Background
On July 13, 2022, the French Competition Authority (“FCA”) published an interim document for public consultation on competition in the cloud computing sector as part of a sector inquiry launched in January 2022.[1] The FCA’s investigation seeks to delineate the relevant markets for cloud computing services, identify actors that may enjoy “particular positions”[2] on the market, and assess practices that could hinder competition on the merits in an industry projected to expand in France by 14% annually to reach €27 billion by 2025.[3] The consultation closed on September 19, 2022, and the FCA has announced its final conclusions for early 2023.[4]
The FCA’s Areas of Focus
Relevant antitrust markets. Cloud computing providers offer, through remote servers, access to (i) infrastructure services such as storage and computing power, (ii) a combination of infrastructure and software services, and/or (iii) IT applications. The FCA seeks to ascertain the perimeter within which firms compete with one another. The FCA considers narrow markets defined around specific types of services (the FCA identifies over 100 such services), broader ones based on categories of services (with 18 main categories identified) or even subsegments of the overall IT services market.[5] Geographically, the FCA seeks to confirm whether markets are rather national, European, or even broader in scope.[6]
Players. The cloud sector is structured around several categories of market participants from the IT and electronic communications sectors, including “hyperscalers” (Amazon Web Services, Google Cloud and Microsoft Azure), actors from the web hosting industry, electronic communications operators, and integrators.[7] The FCA is looking in particular to understand whether hyperscalers could cumulate several advantages (scope of services, investment capabilities, technologies, high costs of entry) that would confer market power and favor their expansion to the detriment of other operators.[8]
Practices. The FCA examines whether certain cloud players have engaged in practices that could impede competition on the merits. First, the FCA examines a number of technical practices such as a lack of compatibility, common standards, or interoperability between different cloud services that may deter customers from migrating their workloads from one cloud provider to another or from multi-homing.[9] Second, the FCA identifies contractual (e.g., exclusivity clauses) and pricing practices (e.g., exit or so-called “egress” fees charged by cloud service providers for transferring data, for example, to a different cloud provider’s data center) to the extent that they can give rise to entry or expansion barriers or increase a player’s market power.[10] Third, the FCA considers that vertical integration may also give rise to concerns if the line is blurred between software editors and cloud services providers. The FCA focuses on the capacity of historical software editors to restrict (i) their customers’ ability to migrate software licenses used on their on-premise architecture to third-party cloud services other than that of the software editor, and (ii) some cloud providers from accessing their software.[11] Finally, the FCA inquiries about the possibility of competition issues arising from concerted practices, anticompetitive agreements (which may promote interoperability but hinder innovation) or concentrations (in particular killer acquisitions).[12]
Takeaway
The FCA’s market investigation forebodes potential scrutiny of the leading actors in the cloud computing sector. Through its investigation, the FCA is seeking to define a framework of analysis for future antitrust and merger cases and preempt potential competition issues in a fast-growing market dominated by a handful of hyperscalers. Other national regulators have recently launched investigations on the cloud sector, including the Netherlands Authority for Consumers and Markets (“ACM”) in May 2021,[13] the Korea’s Fair Trade Commission (“KFTC”) in February 2022,[14] and the British communications regulator (“OFCOM”) in September 2022.[15]
[1] The FCA initiated the proceedings ex officio on the basis of article L.462-4 of the French Commercial Code. See FCA press release of January 27, 2022, available at: https://www.autoritedelaconcurrence.fr/en/press-release/autorite-de-la-concurrence-starts-proceedings-ex-officio-analyse-competition.
[2] See FCA press release of July 13, 2022, available at: https://www.autoritedelaconcurrence.fr/en/press-release/autorite-de-la-concurrence-opens-public-consultation-until-19-september-2022-part-its.
[3] [Para. 14.]
[4]See FCA press release of January 27, 2022, available at: https://www.autoritedelaconcurrence.fr/en/press-release/autorite-de-la-concurrence-starts-proceedings-ex-officio-analyse-competition.
[5] [Paras. 49 and following and Annex 1.] Other possible market segmentations include public/private cloud services, secure cloud services, sector based cloud services, bespoke tender based services, and full-service clouds.
[6] [Paras. 78 and following.]
[7] [Para. 26.]
[8] [Paras. 81 and following.]
[9] [Paras. 91 and following.]
[10] [Paras. 107 and following.]
[11] [Paras. 129 and following.]
[12] [Paras. 136 and following.]
[13] See ACM news “ACM launches market study into cloud services” of May 18, 2021, available at: https://www.acm.nl/en/publications/acm-launches-market-study-cloud-services
[14] See KFTC news “Cloud Market Survey” of February 24, 2022, available at: https://www.ftc.go.kr/www/selectReportUserView.do?key=10&rpttype=1&report_data_no=9495
[15] See OFCOM report “Digital markets in the communications sector” of September 22, 2022, available at: https://www.ofcom.org.uk/__data/assets/pdf_file/0019/244261/digital-markets-approach-to-consumer-and-competition-issues.pdf.