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1、 Final report for Amazon Web Services The European telecoms regulatory framework:not a good fit for the public cloud David Abecassis,Christopher Ryder,Nathan Williams,Laura Lechner,Rob Bratby 25 September 2024 Ref:658783197-372 Ref:658783197-372.Contents 0 Executive summary 3 0.1 Introduction 3 0.2

2、Cloud and telecoms are distinct and complementary enablers of Europes digital transformation 4 0.3 Major differences between the cloud and telecoms sectors undermine the application of the EU telecoms regulatory framework to cloud services 7 0.4 Extending telecoms regulation to cloud services risks

3、harming Europes consumers,businesses and digital agenda 12 0.5 Conclusions 16 1 Introduction 17 2 Cloud and telecoms are distinct and complementary enablers of Europes digital transformation 20 2.1 Cloud services enable European businesses to access scalable,globally competitive and state-of-the-art

4、 IT infrastructure and platforms,with limited investment and risk 20 2.2 Businesses and ISVs,including in the telecoms sector,build applications and services using cloud infrastructure and building blocks 21 2.3 Cloud services providers and cloud customers are dependent on connectivity,both as an in

5、put through private networks and for end users to access cloud services 26 3 Major differences between the cloud and telecoms sectors undermine the application of the EU telecoms regulatory framework to cloud services 32 3.1 EU telecoms regulation reflects the transition from state-owned monopolies

6、to a vibrant private sector where competition and regulation interplay successfully 34 3.2 The EU telecoms regulatory framework responds to specific sector dynamics and policy objectives,which are very different to those in the cloud sector 35 3.3 Networking-related cloud inputs and products do not

7、exhibit characteristics that would make them susceptible to regulatory alignment with ECS/ECN regulation 56 4 Extending telecoms regulation to cloud services risks harming Europes consumers,businesses and digital agenda 63 4.1 Expanding the telecoms regulatory framework to include cloud and CDN prov

8、iders would directly affect their costs and incentives to invest in Europe 64 4.2 The impact on the telecoms sector would also be broadly negative,for most operators,for consumers and for regulators 69 4.3 These impacts would be detrimental to European businesses,the digital agenda,and the ability o

9、f the EU to innovate through technology 72 5 Conclusions 77 Annex A A short history of the European telecoms regulatory framework Annex B References to legal instruments and case law The European telecoms regulatory framework:not a good fit for the public cloud Ref:658783197-372.Copyright 2024.The i

10、nformation contained herein is the property of Analysys Mason and is provided on condition that it will not be reproduced,copied,lent or disclosed,directly or indirectly,nor used for any purpose other than that for which it was specifically furnished.This report has been prepared by Analysys Mason f

11、or Amazon Web Service(AWS)and is subject to Analysys Masons editorial judgement and discretion.The analyses contained within this report are the sole responsibility of Analysys Mason and do not necessarily reflect the views of AWS.Analysys Mason Limited North West Wing,Bush House Aldwych London WC2B

12、 4PJ UK Tel:+44(0)20 7395 9000 Registered in England and Wales No.5177472 This report is available in full at:https:/ The European telecoms regulatory framework:not a good fit for the public cloud|1 Ref:658783197-372.Abstract This paper contributes to the question,raised by the European Commission(E

13、C)in its recent white paper on the future of digital infrastructure in Europe,of whether the cloud and telecoms sectors may be converging,to the extent that common regulation would be justified.Specifically,the EC outlines the option to expand the European Union(EU)s telecoms regulatory framework to

14、 include cloud services.In this paper,we examine this question from a technical,legal and economic perspective,considering the history of the telecoms sector and the purpose for which the telecoms regulatory framework was constructed and implemented.Cloud services allow European businesses to access

15、 IT building blocks running over distributed infrastructure.Public-cloud services are designed to be useable across industries,through common application programming interfaces(APIs).These services are underpinned by infrastructure that is distributed globally and connected via extensive private net

16、work links.European businesses benefit from cloud services financially,because they can access extensive IT resources with limited up-front investment and risk.They benefit operationally because they can access state-of-the-art IT building blocks,which very few businesses may have been able to sourc

17、e and access in a dedicated manner.Businesses use cloud services through many independent software vendors(ISVs)which offer software on cloud platforms.This includes telecoms operators,which use cloud-based services offered by a range of vendors,most of which had been offering on-premises software f

18、or decades.Telecoms operators have begun migrating some of their non-network IT to public-cloud platforms,but migration of network IT remains very limited(less than 1%of workloads by some estimates),with no clear momentum towards greater use of the public cloud for network functions.The claims of co

19、nvergence are therefore at best premature,and at present largely inaccurate.Cloud providers and customers are indeed dependent on connectivity to be able to work together,but telecoms operators are likely to remain largely independent from cloud providers in the context of running their network.As t

20、hey migrate network functions to the public cloud,they will do so using software-defined networking solutions provided by vendors such as Nokia and Ericsson,building on the same cloud services as are available to all other businesses.Telecoms regulation(now under the European Electronic Communicatio

21、ns Code,EECC)reflects a history of state-controlled monopolies,and the policy decision that regulation should support market liberalisation and competition.This translated into a strongly pro-competition ex-ante regulatory regime that required national regulatory authorities(NRAs)to review specific

22、relevant markets and impose remedies on operators with significant market power,in addition to general conditions of authorisation.Interconnection between telecoms operators was and remains subject to regulation,reflecting the importance of direct network effects in traditional telecoms markets,in p

23、articular telephony.By contrast,the cloud sector is relatively new,highly innovative and dynamic,with many providers competing for customers in different ways.Direct network effects are largely absent,but economies of scale are strong and not bound by national borders.The sector is already overseen

24、through European competition law,and has recently been brought under the scope of new regulations including the Data Act,the Digital Market Act(for the largest providers),the Digital Services Act,and the revised Network and Information Security Directive(NIS2).Indeed,competition authorities have tak

25、en an interest in the competitive dynamics related to cloud services,and highlighted some concerns related to egress fees,barriers to switching and software licensing practices.If any regulatory concern is identified after testing these new instruments,regulators should seek to remedy them through p

26、roportionate and justified remedies,subject to a detailed impact assessment:the EECC was not constructed for this purpose and appears highly unlikely to be effective,justified and proportionate in addressing these potential remaining issues.The European telecoms regulatory framework:not a good fit f

27、or the public cloud|2 Ref:658783197-372.If the EC chooses to expand regulation to cloud services,it should conduct a detailed impact assessment.In the last section of the paper,we outline potential impacts for European cloud and telecoms providers,and end users in both sectors.We find that European

28、cloud providers may face higher costs and reduced incentives for investments in Europe.Competition in the telecoms sector may be distorted in favour of larger operators,which have championed the regulation of IP interconnection as a way to extract payments to terminate internet traffic to their subs

29、cribers.Eventually,these effects would harm European businesses,affecting their ability to adopt,and benefit from,cloud and artificial intelligence(AI)services,which would be counterproductive to Europes digital agenda and its ability to innovate through technology.In conclusion,we reiterate the imp

30、ortance of well-functioning cloud and telecoms sectors to the digital agenda for Europe,and to the European businesses and public-sector organisations that use cloud services and stand to benefit from them,including in the context of AI and other highly innovative aspects of IT and digital technolog

31、y.This is essential to Europes competitiveness.Regulators should acknowledge the potential adverse impacts of extending the telecoms regulatory framework to encompass cloud services,without clear justification or assessment of its impacts.A nuanced approach,recognising the unique characteristics and

32、 dynamics of both sectors,is essential to avoid these risks and support continued growth and innovation for European businesses.The European telecoms regulatory framework:not a good fit for the public cloud|3 Ref:658783197-372.0 Executive summary 0.1 Introduction Cloud services are central to Europe

33、s digital transformation.Businesses are increasingly migrating some of their IT needs(workloads)from their own managed equipment(on-premises)to the cloud,and in particular to public-cloud services that are shared between multiple business customers.This transition to the cloud supports the European

34、Union(EU)s digital agenda,which prioritises connectivity and cloud adoption to drive digital transformation.Cloud services rely on customers being able to interact with the cloud platform,through the internet or a more direct connection.This close link with connectivity and a sense that a new paradi

35、gm around digital infrastructure is important to Europes strategic autonomy and digital sovereignty,has led the European Commission(EC)to introduce the concept of collaborative connected computing,and to posit that cloud services and connectivity are converging.Some European policy makers and regula

36、tors,including the EC and BEREC,the group of telecoms national regulatory authorities(NRAs),appear to be considering whether and how to extend telecoms regulation to the cloud sector.Their positions are different:The ECs recent white paper,“How to master Europes digital infrastructure needs?”,1 ment

37、ions the perceived need for a level playing field2 in regulation between cloud and connectivity,and asks whether the telecoms regulatory framework(in particular the European electronic communications code,or EECC)should be expanded to include cloud services.3 BERECs position is narrower,aimed at ens

38、uring that the regulation of electronic communications networks and services as currently defined remains suitable in the context of further cloud adoption,specifically in the telecoms sector.4 In part,these positions reflect the stakeholders broader interest in stimulating the digital agenda for Eu

39、rope.However,the nature of this supposed convergence between cloud and telecoms is often not well articulated and the rationale of the appeal for regulatory convergence is therefore not justified.These issues risk leading to unnecessary and counterproductive regulatory efforts,to the detriment of Eu

