The applicants, Cisco Systems Inc. ('Cisco') and Messagenet SpA ('the applicants'), are undertakings that provide, inter alia, internet-based communications services and software for, respectively, undertakings and the general public.

The intervener, Microsoft Corp., designs, develops and markets a wide variety of software products for different kinds of computing devices. Those products include internet-based communications services and software.

Skype Global Sarl ('Skype') provides internet-based communications services and software. Its products enable instant messaging, voice calls and video communications over the internet.

Market share

Although PCs remain the most used platform for consumer video communications, a substantial and growing share of new demand for those services originates from users of tablets and smartphones, sales of those appliances having overtaken those of PCs in Western Europe according to recital 32 of the contested decision. The Commission and the intervener rightly draw attention to the extent of that growth, which the applicants do not contest, because any attempt by the new entity to exert any market power on the narrow market would risk reinforcing that trend to the detriment of the new entity. The new entity is less present on those other platforms and faces strong competition from other operators, in particular Apple and Google.

Contrary to the applicants' submission, the fact that the services are offered free of charge is a relevant factor in assessing the market power of the new entity. In so far as users expect to receive consumer communications services free of charge, the potential for the new entity to set its pricing policy freely is significantly restricted. The Commission rightly observes that any attempt to make users pay would run the risk of reducing the attractiveness of those services and of encouraging users to switch to other providers continuing to offer their services free of charge. Likewise, if the new entity decided to stop innovating in terms of its communications services, it would also run the risk of reducing their attractiveness given the level of innovation on the market in question. It should be borne in mind in this respect that there are no technical or economic constraints which might prevent users from switching providers.

Competitive harm

First, as regards prices, the applicants do not contest that video communications services are provided free of charge to users, but assert that there might be increases in the price of using Skype's services with other networks, revenue derived from advertising and revenue from related markets. The applicants also submitted at the hearing that Skype might attempt to charge a fee for certain services which are currently provided for free.

Those arguments cannot be accepted.

First, Skype's paid services, in particular its SkypeOut services, only concern video calls to a very limited extent. A minimal percentage of SkypeOut's revenue comes from group video communications, which involve more than two users at the same time. Moreover, as was pointed out by the Commission, no operator has thus far been able to charge for its services in respect of video calls between two participants. Consumers expect those services to be provided for free and the applicants have failed to demonstrate how the concentration might enable Skype to change those market conditions without consumers switching operators.

The applicants have also failed to explain how market power on the narrow market of video calls on Windows-based PCs might make it possible to increase prices for other communications services. In addition, the applicants completely disregard the competitive constraints exerted by traditional telephone operators and providers of online voice telephony other than Skype, in the event that the new entity sought to increase the prices of SkypeOut voice calls.

Furthermore, nor do the applicants explain how the new entity would be capable of imposing a price increase on advertisers. They have not submitted or demonstrated that there is an advertising market aimed specifically at consumer video communications services on Windows?based PCs. In the absence of such a market, advertisers can easily avoid any attempt to increase prices by redirecting their advertising expenditure towards other media, whether on the internet or elsewhere.

Lastly, nor do the applicants provide any information on the potential for the new entity to increase prices on related markets, such as communications services for undertakings.

It follows that the applicants have failed to demonstrate how the concentration might harm competition on the consumer communications market.

Third parties expressed the concern that the concentration would produce conglomerate effects on the enterprise communications market. One of the effects complained of concerns the creation by the new entity of preferential ties between Skype's user base and Microsoft's Lync product. It was alleged that that preferential integration would give the new entity a competitive advantage with respect to business users, in particular undertakings using call centres.

The new entity would not have the ability to pursue such a strategy, because Skype is not a product adapted to the needs of undertakings using call centres. Furthermore, the new entity would not have any incentive either to prevent undertakings using other enterprise communications services from contacting users of Skype. Those undertakings would still be able to download the Skype application for free. Moreover, Skype is not a 'must have' product for undertakings using call centres, since numerous other solutions exist for communicating with consumers. Lastly, it is unlikely that anti?competitive effects could occur in the next three years, since Lync faces competition from other large market players, such as Cisco and IBM.

