EU enter web deal talks

A Microsoft spokesman said: "We anticipated that this deal would be closely reviewed in the United States and EU, and discussions in both geographies continue. We remain hopeful the deal will close in early 2010."

The European Commission, Europe's top competition watchdog, declined to comment in detail but told Deutsche Welle: "In such cases it is up to the parties concerned to calculate if their transaction falls within the EU Merger Regulation and notify it accordingly."

Microsoft and Yahoo struck the 10-year Internet search deal back in July in a bid to take on chief rival Google which dominates the search engine business in the US and Europe.

Under the agreement, Microsoft's new Bing search engine, launched in May this year, will power the Yahoo website, processing all search requests and steering search-related advertising on Yahoo. In essence, Yahoo will become Microsoft's online advertising sales team. Yahoo will cede control of its existing search engine in return for 88 percent of the revenue from search ad sales for the first five years of the deal, rising to as much as 93 percent in the final five years.

Google currently has a share of about 65 percent of the world search market. The deal to combine forces will give Yahoo and Microsoft, the number two and three players, a share in the US search market of about 30 percent.

While Microsoft is counting on the alliance to close the widening gap on Google, some industry analysts claim the deal could make or break Yahoo, as the company has been struggling to make profits in recent years.

Microsoft boss Steve Ballmer said, on completion of the deal in July, that it would, "create more innovation in search, better value for advertisers, and real consumer choice in a market currently dominated by a single company."

A marriage of convenience

The partnership ends years of back-and-forth negotiations between the two companies. Microsoft originally made a bid to buy Yahoo in January 2008 - with an offer worth around $47.5 billion (32.3 billion euros) - but Yahoo's then boss and co-founder Jerry Yang demanded a higher price and Yahoo opted instead for an online advertising partnership with Google.

That alliance foundered, with Google abandoning the deal amid objections from anti-trust regulators in the US over competition issues. The US Department of Justice scuppered the proposal on the grounds that the partnership would create an unbeatable search engine and advertising juggernaut which would stifle competition.

Microsoft's chequered past with industry watchdogs

Microsoft has a long, colorful history with antitrust authorities in the United States and Europe. In 1998 the technology giant was accused of abusing its monopoly over PC operating systems. A host of civil actions filed against Microsoft Corporation triggered an antitrust case.

The key issue was whether Microsoft should be allowed to continue to 'bundle' its flagship Internet Explorer web browser software with its Microsoft Windows operating system. This practice of tying Internet Explorer to the ubiquitous Windows operating system on most of the world's desktop computers was alleged to be the reason why Microsoft had crushed competition from rival browsers, including Firefox (Mozilla), Google's Chrome and Norway's Opera Software, since every Windows user was equipped with Internet Explorer.

The case dragged on for almost three years, and in December 2001 the Department of Justice proposed a settlement requiring Microsoft to share its application programming interfaces with third-party companies. But the DOJ did not ask Microsoft to change any of its code or prevent the company from tying other software with Windows in the future.

In July 2009 the issue arose again when Microsoft agreed to open up Windows to different Internet browsers in order to fend off European Union litigation. The Commission had launched a new assault on the company in January with fresh charges of squashing competition by bundling its products together.

The regulators accepted a compromise from Microsoft which will give consumers the opportunity to choose their browser when they set up a new computer's operating preferences. A list of rival browsers will appear on a ballot screen allowing the user to pick one when they are installing Windows.

The European Commission, the EU's executive arm in Brussels, acts as a bastion of the bloc's single market, fighting illegal subsidies, price-fixing cartels and all sorts of anti-competitive behavior by businesses operating in Europe. Microsoft has borne the brunt of its dogged anti-trust crackdowns. The software giant has been fined on numerous occasions and was eventually forced to pay a total of 1.7 billion euros for using its market dominance to stifle its competitors.

Jury still out on software giants' fate

Regulators worldwide must now decide if a stronger rival for Google is in the best interests of the lucrative market for selling ads alongside search results, and they will also need convincing that, by joining forces, Yahoo and Microsoft's plan won't have a detrimental affect on online advertisers and consumers.

Last week US antitrust regulators requested more documents from the two companies as part of their ongoing probe into the proposed partnership, with completion of the review not expected until early 2010.

It remains unclear whether Microsoft and Yahoo need approval from the European Commission or from national regulators in European Union countries. Standard practice may demand that they keep the European watchdog informed of the details of the deal, but it is too early to say whether these informal chats will follow the US review and become a formal investigation.

ds/reuters/ap

Editor: Susan Houlton