ACM: amendments to Data Act necessary for promoting competition among cloud providers

A market study of the Netherlands Authority for Consumers and Markets (ACM) shows that it is hard for users of cloud services to switch providers. In addition, it is not easy for them to combine cloud services offered by different providers. As a result, there are risks to the price, quality, and innovation of cloud services. With the draft version of the upcoming Data Act, which is still being discussed at the EU level, it will become easier for users to switch cloud providers. However, that alone is still not enough for ensuring a well-functioning market for cloud services. That is why ACM proposes several amendments to the Data Act so that it also becomes easier for users to combine cloud services (so called interoperability). In addition, ACM will launch a follow-up investigation in order to determine to what extent the switching barriers cause competition problems in practice, and whether they can already be dealt with today.

Cloud services enable businesses and organizations to use high-quality technological IT services (such as external storage capacity and computing power) without having to invest in the required equipment, software, and staff. As such, cloud providers play a key role in the digitalization of business processes, where data processing and data analysis are becoming more and more important. Dutch businesses are frontrunners of cloud usage: in 2021, 65 percent of Dutch businesses used cloud services, whereas in the rest of Europe, that percentage was, on average, 41 percent.

“In various sectors, data processing and digitization have become essential to a company’s competitiveness. With their innovative applications, cloud services play a critical role in that dynamic,” says Manon Leijten, Member of the Board of ACM. “As a result, the position of providers of cloud services in the digital economy becomes more and more important. ACM sees risks to competition in this market, and finds it important to protect businesses and organizations against those risks. That is why we suggest several improvements to the Data Act, for which a first proposal has been put forward. These suggestions are aimed at making it easier to combine different cloud services in a flexible manner so that businesses are able to choose and take out cloud services from different providers, and, in that way, are able to get the services that meet their needs best, and also at the best price possible. In addition, it will also make it easier for new, innovative competitors to enter the market.”

What risks did ACM identify?

The market study shows that the two largest providers (Microsoft Azure and Amazon Web Services) each have a market share of 35 percent to 40 percent. Considering the market characteristics, it is difficult for smaller competitors to compete effectively with large integrated providers. That is why ACM is concerned about further consolidation in the market.

ACM additionally points out that competition between cloud services predominantly takes place when businesses or organizations select their providers for the first time. Providers seek to lure them with, for example, free cloud services or volume discounts. Those that have made their choice subsequently have a hard time switching providers. At that point, businesses and organizations are locked in. That dependency creates a risk that cloud providers could raise their prices or reduce the quality of their services. There are also risks for innovation.

Cloud providers discourage switching to other providers, for example, by charging high fees for data transfers. In addition, the different cloud services of any one provider are often so interconnected that it is technically difficult to switch providers. Furthermore, data cannot always be transferred easily because of a lack of standards. Data portability is therefore only available to a limited extent.

It is also difficult to combine cloud services of different providers in a flexible manner, because cloud services of different providers are rarely able to communicate properly with each other. Due to this limited interoperability, businesses and organizations enjoy little freedom in their choice between cloud services of different providers.

In the coming months, ACM will further investigate to what extent switching barriers such as termination fees (egress fees) actually cause competition problems and whether they can be dealt with best using the competition rules or other instruments such as the Digital Markets Act (DMA) or the upcoming Data Act.

Proposal to enhance the Data Act

The DMA already stipulates that large providers (the so-called gatekeepers) of cloud services cannot impose any restrictions on end-users that wish to switch providers, and they must allow users to be able to transfer their data elsewhere, if they wish to do so. The DMA will come into effect next year.

In addition, ACM would like to see that the Data Act, which the European Commission recently proposed, makes interoperability easier. The Commission’s proposal already contains the necessary provisions regarding lowering any switching barriers, but they predominantly concern data portability. ACM believes that the Data Act should also mandate providers of cloud services to make interoperability possible. Users would then find it easier to combine the services of different cloud providers. ACM has drafted several amendments to the Data Act, and has submitted these to the EU, such as making a clear distinction between data portability (the ability of users to transfer data elsewhere easily) and interoperability (the ability of cloud services to work together). In addition, ACM proposes to introduce a cap on interoperability rates.

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See also:

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• 05-09-2022 Market study into cloud services