On June 29, 2023, the French Competition Authority (“FCA”) published its Opinion on competition in the cloud sector following a sector inquiry. The Opinion examines various practices currently implemented or likely to be deployed in this sector which have the potential to restrict competition. The Opinion provides a blueprint for future investigations, setting out the theories of harm that the FCA may put forward in the context of abuse of dominance, abuse of economic dependency, anticompetitive agreements or merger control cases.
In its 2023-2024 Roadmap, the FCA announced that “[t]he digital economy in all its forms continues to be one of the Autorité’s priorities for action” and, in particular, that it will continue to apply competition law to “operators and practices not covered by the DMA”. The FCA targeted the cloud as one of its key enforcement priorities. The Opinion will likely be the basis for future enforcement in the cloud sector, just as the 2010 opinion on online advertising was the basis for the FCA’s numerous investigations in this sector. As one of the first authorities to issue an opinion on competition in the cloud sector, the FCA is likely to influence the position of the European Commission (“EC”) and other national competition authorities in ongoing and future cases.
Cloud sector characteristics
The FCA asserts that “companies generally use only one cloud service provider per workload”, that is “single-homing”. The FCA asserts that multi-homing requires complex technical interoperability between several cloud service providers (“CSPs”). The FCA is concerned that lock-in effects within cloud ecosystems will become stronger “as the number of companies that have migrated to a cloud ecosystem increases”, in particular towards so-called ‘hyperscalers’ CSPs, such as Amazon, Microsoft, and Google, which the FCA asserts captured 80% of the growth in public cloud infrastructure in France in 2021.
The Opinion indicates that three categories of cloud services are generally distinguished: (i) Infrastructure as a Service (“IaaS”); (ii) Platform as a Service (“PaaS”); and (iii) Software as a Service (“SaaS”). The Opinion further indicates that the FCA will analyse market definitions at the level of the workload, looking at the different solutions—including cloud-based and non-cloud based ones—from which a customer can choose to meet a particular need. The Opinion indicates that a segmentation based on the SecNumCloud certification (also called “cloud de confiance” in France) could also be taken into account. However, the Opinion considers that a segmentation based on customers’ activity sector is not relevant at this stage.
Furthermore, the Opinion defines three closely related software markets the FCA believes competition authorities should watch closely, particularly with respect to their links with the cloud, which are the markets for (i) data centre colocation services; (ii) on-premise software; and (iii) intermediation in consulting and integration of cloud solutions.
Practices identified by the FCA
The Opinion raises a general concern over the risk of market imbalances—a risk that, according to the FCA, is inherent to markets where unavoidable players operate. It further identifies a series of competitive concerns specific to the cloud sector, focusing in particular on the public cloud.
Pricing practices. The FCA analyzed two pricing practices specific to the cloud sector: (i) cloud credits and (ii) egress fees. The FCA considers that “in depth surveillance” of cloud credits and egress fees is warranted, especially given that both practices tend to be put in place simultaneously by hyperscalers.
Cloud credits are offered in the form of free trials or support programs to accompany the migration of companies to the cloud. Most CSPs offer free trials, i.e.,credits to be spent on cloud services for a certain duration upon signing up for the service. These can range from dozens to thousands of euros, generally last no more than three months, and can be frequent or recurring. In contrast, support programs are mainly offered by larger CSPs for users with high innovation potential, such as start-ups, cover much larger amounts (hundreds of thousands of euros, for example) and can last for several years. The FCA calls for special attention to be given to support programs targeted at specific customers with large purchase potential, such as startups, as smaller CSPs would not necessarily be able to replicate such support programs and would end up losing these potential customers. The Opinion considers that these support programs can have strong lock-in effects on customers and significant exclusionary effects on competitors. In addition, the Opinion expresses doubts as to the CSPs’ ability to offer such support programs profitably, suggesting that CSPs would offer support programs to attract customers who would then be locked into the CSP’s ecosystem.
Furthermore, CSPs charge egress fees, i.e.,network fees billed when a customer seeks to transfer data out of the cloud, for instance to another CSP. The Opinion notes, first, that there appears to be a discrepancy between these fees and the actual costs borne by CSPs for the data transfer. Second, when selecting a CSP, customers cannot anticipate the volume of data that will be generated and stored on the cloud, and therefore cannot anticipate the amount of the egress fee that they will have to pay in the future if and when they want to switch to another CSP. This uncertainty can lock in customers, making it harder for users to switch away from their primary provider or to adopt multiple providers in a multi-cloud environment.
First time migration. The Opinion notes thatmigration from on-premise to cloud-based services is an intricate one that comes with substantial expenses. When selecting a CSP, customers often turn to their existing IT service providers. The FCA’s sector inquiry has brought to light disincentives for customers to opt for alternative service providers. These disincentives include restrictive contractual clauses, tied sales, pricing benefits favoring the service provider’s own products, and technical limitations. In instances where a dominant operator adopts such measures, they could be deemed abusive practices. The EC is currently investigating several complaints related to practices of this nature.
Migration between CSPs. According to the FCA, migration between CSPs can be impeded by both technical barriers and contractual practices. Technological hurdles may arise due the specific architecture and solutions used. The extensive range of products and services involved lead to substantial migration expenses. Beyond the technical challenges, incumbents can erect additional technical and commercial barriers to increase migration costs. This could spurn a dominant CSP intentionally utilizing a proprietary data format to obstruct data portability to an alternative CSP or may impose commercial conditions that bind customers to its ecosystem.
Barriers to entry. The Opinion also notes that new entrants face an uphill struggle when trying to enter or expand into the markets due to technical barriers to interoperability arising between their services and those developed by hyperscalers. While these challenges impact all competitors, they particularly affect the smaller ones.
