Why the cloud market is under increased regulatory scrutiny

Cloud is the latest tech market to find itself in the regulators’ crosshairs, with a number of probes opened into big cloud vendors over the last couple of years. The latest announcement comes from the UK communication watchdog Ofcom after it opened an investigation into Amazon, Microsoft, and Google and asked whether they pose any barriers to competition in the market.

Regulators’ scrutiny is likely to result in lengthy investigations, with antitrust being only one of the aspects scrutinized. Financial regulators are also stepping up their efforts as concerns mount around data privacy and security issues that could disrupt a banking system that has become increasingly reliant on them.

Antitrust gains prominence

The Covid-19 pandemic has triggered a wave of migration to the cloud from every sort of business, with both government and private organizations increasingly relying on cloud services from large US providers. These companies dominate many of the technologies enabling the future of work, including cloud computing. According to Ofcom’s data, Amazon, Microsoft, and Google receive a combined 81% of the revenues in the UK public cloud infrastructure market, worth GBP15 billion ($16.85 billion) according to the regulator’s estimates.

Over the last couple of years, Microsoft has been the subject of several complaints from its competitors. In 2020 rival cloud company Slack filed a complaint with EU regulators. The collaboration tool company accused Microsoft of illegally tying its Teams messaging service into its Office products, forcing people to install it.

More recently, complaints have focused on changes to some of Microsoft’s terms of business, which critics say amount to anticompetitive tactics. By using Windows and its Office products to feed the growth of Azure, its cloud computing service, Microsoft allegedly aimed to draw customers away from its rivals and away from Amazon Web Services in particular, which dominates the cloud market.

To avoid a full probe from Brussels, Microsoft decided to review its licensing deals, allowing customers to use their license on any European cloud provider delivering services to their own data centers.

US cloud providers Vs EU plans for digital sovereignty

EU regulators are also concerned that the use of cloud-based services by the public sector—including EU institutions covering sectors such as health, finance, tax, and education—might expose industrial information to foreign government surveillance. In the eyes of EU regulators, cloud services provided by large US providers are governed by legislation that allows disproportionate surveillance activities by US authorities.

The EU privacy watchdog will launch joint investigations with 22 national regulators into the use of cloud-based services by the public sector to check if they comply with privacy safeguards.

Potential threats to the financial sector

UK financial regulators are also stepping up their scrutiny of cloud computing giants. The Prudential Regulation Authority (PRA) is exploring ways to access more data from the likes of Amazon, Microsoft, and Google, which have in recent years struck a number of deals with UK banks to help them upgrade their IT infrastructure. The PRA—which is set to publish a joint paper with the Financial Conduct Authority and the Bank of England—is worried that the reliance of the UK banking system on a concentrated handful of providers poses a threat to financial stability.

Leave a Comment