40、ropean consumers and businesses.1 European Commission(2024),How to master Europes digital infrastructure needs?(Brussels,2024,COM(2024)81 final);European Commission(accessed July 2024),Europes Digital Decade.2 See European Commission(2024),How to master Europes digital infrastructure needs?,in parti

41、cular p36.3 This view that the distinction between cloud and telecoms is shrinking was made explicit by Roberto Viola,Director General for DG CNECT,speaking at the BEREC Stakeholder Forum in March 2024,where he was reported to have said that“no distinction between a cloud operator and a telecoms ope

42、rator”and that therefore there cannot be a regulatory difference.4 See BEREC(2024),Draft BEREC Report on Cloud and Edge Computing Services.The European telecoms regulatory framework:not a good fit for the public cloud|4 Ref:658783197-372.In this paper,we examine these questions in detail.In doing so

43、,we draw on technical,legal and economic perspectives,considering the history of the telecoms sector and the purpose for which the telecoms regulatory framework was constructed and implemented.0.2 Cloud and telecoms are distinct and complementary enablers of Europes digital transformation This secti

44、on provides a brief introduction to the cloud,describing the role and benefits of cloud services,focusing particularly on public-cloud services.We then describe the cloud value chain and how different parts of the cloud ecosystem interact,examining how cloud services are delivered by different types

45、 of suppliers in the cloud sector.Finally,we explore the relationship between cloud and telecoms within the cloud sector,noting that cloud services are dependent on connectivity,and the slow pace at which telecoms operators are adopting public-cloud services for their network functions,through a com

46、bination of private-and multi-cloud architectures.0.2.1 Cloud services enable European businesses to access scalable,globally competitive and state-of-the-art IT infrastructure and platforms,with limited investment and risk Cloud services include a range of approaches to run software on distributed

47、infrastructure.Public-cloud services are the focus of this paper:they are IT resources,or building blocks,shared between many business users and accessible through the internet.They offer significant economies of scale and a very elastic,or scalable,infrastructure.This allows businesses to access th

48、e IT infrastructure they require when they require it,paying as they go for the use of resources as opposed to having to invest heavily in their own IT infrastructure.As the cloud infrastructure and the software building blocks it supports are upgraded continuously,customers always have access to st

49、ate-of-the-art services.To maximise the benefits of scale enabled by a pooled use of IT resources,cloud services are global,and are horizontal i.e.industry neutral in nature.They are typically accessed via application programming interfaces(APIs).Software that runs on cloud infrastructure includes c

50、loud providers services delivered through common APIs,and software developed by third parties including cloud customers themselves and other developers(independent software vendors or ISVs).Cloud services offered by cloud providers are primarily used by businesses,not consumers.This contrasts with t

51、elecoms,where public electronic communication services are offered to both consumers and businesses,with most end users on the consumer side.While both sectors benefit from economies of scale and scope,they differ markedly in terms of network effects,through which end users benefit from being connec

52、ted to the most widely used network.Historically,direct network effects in messaging and telephony were important factors governing the development of competition in the telecoms sector,whereas in the cloud sector network effects are primarily indirect,for example through nascent software marketplac

53、es.The European telecoms regulatory framework:not a good fit for the public cloud|5 Ref:658783197-372.0.2.2 Businesses and ISVs,including in the telecoms sector,build applications and services using cloud infrastructure and building blocks Cloud services are part of a broader IT value chain,bringing

54、 together data centres,servers and other hardware,software and services,with a wide variety of suppliers at all stages of the value chain.Cloud customers have the option to access services across the value chain at every stage,choosing to self-supply or to buy from suppliers as they see fit.A simpli

55、fied view of the cloud value chain is shown in Figure 0.1 below.In the full on-premises model(1),businesses deploy and operate IT hardware and software in their own premises.Many businesses choose to deploy their own hardware and software in co-location data centres,owned and operated by third parti

56、es(2).Businesses that choose to migrate to the cloud can,at a basic level,purchase these cloud services as an input to their own software development and IT operations(3).In practice,thousands of ISVs,independent from cloud providers,build their own software and solutions on top of cloud services,in

57、 addition to software provided by cloud providers.This is offered as a service to businesses and consumers(4).Systems integrators(SI)bring together software and services to offer fully managed solutions to customers who require more support(5).Figure 0.1:Components of the cloud value chain Source:An

58、alysys Mason,2024 In the telecoms sector,operators use cloud services in the same way as businesses in any other industry,including for customer care software,data analytics and artificial intelligence(AI).Network functions that control and manage end-user traffic remain primarily fully managed by o

59、perators on private clouds and on-premises infrastructure.So far,estimates based on operator surveys suggest that less than 1%of telecoms network workloads run on the public cloud.5 Indeed,where operators run network functions in the cloud,we understand this is primarily in private clouds,via ISVs,m

60、any of which are long-term vendors to telecoms operators(e.g.Nokia).5 See BCG(2024),How to Find the Right Balance in the Telco Cloud and Analysys Mason(2024),Network cloud infrastructure:worldwide forecast 20232028.On premises(owned technical facility)On premises(co-located)Internal software develop

61、mentSoftware as a serviceFully managedPublic cloud providerISVSI3Cloud provider softwareData centre24451The European telecoms regulatory framework:not a good fit for the public cloud|6 Ref:658783197-372.From the perspective of cloud providers,the telecoms sector is one of many customer segments,whic

62、h they serve with a portfolio of horizontal services that is available to all customers.0.2.3 Cloud providers and cloud customers are dependent on connectivity,both as an input through private networks and for end users to access cloud services Cloud services require connectivity,both for cloud prov

63、iders to operate a distributed,scalable infrastructure,and for cloud customers to access their services.Typically,cloud providers operate in multiple,geographically distributed data centres.These must be connected to one another through high-capacity networks for the platform to function properly an

64、d deliver scale,elasticity and resilience.Such links are operated as a private network by cloud providers,which can lease links from telecoms operators or deploy their own by building out their own passive infrastructure including fibre cables depending on what makes economic and operational sense.T

65、he resulting global infrastructure that characterises cloud platforms is illustrated in Figure 0.2 below.Figure 0.2:Illustration of regions and availability zones Source:Analysys Mason,2024;this does not represent any specific cloud providers deployment At the same time,cloud customers need to be ab

66、le to reach their cloud provider to use its services.While they can do so directly through their own private network,they usually rely on an internet service provider(ISP)for connectivity through the internet or through dedicated connections(cloud on ramps).This is similar to other internet-based se

67、rvices:customers of an online banking service must be able to access the service using their internet connection,and net neutrality regulation Each region represents the core location which may also serve surrounding geographiesCloud regionsConnectionsData centreData centreAvailability ZoneAvailabil

68、ity ZoneAvailability ZoneMeshed connectivity between availability zonesand other regions facilitates high availability and fault tolerance The European telecoms regulatory framework:not a good fit for the public cloud|7 Ref:658783197-372.including the EUs Open Internet Regulation seek to ensure this

69、 is not blocked or degraded by ISPs.Additionally,some cloud customers use content delivery networks(CDNs),which can store(cache)and optimise the delivery of online content across the public internet.Some large content providers operate their own CDNs,and many businesses(including e-commerce platform

70、s,European broadcasters,games publishers and other businesses with an online presence)use third-party CDNs from cloud providers and other specialised entities.These third-party CDNs handle content on behalf of CAPs,which are the ones that decide how and when to use CDNs and control the content that

71、is delivered through them.6 They deliver content to ISPs as close as possible to end users,optimising latency and costs for all parties.These various ways in which telecoms and cloud interact have given rise to partnership opportunities,on which telecoms operators and cloud providers are actively co

72、llaborating.This suggests a complementarity between the cloud and telecoms sectors,but while at this stage cloud providers and customers are reliant on connectivity,by contrast telecoms operators are using public-cloud services in a limited way that largely excludes network functions.We note that te

73、lecoms operators can and do offer cloud services to business customers.These services are not regulated under the telecoms regulatory framework.0.3 Major differences between the cloud and telecoms sectors undermine the application of the EU telecoms regulatory framework to cloud services This sectio

74、n compares the dynamics at play in the telecoms and cloud sectors and assesses the rationale for regulatory convergence from an economic and legal perspective.The key questions when considering regulating a sector of the economy are whether there is a market failure that needs to be addressed,and if

75、 so,how best to do so.In considering expanding the telecoms regulatory framework to cloud services,European policy makers and regulators therefore need,as a first step,to articulate the problem or market failure they are trying to solve.They should then consider whether recently introduced regulatio

76、n applicable to cloud providers(e.g.the Data Act,Digital Markets Act,Digital Service Act,and regulations including NIST and NIST2)could effectively address these issues.Finally,if regulatory or competition concerns subsist,they should assess whether the purpose,history and mechanics of the telecoms

77、regulatory framework in Europe are well adapted to remedying these problems,in a way that is consistent with the purpose of the telecoms regulatory framework,justified and proportionate.0.3.1 EU telecoms regulation reflects the transition from state-owned monopolies to a vibrant private sector where

78、 competition and regulation interplay successfully The EU telecoms regulatory framework was put in place to facilitate the evolution from state-owned national monopolies to an open,competitive sector.Extensive regulation was required to bring about 6 Examples of AWS CloudFront customers include broa

79、dcasters ProSiebenSat.1 in Germany and M6 in France,games publisher Rovio from Estonia,among many others.The European telecoms regulatory framework:not a good fit for the public cloud|8 Ref:658783197-372.this change,with certain regulatory measures remaining necessary and being enforced to this day

