Should the US have OK’d Microsoft’s purchase of Skype? Should the EU?

The European Commission will make a statement on the Microsoft-Skype deal on or before this Friday, 7 October 2011.

Skype is too big to slip under regulatory radar.

Skype was all promise in 2003. Now it is achievement. They are no longer the tiny underdog fighting the phone companies. They are a billion dollar a year business with a thousand employees serving nearly two hundred million people 255 billion of minutes of live conversation every year, rounding slightly. They’ve pulled so much hard currency from national phone companies that Russia’s Chamber of Commerce declared Skype an enemy of the state. They’ve changed consumer behavior and become the default way to talk across borders for anyone with Internet access. 

When should regulators consider this a threat?

Now, when an ounce of prevention matters most.

Microsoft wants to multiply Skype’s reach and impact. Microsoft seeks to combine Skype with its other communications properties and bring realtime communication to its non-communication products. Skype, along with Nokia, completes Microsoft’s vision for the Windows Phone operating system. We’ll see Skype inside Microsoft games, Lync business phones, Bing click-and-call adverts, Dynamics call center solutions, Office, Internet Explorer and Internet Explorer.

As huge as Skype is, they could be ten times bigger in a few years with Microsoft’s help. $10B in revenue, 2 billion users, trillions of minutes of live conversation. That comes with market power.

US regulators cleared the deal. A decision by EU authorities is days away.

Who is affected?

At least one Italian VoIP company is reported opposing the deal, per EurActiv. Messagenet asked the authorities to require Microsoft not to bundle Skype with Windows and to compel interop with other Internet presence, IM, telephony, and video chat services.

Other stakeholders have similar concerns. Who else in Skypelandia might ask for terms to their advantage?

• Messengers. Skype’s IM rivals should fear the federation of Microsoft and Skype, bringing chat market share above 50% in the English speaking world. Will Yahoo!, Tencent, Aol, ICQ and the rest speak up?
• Telecoms. People who make telephone systems stand to lose as more power becomes concentrated in Microsoft’s hands. Cisco, Avaya, Asterisk, and others stand to lose if the deal goes through. So do other Over The Top telephony services like Truphone, Fring, Rebtel, and Fone.
• Identity. When you combine Microsoft’s userbase with Skype’s, they could offer the world’s largest “sign in with” service. Facebook, Google, LinkedIn, Yahoo!, and Twitter stand to lose authority.
• Conferencing. Skype already threatens Citrix’s conference call and meeting services, Cisco’s WebEx, and the other video conferencing services.
• Advertising. Skype’s revenue from advertising has been trivial. That can change dramatically once you add Skype Click-to-Call service to Bing adverts. Would other advertisers be able to choose another click-and-call service or will all that Microsoft power lock out competition?
• Hollywood and Games. Live team talk is now a feature of many social games. Warcraft proved its importance and teamtalk is now part of the gamers toolkit. Can Microsoft’s entertainment division create an unfair advantage, locking in friends and teams who play together in multiple worlds?
• Consumer Electronics. The market has yet to prove people won’t buy a television unless it has Skype inside. Could Skype help Microsoft win the battle for the living room, including the war for set top boxes, TVs, and the remote control?
• Platformers. Many companies offer telephony as an API. Will Microskype use its global buying power to undercut Voxeo, Twilio, Jajah and the rest?

What could Europe demand of Microsoft in exchange for permission to buy Skype?

[Caution, I Am Not A Lawyer.}

A. Platform Fairly.

Skype won’t be able to partner with the many divisions at Microsoft without a cloud platform. So Skype will spin up thousands of servers with hundreds of thousands of SkypeKit-like instances and web service APIs. Then non-Skype Microsoft developers will build Skype features into their products.

Later, Skype will likely offer Microsoft’s independent developer network almost the same SDKs as they offer Microsoft’s other divisions. That’s opening up parts of Skype to about one million programmers.

What exactly should Skype expose to third-parties? Under what terms?

