E.U. Regulators Unlikely to Interfere with Microsoft/Yahoo Deal

Following the confirmation of Microsoft and Yahoo’s eagerly anticipated search partnership last month, questions have been raised regarding potential anti-trust scrutiny from both U.S. and European authorities.

Although the partnership is far less significant across Europe than it is in the U.S. in terms of immediate market influence, it’s unclear at present what level of regulatory scrutiny is likely to be applied by European anti-trust authorities.

A spokesperson for the European Commission — the branch responsible for anti-trust scrutiny in the E.U. — said last week that it “has not been informed about the details of the transaction,” and that it “keeps this sector, as others, under review, but cannot comment further at this stage.” However, Christopher Thomas, a Brussels-based competition partner at law firm Lovells, told ClickZ that Microsoft and Yahoo now “appear to be in discussion with the Commission about the deal.”

So what exactly is the Commission likely to make of the tie-up, and will it consider launching a formal preliminary investigation as it did with Google and Yahoo’s proposed search partnership in 2008?

Speaking with ClickZ News today, Douglas Lahnborg, Competition Partner at law firm Orrick, Herrington & Sutcliffe, said, “It is inconceivable that the deal would be blocked by the Commission. I don’t see what competition arguments could be raised against it given the parties’ limited market position. Any investigation will be a formality.”

Similarly, Thomas suggested the only serious opposition to the deal is, unsurprisingly, likely to come from market leader Google. However, he also asserted that any objection from Google on grounds of competition risks highlighting its own market dominance, particularly within Europe. “Google will presumably be adverse to this new alliance, but the obvious antitrust arguments it might raise would imply emphasising its own market power,” he said.

As a result, Thomas said advertiser perception of the deal — which has been largely positive so far — is likely to play a crucial role in any E.U. anti-trust scrutiny. “Do [advertisers] view this as building a credible alternative to Google, or are they more concerned simply about the reduction of the number of players in the market — or some other issue connected with Microsoft?” he asked.

In reference to arguments the partnership would reduce competition by taking a player out of the game, Lahnborg suggested the combined European market share of the two entities — estimated at around 4 percent — would still be too small to raise concerns. “In an industry where the number two and number three players command 20 percent market share each, the deal would be closely scrutinized by the European Commission. But considering Google has around 90 percent of the market, that argument is inconceivable,” he said. “Google has a formidable market position, and this relationship could offer advertisers a credible alternative,” he added.

Having said that, Lahnborg said Google was unlikely to just sit back and watch, and would probably “try to make life difficult” for the pair.

UPDATE: In a previous version of this story, Douglas Lahnborg was misquoted as saying, “In an industry where the number two and number three players command 20 percent market share each, the deal wouldn’t be allowed to go ahead.” What Lahnborg actually said was, “In an industry where the number two and number three players command 20 percent market share each, the deal would be closely scrutinized by the European Commission.” The story has since been altered to correct that error.