Microsoft's Yahoo bid faces EU hurdles

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BRUSSELS -- Winning over shareholders and gaining control of Yahoo could be the easy part for Microsoft, according to antitrust experts. The tough slog begins once the software giant tries to secure regulatory clearance for its unsolicited $43 billion bid from European competition authorities.

"The European Commission will have concerns, which will be shared by antitrust authorities around the world," said Michael Tscherny, a partner at political and media consultant GPlus Europe and a former commission competition spokesman. "This is potentially a nightmare scenario for Microsoft, especially since it does not have a good track record with authorities."

Tscherny said the biggest issue will be the fact that Microsoft already has a "triple play": the most widely used operating system in the world (Windows), the most widely used browser (Explorer) and now the second-most widely used search engine. "The word 'bundling' is written in large letters on the wall," he said. "How does this not cement Microsoft's position in the browser and operating system market?"

However, he also was more open to the idea that -- simply on search engine market share -- the merger might not be seen as closing down the competition. "There is the argument that Google is so far ahead that this might provide some alternative, whether it's Yahoo or any other competitor," he said.

The most recent figures from research firm comScore show Google has 62% of the global Web search market, Yahoo has 13% and Microsoft has less than 3%. A key concern is expected to be whether the merger would lead to a rise in Internet advertising costs and whether privacy protection would be ensured.

Martin Bechtold, a partner at Brussels-based Allen & Overy, said that Microsoft's ruthless record in dealing with rivals will be a concern.

"The vertical issues need to be examined closely. For example, if Yahoo is integrated into Microsoft Office," he said. "Microsoft has history of using its position to muscle others out of the market. But it is possible that the deal could be cleared on its merits. In the search engine market, if Yahoo is strengthened, it is likely to create more competition, not less."

The bid comes just four months after the end of Microsoft's bitter and exhausting eight-year battle with the EU antitrust authority over software bundling. In 2004, the commission fined the company €497 million for abuse of market dominance and, last year, Microsoft lost its appeal against the decision at the European Court. Since then, the commission has opened two fresh inquiries into bundling of software and alleged abuse of inter-operability.
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