A competition inquiry comes at a time when the cloud sector has become increasingly important for telcos, who have challenged the role of the traditional players
A fast-growing market in which Europe lags behind: The French competition authority will start an investigation into the cloud market, in line with its objective to make the digital sector a priority for 2022. With double-digit average annual growth (expected to exceed 25% over the next few years) and both the EU and the French Government throwing their weight behind the respective cloud industries, it could hardly choose a more important sector to look at. In November 2021, a €1.8bn plan was launched to support the French cloud ecosystem, while the European Commission is supporting the Gaia-X initiative to encourage the growth of European cloud players. The authority will assess the competitive dynamics of the sector and attempt to define its relevant markets, but it’s unlikely to lead to immediate action against specific players. Where appropriate, it could make recommendations to improve competition. It is likely that the inquiry will highlight the dominance of the three largest US-based players (AWS, Microsoft, and Google), which hold a 70% share of the European cloud market.
An increasingly important sector for telecoms: The inquiry comes at a time when the cloud sector is developing stronger links with telcos. Operators such as Dish and AT&T recently announced the move of their 5G core networks to the public cloud, outsourcing this functionality to the likes of AWS and Microsoft. These hyperscalers are also seizing the opportunity of industrial private networks, in which they compete with telecoms operators’ proposition. The CEO of Deutsche Telekom recently asked competition authorities to monitor the acquisitions strategies of the hyperscalers, which are buying up small companies used by telcos to modernise their infrastructure. The concern being that this generates a risk of dependency of the telecoms sector on US hyperscalers.
Ex-ante regulation is coming in the EU: With this inquiry expected to complete in early 2023, by then cloud providers could be subject to ex-ante regulation in the EU as a result of the Digital Markets Act (DMA). The DMA could be approved in March 2022, and will apply six months after its approval. It identifies the cloud sector as one of the ‘core platform’ services within which gatekeepers will be designated. All the three main players in this market are likely to be considered gatekeepers, since they would have an annual turnover of at least €8bn in the EEA, and have a market capitalisation of at least €80bn. A gatekeeper would also need to operate a core platform service in at least three EU countries, and have at least 45m monthly end users and 10,000 business users. The EC could designate gatekeepers even when they do not meet the above thresholds, based on criteria such as a platform’s impact on the internal market.