A1. Skype should publish specs so third-parties can build their own clients to serve their own customers and users without licensing technology from Skype. These resources would include:

1. Communication interop. Expose controls for creating and controlling IM, voice, video sessions. Enable use of mood messages, emoticons, and file transfer.
2. Identity services. This includes account lifecycle management (creating, changing, ending accounts), authentication services, and authorization services.
3. People Search. Find users by any identifier or descriptor in the Skype directories, subject to privacy controls.
4. Endpoint identification (what device is a person using)
5. Location information (which skype is sure to start using)
6. Presence services. Not just disclosing or controlling a user’s availability for interruption (online or offline) but processing requests for presence based on contexts like strength of relationship (e.g. family vs. stranger).

A2. Conditions.

Now, Skype prohibits third-parties from talking to the Skype network in all sorts of useful ways. Skype’s developer ToS  bans applications that might wind up competitive to existing or future Skype products. For example, you may not run a Skype client in a server farm, or put SkypeKit into an enterprise appliance, or include SkypeKit in a product i sell in China.

Skype also offers some services that are explicitly premium or for special partners. For example, Skype offers anonymous access to the Skype network through Facebook’s video chat browser plug-in. Skype also enables group video via servers, and they charge end users for that but not Facebook chat users.

A3. Fairness.

Remember when Microsoft was told to put their own desktop applications at arms’ length from Windows? Regulators argued Internet Explorer, Microsoft’s own browser, had an insurmountable competitive advantage over third-parties because of early, exclusive and/or privileged access to Windows internals and secret APIs.

The same argument could be made about Skype.

Action:

• Microsoft must expose to the developer community all those plumbing features that make the Skype network so effective on the same basis that Skype and the Microsoft app developers receive access.
• Divide Skype departments between the communications infrastructure and the app layer. Make them operate as two separate businesses.
• Compel the Skype Network business to treat all customers at least as well as it treats Microsoft and Skype Apps Division customers.
• Mandate “platform network neutrality” where bits from third-party apps travel through Skype’s network as well as bits from Skype’s own apps.

B. Skype Carterphone.

The original Carterphone ruling opened the door for third-parties to compete with phone companies on telephones so long as they didn’t harm the network. Skype argued for a Mobile Carterphone principle in the US, bringing that freedom to compete to wireless networks. Now it is time apply the principle again, this time to Skype’s own network.

Skype has a few hundred developers, roughly half working on infrastructure, half on apps. Skype Carterphone would allow millions of developers to find their own uses for the Skype network and to innovate in the marketplace, building apps for different situations (e.g. first responders and the cognitively impaired need very specific, non-generic apps). Right now Skype is like the phone companies from one hundred years ago, offering exactly the same phone to everyone. EU citizens deserve the benefits the market will bring if Skype is unleashed.

Action:

• Skype must publish protocols so anyone can connect whatever software or service they like to Skype’s network so long as that end point doesn’t harm the network.
• Skype cannot tax, register or otherwise control end users or third-parties connecting to the network.

C. Consumer Choice.

Is the combination of Skype, Microsoft, and Nokia a threat to consumer choice?

How much will Skype be bundled with mobile phones? With mobile OSs? With Windows, Office, Internet Explorer, Xboxes, and other Microsoft products? This may constitute an overwhelming market advantage, stifling innovation and competition.

One remedy may be like what Microsoft did after the IE/Netscape war; they offered links to IE, Netscape and other browsers on their desktops and stopped forbidding OEMs from installing other browsers on Windows PCs.

Action:

• Promote  comparable third-party communication products on Microsoft platforms as least as well as you promote Skype.
• Prohibit restrictions on bundling third-party Skype-compatible products with Microsoft products.

Will that be enough to assure a healthy diversity of products and streams of innovation outside of Microsoft?

D. Citizen Safety.

It’s time for apps to shoulder a new duty.

Is Skype’s popularity and dominance, only growing with Microsoft, reason enough to craft new rules in the public interest for operators of realtime communication over data?