The FCA is particularly concerned by the fact that hyperscalers are potentially dominant in several related markets. First, dominant undertakings that are active in both software publishing and cloud services may have the ability and incentive to increase the price of software licenses granted to competing CSPs. Second, dominant undertakings may engage in self-preferencing and favor their own services through discount systems, non-tariff benefits, and cross-subsidies across the broad range of services they offer. Third, dominant undertakings benefit from privileged access to customers’ data, which can constitute a decisive competitive advantage and risks tilting the market towards hyperscalers. Competitors may struggle to offer attractive cloud credits and incentivize customers to switch away from hyperscalers due to high egress fees.
The Opinion also analyzes the emerging role of online marketplaces for cloud services. The FCA is concerned by several restrictive practices which are or could be put in place by such marketplaces, namely (i) contractual clauses preventing third party providers from communicating or promoting offers on the marketplace; (ii) the marketplace’s ability to position and display its own products more favorably than those of third parties; (iii) tariff parity clauses, whereby the third party must ensure price parity between the price offered on the marketplace and that offered on other distribution channels; and (iv) potentially excessive commission rates charged by marketplaces.
The FCA’s Toolkit to Remedy Competitive Concerns
The Opinion explores potential remedial actions drawn from competition law instruments but also regulatory intervention.
In the field of abuse of dominance, the Opinion provides an overview of the FCA and EC’s decisional practice on self-preferencing, tying, and interoperability, suggesting that the FCA may use those theories of harm in future enforcement. In the field of anticompetitive agreements, the Opinion indicates that the FCA will stay vigilant on groupings, associations, technological partnerships, and joint-structures between CSPs. In the context of merger control, the Opinion calls for close scrutiny of concentrations involving major CSPs. It also explores the use of the French legal concept of “abuse of economic dependency,” which prohibits the abusive exploitation of an undertaking’s state of “economic dependency” on another undertaking. While the Opinion does not state how such a provision would be applied to the markets at stake, it notes that the FCA has already used the concept against Apple in 2020. Furthermore, the Opinion considers market failures that could potentially warrant regulatory intervention. It notes that although technical options exist to facilitate supplier switching or multi-cloud usage, like standard services or open-source solutions, market players have not adopted common technical standards yet. Incumbent operators, particularly hyperscalers, may not have a strong incentive to develop high-performance or cost-effective solutions if it risks altering their market position. The Opinion concludes that regulatory intervention may be warranted—whether via the DMA, the Data Act, or the French draft law to secure and regulate the digital space—to remedy such market failures.
 FCA, “The Autorité publishes its roadmap for 2023-2024”, available at: https://www.autoritedelaconcurrence.fr/en/article/autorite-publishes-its-roadmap-2023-2024.
 FCA Opinion No. 10-A-29 of December 14, 2010, available at: https://www.autoritedelaconcurrence.fr/en/communiques-de-presse/14-december-2010-sector-inquiry-online-advertising.
 FCA Decision No. 19-D-26 of December 19, 2019, imposing a fine of €150 million along with injunctions on Google for abuse of dominant position in the search advertising market. FCA Decision No. 21-D-11 of June 7, 2021, imposing a €220 million fine along with injunctions for abuse of dominant position in the market for ad servers for publishers of websites and mobile apps. FCA Decision No. 21-D-07 of March 17, 2021 regarding a request for interim measures by several association on practices implemented by Apple on the sector for advertising on iOS mobile apps. Decision No. 22-D-12 of June 16, 2022, adopting Meta’s proposed commitments to put an end to the FCA’s concerns in non-search-related online advertising. Decision No. 23-MC-01 of May 4, 2023, imposing interim measures on Meta regarding practices implemented in the online ad verification sector.
 Opinion, paras. 71–73.
 Ibid., para. 73.
 Opinion, para. 302.
 IaaS and PaaS solutions tend to be used by IT business customers to build their own internal systems on a ‘pay-as-you go’ model, while SaaS offerings tend to be used by software end-customers on a license model (see Opinion, page 3).
 Opinion, para. 355.
 Opinion, para. 363.
 Opinion, paras. 367–385.
 Opinion, para. 463.
 Opinion, paras. 409–411.
 Opinion, p.138
 Opinion, para. 451.
 The Opinion notes that four complaints have been lodged against Microsoft with the EC: (i) a complaint by OVHcloud in the summer of 2021 (see here), which other players, such as Aruba and The Danish Cloud Community, have joined; (ii) a complaint by Nextcloud in 2021; (iii) a complaint by Cloud Infrastructure Services Providers in Europe (“CISPE”) for unfair software licensing practices (see here); and (iv) a complaint by Slack filed in July 2020 (see here) on an alleged tying of Teams with its other cloud software products Word, Excel, PowerPoint and Outlook (link).
 Opinion, para. 545. Online marketplaces for cloud services sell cloud products and services from various providers.
 GC, judgement of November 10, 2021, T-612/17, Google Shopping, currently under appeal; FCA Decision No 14-D-09 of September 4, 2014, Nespresso; Court of first instance, judgement of September 17, 2007, T-201/04, Microsoft.
 E.g., “trusted cloud offers” or the Microsoft Azure – Oracle Cloud technology partnership.
 Opinion, p.11. FCA Decision No 20-D-04, March 4, 2020, Apple.
 Proposal for a Regulation of the European Parliament and of the Council on harmonised rules on fair access to and use of data (Data Act), February 23, 2022, COM/2022/68 final.
 Draft law to secure and regulate the digital space.