The applicants contend that the Commission did not take account of the foreclosure strategy that the new entity could follow on the enterprise communications market by creating exclusive or preferential interoperability between Lync products and Skype's large customer base. That strategy would enable the new entity to position Lync as the only product capable of meeting the growing demand from large business users wishing to interact with their customers and other business contacts. For that purpose, the new entity could, consistent with the past exclusionary practices of Microsoft, enforce its position of strength in markets related to the enterprise communications market and integrate Lync with other Microsoft products. By failing to examine that strategy in more depth and take account of such growing demand, the Commission did not provide proper reasoning for its decision and committed several errors in its assessment of the link between the consumer and enterprise markets, on the latter of which Skype is indeed present.

First, the applicants dispute that the new entity does not have the ability to foreclose the market. The relevant question is not whether Skype is a product for call centres, but whether the new entity is able to alter the degree of interoperability to the benefit of its own products and services.

Second, the applicants submit that the Commission's assessment of the new entity's incentives to foreclose the market is flawed. The Commission based its analysis of those incentives on an erroneous premiss. The issue is not whether Skype is a 'must have' product, but whether the integration of Skype with Lync will make Lync a 'must have' product for the purpose of accessing Skype's large user base and, therefore, meeting the expectations of enterprise communications users who may wish to communicate with users of Skype. In the absence of interoperability with Skype, Lync's competitors would have no real alternatives. Thus, the fact that Skype continues to be available for download free of charge does not address the concerns arising from preferential interoperability between Skype and Lync. Furthermore, the Commission itself pointed out that in other cases involving the intervener, users are generally reluctant to download several software applications for one and the same function. Finally, the applicants submit that the Commission failed to examine the reasons why the intervener offered USD 8.5 billion to purchase Skype — reasons which specifically relate to the preferential ties between Skype and Lync — and, notably, overlooked the statements of some of the intervener's representatives. That omission is all the more surprising given the intervener's past conduct. The applicants state that Microsoft has already been sanctioned on several occasions for exclusionary practices and continues to block interoperability between its products and those of its competitors.

Third, the applicants claim that the Commission erred in its assessment of the effects of the potential exclusionary strategy. Not only did the Commission underestimate Lync's importance on the enterprise communications market at the time of the administrative procedure, it also overlooked the fact that Lync was offered in conjunction with the Windows Server operating system and other Microsoft products for which the new entity was strongly positioned. Finally, the implementation of preferential or exclusive interoperability between Lync and Skype would be particularly damaging on markets characterised by network effects.

In the applicants' opinion, the Commission failed to take account of the conglomerate effects resulting from the concentration. In particular, the Commission failed to have regard to the ability of and the incentives for the new entity to use its position on the consumer communications market as leverage to distort competition on the enterprise communications market.

The statement of reasons

It is common ground that that interoperability was not yet guaranteed at the date of adoption of the contested decision and that it still required relatively lengthy and complex innovative work. According to the information supplied by the intervener which was not called in question by the applicants, the creation of a network bridge between Lync and Skype is only likely to be completed in 2013. In addition, on the assumption that that work is completed on time, the new entity would still have to devote effort to marketing the new product to potentially interested business customers. That marketing campaign would therefore take place during 2014. Lastly, in order that the anti?competitive effects feared by the applicants could occur in 2014, the Commission having referred to a period of three years following the date of adoption of the decision, it would still be necessary for that marketing campaign to be commercially successful to such a large extent that it would tip, almost immediately, the enterprise communications market in favour of Lync and would enable the new entity to foreclose the market. Such commercial success would imply a major change in the position of the operators on the market and would mean in particular that Lync's market share on the enterprise communications market, which was 16% in 2011, would evolve significantly in comparison with Cisco's, which was 32% in 2011.

It should be observed that the explanations given by the applicants regarding the competitive advantage that the new entity enjoys are vague. It would appear from those explanations that, by the integration of Lync with Skype's user base, the new entity supposedly has a significant business advantage on the enterprise communications market. That integration allegedly enables business users to communicate, including visually, with their customers and other business contacts, such as suppliers and distributors, using the same software as that used for communicating internally within an undertaking.

