Following the opening of a sector-wide enquiry on the cloud sector in January 2022 (see our previous blog post), the French Competition Authority (FCA) has decided to launch a public consultation lasting from 13 July 2022 to 19 September 2022 (see the FCA’s press release). Stakeholders are invited to review and comment the public consultation paper and accompanying questions that have been published by the FCA.

The public consultation comes at a critical time for cloud providers as other competition authorities around the world have also been showing strong interest for the cloud sector. This is the case in South Korea, [1] Japan [2] and in the European Union with an informal investigation initiated by the European Commission against Microsoft following a complaint by Nextcloud in November 2021 (followed by additional complaints by OVHcloud, Aruba and other companies in March and April 2022). 

What and who is on the FCA’s radar? 

The documents published by the FCA on 13 July 2022 already provide useful insight into the scope of the work conducted so far and its main areas of interest.

Since January 2022, the FCA has been investing significant time and resources in its sector-wide enquiry which is one of its priorities for 2022. The FCA has interviewed the main economic players of the sector, which include but are not limited to French companies, and has discussed with several European and national institutional players including other competition authorities.

With the data gathered, the FCA is now better able define the scope of the enquiry and has identified several categories of cloud providers which come from different businesses such as:

  • Hyperscalers, i.e., Google (Google Cloud), Amazon (Amazon Web Services) and Microsoft (Microsoft Azure) which are well established digital players which have recently expanded their activities into the cloud.
  • Actors from the web hosting industry, e.g. OVHcloud or Scaleway which were initially companies specialising in the supply of physical servers and have gradually moved on to the supply of virtual servers.
  • Electronic communications operators, e.g. Orange or Bouygues which cloud offering complements their service portfolio.
  • Integrators (mostly Digital Services Companies, or “DSC”), e.g. Capgemini or Atos, which are IT operators and consulting companies.

The FCA has also stated that it has on its radar public and hybrid clouds and, more precisely, so-called “Infrastructure as a Service” (or “IaaS”) and “Platform as a Service” (or “PaaS”) models. The FCA also has a particular interest in so-called hyperscalers, which already had to answer mandatory requests for information and to attend hearings conducted by the FCA.

Shedding light on the competitive conditions of the cloud sector: the FCA’s preliminary findings and follow-up questions 

Following its preliminary work, the FCA is now conducting a wide-scale public consultation to collect additional insights on the relevant markets, the positions and competitive advantages of the various players concerned and the anticompetitive practices implemented – or likely to be implemented – in the cloud sector.

First, regarding market definition, the FCA notes that the cloud industry is a relatively new and still evolving sector with limited decision-marking practice and leaves the door open to an array of potential market definitions in light of the technical and economic complexity of the sector. The FCA lists numerous parameters according to which markets for the provision of cloud services may be defined and asks stakeholders for their opinions. [3] It also questions the existence of related markets in the cloud, such as the intermediation and data center markets.

Second, regarding positions and competitive advantages of the various players involved, the FCA notes that several large players – in particular the hyperscalers – could hold significant competitive advantages even though their market power may be limited by several factors on which the FCA asks questions in the public consultation.

Finally, regarding practices likely to be implemented by the various stakeholders, the FCA is trying to assess whether the cloud market would be prone to anticompetitive practices which could take the form of:

  • abuses of dominant position., e.g. technical obstacles to customer migration or to the use of several cloud providers and/or business practices (e.g. contractual constraints and/or pricing practices) that create barriers to entry and to expansion. Such abuses may be enabled with vertical integration of market players and via conglomerate effects.

  • cartel risks, e.g. stronger partnerships between cloud service providers or between cloud service providers and integrators, specific interoperability agreements between certain cloud and SaaS players and/or coordinated actions by companies to delay work at the European level to improve the functioning of the industry; and/or

  • concentration practices, e.g. takeover and merger strategies of cloud players which engage in killer acquisitions.

What next?

In terms of next steps, the FCA will review, after 19 September 2022, the answers to the public consultation in order to publish its final opinion, which is scheduled for Q1 2023. As explained in our previous blog post, the FCA’s opinion will have a significant practical impact as it will be used to shape the future assessment of practices under EU and French competition law by the FCA and/or other competition authorities.

The impact may even go beyond the boundaries of competition law as it may also impact the enforcement of the Digital Markets Act (DMA) by the Commission. Indeed, the hyperscalers mentioned by the FCA are expected to also qualify as “gatekeepers” that fall within the scope of the DMA.

It follows that competition and regulatory authorities will most likely remain “heads in the clouds” in coming years. The cloud sector is a good illustration of increased enforcement in the digital sector with the development of new regulatory frameworks and the multiplication of competition investigations at both EU and national levels.

In the long run, whether increased public enforcement in the cloud sector will actually help the cloud markets be more competitive is hard to foresee at this stage, but this new state of play has already led hyperscalers to amend their business practices. For instance, Microsoft has announced in a blog post dated 29 August 2022 that it would rethink its business model and introduce changes to its cloud business starting from 1 October 2022. 

[1]    On 24 February 2022, the Korea Fair Trade Commission (KFTC) announced its plans to conduct a survey on major cloud service providers, business customers of cloud services, and other stakeholders in the cloud industry starting on the day of the announcement. On 18 August 2022, the KFTC announced that after completing a study into Amazon, Microsoft and other major cloud-service providers, it would undertake a survey of other stakeholders that transact with the companies to identify any unfair trade practices. The results are expected to be made public in December 2022.

[2]    The Japan Fair Trade Commission (JFTC) published on 28 June 2022 the results of a market survey of Japan’s cloud-service providers. 

[3]    In the questionnaires for the public consultation, the FCA lists numerous parameters according to which cloud markets may be defined, namely (i) by cloud services types, (ii) by cloud services categories, (iii) by customer needs (workload), (iv) by even broader categories such as IaaS and PaaS, (v) by IT services in general, (vi) by deployment mode of the cloud (public, private or hybrid, (vii) specific offers linked to trusted clouds (e.g. in the finance or the health sectors), (viii) depending by tenders launched by stakeholders, (ix) in view of the completeness of the offer.