May 13, 2011

Microsoft Strikes $8.5 Billion Deal For Skype

Boosting its position in the Internet and wireless telephony markets, Microsoft announced plans on Tuesday to acquire Skype—operator of the popular free web calling service that encompasses 170 million users worldwide—for $8.5 billion in cash. Once completed, the deal would constitute the largest transaction in Microsoft’s 36-year history. For Skype, the deal represents its third change in ownership since its establishment in 2003. In 2005, eBay paid $2.6 billion for Skype with the goal of using the web calling service as a means of facilitating communications between eBay buyers and sellers. That experiment, however, proved unsuccessful, inducing eBay four years later to sell a 70% stake to an investment group led by Silver Lake Partners. In a joint statement, officials of Microsoft and Skype explained that the transaction would “extend Skype’s world-class ƒ Microsoft Strikes $8.5 Billion brand and the reach of its networked platform, while enhancing Microsoft’s existing Deal For Skype read more portfolio of real-time communications products and services.” Among other things, the deal will enable Microsoft to incorporate Skype technology with a variety of Microsoft AT&T, T-Mobile Executives ƒ platforms that include the Xbox 360, Outlook, Kinect and Lync, a product that combines Tout Merger Benefits To email, instant messaging and voice communications into a single application. Observers Senate Lawmakers also say the transaction has the potential to improve Microsoft’s stance in the wireless read more device and technology markets that have been dominated in recent years by Apple, Inc. ƒ Apple, Google Defend and Google. Upon completion of the deal, Skype will become a new business division Tracking Practices At Senate within Microsoft, and current Skype CEO Tony Bates will become the president of that Hearing read more division. Contingent upon receipt of regulatory approvals, the parties hope to consummate the transaction by year’s end. Describing Skype as “a phenomenal service,” ƒ Commissioner Baker To Microsoft CEO Steve Ballmer promised that, “together, we will create the future of real- Leave FCC For Comcast time communications so people can easily stay connected to family, friends, clients and read more colleagues anywhere.”

ƒ Rockefeller Unveils Do-Not- AT&T, T-Mobile Executives Tout Merger Benefits To Track Bill read more Senate Lawmakers ƒ Huawei Awarded Contract At a hearing convened by the Senate Antitrust Subcommittee on Wednesday, the CEOs For UK Mobile Network of AT&T and T-Mobile USA defended their proposed merger as one that will benefit Upgrade read more consumers. The CEOs assert that the deal would expand access to spectrum that is needed to expedite deployment of wireless broadband services and to improve the quality of existing mobile voice and data offerings. Notwithstanding these claims, lawmakers voiced concern that the deal will stifle competition and raise prices. The CEO of Sprint Nextel also warned that merger approval would likely make his firm a takeover target that would lead to even more consolidation in a market already dominated by Verizon Wireless and AT&T. Announced in March, the $39 billion transaction would combine the second- and fourth-largest wireless carriers in the U.S. to create a new market leader that would surpass Verizon with control of more than 130 million customers. Declaring that the merger “is about having the capacity to drive innovation and competitive prices,”

AT&T CEO Randall Stephenson testified that the deal would give the combined entity the spectrum resources needed to boost network speeds and capacity required for fourth-generation (4G) wireless broadband services. As Stephenson added that “capacity is the basis for moving prices down in this industry,” T-Mobile CEO Phillip Humm acknowledged that, absent the merger, “T-Mobile’s parent, Deutsche Telekom, is not in a position to finance the necessary large-scale investments in the U.S. for T-Mobile to remain competitive.” Arguing, however, that a union of AT&T and T-Mobile could make his company “a takeover target over time,” Sprint CEO Dan Hesse warned the panel that the merger could result in “a 1980s-style duopoly” in which AT&T and Verizon would hold a whopping 80% share of the national market and “unchecked leverage” to raise prices. Though stopping short of urging the deal’s blockage, subcommittee chairman Herb Kohl (D-WI) agreed that the merger has “profound implications” that include putting the U.S. wireless market “in danger of reverting to a duopoly.” Observing, “it took the [Justice Department] more than 30 years before they eventually broke up Ma Bell,” Senator Al Franken (D-MN) advised his colleagues: “it is important to keep in mind the stakes of the merger of this size and scope.”

Apple, Google Defend Tracking Practices At Senate Hearing

Following up on recent reports regarding the tracking practices of Apple, Google and other wireless device firms, members of the newly-convened Senate Judiciary Subcommittee on Privacy, Technology and the Law voiced their concerns on these practices at a hearing on Tuesday. The proceeding included questioning of executives of Apple and Google on what their companies do to protect subscribers’ rights to privacy. While emphasizing that “no one here wants to stop Apple or Google from producing their products or doing the incredible things that [they] do,” subcommittee chairman Al Franken (D-MN) also stressed that consumers “have a fundamental right to know what data is being collected about them” and “have a right to decide whether they want to share that information.” As such, Franken said the goal in convening the hearing is “to find a balance between all of those wonderful benefits and the public’s right to privacy.” While Franken voiced doubt about whether wireless subscriber privacy rights “are being respected in law or practice,” Senate Judiciary Committee Chairman Patrick Leahy (D-VT) said his panel would pursue a revision of the 1986 Electronic Communications Privacy Act to extend privacy protections to location-based data. Meanwhile, as they fielded lawmakers’ questions, Google Chief Lobbyist Alan Davidson and Apple Vice President Guy Tribble said they would consider taking further steps to protect the privacy of consumer data as they stressed the importance of maintaining an open environment that encourages development of new applications and technologies. While emphasizing that Apple “does not track users’ locations” and has “no plans to do so,” Tribble told lawmakers that his company has corrected a recently-discovered bug in the iPhone software that allowed user location data to be updated even when users had disabled the location master switch on their devices. Even in such instances, Tribble stressed, any data gathered was centered on nearby Wi-Fi hotspots and cell phone towers and not on the location of individual users. While noting that subscribers may use controls on the Android operating platform to opt-in to the collection of location data, Davidson explained that any such data stored by Google is “anonymized . . . and is not tied or traceable to a specific user.”

