Verizon demands $1bn discount from Yahoo following email surveillance claims

$4.8bn acquisition of Yahoo by Verizon suddenly complicated by email revelations

Verizon is reportedly demanding a $1bn discount from Yahoo on the $4.8bn acquisition price agreed only last month, following the claims this week that the company built a system to monitor users' emails on behalf of US intelligence.

Yahoo has unconvincingly rejected the claims, but the furore over the news has, according to the New York Post, prompted Verizon to demand a 20 per cent cut in the acquisition price.

If true, it would be the first time that such a hefty price tag has been put on the cost of a security issue, while also demonstrating the importance of companies respecting the data privacy of their customers.

The application built by Yahoo was used to bulk-scan users' emails for images or evidence of child abuse, but was also ordered to find a 'signature' among users' emails that purportedly uniquely identified a non-US power.

The app was allegedly built in 2015 after the company received a demand from the US government for access to customer emails. It is unclear whether it was contested. Earlier reports suggested that CEO Marissa Mayer decided not to contest the order.

Later reports have suggested that it came from the secretive Foreign Intelligence Surveillance Court, which adjudicates on US information security demands from the country's government and secret services.

The lack of clarity from Yahoo has only made matters worse.

Chief information security officer (CISO) Alex Stamos reportedly left the company in response although Stamos, who is now CISO at Facebook, has declined to comment on the revelations.

However, Yahoo has finally responded to the claims, issuing a statement describing the original report on the Reuters newswire as "misleading".

"We narrowly interpret every government request for user data to minimize disclosure. The mail scanning described in the article does not exist on our systems."

However, in a series of tweets, privacy campaigner Christopher Soghoian described the company's short denial as "carefully worded", and added that Yahoo "has a history of putting out carefully-written, deceptive denials when it comes to NSA surveillance".

The claims were made late last night in a Reuters report quoting three former employees of the company. The report added further fuel to the crisis over the alleged hack of the company's email systems in 2014, which a former executive claims affected all three billion or so accounts and not the ‘mere' 500 million that Yahoo originally claimed had been compromised.

While US telecoms and internet companies are known to have handed over bulk customer data to intelligence agencies, former government officials and security experts polled by Reuters claimed that they had never heard of a company building its own application to, effectively, wiretap its own customers.

Although there are question marks over the legality of the US government demanding bulk data of US citizens' email, those laws don't apply to non-citizens.

The demands are likely to have been legally justified under 2008 amendments to the Foreign Intelligence Surveillance Act, which allows the US government to demand customer data from US phone and internet companies that could help foreign intelligence-gathering under a number of justifications, including fighting terrorism.

Such demands can be contested in the secret Foreign Intelligence Surveillance Court, but the implication is that Mayer decided to simply comply with the order instead.

"Yahoo is a law abiding company, and complies with the laws of the United States," the company said in a brief statement to Reuters.

Google and Microsoft, the company's two main rivals in online email, claimed that they have never received such an order and that they would vigorously fight any such demand. Microsoft is currently fighting a US government demand for access to a user's email residing on a server in Ireland.

The revelations come as Yahoo is in the throes of a $4.8bn takeover by US telecoms company Verizon. While the disruption caused by the news could affect the course of the acquisition, Verizon is apparently no stranger itself to meekly submitting to US government information demands.