Our “cloud infrastructures” are indispensable to the operation of modern society. They are vital to the strategic autonomy of Europe across the whole spectrum of economic, government and social activities.
Yet some argue that we do not need a European cloud infrastructure industry and that we can rely on a handful of global foreign providers and on their continued benevolence. This sounds all too familiar. The same mistakes were made in recent years with a naïve recourse to “reliable” Russian supplies of gas or reliance on imports of cheaper Chinese solar panels and semiconductors to the detriment of domestic production of such strategic goods. During the Covid pandemic, the outsourcing of pharmaceuticals and other essential health-related products to Asian countries “on which we could rely” offered a painful reminder of our dependence on producers located outside of Europe.
Are we condemned to repeat the same mistakes in the digital economy? Do the words “strategic autonomy” have any meaning when it comes to Europe’s cloud infrastructures?
The cloud should be a great democratiser. Its open, flexible, and relatively inexpensive to transform industries and encourage growth. But in reality, customers are finding it hard to use the software they already license on the cloud infrastructure of their choice. They are being discouraged from doing so by methods far too familiar in the area of the digital economy. Dominant software players continue to use archaic but very effective restrictive licensing terms; bundling, tying, self-preferencing pricing and technical and economic lock-in, to capture an ever-growing share of EU customers for their cloud infrastructures.
If allowed to continue, these abuses will inevitably squeeze out native cloud infrastructure companies, leaving European business and governments with no choice but to purchase cloud infrastructures from a limited number of ultra-dominant access providers (“gatekeepers”).
European cloud service providers united in CISPE (“Cloud infrastructure service providers in Europe”) have filed an anti-trust complaint to stop these abuses. They have done this despite the fear harboured by some of retaliation, I have been told that some privately admit that a software gatekeeper could effectively “turn off half of their business at the click of a finger”.
This, too, sounds too familiar. When I was responsible for trade action against unfair foreign competition in the Commission, such fear of retaliation was a recurrent reason why even major European companies did not dare to appear as plaintiffs against Chinese dumping strategies or unfair state subsidies. The dominance of a few, or of one software gatekeeper, has become such that it is, in itself, an eloquent demonstration of the need to act before it is too late.
But how to act? How can we avoid becoming a powerless digital colony and losing our cloud infrastructure sector? We need competition, variety, diversity, and respect for the “European way of life”. These objectives must be non-negotiable. Dominant software providers must not be allowed to continue with unfair licensing practices that distort competition. Five mutually reinforcing actions should be taken to ensure this does not happen.
First, the Digital Markets Act (DMA), intended to achieve these very objectives, has largely failed to address the unfair software licensing practices by several software gatekeepers, despite many amendments filed in the European Parliament to that effect. The European Commission now has the power to update the DMA through a Delegated Act. The first action should be use this power to prohibit ultra-dominant gatekeepers from discriminating against competitors by self-preferencing their cloud infrastructures with unfair software licenses.
The proposed European Data Act is also ideally suited to address the problem of anti-competitive practices and eliminate unfair software contractual practices in the cloud.
If cloud customers are locked-in by unfair software licenses, without the possibility to bring their own software to competing cloud services, the goals of the Data Act to encourage portability and interoperability are at best a wishful thought.
As the second step, the European Parliament and Member States must resist the inevitable, all-too-familiar lobbying of dominant software providers to water down the Data Act’s pro-competitive provisions.
Thirdly, Commissioner Breton is actively promoting an Important Project of Common European Interest (IPCEI) in the field of the cloud economy. The participation of many companies working together to reinforce Europe’s position on future cloud technologies is a must.
Fourthly, the recent competition complaint presented by CISPE should lead rapidly to the conclusion of a formal investigation by the European Commission. I hope that they will learn from our unfortunate experience in the field of international trade remedies against foreign dumping and subsidies: how often have I seen procedures drawn out for so long that irremediable damage was done before measures were put in place?
Finally, all cloud software and cloud service providers should adopt the Ten Principles of Fair Software Licensing, prepared and promoted by CISPE and customer association CIGREF. These Principles (for example: customers should be free to run their own software on the cloud of their choice) are available here: https://www.fairsoftware.cloud/principles/.
For companies active in the digital sector, and today that includes virtually all companies, observance of these principles should be as important as their commitment to European objectives in the field of the environment, social and governance principles (ESG). Only those who want to distort competition will have anything to lose by adopting them.