80、to address the specific challenges inherent to the sector.In the genesis of the telecoms framework,ex-ante regulatory intervention liberalised the market(i.e.allowed market entry)by addressing specific barriers to entry and by limiting the power of specific regulated actors(whose market power was pa

81、rtly derived from persistent structural features of the sector).In addition,ex-ante regulation dealt with defined policy objectives and consumer protection issues,based on a justified and proportionate approach that recognised the intrusiveness and potential negative impact of ex-ante regulation.Ove

82、r time,the regulatory framework transitioned from a patchwork of national approaches to a broadly harmonised set of European rules,implemented nationally by national regulators,overseen by the EC.To this day,the continued areas of focus for telecoms regulation remain influenced by this evolution.Mar

83、ket access is facilitated through the issuance of general authorisations.Regulators also administer the allocation of scarce resources,such as spectrum and telephone numbers.Some structural issues are persistent,linked to network effects,economies of scale and scope,and enduring competitive bottlene

84、cks.In particular,the persistent market power of former state-owned incumbents is addressed through a mix of general authorisations and regulatory remedies imposed on any party with significant market power.These include mandated access to infrastructure and wholesale services,and the effective reso

85、lution of disputes regarding these issues.NRAs are constrained from imposing intrusive ex-ante remedies beyond the minimal conditions of general authorisation unless they have undertaken a detailed market analysis,in a process scrutinised by the EC.The current version of the European framework recog

86、nises the progress made towards more effective competition,encouraging deregulation where possible while still allowing NRAs to impose additional rules,ex-ante only,subject to strict tests.The telecoms sector remains subject to general competition law,which continues to be the main recourse mechanis

87、m for other competition issues.0.3.2 The EU telecoms regulatory framework responds to specific sector dynamics and policy objectives,which are very different to those in the cloud sector The EECC framework is designed to address policy objectives within the specific dynamics of the telecoms sector.T

88、hese dynamics resulted in incumbents benefitting from entrenched market power,due to:the maturity of demand in the telecoms sector:the vast majority of households and businesses had a fixed line before telecoms were liberalised persistently high barriers to entry and an inherent inability of end use

89、rs to self-supply in all but niche cases,due to network effects and localised economies of scale direct network effects associated with telephony,where the ability to reach another user was at the heart of the nature of the service,benefitting large established network operators at the expense of ne

90、w entrants.The European telecoms regulatory framework:not a good fit for the public cloud|9 Ref:658783197-372.In contrast,the cloud services sector exhibits rapid growth,which builds on businesses existing demand for IT infrastructure and services.These needs have previously been self-supplied(i.e.t

91、hrough on-premises deployments).This has resulted in a sector in which cloud providers continue to compete for customers by encouraging new users away from self-supply towards cloud services.Other dynamics specific to the cloud sector also include the availability of inputs such as co-location data

92、centres and computing capacity,which can be used by new entrants in the cloud sector to build their offering progressively.Additionally,direct network effects are not prevalent in the cloud sector,as one users demand for cloud services is not affected by the number of other users using the same clou

93、d service beyond economies of scale.These differences are summarised in Figure 0.3.Figure 0.3:Summary of differences between the cloud and telecoms sectors in the context of the objectives of the telecoms regulatory framework Source:Analysys Mason,2024 AreaArea Telecoms sectorTelecoms sector Cloud s

94、ectorCloud sector Market characteristics Consumer and business-oriented sector.Stable and mature market structures stemming from a history of monopoly suppliers and no realistic prospect to self-supply.Business-focused sector,with large enterprises making up the majority of current cloud spend.7 Dev

95、eloping from a history where businesses self-supplied IT infrastructure and services,building on co-location data centres.Comparable but differentiated products and services offered by a range of cloud providers.Innovation and investment Reasonably slow innovation with new technologies developed and

96、 deployed over many years.Long payback periods with active equipment depreciated over 810 years and passive infrastructure much longer.Fast-paced innovation with new technologies and services deployed continually.Short payback periods with servers depreciated over five years,enabling quick adoption

97、of new developments.Contestability by new entrants Challenging given high barriers to entry including significant up-front investments in infrastructure required,and in some cases also access to scarce resources.Market maturity requires new entrants to compete for existing customers,which is made mo

98、re difficult by the importance of direct network effects.Growing sector,allowing new players to compete for customers taking cloud services for the first time.The incumbent is primarily self-supply,including through private infrastructure.Greater contestability than telecoms,thanks to the wide range

99、 of models,including use of a virtual model,the emergence of niche players(e.g.focusing on AI),and ability to scale investments as demand grows.Competition High standardisation of services resulting in commoditisation and High levels of innovation to enhance user experience resulting 7 See for examp

100、le CMA(2024),Public cloud infrastructure services market investigation,Updated issues statement,6 June 2024,paragraph 7:“the top 10%of customers account for a very large majority of revenues and the top 1%account for over half of revenues”.The European telecoms regulatory framework:not a good fit fo

101、r the public cloud|10 Ref:658783197-372.AreaArea Telecoms sectorTelecoms sector Cloud sectorCloud sector relative ease in switching which supports competition for existing telecoms users.Limited use of multiple providers for a given service,partly due to interoperability limitations and to procureme

102、nt considerations.Resulting access monopoly to a given customer at a given point in time.in differentiation between providers.Provider differentiation could lead to interoperability challenges/barriers to switching which has the potential to reduce competition for existing cloud users.Wider use of m

103、ulti-cloud and hybrid cloud with allocation of workloads(i.e.subset of customer demand)to best application.Network effects High network effects due to need to connect two users trying to communicate,meaning that,unless there is interconnection,networks with larger user bases would have an advantage.

104、No direct network effects as the value of a cloud platform to a user is not dependent on other users.Regulations specific to the telecoms sector,in particular focusing on interconnection and access to network facilities,were deployed to address barriers to entry and competition issues that arose und

105、er the telecoms market structure.The differences between the telecoms and public-cloud sectors shown in the table above clearly demonstrate that these regulations are neither necessary nor proportionate for the public-cloud sector.Various competition authorities in Europe(including the UK)have in re

106、cent years conducted assessments of the cloud sector,which have highlighted several potential issues relating to competition.Despite these investigations,no regulatory interventions have been implemented to date.Importantly,the potential issues identified are distinct from those present in the telec

107、oms sector,or stem from the fundamentally different dynamics between the two sectors.Therefore,applying the EECC would not be proportionate or effective in addressing these concerns.Furthermore,the cloud sector is already regulated through a range of general and sector-specific regulatory tools at t

108、he EU level,which competition authorities recognise may address some of the potential issues identified.These include several new regulations related directly to digital markets,including the Digital Markets Act,Digital Services Act and Data Act,as well as directives such as NIS2.These are still bei

109、ng implemented and their effects have not yet been assessed fully.Finally,we note that cloud services used by telecoms operators are treated in a similar way to network equipment provided by vendors including Nokia,Ericsson and others.These services and equipment are outside the scope of the EECC,bu

110、t are constrained by regulatory obligation that apply to telecoms operators and affect suppliers through contractual means.For example,equipment and cloud vendors must comply with a range of requirements related to security,risk assessment and risk mitigation as part of services they may supply to t

111、elecoms operators.Policy makers also have The European telecoms regulatory framework:not a good fit for the public cloud|11 Ref:658783197-372.the ability to restrict telecoms operators from using vendors deemed high risk,through the EU toolbox for 5G security and national measures.8 0.3.3 Networking

112、-related cloud inputs and products do not exhibit characteristics that would make them susceptible to regulatory alignment with telecoms regulation As developed above,cloud services are not a substitute for electronic communications services and connectivity more generally.There is no convergence be

113、tween telecoms and cloud services,but rather a complementarity,where cloud services rely on the ability of cloud providers and customers to reach one another through the public internet or other network inputs.Cloud providers make use of an array of such network inputs including private networks,and

114、 exchange of IP traffic(sometimes called IP interconnection)with ISPs and CDNs to enable end users to access content and applications in the cloud.None of these aspects have been found to be subject to specific market failures or competitive issues:BEREC has recently found9 that IP interconnection o

115、n the internet has worked well and continues to do so,in the absence of regulation.This is in part reflected in the lack of any significant disputes related to IP interconnection between cloud providers and ISPs in Europe.BEREC found that IP interconnection has worked well,developing in a way that h

116、as enabled the internet to grow and thrive and supporting significant increases in demand without large increases in costs.Cloud providers private networks enable connectivity between their data centres and points of presence(PoPs).In some instances,cloud providers directly invest in fibre networks

117、for this purpose(including investments in submarine cables)as a substitute for purchasing capacity.However,capacity is never provided directly to end users or sold on to third parties through wholesale agreements,but only used for private network links supporting cloud services.CDNs primarily involv

118、e the decentralised storage and distribution of online content.They are used by content providers to improve their customers experience,and help minimise the costs associated with increasing internet traffic.CDNs do not deliver traffic or services directly to end users,which is always the responsibi

119、lity of an end users ISP.The same BEREC report has found that CDNs play an important role in enabling the internet to scale.Overall,this suggests there are no specific characteristics of cloud services that would justify deviation from the current regulatory treatment of IP interconnection,private n

