Microsoft Surrenders Joint Control in Telewest Stake
Microsoft Corp. on Friday agreed to give up its controlling interest in British cable company Telewest Communications, a move that reflects one of the realities of its antitrust troubles at home.
The Redmond, Wash.-based software giant will still purchase a 23.7% stake in Telewest for about $3 billion, but it will cede its preferential voting rights in its partnership with AT&T; Inc.’s cable unit Liberty Media Group. Under the original agreement, Microsoft and Liberty agreed to share joint control over Telewest.
The European Commission was concerned about competition in the digital cable industry, especially over who supplies the software for set-top boxes in Britain. Telewest is Britain’s largest cable provider.
The commission opened an extensive probe of the proposed deal in March and was expected to deliver its final decision Aug. 4.
“If Microsoft acquired joint control of Telewest, it could then be able to determine the technology decisions of the emerging digital cable industry in the United Kingdom,” the commission said. “This could have substantially reduced the technological alternatives available to customers and led to potential higher prices for households.”
Microsoft spokesman Jim Cullinan said the deal was not designed to force Telewest to use Microsoft products. “We are very confident in our products when compared to other products. That was never an issue and never part of this deal.”
The commission, which serves as the European Union’s antitrust authority, issued a statement Friday saying it was no longer concerned with Microsoft’s investment in Telewest.
“Microsoft relinquishes legal control over Telewest and its interest in the company becomes a minority one, which does not require approval under the European Union’s merger regulation,” the statement said.
Experts said the commission’s antitrust objections appeared consistent with other decisions, but the commission scrutinized it earlier than usual because of Microsoft’s legal troubles.
In April, a U.S. federal judge ruled that Microsoft violated federal antitrust law and harmed consumers and competitors. Two months later, the judge ordered that Microsoft be split into separate operating systems and applications companies, although a break-up is delayed pending Microsoft’s appeal.
Microsoft can expect closer examination of all of its international investments, experts said.
“The whole world is following the antitrust case here,” said Bob Lande, an antitrust lawyer for the American Antitrust Institute in Washington. “One of the things Microsoft did in the trial is [it showed itself] to be a ruthless competitor that simply cannot be trusted. And if you are the regulator, and you know Microsoft’s reputation, you are going to examine Microsoft’s actions with a fine-tooth comb.”
Cullinan declined to discuss whether the company’s legal woes influenced the commission’s decision, except to acknowledge that the Europeans had some concerns that resulted in Microsoft making some changes. But its strategic goals for the Telewest investment were untouched by the regulators.
“Promoting broadband services was the main objective, and that remained intact in the final outcome,” Cullinan said. “We are fine with the process and think the end result is good news for Microsoft and for U.K. consumers.”
But analysts say that based on the sizable investment Microsoft is making, it wanted control over how Telewest is operated and that its broader goal of promoting broadband throughout Europe would be carried out. Microsoft’s size and legal troubles, however, will preclude it from having a controlling stake in any foreign company.
“Taking a controlling interest in any investment won’t be allowed until they are broken up,” said Rob Enderle, analyst for Giga Information Group. “For right now, the path they are on is one of straight investment and not of control.”
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Associated Press contributed to this report.
