Microsoft’s Skype Faces Telecom Demand, French Prosecutor Threatens Legal Action
French prosecutors have launched a fact-finding investigation into Microsoft’s Skype operations in France, a move to force it to register as a telecoms operator, at considerable additional operating costs, says the economic website Expansion.
The move comes hard on the heels of ongoing tax investigations into the multinational’s French-based subsidiary.
The tougher approach follows a consistent refusal by Microsoft to register as a telecoms operator in France. Faced by repeated demands to do so, it insists that Skype — its largely free VOIP telephony service — is nothing more than an IT application.
In France, the Redmond, Washington-based group refuses to declare itself a telecommunications operator and for good reason. To do so would place it on a par with the likes of Orange, Bouygues Telecom or SFR and subject it to obligations that include permitting phone tapping on judicial demand.
Microsoft’s views on what Skype is are not shared by many European Union member states.
The fight to force Skype and other Internet telephony services to join more conventional operators and pay substantial associated charges, goes back at least seven years (See Is Skype Illegal in France? and France threatens to fine ‘illegal’ Skype ).
Faced by Microsoft’s long standing refusal to bow to its will, the public prosecutor of Paris, François Molins, has says Expansion, ordered a preliminary investigation based on a complaint from ARCEP-Autorité de Régulation des Communications Électroniques. “According to our sources” says Expansion, “the CID is involved in the matter,” Ongoing failure by Microsoft to comply with French law could attract a jail sentence of up to one year and a fine of €75,000.
The paper claims the issue is a headache for Microsoft new CEO Satya Nadella who, since he took over last December, has also faced demands from French tax authorities to settle claims of more than €600 million in assessed but unpaid taxes. Microsoft France insists it does not owe the amount claimed.
Conflict over a clear definition of Skype dates back to 2007. At that time, ARCEP Director General Philippe Distler, sent an ultimatum to Skype (which was only taken over in May 2011 by Microsoft). “It is not acceptable that you continue your operations in the present irregular fashion and ignore your responsibilities, I therefore request that you reply to our demand, within a period of 30 days.” At the time, says the paper, Skype did not respond and although the matter was passed onto the Paris Prosecutor no further action followed … until now.
If Microsoft were to comply with the telecoms operating requirements it would be obliged not only to cooperate with law enforcement agencies in providing facilities for authorised wire taps, and permit emergency calls across its network, it would also have to make funds available to finance the universal copper wire telephone service provide connections to a fixed telephone network at an affordable price, and contribute to the cost of printing and distributing the telephone directory. Should it give way in France it would face the same demands from Spain, Australia, Canada, India, Japan and elsewhere, says Expansion.
In France, ARCEP argues, Skype is effectively a telecoms operator, based on a number of criteria. The software giant has a research centre and offices in the Paris suburb of Issy-les-Moulineaux; Skype software permits not only free conversations between computers but can also route calls to landlines and mobile phones at very competitive rates (via its SkypeOut service). These features mean it acts like a telecoms operator, ARCEP insists.
According to documents filed in Luxembourg, Microsoft billed for 14.9 billion minutes in 2011 giving it a turnover of €702 million. In H1 2012, it sold 7 billion minutes for €366.4 million; it has 254 million active users worldwide. This unbridled growth is not about to slow down. Today, Microsoft bundles Skype in all its Galaxy products, in Windows 8, on its gaming console Xbox One operating system, on the Nokia range of smartphones and with its Outlook.com email service.
The U.S. corporation is also facing demands from French tax authorities. Following a raid on its headquarters in Issy-les-Moulineaux in 2012, Microsoft France last December received a demand for payment of more than €600 million in assessed tax, including interest and penalties. Microsoft acknowledges it has been assessed for the 2010 tax year but says it is still waiting for claims for the following two years.
“We disagree with the amount and the merits of this procedure,” the French subsidiary says. In the past, the company has succeeded repeatedly in fighting off the tax demands. But this time, the French taxman believes it has managed to prove that Microsoft’s activities in France are far from being that of a simple commercial agent, as it claims. In France the company books only a part of its sales in the form of commissions. The greater part is booked in Ireland, an EU low tax haven.
The heat is being turned up now on Microsoft says Expansion because both the taxman and the justice ministry want to prevent Microsoft’s methods being emulated by a new generation of French start-ups.
These include messaging service WhatsApp which has plans for a Skype-style service and Viber which already allows its 300 million users to make chargeable calls to landlines and mobile phones via ViberOut. Viber which on March 5 transferred its operations from Panama to Luxembourg, also insists it is not a telecoms operator in France.
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