Privacy groups are promising a fight before U.S. regulatory agencies if Microsoft's
offer to buy Yahoo for $44.6
billion is accepted, and the deal could face significant hurdles in Europe as
well.

Microsoft announced that it sent an offer to Yahoo's board of directors on
Thursday, going public with the news Friday morning. Immediately, the executive
directors of the Center
for Digital Democracy (CDD) and the Electronic
Privacy Information Center (EPIC) said the acquisition would raise serious
privacy concerns.

CDD will press the U.S. Department
of Justice, the Federal Trade
Commission and Congress to "scrutinize this deal and impose the needed
safeguards for it -- and the industry," said Jeffrey Chester, CDD's executive
director. CDD and EPIC tried to stop Google's
proposed acquisition of online ad service DoubleClick
on privacy grounds before the FTC last year, but the FTC approved the deal in
December.

The Microsoft-Yahoo deal, if consummated, would "create a powerful interactive
Internet duopoly in online media," Chester said. "Google and Microsoft
will have inordinate power to shape the online communications marketplace, including
journalism, entertainment and advertising. There are consequences to democratic
societies everywhere, as two digital gatekeepers are likely to control how the
Internet and other interactive media evolve."

The proposed deal also underscores a need for new laws or regulations that
protect consumer data, Chester added. "In an era when individuals are increasingly
conducting their personal, social and political lives online, the corporations
that control the digital experience will have a far-reaching influence over
every aspect of society," he said. "Consumers will be more vulnerable
to having their personal information become the property of the GoogleClick's
and Microhoo's."

But the DOJ and FTC may have little grounds to oppose a Microsoft/Yahoo merger,
said Professor Keith Hylton, who specializes in antitrust issues at the Boston
University law school. While Microsoft and Yahoo compete in some areas, Microsoft
could argue this a "vertical" merger that largely expands its online
services, but largely doesn't eliminate competition, he said.

"I think Microsoft is trying to ramp up in the online services/online
ad revenue business," Hylton said. "Microsoft is a small player in
that area, and Google is a big player. This is a merger of two firms trying
to compete against a big monster out there -- Google."

But the deal could face more hurdles in Europe. If the deal allows Microsoft
to take components of Windows online, and "in the process increases Microsoft's
dominance of the market for PC operating systems," then the European Commission
would have to prohibit the deal, said an antitrust lawyer in Europe who asked
not to be identified.

European Union merger rules prohibit dominant companies from increasing their
dominance, the lawyer said.

The combined company would likely have to sell off an instant-messaging service,
added a European Commission official familiar with the competition department.
"I can't see how Microsoft/Yahoo would be allowed to keep both instant-messaging
services," said the official, who also asked not to be identified.

Microsoft campaigned for federal regulators to block the Google-DoubleClick
deal, partly on antitrust grounds. But Google argued the acquisition would join
two companies operating in different online markets.

This week, Judge Colleen Kollar-Kotelly of the U.S. District Court for the
District of Columbia extended antitrust scrutiny of Microsoft for two years.
But the U.S. government's antitrust case against Microsoft was based on its
desktop and server operating systems, not online services. If anything, the
old antitrust case could help Microsoft make the case for approval of its acquisition
of Yahoo, Hylton said.

"I assume Microsoft people can say, 'Look, we're already under a microscope,
doesn't this suggest we're less likely to do anticompetitive things?'"
Hylton said.

But a consolidating online market means users will have their data held by
a small number of companies, said Professor Joseph Turow, at University of Pennsylvania
school of communication.

"Microsoft's decision to buy Yahoo is a direct result of the decision
by the FTC to allow Google to purchase DoubleClick," he said. "It
is further evidence that despite the appearance of unlimited choice in the new
media environment, people's activities will be tracked and shaped by a very
small number of companies who care far more about surveillance and targeted
advertising than the public interest."

The public needs to demand privacy scrutiny in the proposed deal, he said.
"The federal government, which should have been the guardian of the public
interest, has dropped the ball."

(Additional reporting by Paul Meller in Brussels.)

IDG News Service

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