Cisco, Google, and Skype: Acquisition and Antitrust

In the headlines is the news that Cisco may be acquiring Skype. Mind you, this is a rumor from one of TechCrunch's "more reliable sources," so it is hard to say how much truth is actually in it. According to the post, this pre-IPO acquisition of Skype would be for somewhere in the ballpark of $5 billion.

Though not a new rumor, Google had supposedly also jockeyed for this position. Skype would be a natural fit for Google's gradual expansion into the voice market, alongside its Gchat, GTalk, Gvoice, and now browser based VoIP service. Evidently, this could pose some serious antitrust issues due to Google's size and propensity to rapidly expand into these sorts of niches, and outperform more expensive established alternatives. If Google were to acquire Skype, it would likely fail the Department of Justice's SSNIP test (Small but Significant and Non-transitory Increase in Price). What this means is that the merger of Google and Skype would create a significant enough amount of market power to have the theoretical power, if Google so chose, to cause this small but significant price increase. Upon failing this test, the merger would be attackable under Section 7 of the Clayton Act for reducing competition or under Section 1 or Section 2 of the Sherman Act.

Cisco is much less likely to suffer from such a problem due to having fewer connections to this particular market than Google. In other words, the rivalry between Skype's product and Google's product will continue. The irony is that Google often extends expensive services to users at little or no cost, meaning that the worry over monopolization and price fixing would be a non-issue, and potentially counterproductive. Alas, even the good can become evil, and these regulations have protected competition in numerous occasions in the past. But remember, these are all rumors, we'll have to wait to see what actually happens.