120、etwork or CDNs.In practice,the EECC would be ill-suited to regulate these areas,even if there were issues.8 European Commission(2020),EU toolbox for 5G security.9 BEREC(2024),Draft BEREC Report on the IP Interconnection ecosystem.The European telecoms regulatory framework:not a good fit for the publ

121、ic cloud|12 Ref:658783197-372.IP interconnection between cloud providers and ISPs,or between CDNs and ISPs,is essential to end users ability to access cloud services.Cloud providers and customers are entirely dependent on the ability to exchange traffic with one another for the service to work.This

122、type of interconnection is different from the EECCs definition of interconnection,which focuses on traditional telephony.The telecoms regulatory framework specifies interconnection rules,and indeed relevant interconnection markets were regulated for many years,to address specific challenges related

123、to the importance of direct network effects in telephony:incumbents and other large operators had a strong incentive to refuse to interconnect with new entrants,or to make it very expensive,to discourage end users from switching operators.This concern is not relevant to cloud services,where direct n

124、etwork effects are not prevalent,and services are provided over the top.Market failures related to direct network effects are therefore not a significant risk,because cloud customers do not benefit directly from a cloud provider having more customers,beyond economies of scale.This undermines the rel

125、evance of the EECCs regulation of interconnection for ECS providers,which is designed specifically to remedy potential market failures associated with direct network effects in telephony.10 0.4 Extending telecoms regulation to cloud services risks harming Europes consumers,businesses and digital age

126、nda In this section,we provide initial thoughts on the potential consequences of bringing cloud services under the telecoms regulatory framework.We consider the impact this could have on cloud providers and their customers,telecoms operators and their own customers,and the broader digital agenda for

127、 Europe.11 From this assessment,we believe it is likely that these effects would be counterproductive to the digital agenda for Europe,negatively affecting European businesses that use cloud services and CDNs,slowing down the adoption of cutting-edge technology that runs on cloud,including AI,and di

128、storting competition in the telecoms sector.Finally,expanding existing telecoms regulation to a new sector,with no clear justification or impact assessment,would go against the EUs established principles and would materially increase regulatory risk and affect investor sentiment.10 Note that the tra

129、nsition to IP telephony did not solve this problem directly,in a market environment where managed voice over IP was still subject to traditional voice call termination bottleneck.The move to interpersonal communications services provided over the top,without an operator needing to be involved,reduce

130、d this issue in the telecoms sector,displacing it to these interpersonal communications services.While the EECC does not specifically address interoperability between these services,the Digital Services Act,which already governs cloud services,does cover this aspect.11 The digital agenda aims to inc

131、rease take-up of cloud services so that 75%of EU companies are using“cloud,AI,or Big Data”,ensure 90%of SMEs reach a basic level of digital intensity,and double the number of successful unicorns valued at over EUR1 billion(or USD1 billion).The European telecoms regulatory framework:not a good fit fo

132、r the public cloud|13 Ref:658783197-372.0.4.1 Expanding the telecoms regulatory framework to include cloud and CDN providers would directly affect their costs and incentives to invest in Europe If the European telecoms regulatory framework were expanded to include cloud and CDN services,providers of

133、 these services would face additional cost,complexity and risks in operating in Europe.This could discourage further investment,and result in infrastructure(both cloud regions and PoPs)that becomes more centralised once again,in larger cities and countries.Smaller Member States could be most affecte

134、d,as demand for cloud and CDNs may be insufficient to justify providers being regulated in additional(and in particular smaller)Member States.Compliance costs and complexity associated with national regulation The EECC is a directive that is implemented and enforced in each Member State,by different

135、 NRAs,in different ways.This is aligned with the national history and scope of the telecoms sector,and the localised economies of scope and scale that characterise it.It is at odds,however,with the global and cross-border nature and economies of scale of the cloud and CDNs,which has been recognised

136、via the EU-wide scope of the Data Act and the Digital Markets Act for example.Large cloud and CDN providers may be better equipped to deal with the complexity and costs associated with regulation.However,they would also be most affected by the risk of fragmented national regulations,compared to smal

137、ler providers that may be present in fewer Member States.Higher costs related to IP interconnection The inclusion of cloud and CDN providers under the EECC could result in IP interconnection between these providers and ISPs becoming regulated.This would be a significant departure from the successful

138、 approach of negotiated interconnection that has allowed the internet to grow rapidly,with increasingly decentralised infrastructure and interconnection.In the context of strong lobbying by large telecoms operators to mandate and regulate interconnection with large content and application providers(

139、CAPs),including cloud and CDN providers,this could lead to an increase in disputes that NRAs would have to arbitrate.This is a complex,time-consuming and costly process,which does not respond to a clearly established problem:indeed,BEREC and others have clearly said they view IP interconnection as a

140、 well-functioning part of the internet.Complexity and costs associated with the regulation of private networks and CDNs Similar cost,complexity and uncertainty would stem from the inclusion of cloud and CDN providers private networks under the EECC.Third-party CDNs are intermediary services that act

141、 on behalf of CAPs.These CAPs control the traffic that is delivered through CDNs,and technical aspects related to the encoding,compression and access controls associated with the content itself.The European telecoms regulatory framework:not a good fit for the public cloud|14 Ref:658783197-372.Furthe

142、rmore,the purpose and construction of the EECC have very clearly distinguished between public ECSs and public electronic communication networks(ECNs),which it oversees,and private networks,which are in summary not subject to regulation.Bringing CDNs and private networks of cloud providers within the

143、 scope of telecoms regulation risks bringing private networks more generally under the regulatory framework and increase costs for the European businesses and CAPs that rely on cloud and CDNs,with no clearly articulated rationale or market failure.Ultimately,the European businesses that use cloud an

144、d CDNs(including European CAPs)would likely face higher costs and lower-quality services as a result.0.4.2 The impact on the telecoms sector would also be broadly negative,for most operators,for consumers and for regulators If cloud and CDN providers faced higher costs and adverse incentives related

145、 to their investment in infrastructure in the EU,this could affect the telecoms sector through higher costs and investment requirements,reduced competition and poorer competitive outcomes,including for consumers.More centralised interconnection could increase costs for telecoms operators If cloud an

146、d CDN providers were present in fewer cities and countries across the EU,many European telecoms operators would have to expand their own network capacity to major peering locations,or purchase more capacity from large transit providers.In addition,if cloud and CDN providers were included under the s

147、cope of the EECC,they may have fewer incentives to partner with ISPs/telecoms operators(e.g.for cloud on-ramps).They could also choose to operate submarine cable landing stations themselves,without partnering with telecoms operators.Smaller ISPs may be disadvantaged compared to larger ones If large

148、ISPs were successful in extracting IP termination charges from cloud and CDN providers that are above their costs,they would benefit at the expense of smaller ISPs,because their scale would result in greater transfers of funds from cloud and CDN providers.This would recreate the historical issue wit

149、h fixed and mobile termination rates,which NRAs and the EC spent over 20 years solving,and risks distorting competition in the telecoms sector to the benefit of larger operators.Competitive imbalances could result in larger operators self-If a regulated termination monopoly for individual ISPs end u

150、sers resulted from these changes,new issues may emerge.For example,the largest operators may offer their own CDN services to CAPs and enterprise users,leveraging their larger networks to favour their own services.This would The European telecoms regulatory framework:not a good fit for the public clo

151、ud|15 Ref:658783197-372.preferencing their own cloud and CDN services recreate the harms that existed in traditional call termination markets,and would go against European policy efforts to reduce self-preferencing in digital markets,including through the Digital Markets Act.These negative effects o

152、n operators have been widely acknowledged by competitive operators.12 Some larger incumbent operators also appear to recognise these risks,particularly in the context of CDNs.13 They play an important role in the internets ability to accommodate growing consumer demand without commensurate increases

153、 in costs,which could be put at risk by expanding the telecoms regulatory framework without a strong justification and impact assessment.0.4.3 These impacts would be detrimental to European businesses on their digital transformation journey,the digital agenda and the ability of the EU to innovate th

154、rough technology We acknowledge that the discussion in the ECs white paper is preliminary and as such remains very superficial.However,early responses to the consultation suggest there is significant concern from multiple stakeholders around these proposals.Furthermore,the ECs perspective as outline

155、d in the white paper is primarily focused on the supply side,and does not yet address the impact on the demand side,which is critical for a comprehensive impact assessment.The positions shared by stakeholders in response to the consultation on the ECs white paper reflect the breadth of negative impa

156、cts that would stem from this proposal.In addition to negative impacts on cloud and CDN providers,and on smaller telecoms operators(discussed above),European businesses would face higher costs for cloud and CDN services.The impact of higher costs,including for IP interconnection,will ultimately be b

157、orne by end users,including European businesses and content providers,and by consumers.14 This could slow the deployment of some services in the EU,and slow adoption of cloud services and innovations,more broadly,including AI.This would be clearly counterproductive to the ECs efforts to spur digital

158、 transformation under its digital agenda.Ultimately,this would come at a cost for European competitiveness.Other counterproductive effects would stem from more centralised digital infrastructure,and reduced investment in the EU.This would be the consequence of the risk of fragmented national 12 Ecta

159、(2024),Ecta considerations on the EUROPEAN COMMISSIONS WHITE PAPER“HOW TO MASTER EUROPES DIGITAL INFRASTRUCTURE NEEDS?”.13 See for example BEREC,BEREC(2024),Draft BEREC Report on the IP Interconnection ecosystem,(Section 4.5:“Technological developments,such as the installation of on-net CDNs,are a k

