Commission Decision of 07/10/2011 declaring a concentration to be compatible with the common market (Case No COMP/M.6281 - MICROSOFT / SKYPE) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)
| Published date | 07 October 2011 |
| Subject Matter | Competition,Concentrations between undertakings |
Commission Decision of 07/10/2011 declaring a concentration to be compatible with the common market (Case No COMP/M.6281 - MICROSOFT / SKYPE) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)
|EUROPEAN COMMISSION |
Brussels , 07/10/2011
MERGER PROCEDURE In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description. C(2011)7279
PUBLIC VERSION
To the notifying party:
Dear Sir/Madam,
Subject: Case No COMP/M.6281 - Microsoft/ Skype Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004 [1]
1. On 02.09.2011, the European Commission received notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which the undertaking Microsoft Corporation, USA (hereinafter "Microsoft"), acquires within the meaning of Article 3(1)(b) of the Merger Regulation control of the whole of the undertaking Skype Global S.a.r.l, Luxembourg (hereinafter "Skype"), by way of purchase of shares [2] . Microsoft and Skype are designated hereinafter as "parties to the notified operation" or "the parties".
I. THE PARTIES
2. Microsoft is active in the design, development and supply of computer software and the supply of related services. The transaction concerns Microsoft's communication services, in particular the services offered under the brands "Windows Live Messenger" (hereinafter "WLM") for consumers and "Lync" for enterprises.
3. Skype offers software for communications over the Internet. Skype's software enables text (or "instant messaging" (hereinafter "IM")), voice and video communications.
II. OPERATION AND CONCENTRATION
4. Pursuant to a Purchase and Share Agreement signed on 09.05.2011, Microsoft will acquire 100% of the outstanding shares and therefore sole control over Skype. The notified operation thus constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation.
III. EU DIMENSION
5. The undertakings concerned have a combined aggregate worldwide turnover of more than EUR 2 500 million [3] . Furthermore, in each of Germany, Italy and the UK the combined aggregate turnover of the two undertakings concerned is more than EUR 100 million and the aggregate turnover of each of the undertakings concerned is more than EUR 25 million in each of these three Member States. Finally, each of Microsoft and Skype has an EU-wide turnover in excess of EUR 100 million and they do not achieve more than two-thirds of their aggregate EU-wide turnover within one and the same Member State.
6. The notified operation therefore has an EU dimension within the meaning of Article 1(3) of the Merger Regulation.
IV. ASSESSMENT
7. The notified operation takes place in the Internet consumer and enterprise communications ("consumer and enterprise communications") markets [4] .
(...)(...)(...)8. The parties provide software which allows users to communicate using various means of communication such as for instance presence/IM, voice call, video call, and collaboration tools in enterprises (video conference, edit/share of documents and others) over various platforms (mainly Personal Computers (hereinafter "PCs") [5] , smartphones and tablets). Therefore the notified operation requires an assessment of horizontal overlaps (see paragraphs 96 and following and paragraphs 177 and following).
(...)(...)9. Microsoft is also active with products, such as operating systems (hereinafter "OS"; with for instance "Microsoft Windows") or commercial office suites (with "Microsoft Office") which work together with communications software. The notified operation therefore requires an assessment of its potential conglomerate effects (see paragraphs 133 and following, paragraphs 203 and following.
(...)(...)A. Relevant markets
Product markets
10. The notified operation concerns the consumer and enterprise communications markets. Both consumers and enterprises rely on services which integrate a number of communications functionalities (mainly IM, voice and video calls), but according to the parties, their needs differ. Whereas consumers approach communications from a social perspective, enterprises use communications from a task-oriented perspective.
11. Although a trend exists towards “consumerization” of enterprise communications products [6] , the parties consider that communication services remain different between these two categories of users in particular in terms of prices or features.
(...)(...)12. The Commission agrees with the parties for the following reasons:
13. First, with regard to the difference in terms of prices, enterprises (in particular large companies) buy communication services sometimes at very high price, whereas consumers are less willing to pay for a communication service offered on the Internet. According to an internal Skype document, only 6% of Skype’s connected users (most of them are consumers and not enterprises) are "paying users" [7] and [> 75]% of its users would cease using its free service if it started charging for it.
14. Second, with regard to the difference in terms of features, enterprise communications services are more sophisticated and reliable than consumer communications services. Enterprises do not have the same service requirements and do not tolerate lower service quality as consumers do. Redundancy and robustness, security, reliability, ancillary functionality, management and support requirements are higher for enterprise communications services. For example, enterprise communications services offer additional features in terms of collaborating tools, such as the possibility to share and edit a document in real-time from different places. As regards voice calls, enterprise-grade communications services require features and functionality which are not available in consumer-grade communications services, such as park/hold, mute, simultaneous ringing or integrated voicemail.
15. Finally, there are only a limited number of providers of communications applications designed for both consumers and enterprises (for instance by Microsoft and to some extent Google). Others, including Skype, offer a communication application which is mainly targeted at consumers, even though it may also be used by some small businesses.
16. It appears therefore, that enterprise communications services and consumer communications services form two distinct markets. This conclusion is supported by the parties and a large proportion of the respondents to the market investigation conducted for the purpose of this case (hereinafter "the market investigation"), in particular the original equipment manufacturers [8] (hereinafter "OEMs") which have knowledge of both the consumer and enterprise communications services markets. Three out of the four OEMs which replied to the market investigation consider that there is not one overall market for online communications services including consumer and enterprise communications [9] . As explained by one OEM, consumer communications services and enterprise communications services have two different business models: "for enterprise unified communications services, the providers are paid from users by customizing their services, while for consumer communications services, the providers offer their services for free and get revenue through advertising or other indirect channel".
17. Considering the above, the Commission takes the view that consumer communications services and enterprise communications services form two distinct product markets that have to be assessed separately.
1. Consumer communications services
18. The parties submit that consumer communications services form a single product market because consumers demand a user experience which integrates a range of functionalities (IM, voice and video calls) across all platforms (PCs, smartphones, tablets) and OSs. This user experience is illustrated by the growth of social networking sites such as Facebook, in terms of number of users but also in terms of time spent on them. Google has recently integrated its traditional communication services ("Google Talk" for voice, "Gmail" video chat for video, "Google chat" for IM/presence and Gmail for email) into a broader user experience called "Google +". Google + attracted around 20 million users in the first three weeks after its launch [10] .
19. The parties therefore argue that a further segmentation according to functionality, platform and/or OS does not reflect the current and foreseeable market reality. They explain that consumer communications services are undergoing rapid development and that the competitive landscape is poised to change very significantly in the next three to five years. According to the parties it would be artificial to distinguish between each individual communications' functionality or according to platform and/or OS.
20. The Commission, which is required by the present decision to assess Internet consumer communications services for the first time, considers that from a demand-side substitutability point of view, a further segmentation of the consumer communications market may be appropriate as today a majority of European consumers do not generally have access to all functionalities across all existing devices and OSs.
a) Segmentation of consumer communications services by functionality
21. The main functionalities of consumer communications services are IM, voice calls and video calls.
22. IM is a form of real-time short text messaging. IM generally includes presence which is the ability to detect other users’ availability...
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