All Things Digital

Yahoo’s exploratory advertising deal with Google has given it an alternative to Microsoft’s unsolicited takeover bid after all–the possibility of a federal antitrust investigation. The Justice Department is reportedly examining the companies’ dalliance amid concerns that it violates antitrust laws.

Which isn’t surprising at all, really. Together, Yahoo (YHOO) and Google (GOOG) control more than 80% of the U.S. search market. And as Microsoft (MSFT) general counsel Brad Smith will happily tell you, that’s anti-competitive. And he’d know, right?

During the week of Jan. 28, Internet access to a large portion of the Middle East and South Asia was disrupted when five undersea Internet cables were cut or damaged in relatively quick succession. Egypt lost about 70% of its Internet capacity, India about 50%.

What caused the disruptions? Finding five accidental failures in a week a bit hard to swallow, conspiracy theorists were quick to claim sabotage. But the cable operators and the International Telecommunication Union insisted the most likely culprit was an errant boat anchor. And their argument seemed to be borne out when an abandoned anchor was discovered near the second cable to be cut.

But now it appears the ITU itself may be finding the errant-anchor theory a bit suspect. With repairs completed on four of the five cables, the ITU has presumably been able to perform a fair bit of analysis on the cables at issue here, and it’s not convinced that it was Mother Nature who damaged them. “We do not want to pre-empt the results of ongoing investigations, but we do not rule out that a deliberate act of sabotage caused the damage to the undersea cables over two weeks ago,” Sami al-Murshed, head of the ITU, told Agence France-Presse. “Some experts doubt the prevailing view that the cables were cut by accident, especially as the cables lie at great depths under the sea and are not passed over by ships.”

If you think our witnesses today are uncomfortable sitting in this climate-controlled room and accounting for their company’s spineless and irresponsible actions, imagine how life is for Shi Tao, spending 10 long years in a Chinese dungeon for exchanging information publicly–exactly what Yahoo claims to support in places like China.”

–Statement of Rep. Tom Lantos (D., Calif.), chairman of the House Committee on Foreign Affairs, yesterday

Yahoo CEO Jerry Yang celebrated his 39th birthday yesterday with a public shaming before the House Foreign Affairs Committee. During a hearing to discuss Yahoo’s cooperation with the Chinese authorities, Yang and Yahoo General Counsel Michael Callahan were pilloried for misleading lawmakers last year about the company’s role in the investigation and imprisonment of dissident Chinese journalist Shi Tao.

Seems the committee didn’t quite buy Yahoo’s it-was-the-poorly-translated-document’s-fault story. “While technologically and financially you are giants, morally you are pygmies,” said Committee Chairman Lantos. “Yahoo claims that this is just one big misunderstanding. Let me be clear–this was no misunderstanding. This was inexcusably negligent behavior at best, and deliberately deceptive behavior at worst. … Look into your own soul, and see the damage you have done to an innocent human being and his family. It will make no difference to the committee what you do, but it will make you better human beings, if you recognize your own responsibility for the enormous damage your policies have created.”

Seated in front of Shi’s weeping mother, Yang had little choice but to do just that. “I deeply regret the consequences of what the Chinese government has done,” Yang said. “My heart goes out to the family. … I want to say we are committed to doing what we can to secure their freedom. And I want to personally apologize for what they are going through.”

Yang, however, made no promises to provide financial assistance to Shi’s family for what happened.

Yahoo has invested millions of dollars in China over the years. Indeed, it’s a cornerstone investor in Chinese e-commerce site Alibaba.com, which is slated to go public next week in one of the hottest technology initial public offerings since Google.

It had to run afoul of the language barrier sometime, right? It’s just a shame that when it did, Chinese journalist Shi Tao ended up in prison as a result.

Yahoo General Counsel Michael Callahan apologized yesterday to the House Foreign Relations Committee for failing to tell U.S. lawmakers that Yahoo knew more about China’s crackdown on online dissidents than he initially acknowledged in testimony last year. “Months after I testified before two House subcommittees on Yahoo’s approach to business in China, I realized Yahoo had additional information about a 2004 order issued by the Chinese government seeking information about a Yahoo China user,” Callahan said. “I neglected to directly alert the committee of this new information, and that oversight led to a misunderstanding that I deeply regret and have apologized to the committee for creating.”

That oversight, incidentally, meant that Callahan’s testimony of Feb. 16, 2006, was allowed to stand. And that went something like this:

The Shi Tao case raises profound and troubling questions about basic human rights. Nevertheless, it is important to lay out the facts. When Yahoo China in Beijing was required to provide information about the user, who we later learned was Shi Tao, we had no information about the nature of the investigation. Indeed, we were unaware of the particular facts surrounding the case until the news story emerged.

“Let me take this opportunity to correct inaccurate reports that Yahoo Hong Kong gave information to the Chinese government. This is absolutely untrue. Yahoo Hong Kong was not involved in any disclosure of information about Mr. Shi to the Chinese government. In this case, the Chinese government ordered Yahoo China to provide user information, and Yahoo China complied with Chinese law. To be clear–Yahoo China and Yahoo Hong Kong have always operated independently of one another. There was not then, nor is there today, any exchange of user information between Yahoo Hong Kong and Yahoo China.”

Quite an oversight.

So, assuming for the moment that this is an honest account of what happened, how did it happen? Yahoo blames the incident on a lousy translation of the Chinese government’s order, which didn’t mention that its request for user information involved an investigation into state secrets. Mea culpa, eh, Yahoo?

The fat lady of justice has finally sung for Frank Quattrone. A federal judge yesterday officially dismissed criminal charges against the defrocked Silicon Valley financier, clearing him of charges that he obstructed an investigation into Credit Suisse First Boston’s practice of steering shares of hot IPOs to favored investment-banking clients. “Today, the legal system has rendered its final verdict: I am innocent,” Quattrone said. “The opera is over.”

If Quattrone’s lengthy legal ordeal truly was an opera, then it makes Richard Wagner’s interminable Ring Cycle look short by comparison. Accused of ordering the destruction of documents while his firm was under subpoena, Quattrone was charged with witness tampering and obstruction of justice in April 2003. His first trial ended in a hung jury in October 2003. He was convicted in a retrial in May 2004 and sentenced to 18 months in prison. But that verdict was overturned last year. Quattrone managed to avoid a third trial by reaching a deferred-prosecution agreement with prosecutors. Now, having met its terms, his four-year battle with the federal justice system is officially over.

So what’s next for the investment legend? Back to business, most likely. Said Bill Burnham, a venture capitalist who once worked with Quattrone: “Investment bankers want him to start a private equity firm and private equity investors want him to start an investment bank because neither group wants to compete head-on with Frank. Who knows, maybe he will disappoint them all and do both.”