160、ey reason why increases in data traffic have not passed through to prices and costs”)and ETNO and GSMA(2023),Summary of the Joint Telecom Industry Response(“Intermediaries like commercial content delivery networks(CDNs)should not be considered as large traffic generators or LTGs,but the traffic conv

161、eyed via such intermediaries should count toward the LTG designation threshold.”14 See BEREC(2022),BEREC preliminary assessment of the underlying assumptions of payments from large CAPs to ISPs:“Payment disputes between ISPs and CAPs can result in a loss of quality of the connection(as for example t

162、he dispute between Comcast and Netflix in the US demonstrated).To whom ISPs customers attribute this problem and whether they are more likely either to switch the ISP or to switch or unsubscribe from the CAP,shapes the extent to which ISPs can exploit excessive charges,which are ultimately paid by w

163、hich are ultimately paid by consumersconsumers.”(emphasis added)The European telecoms regulatory framework:not a good fit for the public cloud|16 Ref:658783197-372.regulation,centralisation of cloud regions and IP interconnection points in fewer jurisdictions,or even outside the EU,and less collabor

164、ation between cloud providers and telecoms operators,including on submarine cables and cloud on-ramps.Finally,and perhaps most importantly,the ECs apparent proposal to repurpose a successful,complex regulatory framework designed for the specific characteristics of telecoms,to apply them to a very di

165、fferent sector,risks fundamentally undermining regulatory certainty.European policy makers need to ensure that any new regulation on cloud and CDN providers responds to a clearly established problem or market failure,which cannot be remedied through existing instruments,in a proportionate way.These

166、principles are at the core of the telecoms regulatory framework and should be preserved.0.5 Conclusions Any argument for extending the telecoms regulatory framework to cloud services requires scrutiny based on the EU principles of necessity and proportionality.The telecoms framework,embedded in the

167、EECC and enforced by NRAs,addresses a history of national monopolies and persistent high entry barriers in the telecoms sector.It has successfully promoted market entry,build-out of advanced connectivity,and competitive pricing.Cloud services,however,differ fundamentally from telecoms networks.They

168、are nascent,dynamic,global,and lack direct network effects,whereas the telecoms sector is mature,stable,location specific,with significant direct network effects.The telecoms regulatory framework,designed for a different history,sector dynamics and set of services,is not suited to regulating the clo

169、ud sector.The cloud sector is already overseen through European competition law,and is subject to newly introduced regulations that are all outside the telecoms regulatory framework.If competition or regulatory concerns subsist despite these regulations and guardrails after they are fully implemente

170、d,regulators should seek to remedy them through proportionate and justified remedies.Applying telecoms regulation to cloud services could stifle growth and competition,disrupt the competitive balance among telecoms operators,incur higher costs for cloud users,and reduce choice and quality of service

171、s for users in both sectors.It could also hinder key EU initiatives such as Europes digital decade and the Digital Single Market,while disproportionately affecting smaller providers and users across the ecosystem.Both the cloud and telecoms sectors are vital for European digitalisation and competiti

172、veness.Regulators should acknowledge the potential adverse impacts of extending the telecoms framework to cloud services and adopt a nuanced approach that recognises the unique characteristics of both sectors to support continued growth and innovation.The European telecoms regulatory framework:not a

173、 good fit for the public cloud|17 Ref:658783197-372.1 Introduction Businesses are progressively adopting cloud services to meet their information technology(IT)needs,in addition to,or as a replacement for,functions performed with their own IT equipment.This shift from on-premises private IT to publi

174、c-cloud services where infrastructure and systems are shared between multiple businesses,goes hand in hand with the increasing use of IT for automation,driven by sophisticated use of large volumes of enterprise data,including through artificial intelligence(AI).Cloud services have also enabled digit

175、al-first businesses to launch and grow globally without the capital expense and risk associated with running their own data-centre infrastructure.Cloud services rely on customers being able to interact with the cloud platform,through the internet or a more direct connection.This close link with conn

176、ectivity and a sense that a new paradigm around digital infrastructure is important to Europes strategic autonomy and digital sovereignty,has led the European Commission(EC)to introduce the concept of collaborative connected computing,and to posit that cloud services and connectivity are converging.

177、The EC discusses this concept in a white paper15 that should help inform the ECs future policy and regulation related to the digital infrastructure pillar of its Digital Decade Policy Programme 2030.The white paper specifically mentions the perceived need for a level playing field16 in regulation be

178、tween cloud and connectivity,and asks whether the telecoms regulatory framework(in particular the European electronic communications code or EECC)should be expanded to include cloud services.17 Part of the ECs rationale relies on a view that cloud providers are currently exempt from telecoms regulat

179、ion(including access and interconnection),although they operate large backbone networks and interconnect with regulated telecoms operators.This goes further than the conclusions BEREC draws from its own analysis of possible convergence between cloud and telecoms,18 which focuses on ensuring that the

180、 regulation of electronic communications networks and services as currently defined remains suitable in the context of further cloud adoption.While the idea of simply extending the current telecoms regulatory framework to cloud providers may seem appealing on the surface,this approach fails to ackno

181、wledge the fundamental differences between the cloud and telecoms sectors.It also overlooks the potential risks and costs associated 15 European Commission(2024),How to master Europes digital infrastructure needs?(Brussels,2024,COM(2024)81 final);European Commission(accessed July 2024),Europes Digit

182、al Decade.16 See European Commission(2024),How to master Europes digital infrastructure needs?See in particular p36.17 This view that the distinction between cloud and telecoms is shrinking was made explicit by Roberto Viola,Director General for DG CNECT,speaking at the BEREC Stakeholder Forum in Ma

183、rch 2024 where he was reported to have said that“no distinction between a cloud operator and a telecoms operator”and that therefore there cannot be a regulatory difference.18 See BEREC(2024),Draft BEREC Report on Cloud and Edge Computing Services.The European telecoms regulatory framework:not a good

184、 fit for the public cloud|18 Ref:658783197-372.with applying regulatory solutions,originally designed to tackle specific issues in the telecoms sector,to the cloud sector,which does not face the same issues due to its structure and characteristics.In this paper,we examine these questions in detail,d

185、rawing on technical,legal,economic and regulatory perspectives,as well as historical context and analysis:Section 2 provides an introduction to the role of cloud services in the European digital economy,the value chain of cloud(including where it is used for telecoms)and the interactions between clo

186、ud and telecoms,which are sometimes inputs to one another,and in most cases complements,for the businesses and consumers that use cloud services.Section 3 reviews the current telecoms framework and the structural problems addressed through the imposition of specific ex-ante19 rules across the teleco

187、ms regulatory framework,contrasting the dynamics at play in cloud and telecoms to assess whether similar problems exist in cloud.Finally,we also examine in more detail specific networking aspects of cloud:private network including submarine cables,IP interconnection between cloud providers and inter

188、net services providers(ISPs),and content delivery networks(CDNs).Section 4 explores the potentially negative impacts on the European Union(EU)s Digital Agenda 2030,Europes businesses,consumers,and the regions competitiveness,of extending existing ex-ante telecoms rules to the cloud sector.Section 5

189、summarises our main conclusions.The analysis is supplemented by background information,historical context and legal references,included as annexes.We have included summaries of key points at the start of each section,in a blue box such as this one.19 These are rules that can be applied to prevent th

190、e abuse of dominant position,in contrast with ex-post competition law that applies when an abuse has taken place.The European telecoms regulatory framework:not a good fit for the public cloud|19 Ref:658783197-372.Acronyms used in this paper Acronym Meaning ACM Authority for Consumers and Markets(Net

191、herlands)AI Artificial intelligence API Application programming interface AWS Amazon Web Services BEREC Body of European Regulators for Electronic Communications CAP Content and application provider CDN Content delivery network CMA Competition and Market Authority(UK)DGA Data Governance Act DMA Digi

192、tal Markets Act DSA Digital Services Act EC European Commission EECC European Electronic Communications Code ECS Electronic communication service ECN Electronic communication network EU European Union GDPR General Data Protection Regulation HHI Herfindahl-Hirschman index ISP Internet service provide

193、r ISS Information society services ISV Independent software vendor IT Information technology IXP Internet exchange point MTR Mobile termination rate NRA National regulatory authority NIS Network and information systems ONP Open network provision PaaS Platform as a service PoP Point of presence QoS Q

194、uality of service R&D Research and development SI Systems integrator SME Small and medium-sized enterprise SMP Significant market power VLOP Very large online platform WAN Wide-area network The European telecoms regulatory framework:not a good fit for the public cloud|20 Ref:658783197-372.2 Cloud an

195、d telecoms are distinct and complementary enablers of Europes digital transformation In this section,we discuss how cloud and telecoms are contributing to fulfilling the ambitions of the digital agenda for Europe and the EUs Digital Decade.20 In Section 2.1,we describe the role of cloud services for

196、 European businesses,and the benefits they bring.In Section 2.2,we describe the cloud value chain and how different parts of the cloud ecosystem interact,examining how cloud services are delivered to telecoms operators by different types of suppliers in the cloud sector.Finally,in Section 2.3 we exp

197、lore the relationship between cloud and telecoms within the cloud sector.2.1 Cloud services enable European businesses to access scalable,globally competitive and state-of-the-art IT infrastructure and platforms,with limited investment and risk Summary Cloud services allow businesses to run software

