Multi-Cloud and EU switching regulation: Insights for a UK approach? (Guest blog from Deloitte)

Authors: Suchitra Nair - Partner, Deloitte EMEA Centre for Regulatory Strategy
               Robert MacDougall – Director, Deloitte EMEA Centre for Regulatory Strategy

It is well known that the reduction of barriers to multi-cloud and switching was a key element of Ofcom’s recent referral of the UK cloud services market to the Competition and Markets Authority (CMA) for investigation.

As the CMA has stated in its recent Issues Statement, it is yet to determine whether any competition concerns arise in the supply of cloud services in the UK and is at a very early stage of considering potential remedies.

At EU level, regulation (the Data Act) has recently been politically agreed which also endeavours to address barriers to multi-cloud and switching, with the majority of changes expected to apply from late 2025. The question therefore arises: are there any insights for the UK process that can be gained from the EU’s approach?

The following three issues are broadly common to both processes: portability, interoperability and switching charges. Key requirements under the EU Data Act are as follows:

• In relation to portability, numerous new obligations are introduced, including that providers offering the same service type must remove technical, commercial, contractual and organisational barriers to porting, port customers within defined timescales (e.g. within 30 days unless this is not technically feasible, with a seven-month backstop) and that the losing provider must take various steps to ensure business continuity and security.
   
• On interoperability, amongst other things, cloud providers must ensure that customers have access to an online register containing information relevant to ease of interoperability and therefore switching.
   
• On switching charges, egress charges must be eliminated within three years of the regulation entering into force, and reduced during the intervening period. On the basis that the EU regulation is published in early 2024, this means such charges will be removed from early 2027 onwards (and reduced to a cost-based level between 2024 – 2027).

The CMA will clearly determine on these issues in the way it sees fit. However, at a high level, the following considerations appear relevant:

• Given existing concerns about lack of portability in the market, and the many years of regulatory experience in promoting effective switching between suppliers in electronic communications markets, it would be a surprise if the CMA did not give serious consideration to the introduction of new rules to regulate the cloud switching process. Even if this does not involve new regulated timescales as is the case in the EU, it could involve measures to ensure a harmonised approach to address existing technical barriers identified by Ofcom (e.g. ancillary services).
   
• Lack of interoperability would appear to be an ongoing challenge given the complexity of the market. Ofcom’s recent discussion paper on interoperability in digital markets highlighted that “mandated interoperability has gained momentum as a potential remedy to address competition concerns in digital markets”, noting that the Digital Markets Competition and Consumers Bill would allow the CMA to impose conduct requirements for the purpose of preventing restrictions on interoperability. Measures to enhance interoperability (e.g. increased transparency), would seem a more likely outcome than a technical mandate, which the EU has also declined to pursue at this stage.
   
• The writing would appear to be on the wall for egress charges. The direction of travel at EU level is clear, with a path being set to their eventual elimination (with one exception being where multiple providers are being used, in an interoperable manner, for the purposes of “in-parallel use”). It would be surprising if the UK process did not also lead to their material reduction, even if the detail of the remedy differs.

In terms of takeaways, we identify the following, relevant to scope, legal instrument, timing and preparedness:

• In terms of scope, we expect any remedies imposed under the UK process to have a narrower focus on specific companies, unlike the EU process (which does not differentiate between the size of the service provider in question).
   
• In terms of legal instrument, it is notable that the EU has not to date designated any cloud service providers as being gatekeepers under the Digital Markets Act. If the Digital Markets Competition and Consumers Bill (broadly speaking, the UK equivalent of the Digital Markets Act) is adopted into law during the course of the CMA’s market investigation, and this is seen by the CMA as being relevant in terms of remedies, it may also entail a different approach between the two jurisdictions.
   
• In terms of timing, the first changes in the EU are expected in late 2025. With the CMA investigation due to conclude in April 2025, there may be some compatibility in timing, depending on the outcome of the CMA activity.
   
• In terms of preparedness, clearly the UK process ongoing. However, if the EU process is anything to go by, changes in the market are to be expected. Sector specific regulation such as operational resilience requirements are also in train which will influence the provider-customer relationship. As a result of these cumulative developments, providers and customers alike should each start reflecting on their business strategy, pricing model and contractual terms now.

Suchitra Nair -  Suchitra Nair | Deloitte UK

Robert MacDougall -  Robert MacDougall | Deloitte UK