by István Kopácsi
Cloud computing[1] has garnered significant regulatory interest worldwide due to its growing importance to business IT infrastructure and its role as a major revenue source for leading tech companies. Digital markets are often characterized by the features that are likely to lead to tipping, including strong network effects, high barriers to entry, a lack of interoperability and difficulties switching from one ecosystem to another. “Tipping” may be described as the tendency of a market to move towards being supplied by a single company. In other tech markets such as search engines, digital advertising and mobile ecosystems, they have stood aside while the market has “tipped” in favor of one or two leading players.
Below, we highlight a few regulatory and policy steps aiming to prevent the tipping that has been observed in other tech markets and will avoid distorting competition in a market that is still innovating and developing.
According to CPI’s TechREG® Chronicle – Regulating Cloud Computing (Chronicle),[2] antitrust agencies in various countries, including the UK, US, France, the Netherlands, South Korea, and Japan, are concerned about market "tipping", where one company comes to dominate the market.[3] Regulatory agencies are wary of the risks associated with high market concentration and user lock-in within cloud computing, fearing that it could lead to reduced incentives for service quality, innovation, and price competition, ultimately harming customers and consumers. Several agencies have identified that poor interoperability between cloud services may be leading to increased market concentration and reduced competition in the cloud computing sector.[4] Costumers have recognized that their efforts to engage in "multi-cloud" usage, which involves utilizing the services of multiple providers simultaneously, have been constrained by the technical difficulties associated with transferring data between providers. Additionally, they face heightened expenses when endeavouring to integrate one cloud stack with another.[5]
Financial barriers also impede switching providers, particularly in the form of egress fees, which are charges for transferring data out of a provider's infrastructure. These fees are often higher than the actual cost of the transfer, potentially negating the financial benefits of switching, especially for users with large data volumes.[6]
Many regulatory and policy initiatives in the EU aim to prevent the cloud market from irreversibly tipping. The EU's Digital Markets Act (DMA) targets companies identified as gatekeepers in the operation of core platform services, aiming to foster competition and prevent unfair practices. As of the first designation round in September 2023, no company was however identified as a gatekeeper in the cloud computing sector.[7]
The EU's Data Act is designed to foster a fair and competitive data market, enhance data-driven innovation, and improve data accessibility. It addresses issues in the cloud computing sector by mandating the elimination of high data egress charges and other unjustified costs that hinder customer mobility, thereby reducing the risk of vendor lock-in. Until January 12, 2027, providers can charge for switching, but the fees must not exceed the actual costs and must be clearly stated in contracts. After this date, switching charges are prohibited. The Data Act, effective from mid-2025, stipulates that providers should not create technical or contractual barriers to switching services or transferring data to new providers. It also requires "functional equivalence" among Infrastructure-as-a-Service (IaaS) products to facilitate seamless service transitions. The Data Act also promotes interoperability by advocating for higher standardization, particularly where market processes fail to establish common specifications or standards for cloud interoperability at the Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS) levels. The European Commission is empowered to request the development of such standards by European standardization bodies if they do not already exist. It should be noted that the Data Act is also relevant in terms of European data sovereignty, which limits the third-country access to sensitive European commercial data.[8]
According to the European Alliance for Industrial Data, Edge and Cloud,[9] in terms of policy approach, the EU’s goal is not to form a single European cloud entity but to create a federated cloud system which combines the services and infrastructure of different European providers, by supporting cross-provider interoperability.[10]
[1] Cloud computing is categorized into three service models: Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS), each serving different consumer needs and featuring distinct market players.
[2] Competition Policy International, https://www.pymnts.com/cpi-posts/techreg-chronicle-regulating-cloud-computing/
[3] Chronicle, 16. [Competition and Markets Authority, https://www.gov.uk/government/news/cma-outlines-scope-of-market-investigation-into-cloud-services ; FTC Office of Technology, https://www.ftc.gov/policy/advocacy-research/tech-at-ftc/2023/03/inquiry-cloud-computing-business-practices-federal-trade-commission-seeking-public-comments ; Autorité de la concurrence https://www.autoritedelaconcurrence.fr/en/opinion/competition-cloud-sector ; Autoriteit Consument & Markt, https://www.acm.nl/en/publications/market-study-cloud-services ; Jenny Lee, Anticompetitive concerns exist in cloud-services market, South Korean antitrust watchdog says, https://content.mlex.com/#/content/1439316 ; Japan Fair Trade Commission, https://www.jftc.go.jp/en/pressreleases/yearly-2022/June/220628.html ]
[4] Ibid., 17.
[5] Ibid., 18.
[6] Ibid., 19.
[7] Ibid., 20.
[8] Ibid., 21.
[9] https://digital-strategy.ec.europa.eu/en/policies/cloud-alliance
[10] Chronicle, 33.