Commissioner Baker To Leave FCC For Comcast

In a surprise development, FCC Commissioner Meredith Attwell Baker announced her intention on Wednesday to resign her FCC post effective on June 3 to take the position of senior vice president for government affairs at Comcast’s NBC Universal unit. Baker, a Republican and former acting administrator of the National Telecommunications and Information Administration, will leave the FCC after a two-year tenure that began in July 2009. Her departure leaves President Obama with the prospect of filling two vacant seats on the FCC, as Commissioner Michael Copps—a Democrat and the longest-serving member of the agency—has not been re-nominated since the expiration of his most recent term last year. (Copps, however, may continue his FCC service through the end of the current congressional session.) Although some groups took issue with Baker’s decision to accept a position at Comcast just four months after approving the cable firm’s acquisition of NBC Universal, Media Access Group policy director Andrew Swartzman praised Baker as “a consummate public servant” who “has always been open-minded, conscientious and dedicated to acting in the public interest.” Welcoming the news, Kyle McSlarrow, the president of the Comcast-NBC Universal Washington office, described Baker as “one of the nation’s leading authorities on communications policy,” adding “we’re thrilled she’s agreed to head the government relations

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operations for NBC Universal.” Thanking President Obama for the “distinct honor” of serving on the FCC, Baker proclaimed: “I am privileged to have had the opportunity to serve the country at a time of critical transformation in the telecommunications industry.”

Rockefeller Unveils Do-Not-Track Bill

As the debate over wireless location-based tracking intensified on Capitol Hill, Senate Commerce Committee Chairman Jay Rockefeller (D-WV) introduced legislation to establish a “do-not-track” mechanism through which Internet users could indicate their desire not to have their personal information collected and shared with online advertisers and other web-based entities. Known as the Do-Not-Track Online Act of 2011, the bill follows the introduction of consumer privacy legislation, sponsored last month by Senators John Kerry (D-MA) and John McCain (R-AZ), which was criticized by some groups as lacking a do-not-track provision. Under the Rockefeller bill, the Federal Trade Commission (FTC) would be given one year from the date of enactment to “set standards for the implementation of a mechanism by which an individual can simply and easily indicate whether the individual prefers to have personal information collected by providers of online services, including by providers of mobile applications and services.” Details on what constitutes “personal information” would be determined by the FTC. Exceptions to the rule would be allowed to permit the collection of information needed to provide a service requested by the web user “so long as such information is anonymized or deleted upon the provision of such service.” Violations would be deemed as unfair and deceptive acts or practices under the FTC Act, and civil penalties in state enforcement proceedings would be capped at $16,000 for each day of non-compliance or at $15 million for all actions related to a specific violation. Asserting that “consumers have a right to decide whether their information can be collected and used online,” Rockefeller told reporters that his bill “offers a simple, straightforward way for people to stop companies from tracking their movements online.” Huawei Awarded Contract For UK Mobile Network Upgrade Fast-rising Chinese telecom equipment firm Huawei celebrated its first major deal in the United Kingdom (UK) this week with a four- year contract to upgrade the wireless network of Everything Everywhere, the UK’s largest mobile phone operator. Formed in 2009 from the merger of the British wireless units of Deutsche Telekom (DT) and France Telecom (FT), Everything Everywhere currently boasts 27 million U.K. customers, but is hampered by an antiquated second-generation (2G) network that is poorly equipped to handle the mobile data services that customers increasingly demand. Network improvements provided by Huawei under the contract should enable Everything Everywhere better to address this demand and are also expected to lay the foundation for future fourth-generation (4G) services that include mobile video. Although 4G network infrastructure is not included in Huawei’s contract, sources say the agreement could make the Chinese firm a top contender for the deployment of Everything Everywhere’s 4G network following auctions of 4G spectrum in the U.K. next year. The pact also fulfills a key strategic goal for Huawei, which has been looking to expand its influence to the U.S. and Europe where it can compete more directly against market leader Ericsson. During the past year, Huawei had its hopes for the U.S. dashed after national security concerns forced Huawei out of contention for a major network deal with Sprint Nextel and also forced the withdrawal of Huawei’s agreement to acquire U.S. technology firm 3Leaf Systems. Observers indicate, however, that such concerns are unlikely to arise in the U.K. where the government is reported to have already cleared the deal. As Huawei applauded the contract as a “significant milestone,” a spokesman for Everything Everywhere predicted that “customers can look forward to a superior network performance with richer data experience.”

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For information about any of these matters, please contact Patrick S. Campbell (e-mail: [email protected]) in the Paul, Weiss Washington office. To request e-mail delivery of this newsletter, please send your name and e-mail address to [email protected]. (No. 2011-19)

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