A promise is a promise: the French Competition Authority launches a market study in the cloud computing sector

Following the launch of the market study on the cloud computing sector, although it is hard to predict the outcomes,  we expect France's FCA to make strong recommendations addressed to companies active in the sector.  The FCA’s position may also shape the future assessment of practices under EU and French competition law by other competition authorities.

The competitive environment of cloud

A promise is a promise! Less than a week after Benoît Coeuré took office as the new President of the French Competition Authority, the FCA announced in a press release on Friday 28 January that it was starting proceedings ex officio to analyse the competitive environment of the cloud computing sector.

This is in line with Benoît Coeuré's speech before the French Parliament on 12 January 2022, in which he emphasized the need to undertake swiftly “in-depth work on the consequences of the cloud in all sectors, in conjunction with the relevant sectoral authorities” and to tackle “the emergence of essential facilities, such as the cloud.”

The scope of cloud

The European Commission defines cloud computing as “a digital service that enables access to a scalable and elastic pool of shareable computing resources”.

In other words, and to put it simply, the cloud represents all shared services, accessible via the Internet, on demand, on a free or paid per use basis, and, by extension, some of their underlying infrastructures (like data centres). For example, this refers to online document storage, online email and video streaming services.

Huge growth in cloud services

Since the beginning of 2017, the European cloud market has grown more than threefold, reaching EUR 5.9 billion. Gartner expects global sales of cloud services to rise by 26% in 2021, to more than USD 400 billion. In the context of the sanitary crisis, the cloud has allowed for new types of work organisation and has helped millions continue working in “normal conditions” from home thanks to easy and fast access to computing resources. 

Private stakeholders quickly understood that there was space for business and decided to invest massively in this new type of infrastructure which will support the industries of the future. The space is now populated by tech giants (e.g., Amazon Web Services, Microsoft Azure, Google Cloud Platform) which offer dozens of complementary services, and many others, including players, such as the French OVH.

The digitalisation of the economy has led to massive demand on cloud services, and authors, such as French Pr. Frédéric Jenny, have already identified potential threats to competition on this nascent market. According to his October 2021 report for CISPE[1], such threats would mainly be attributable to tech giants, dominant on adjacent software markets and leveraging their market power on cloud services markets.

The FCA’s agenda in the context of the sector enquiry

The FCA announced that it will examine the competitive dynamics of the sector and focus on the players active in the different segments of the value chain, as well as their contractual relationships.

It will focus on defining the relevant markets in the cloud sector, assessing the position and competitive advantages of the various players involved and examining if their market power could lead to antitrust concerns. These may include fair access by competitors or customers, data gathering, interface neutrality or tying/bundling. To carry this assessment, the FCA has decided – for the first time – to involve data scientists in the process, given the complexity of the sector.

As part of its investigation, the FCA will hold a broad public consultation around the summer to gather comments from all stakeholders. Following this consultation, the FCA will issue the final conclusions of its sector inquiry in an opinion that should be published early 2023.

One sector enquiry but several plausible outcomes

The enquiry may also trigger investigations on the merits if the FCA identifies potential competitive threats on the market. It could also be that small market players may take advantage of the public consultation to bring alleged anticompetitive practices to the FCA’s attention. This is precisely what happened after the publication of the FCA’s 2018 opinion on data processing in the online advertising sector where the FCA announced that “[g]iven the concerns of stakeholders in the sector, the Rapporteur Général announced that his services w[ould] proceed with a preliminary examination of the information collected to determine whether it is necessary to initiate one (or more) investigation(s) [on the merits].”

This led the FCA to investigate and sanction self-preferencing practices implemented by Google in the ad tech sector, while accepting substantial commitments offered by the US giant. The FCA also initiated proceedings against Facebook (now Meta) who offered commitments to address the FCA’s concerns. The commitments were market tested during the Summer 2021 and the final decision should be published in a couple months.

[1]    CISPE is a non-profit trade association for infrastructure as a service cloud provider in Europe.