China Gives Microsoft-Nokia Deal Extra Scrutiny

Microsoft’s move to acquire Nokia’s handset business, which has already cleared regulatory hurdles in the United States and Europe, is running into some resistance in China.

China’s Ministry of Commerce has submitted the multi-billion dollar acquisition to “a second-phase anti-trust investigation”, stated the Global Times, citing news first reported in The Economic Observer newspaper based in Beijing. Typically, deals of this type sail through the approval process within the first 30-day phase.

Microsoft and Nokia expect the deal to close in the first quarter of 2014.

Patent concerns

People with inside knowledge told the paper that the delay stems from concerns from Chinese phone makers, including Lenovo, Xiaomi and ZTE. They worry that once the transaction has closed, “Nokia will charge them high patent fees for the usage of valuable technology on handsets”, the report said.

To date, Nokia has been charging patent fees for only a few of China’s phone manufacturers, adhering to “a loose system for patent protection in China”. Once Microsoft scoops up the Finnish device maker’s hardware unit, the fear is that the company will pursue “official patent licensing contracts with all domestic users or even charge them higher”.

Nokia’s fees are roughly 2 percent of a device’s full price. In 2014, the Chinese mobile device market is forecast to generate $1.1 billion (£640m) in patent licensing income for Nokia.

Nokia has signalled that it plans to expand its licensing programs to generate revenues after it hands off its handset business to Microsoft. Mark Durrant, a Nokia spokesperson, is quoted telling Reuters that once his company no longer has its “own mobile devices business, following the close of the [Microsoft] transaction, we would be able to explore licensing some of those technologies”.

Microsoft announced on 2 September that it was acquiring Nokia’s hardware division for $7.1 billion, after reports of an earlier failed bid during the summer. Nokia Chairman and interim chief executive Risto Siilasmaa said in a statement that following a “thorough assessment of how to maximise shareholder value”, his company’s leadership accepted Microsoft’s offer.

‘Advanced technologies’

Flush with billions of dollars and freed from building Windows Phones, Nokia would turn its focus toward “enabling mobility through its leadership in networking, mapping & location, and advanced technologies”, he added. Nokia shareholders approved the sale on 19 November.

In an email to Microsoft staffers, chief executive Steve Ballmer said the move was “a smart acquisition for Microsoft, and a good deal for both companies”. He added the software giant was gaining “incredible talent, technology and IP”.

Ballmer added, “We’ve all seen the amazing work that Nokia and Microsoft have done together.” Nokia and Microsoft formed a strategic partnership in 2011, which resulted in Windows Phone replacing Symbian as Nokia’s principal smartphone OS.

While Windows Phone is a distant third behind Google’s Android and Apple’s iOS in the global smartphone market, Microsoft and Nokia are making steady gains in some regions. In Latin America, Windows Phone is quickly closing in on iOS. In Italy, Microsoft has already surpassed Apple.

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Originally published on eWeek.