decisions in EU courts is risky, with the last successful appeal dating back to 2002.

"It is a huge uphill battle; there has only been one successful appeal by a third party against a merger cleared by the EU Commission, but if the companies can raise good arguments, it may stand a chance," said an antitrust lawyer who declined to be named because of the sensitivity of the case.

The court, known then as the Court of First Instance, annulled in 2006 the Commission's clearance of the 2004 merger between the Sony Music and BMG record labels after a challenge by Impala, an independent group of music producers. However, Europe's highest court subsequently overturned the ruling.

Cisco said it has asked for the court to speed up the process, which would still run to about a year.

Cisco, whose core business is routers and switches that manage the Internet, is betting on future growth in video, which Chief Executive John Chambers has said will be the future of communication.

Cisco argued that Microsoft's plan to integrate Skype exclusively into its Lync Enterprise Communications Platform could lock-in businesses that want to reach Skype's 700 million account holders to a Microsoft-only platform.

"Imagine how difficult collaboration would be if you were limited to calling people who only use the same carrier or if your phone could only call certain brands and not others," Cisco said.

According to Cisco, interoperability between devices and systems is key to speeding up innovation, creating economic value and increasing choice for users.

The video communications market is also very lucrative, with

double-digit growth expected to continue through 2015, according to Infonetics research.

Microsoft gained EU approval in October last year to buy Skype for $8.5 billion in its largest-ever acquisition.

Investors initially questioned the wisdom of Microsoft's acquisition, especially its high price tag, but have been warming up to the decision, thinking Microsoft would be making a smart move buying advanced communications technology it could put into its products, along with acquiring a ready base of users.

Skype, which appointed ex-Cisco manager Tony Bates as its chief executive officer in 2010, popularized the VoIP method of using a computer as a telephone. It is the clear leader in the market, with 145 million users who sign in at least once a month.

The European Commission has said it did not see any competition concerns arising from the deal because there were numerous players in the market, including Google Inc.

The U.S. Federal Trade Commission cleared the deal in June.

(Reporting By Nicola Leske in New York and Foo Yun Chee in Brussels, Additional reporting by Bill Rigby in Seattle; Editing by Andre Grenon and Gerald E. McCormick)

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