Yes. We’re abandoning landlines and switching from mobile voice to mobile data. Along with this, the responsibility for helping people reach emergency services or be notified of earthquakes and tsunamis should migrate from the landline or wireless operator to the app provider.

Society needs its citizens to use these services. Apps must take up the life-saving responsibility from telcos. First Skype, then others in the application layer, should assume this duty.

Action:

• Require compliance with emergency service access laws and rules, subject to user opt-out and local law.

E. Freedom to Leave.

E1. Phone Number and ID Portability.

As Skype becomes dominant as the first realtime social network to achieve global scale, and continues to grow, a Skype name could very well become as vital as your phone number.

Skype offers Online Numbers (formerly called SkypeIn numbers). Skype should interop to the extent that it complies with rules about accepting existing phone numbers and transferring SkypeIn numbers to other services as customers demand. We’ve already seen situations where Online Numbers used by small businesses have been removed at Skype’s convenience, cutting off businesses from customers.

Action:

• Skype must accept the transfer of a customer’s existing phone numbers to Skype’s service.
• Skype must enable customers to transfer of a Skype-connected phone number to a competing network.
• Skype should not be allowed to take away company phone numbers once in service.

E2. Personal Data Portability.

Skype is too much a Hotel California for personal data. You can’t get your profile out, or your history, but you can get a .vcf file listing your contacts.

Action:

• Skype must let third-parties extract all customer created and co-created data.

F. Consumer Rights.

Skype has enormous power over its customers. It has wielded that power lightly, but it still has that power. It can ban a user, reassign a user name, seize funds, and apply new terms of service, all without meaningful notice, consent, or an independent and timely means of redress.

So Microsoft should be subject to a regime that provides for meaningful consumer rights and treatment and access to the resources of national and EU telecom dispute resolution services.

• Forbid Skype from banning “class action” suits by customers in its terms of service. 

G. Clarify Legal Jurisdiction.

Skype cooperates with law enforcement authorities in many countries. Skype is quiet about it but they’ve said they cooperate with authorities in the US, China, and around the world. The acquisition will only increase Skype’s power and the demand by censors, intelligence agencies, and law enforcement authorities for access to personal data, private under EU telephone laws.

Action:

• Compel Skype to report statistics on government requests by type and country of origin, the way Google does.
• Compel Skype to promptly notify users when they are being surveilled or requests for information about their activities have been demanded by authorities. This should be subject to the laws of the country where the customer claims citizenship. So a US or Chinese government agency could not order Microsoft to spy on the conversations of a French and German national without the consent of the French and German governments.
• Require that Skype APIs and clients disclose to users the jurisdictions of their contacts. You can only make informed choices about whom to talk to or not, what to say or not, if you can assess the consequences.

H. Collect Taxes.

Phone companies collect taxes from their customers for governments. As soft networks like Skype take over from landline and mobile operators, Microsoft could take that role.

Action:

• Compel Skype to collect fees and taxes from its customers as required of telephone operators. At a minimum, contribute to the fund that pays for relay services for the deaf and blind.

It’s time for Skype to step up.

I’m a huge Skype fan. I use it every day for family and work. It lets me earn my paycheck in a multinational team. The health and success of the Skype network matters to me. So I’m not trying to keep eBay, the founders, and the other investors from getting their payday. Or prevent Microsoft from adding its muscle to Skype’s momentum.

This moment comes once in a lifetime. The Commission will shape Skype’s future and those of every user.

Corporate citizenship comes with benefits. This is a rare moment to review, renew, revise and modernize the duties that come with that privilege. The U.S. Congress, Federal Communications Commission, Federal Trade Commission, and Department of Justice missed their moment. Will Europe seize theirs?

Phil Wolff consults with Hookflash, a software company building realtime communication products for effective people. Skype evanwolf, tweet @evanwolf or call +1-510-444-8234 to talk with Phil. Skype Journal is independent of Skype. Phil’s opinions may not represent the views of Hookflash or Skype.