198、 using IT infrastructure and software building blocks21 that are shared with many other users,offering large economies of scale and a very elastic,or scalable,infrastructure.This infrastructure,and the building blocks it supports,are upgraded continuously,ensuring that customers can access state-of-

199、the-art services.Cloud services are horizontal in nature,offering common functionalities to cloud customers in any industry and sector,typically through application programming interfaces(APIs).Software that runs on cloud infrastructure includes cloud customers own software,and third-party software

200、from a wide range of vendors,which can all use the same APIs.22 Cloud services offered by cloud providers are primarily used by businesses,not consumers.This contrasts with telecoms,where public electronic communication services are offered to both consumers and businesses,with most end users on the

201、 consumer side.23 Both sectors benefit from economies of scale and scope.Historically,direct network effects in messaging and telephony were important factors governing competition in the telecoms sector,whereas in the cloud sector network effects are primarily indirect,for example through nascent s

202、oftware marketplaces.20 See European Parliament(2024),Digital agenda for Europe and European Commission(accessed July 2024),Europes Digital Decade.21 These include data storage management,databases,containerisation systems that allow physical resources to be used in software,AI tools and many others

203、;these building blocks are sometimes referred to as platform as a service(PaaS)tools.22 AWS(2024),What is an API?-Application Programming Interface Explained.23 The EECC Article 2(15)defines a consumer specifically as a natural person,accessing services outside a work context.The European telecoms r

204、egulatory framework:not a good fit for the public cloud|21 Ref:658783197-372.2.2 Businesses and ISVs,including in the telecoms sector,build applications and services using cloud infrastructure and building blocks Summary Cloud services are part of a broader IT value chain,bringing together data cent

205、res,servers and other hardware,software and services,with a wide variety of suppliers at all stages.Cloud customers have the option to access services across the value chain at every stage,choosing to self-supply or buy from suppliers as they see fit.Businesses can choose to purchase these cloud ser

206、vices directly as an input to their own software development and IT operations.In practice,thousands of software vendors,independent from cloud providers,build their own software and solutions on top of cloud services.They then offer these as a service to businesses and consumers.In the telecoms sec

207、tor,operators use cloud services in the same way as businesses in any other business sector.These include for example customer care software,data analytics and AI.Cloud-based networking,involving the control and handling of electronic communications signals by operators,remains limited.Some estimate

208、s from operator surveys suggest that less than 1%of network workloads24 run on the public cloud.Cloud networking occurs primarily in private clouds,via independent software vendors(ISVs),many of which are long-term vendors to telecoms operators(e.g.Nokia).From the perspective of cloud providers,the

209、telecoms sector is one of many customer segments,which they serve with a portfolio of horizontal services that is available to all customers.European businesses have access to a wide range of cloud infrastructure and platform services,which are offered by an array of cloud providers with varied prof

210、iles and backgrounds.Cloud providers offer infrastructure and software building blocks to ISVs and businesses that use these inputs to build cloud-based services.In the telecoms sector,operators use cloud services directly for their own software development needs,and in some limited instances as the

211、 platform on which to host cloudified network functions provided by ISVs,primarily traditional telecoms equipment and solutions vendors such as Nokia and Ericsson.2.2.1 Cloud services are part of a broader IT value chain in which on-premises IT still plays a major role,supported by independent co-lo

212、cation data-centre providers Cloud services are part of a broader IT value chain involving:physical infrastructure,primarily data centres(1)computing hardware and software building blocks(2)software applications and services(3)systems integrators(SIs)(4).This value chain is accessible at all levels,

213、leading to a range of models illustrated below in Figure 2.1.A simplified view of the cloud value chain is shown in Figure 0.1 below.In the full on-premises model(number 1 in the diagram),businesses deploy and operate IT hardware and software 24 A workload is a discrete unit of software running on I

214、T infrastructure,including in the cloud.The European telecoms regulatory framework:not a good fit for the public cloud|22 Ref:658783197-372.in their own premises.Many businesses choose to deploy their own hardware and software in co-location data centres,owned and operated by third parties(2).Busine

215、sses that choose to migrate to the cloud can,at a basic level,purchase these cloud services as an input to their own software development and IT operations(3).In practice,thousands of ISVs,independent from cloud providers,build their own software and solutions on top of cloud services,in addition to

216、 software provided by cloud providers.This is offered as a service to businesses and consumers(4).Systems integrators(SI)bring together software and services to offer fully managed solutions to customers who require more support(5).Figure 2.1:Components of the cloud value chain Source:Analysys Mason

217、,2024 2.2.2 European businesses have access to a wide range of cloud infrastructure and platform services,offered by an array of providers with varied profiles and backgrounds Numerous cloud providers have emerged from a variety of backgrounds and operate in Europe and worldwide.They cater to the di

218、verse needs of European businesses by offering a wide range of services(see Figure 2.2):So-called hyperscalers,originating from businesses with large internal IT requirements,such as Amazon,Google and Microsoft,which they were able to repurpose to serve third parties.Enterprise IT service providers,

219、such as Oracle and IBM,which have used their significant IT management capabilities to build cloud platforms to serve their existing customers.On-premises co-location data-centre providers,such as OVHCloud,which have built on existing technical facilities to move up the value chain beyond passive co

220、-location racks to owning and operating compute,storage and networking infrastructure.Smaller,more dynamic providers,which are emerging in response to customer demand for specialist capabilities in emerging technologies such as AI.On premises(owned technical facility)On premises(co-located)Internal

221、software developmentSoftware as a serviceFully managedPublic cloud providerISVSI3Cloud provider softwareData centre24451The European telecoms regulatory framework:not a good fit for the public cloud|23 Ref:658783197-372.We note that at present,a small proportion of workloads are hosted on the public

222、 cloud,with the vast majority running in various on-premises deployments,including private cloud.25 Figure 2.2:Paths of entry to the cloud sector Analysys Mason,2024 Telecoms operators are also entering the cloud space,with some building their own cloud platforms using existing large-scale IT infras

223、tructure and IT managed services capabilities like hyperscalers and enterprise service providers.These include large operators such as Orange or Deutsche Telekom,26 and smaller players such as Scaleway(part of Iliad Group).27 Others are also partnering with other cloud providers to package and resel

224、l services to customers.2.2.3 The cloud value chain brings together cloud providers that provide building blocks accessible through APIs,and ISVs and businesses that use these inputs to build cloud-based software Both ISVs and individual businesses leverage the building blocks provided by cloud prov

225、iders to develop their own software.ISVs develop software to be sold to other enterprises that may not have or need the IT capabilities to self-supply such solutions,often using a model known as software as a service.Research by the Netherlands Authority for Consumers and Markets shows the huge vari

226、ety of products offered on major cloud platforms,the vast majority of which are provided by ISVs(see Figure 2.3).25 A survey conducted by McKinsey,the results of which were published in April 2024,suggests that only 13%of cloud-using respondents had over 80%of workloads in the cloud,while 68%had few

227、er than 50%.See McKinsey&Company(2024),The state of cloud computing in Europe.26 See Orange Businesss Cloud Infrastructure Solutions and Deutsche Telekoms Open Telekom Cloud.27 Ecta(2024),Ecta considerations on the EUROPEAN COMMISSIONS WHITE PAPER“HOW TO MASTER EUROPES DIGITAL INFRASTRUCTURE NEEDS?”

228、.Cloud sectorLarge IT companiesCo-location providersIBMOracleUpcloudGigasOVHcloudHyperscalersMicrosoftAmazonGoogleNiche providersCoreweaveLambda LabsTogether AIThe European telecoms regulatory framework:not a good fit for the public cloud|24 Ref:658783197-372.Figure 2.3:Number of products in own and

229、 third-party marketplaces by cloud provider Source:Netherlands Authority for Consumers and Markets,2022 Total number of products Total number of first-party cloud products Total number of ISV third-party products AWS 12 591 408 12 183 Azure 18 046 304 17 742 Google Cloud 6276 92 6184 The ability of

230、businesses to directly access basic building blocks on a flexible basis supports the development of cloud-native start-up and scale-up businesses without requiring them to invest in on-premises or private-cloud infrastructure during these early phases.Nearly all European technology companies use clo

231、ud services,including Spotify,Supercell and Deliveroo,28 among many others.The benefits of the cloud are relevant to ISVs more broadly,including established vendors that would have previously delivered software either through deployment on a customers own infrastructure or via the internet from infr

232、astructure owned by the ISV.By deploying software and services in the public cloud,ISVs are able to simplify the delivery of their services on a common infrastructure,and benefit from scalability as described above.ISVs that previously delivered services from their own infrastructure are also able t

233、o scale customers globally using the reach of public-cloud platforms,without the need to make infrastructure and hardware investments in new regions.2.2.4 Like other businesses,telecoms operators use public-cloud platforms to improve their operations,and network vendors are offering products via the

234、 public cloud like other ISVs Telecoms operators increasingly use the public cloud for a range of IT needs,but network cloudification is happening relatively slowly Telecoms operators IT requirement include network-related workloads,which are software functions that enable the provision of electroni

235、c communications services to their customers,and other IT needs including customer care,data analytics,billing,and other functions that are common to companies in many other sectors of the economy.Like many other large businesses,telecoms operators are increasingly using public-cloud platforms to ru