However, the applicants provide no tangible evidence of the existence, scale or development of the demand for such a product. They refer to information that Cisco provided the Commission during the administrative procedure, which merely mentions the names of several large undertakings or sectors which might wish to communicate with users of Skype, without specifying however whether or not those wishes relate to the future product integrating Lync and Skype. By contrast, the intervener produced specific information regarding the lack of interest on the part of Lync customers for an instant messaging communications tool.

Second, even if there was real and significant demand for a communications tool such as the one resulting from integrating Lync with Skype, the applicants have failed to explain why business users might wish to specifically communicate with users of Skype. The applicants merely rely on Skype's large user base and the new entity's supposed dominant position on the consumer communications market, in particular for video calls on Windows-based PCs. As the Commission rightly observes, undertakings potentially interested by an integrated communications tool wish primarily to communicate with consumers of their products and services and not with users of Skype. It is not clearly apparent whether these users are also current or potential customers of undertakings that might be interested in purchasing the product resulting from the integration of Lync with Skype and even less that these users wish to communicate visually with those undertakings.

In addition, on the assumption that users of Skype constitute a commercially attractive group of consumers, Skype does not allow undertakings to canvass such users actively. As stated by the Commission and the intervener, it is not possible to contact users of Skype, who normally use a pseudonym, without their prior authorisation. Conversely, in the event that the commercial interest of the product resulting from the integration of Lync with Skype relates to the possibility for users of Skype to contact undertakings which sell them goods and services, the applicants provide no information regarding the commercial advantage of that integrated product in comparison with other methods of communications between undertakings and consumers, such as the traditional telephone communication. The Commission and the intervener correctly observe that it is not credible, on account of those other methods of communication, that the product resulting from the integration of Lync with Skype would become a 'must have' product for undertakings wishing to communicate with their consumers. It should also be observed that Skype's application continues to be available and downloadable after the concentration and that it is therefore entirely possible for any undertaking to enable its customers to contact it by Skype by indicating its Skype ID on its goods, in its advertising or on its internet site. In order to communicate with users of Skype, it will not be necessary for an undertaking to have the product formed by the integration of Lync with Skype.

Third, in the event that the product resulting from the integration of Lync with Skype gives the new entity a real commercial advantage, that entity would still not have the ability to pursue a strategy of market foreclosure. On the one hand, it follows from the analysis of the first plea that the concentration does not give rise to serious doubts as to its compatibility with the internal market with respect to consumer communications services. On the other hand, as was observed in paragraph above, Lync's competitors, including Cisco, still have sufficient time to develop commercial strategies aimed at counteracting the market foreclosure strategy that the new entity might possibly decide to follow. Those competitors could adjust their prices, the quality or functionality of their products or have recourse to the services of other large providers of consumer communications services, such as Facebook, Twitter and Google. It should be noted, in this respect, that a number of undertakings are already connected to that type of network, as the intervener submits.

In the absence of any information regarding the existence, extent and nature of the demand for a product integrating Skype and Lync, it is difficult, or even impossible, to assess whether an exclusionary strategy may turn out to be profitable for the new entity. In addition, in so far as Skype is still available as downloadable software for all users, including undertakings, it is also difficult to know whether those undertakings will prefer the integrated product over a competing enterprise communications application alongside which they will have downloaded the Skype software. References to earlier commercial practices which concern different markets to the consumer communications market, to the value of the transaction and to general commercial statements by certain representatives of Microsoft cannot compensate for those shortcomings.

There are therefore no tangible factors to support the conclusion that the new entity would have the incentive to implement a market foreclosure strategy.

With respect, in the third place, to the probable overall effect of such a strategy on prices and choices, the Court notes, as did the Commission and the intervener, that the presence of Lync on the enterprise communications market is certainly significant, but that it is lower than that of its competitors and, in particular that of Cisco. Since implementation of the strategy will last several years, it was not foreseeable at the time of adoption of the contested decision that such a strategy might result in a reversal of the competitive landscape in favour of Lync following the decision.

THE GENERAL COURT (Fourth Chamber) hereby:

1. Dismisses the action;