It always takes some time for the government to catch up with the times, technologically speaking, but it seems regulators across the globe are finally taking a critical look at the cloud. These inquiries, particularly one launched in the U.S. last month, could spell bad news for the big three providers, especially Amazon.
Around the same time U.K regulator Ofcom announced plans to request a formal investigation of the cloud infrastructure market, the U.S. Federal Trade Commission (FTC) issued a request for information (RFI) seeking details about market power and competitive practices in the cloud market.
While not necessarily ominous on its own, New Street Research analyst Blair Levin pointed out in a recent note to investors the FTC’s RFI move followed reports from Bloomberg and the Wall Street Journal that the agency is eyeing antitrust action against Amazon.
“The FTC Request could be an effort to gather more evidence as well as build political capital for such an action,” Levin wrote to investors.
It’s worth observing here that the head of the FTC, Lina Khan, has publicly criticized Amazon in the past, most notably in a 2017 article published by Columbia Law School. That piece focused on alleged anticompetitive practices in Amazon’s e-commerce business, but also touched on its growing presence in the cloud market. She argued at the time that the consumer welfare standard used by regulators to weigh the need for antitrust action was insufficient and should be replaced by “an approach oriented around preserving a competitive process and market structure.”
Of course, the law hasn’t changed since then, meaning the FTC would need to work within the current consumer welfare framework if it wanted to take action against Amazon. And the cloud, rather than Amazon’s retail business, might offer a way to do just that – or so the theory would go.
Ripple effect
Action targeting Amazon’s cloud business, though, would likely have ripple effects. In an interview with Silverlinings, Levin said the impacts of FTC action wouldn’t just be felt by cloud companies.
Last month, the U.S. Treasury Department flagged several risks for financial services customers using the cloud and sought to mitigate these via a Cloud Services Steering Committee which will seek to answer key questions about the cloud.
But Levin noted the FTC isn’t just looking at one sector. Instead, its RFI is asking broad, generic questions in an apparent attempt to suss out the security, competition, efficiency and resiliency concerns present across the entirety of the burgeoning cloud market. So, whereas the Treasury Department is addressing one branch of the issue, the FTC is aiming straight for “heart of the matter,” he explained.
Levin said one interesting thing about most new technologies is that oftentimes it’s unclear who has jurisdiction over them.
For example, while the Department of Commerce (via the National Telecommunications and Information Administration) recently launched an RFI seeking input on artificial intelligence (AI) accountability, it doesn’t seem like the agency would have the power to enforce any changes it might desire. Instead, it can only hope to influence the way the industry and regulators alike think about the issue.
In the FTC’s case, though, the agency does have the power to do something about market concentration and competition concerns, Levin said. And given all the facets of the economy the cloud now touches, that’s a big deal.
“It has broad ramifications throughout the economy because increasingly every major company is going to be using the cloud,” he said. And decisions about the cloud market could also ripple across the AI sector given the cloud’s importance in data processing, he added.
Forward focus
As mentioned, the FTC’s RFI asks very generic questions about the cloud market. Things like “In which areas are cloud providers investing in most heavily, and why?” and “What are the competitive dynamics within and across the different layers of cloud computing?” or “What are the trends in pricing practices used by cloud providers?”
But Levin homed in on one particular line of inquiry he said bears watching: portability. For those digging around in the RFI, check out questions 6 and 10.
Basically, Levin noted the FTC is digging into how easy it is for cloud customers to move their data from one cloud to another…much the same way regulators tackled phone number portability at the dawn of the wireless age. The latter, for the record, was an effort Levin was involved in as part of the Federal Communications Commission (FCC) in the late 1990s.
Levin said at the time number portability wasn’t considered a major issue because the number of people using cell phones was relatively small. “We don’t think about it but imagine a world in which you didn’t have wireless number portability. The level of competition and the prices and all that would be much reduced.”
“I don’t want to say its analogous [to the cloud] but the big point is how do you create a market that’s more effective and efficient, more responsive and more resilient,” he concluded.
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