236、n software for operations,finance,customer service and business intelligence.29 Worldwide spend by telecoms operators on OSS/BSS systems delivery is expected to increasingly shift towards the public cloud,reaching 27%of total spend by 2028(i.e.USD21 billion),from 14%in 2023.30 28 See Spotify Case St

237、udy,Supercell Case Study,Deliveroo on AWS:Case Studies,Videos,Innovator Stories.29 BEREC(2024),Draft BEREC Report on Cloud and Edge Computing Services.30 Analysys Mason(2023),CSPs spending on telecoms-related OSS/BSS software and services will reach USD80 billion by 2028.CSP refers to communications

238、 service providers,which we term telecoms operators more generally in this paper.The European telecoms regulatory framework:not a good fit for the public cloud|25 Ref:658783197-372.This shift is partly driven by ISVs focus on public cloud-based solutions for telecoms,with some such as Amdocs31 and N

239、etcracker32 partnering with cloud providers to offer services to telecoms operators.Telecoms operators are also beginning to adopt cloud-based services for network functions,although this transition can be expected to be more gradual,given the historical vertical integration between software and tel

240、ecoms hardware vendors and relatively long lifetimes of telecoms network assets that limit the speed of migration to cloud for existing telecoms networks.Cloudified network functions are mostly deployed on private infrastructure,including private clouds,as telecoms operators seek to make use of exis

241、ting owned data-centre facilities and retain greater control over these operationally critical assets.In some instances,telecoms operators and their ISVs may use parts of cloud providers wider offerings such as Telenets use of Google Clouds Anthos33 whilst still operating a private-cloud model.This

242、is visible in available data and estimates.A BCG article from February 2024 suggests that,as of 2023,less than 1%of telecoms operators network workloads are running in the public cloud.34 Similarly,Analysys Masons own research35 estimates that only 2%of mobile network cloud spend by telecoms operato

243、rs globally in 2023 was on public-cloud platforms,with forecasts that only 20%of total spend would be on the public cloud by 2028.Where operators are deploying network functions in the public cloud,they do so through network equipment and software vendors operating as ISVs,drawing on horizontal clou

244、d functions and APIs There are some instances of new-entrant telecoms operators,which typically benefit from greater network deployment flexibility due to not being constrained by historical deployments,where network functions will be hosted in the public cloud such as DISH Networks36 in the USA.Amo

245、ngst the existing brownfield telecoms operators(i.e.those with mature existing networks and operations),Telefnica Germany is the only one to have announced network function deployment in a public-cloud environment,initially at a relatively limited scale(the first phase targets 1 million users,around

246、 2%of total subscribers).37 31 See Netcracker(2020),Netcracker Delivers Digital Service Innovation with Amazon Web Services;See Netcracker(2020),Netcracker and Google Cloud Announce Strategic Partnership to Help Telcos Modernize Business and Operational Systems;See Netcracker(2024),Netcracker Succes

247、sfully Implements Full-Stack,Cloud-Native BSS/OSS on AWS for Andorra Telecom.32 Amdocs(2024),Finetwork Selects Amdocs to Modernize its Systems,Enabling Spanish Operator to Provide Fiber,TV and Mobile Services.33 Telenet,Telenet introduces Ericsson,Nokia and Google Cloud as partners for the rollout o

248、f its 5G Network,the Engine for Future Mobile Innovation.34 BCG(2024),How to Find the Right Balance in the Telco Cloud.35 Analysys Mason(2024),Network cloud infrastructure:worldwide forecast 20232028.36 Nokia(2021),Nokia and DISH to deploy first 5G standalone core network in the public cloud with AW

249、S.37 Telefonica(2024),First 5G core network in the cloud for an existing operator:O2 Telefnica sets new impulses in the core network together with Nokia and AWS.The European telecoms regulatory framework:not a good fit for the public cloud|26 Ref:658783197-372.It is also worth noting that the deploy

250、ment of network functions in the public cloud is based on a three-layer system,involving cloud providers,network vendors,and the operator itself.38 In all announced uses of the public cloud for network deployments,the cloud provider acts only as the cloud infrastructure layer.This makes them a hosti

251、ng platform on which ISVs,such as Nokia in the case of both DISH and Telefnica Germany,offer their services.Microsofts Azure Operator 5G Core was the first attempt by a major cloud player to offer core network services for telecoms operators directly,but recent announcements suggest that Microsoft w

252、ill now revert to a horizontal approach working with network ISVs.39 2.3 Cloud providers and cloud customers are dependent on connectivity,both as an input through private networks and for end users to access cloud services Summary Cloud services require connectivity,both for cloud providers to oper

253、ate a distributed,scalable infrastructure,and for cloud customers to access their services.Cloud providers operate in multiple,geographically distributed data centres.These must be connected to one another through high-capacity networks for the platform to function properly and deliver scale,elastic

254、ity and resilience.These links are operated as a private network by cloud providers,which can buy links from ECS providers or build their own links depending on what makes operational and financial sense.Cloud customers need to be able to reach their cloud provider.They can do so directly through th

255、eir own private network,but mostly rely on an ISP for connectivity through the internet or through dedicated connections(on ramps).Some cloud customers use CDNs,which can store(cache)and optimise the delivery of online content across the public internet.These various ways in which telecoms and cloud

256、 interact have given rise to partnership opportunities,which telecoms operators and cloud providers are actively collaborating on.This suggests a complementarity between the cloud and telecoms sectors,but at this stage cloud providers and customers are reliant on connectivity,whereas telecoms operat

257、ors are using public-cloud services in a limited way,which largely excludes network functions.In this section we explain how connectivity underpins cloud services:cloud providers use connectivity as part of their own infrastructure,to connect their data centres and PoPs across multiple locations clo

258、ud customers rely on connectivity to access cloud services,through the internet or through dedicated connections(on ramps)CDNs are separate and complementary to cloud services,enabling online content to be cached and distributed efficiently close to end users.38 Plum,Stratix for BEREC,Study on the t

259、rends and cloudification,virtualization,and softwarization in telecommunications(2023,BoR(23)208).39 See Microsoft,Azure Operator 5G Core,and LightReading(2024),Layoffs crash into Microsofts Azure for Operators.The European telecoms regulatory framework:not a good fit for the public cloud|27 Ref:658

260、783197-372.This forms the basis of the discussion in Section 3.3,focusing on the distinction between these three types of connectivity,and the electronic communication networks and services that are at the core of the European telecoms regulatory framework.2.3.1 Cloud providers use domestic and inte

261、rnational connectivity extensively as part of their operations,to connect their data centres and PoPs across the world To offer their services,cloud providers deploy data centres worldwide in regions and availability zones.Regions are spread globally to best serve customers,comply with data sovereig

262、nty requirements,improve fault tolerance and provide disaster recovery capabilities.Each region is made up of multiple isolated data centres or availability zones40(themselves consisting of one or more isolated data centres),each with its independent power,cooling and networking infrastructure to fu

263、rther increase fault tolerance in the case of localised issues.Cloud data centres and PoPs are connected through network links,as illustrated in Figure 2.4.Figure 2.4:Illustrative global view of regions and availability zones Source:Analysys Mason,2024;this does not represent any specific cloud prov

264、iders deployment These links combine local,national and international connectivity.Connectivity between data centres in a given region,or between regions in a given country,is provided by a combination of 40 AWS availability zones are separated by up to 100km;OVHCloud recently launched a new availab

265、ility zone in Paris with data centres 30km apart.Other leading cloud providers do not make similar details publicly available.See AWS(2024),Availability zones and Data Center Dynamics(2024),OVHcloud launches multi-zone cloud region in Paris,France.Each region represents the core location which may a

266、lso serve surrounding geographiesCloud regionsConnectionsData centreData centreAvailability ZoneAvailability ZoneAvailability ZoneMeshed connectivity between availability zonesand other regions facilitates high availability and fault tolerance The European telecoms regulatory framework:not a good fi

267、t for the public cloud|28 Ref:658783197-372.dark fibre(on which the cloud provider operates its own networking equipment)and enterprise connectivity solutions from enterprise-focused telecoms operators.The largest cloud providers are in some cases building their own network links,including through s

268、ubmarine cables,typically for very large capacity links between continents.In many such cases,cloud providers partner with telecoms operators,as part of consortiums and other partnership agreements that help both parties combine their expertise,share the costs of submarine cables,and benefit from th

269、e capacity created for their own use.41 Some cloud infrastructure is being deployed at the so-called edge,close to end users.In some cases,the edge is located within an ISPs network,through partnerships between major cloud providers and ISPs.This allows cloud customers to execute workloads closer to

270、 their premises,with reduced latency and transport requirements.Examples of such edge collaborations include Amazon Wavelength,which is currently offered by Vodafone in Germany and the UK,42 and Google Anthos for Telecom which is partnering with AT&T in the USA.43 At this point,edge nodes deployment

271、 remains limited,with the EC estimating around 500 edge nodes deployed at the end of 2022 throughout the EU,most of them seemingly unrelated to public-cloud providers so far.44 2.3.2 Cloud customers rely on connectivity to access cloud services,through the internet or through dedicated connections(o

272、n ramps)Cloud services are by nature online services:they can only be used by customers who are able to reach the cloud platforms through some sort of electronic communication network and service.Cloud providers do not offer last-mile connectivity(i.e.all the way to the end user)of any kind in Europ

273、e at the moment.45 Some cloud customers operate their own networks,and are able to connect directly with cloud providers through dedicated cloud on-ramp services.Most cloud customers rely on an ISP to connect to their cloud services,either through the public internet or through an on-ramp service pr

274、ovided by their ISP.The quality of the connectivity provided by the ISP is important to the experience of cloud users,both in terms of latency and speed,and in terms of resilience and availability.Cloud providers and 41 TeleGeography(2024),A(Refreshed)List of Content Providers Submarine Cable Holdin

275、gs.42 AWS,AWS wavelength(accessed July 2024).43 Google(2020),Bringing partner applications to the edge with Google Cloud.44 European Commission(2023),Edge Observatory for the Digital Decade.45 We note BERECs reference to mobile services provided by AWS and Google in the USA.It is worth noting that A

276、WS Private 5G Radio is a private networking product in a box using citizens broadband radio service(CBRS)spectrum,and that Google Fi is a mobile virtual network operator(MVNO)that,in the EU,would clearly be subject to the current telecoms regulatory framework.Neither of these products are currently

277、available in the EU.See BEREC(2024),Draft BEREC Report on Cloud and Edge Computing Services.The European telecoms regulatory framework:not a good fit for the public cloud|29 Ref:658783197-372.telecoms operators work together through peering and transit relationships to achieve a high quality of serv

278、ice for their customers.46 The growing importance of cloud for enterprise users of connectivity is illustrated in a recent survey of ISPs,shown in Figure 2.5,which highlights the growing demand for software-defined services and cloud connectivity.Figure 2.5:Fixed connectivity services cited by opera

279、tors as delivering revenue growth47 Source:Analysys Mason,2024 The importance of connectivity as an enabler of cloud services for end users is evident in the digital transformation of businesses:as they adopt cloud services,they increase their demand for high-speed,reliable connections including new

280、 services such as on-ramps and multi-cloud networking.Conversely,as ISPs enhance their network infrastructure,it becomes easier and more attractive for businesses to adopt cloud services.This points to a degree of complementarity between cloud and telecoms services,although this remains asymmetric:c

281、loud providers and customers both need access to connectivity as a critical enabler of cloud services,but telecoms operators do not rely on cloud services to offer connectivity.2.3.3 CDNs are separate and complementary to cloud services,enabling online content to be cached and distributed efficientl

282、y close to end users Some cloud customers who provide services to end users that are hosted on the cloud,including internet content and application providers(CAPs),use CDNs to optimise the delivery of their content across the internet.CDNs are complementary to cloud services but distinct,and the use

283、 of CDNs predates the broad availability of public-cloud services.48 46 For example the partnership between Telefnica and Oracle,offering B2B customers an on-ramp to Oracle Cloud infrastructure;Deutsche Telekom and Microsoft cloud are partnering,targeting medium to large enterprises;Telia connecting

284、 to AWS,Microsoft and Google in the USA,Europe and Asia.47 Based on responses from an unpublished Analysys Mason survey with 12 ISPs;while software-defined networking(SDN)is a networking technology and not a cloud access solution per se,in practice operators are using SDN to meet customer demands re

285、lating to increased cloud and Software-as-a-Service(SaaS)usage,such as hybrid and multi-cloud networking.48 Akamai started offering CDN services in 1999,Akamai,Company history(accessed July 2024).67%58%50%25%17%Software-defined networkingCloud connectivityInternet connectivityIntegrated securityOpti

286、cal%of operators citing this as a growth serviceThe European telecoms regulatory framework:not a good fit for the public cloud|30 Ref:658783197-372.CDNs use servers that store(or cache)content close to end users,sometimes within ISPs premises(on-net CDNs).These cloud customers use a range of models,

287、from different suppliers.Some large content providers operate their own CDNs(e.g.Netflix Open Connect49 and Meta Network Appliances).50 Most CDN users buy CDN services from third-party providers,including Akamai,Cloudflare,Fastly,and public-cloud providers including AWS,Microsoft and Google Cloud.Th

288、e mechanisms through which content flows on the internet have been described at length in previous papers,including from Analysys Mason51 and recently in a BEREC paper.52 Put simply,upon request of a specific piece of content by an end user,CDNs then serve the content from the cache that best optimi

289、ses the quality of the users experience,and the cost of delivering the content.In many cases,the content can be routed to the end users ISP directly,avoiding the need for transit and optimising costs for the ISP,as illustrated in Figure 2.6.In a nutshell,using a CDN is the CAPs decision,and the clou

290、d provider,CDN and ISPs are able to exchange traffic through peering relationships without having to manage commercial relationships and payment flows.Figure 2.6:Traffic and payment flows in cloud networks with CDNs and CAPs Analysys Mason,2024 Because of the benefits they bring to content providers

291、,telecoms operators and end users,CDNs are now an essential component of the architecture of the internet.They are used extensively by broadcasters,streaming providers,online games companies and many other online CAPs.As a result,a significant share of internet traffic delivered to end users now goe

292、s through CDNs,as 49 See Meta,Meta Network Appliances and Netflix,Open Connect(accessed July 2024).50 See Netflix,Open Connect Overview;Spotify(2020),How Spotify Aligned CDN Services for a Lightning Fast Streaming Experience and Google,Spotify case study;AWS,ProSiebenSat.1 Media SE Delivers Interact

293、ive TV Experiences Using AWS Serverless Solutions.51 Analysys Mason(2024),The impact of network usage fees on the Brazil cloud market,and Analysys Mason(2020),IP interconnection on the internet:a white paper.52 BEREC(2024),BEREC Report on the IP Interconnection ecosystem.Cloud providerEnd-user ISPCA

294、P(e.g.Netflix,Spotify)End userHandover pointCDNPublic internetTraffic flowPayment flowThe CDN can be operated by the cloud provider or a third partyThe European telecoms regulatory framework:not a good fit for the public cloud|31 Ref:658783197-372.evidenced by recent research from the French regulat

295、or Arcep53 and survey findings published by BEREC.Both studies found that transit(where no CDNs are involved)accounted for between a third and half of traffic.Importantly,third-party CDNs that act on behalf of CAPs are intermediaries and do not control or modify the content that these CAPs deliver t

296、o end users through CDNs.The relationship is first and foremost between these CAPs and their own customers,with CDNs and ISPs simply facilitating the flow of content from one to the other,with the highest quality and lowest cost possible.53 Arcep(2024),The State of the Internet in France,Breakdown b

297、y origin of traffic to customers of the main ISPs in France(end of 2023).The European telecoms regulatory framework:not a good fit for the public cloud|32 Ref:658783197-372.3 Major differences between the cloud and telecoms sectors undermine the application of the EU telecoms regulatory framework to

298、 cloud services In this section,we compare the dynamics at play in the telecoms and cloud sectors,and assess the rationale for regulatory convergence from an economic and legal perspective.The key questions when considering regulating a sector of the economy are whether there is a market failure tha

299、t needs to be addressed,and if so,how best to do so.In considering expanding the telecoms regulatory framework to cloud services,European policy makers and regulators need to first articulate the problem or market failure they are trying to solve.They should then assess whether the purpose,history a

300、nd mechanics of the telecoms regulatory framework in Europe are well adapted to remedying these problems,in a way that is justified,proportionate,and consistent with the purpose of the telecoms regulatory framework.EU law is based on a number of principles and fundamental rights,which are recognised

301、 by European case law and are relevant to regulation in the context of this paper.These include proportionality54 and purposive construction,55 as well as equal treatment before the law56 and the freedom to conduct a business,57 within the rules set by legislators:Proportionality requires that measu

302、res adopted by EU institutions must be appropriate and necessary to achieve the objectives pursued by the legislation,and they should not exceed what is necessary to achieve those objectives.When there is a choice between several appropriate measures,the least onerous option should be selected,and t

303、he disadvantages caused by the measures should not be disproportionate to the aims pursued.Purposive construction requires legal texts to be interpreted in a way that best achieves the objectives set out by the legislation,rather than adhering strictly to the literal meaning of the words.This means

304、that to understand the scope of the telecoms regulatory framework,and in 54 Article 5(4)Treaty on European Union;Article 5,Protocol(No 2)Treaty on the Functioning of the European Union;affirmed by ECJ in series of cases including Federation Charbonnire(C8-55),Internationale Handelsgesellschaft(C11-7

305、0),Fedesa(C331-88),Swedish Match(C201-03)and Digital Rights Ireland(C293-12).55 See:Telekom Austria v Mayer(Case C-491/04);Deutsche Telekom AG v European Commission(Case T-261/07);Vodafone Ltd v Secretary of State for Business,Enterprise and Regulatory Reform(Case C-58/08.56 See:Arcelor Atlantique e

306、t Lorraine and Others v Premier ministre,Ministre de lcologie et du Dveloppement durable,Ministre de lconomie,des Finances et de lIndustrie(Case C-127/07);Finanzamt Kln-Altstadt v Roland Schumacker 2(Case C-279/93),Spain v Commission(Case C-304/01).57 See:Sky sterreich GmbH v sterreichischer Rundfun

307、k(Case C-283/11),Alemo-Herron and Others v Parkwood Leisure Ltd(Case C-426/11),AGET Iraklis AE v Minister for Labour,Social Security and Social Solidarity(Case C-201/15).The European telecoms regulatory framework:not a good fit for the public cloud|33 Ref:658783197-372.particular the EECC,it is impo

308、rtant to understand why measures were imposed i.e.the problem they are seeking to address.Equal treatment mandates that comparable situations must not be treated differently and different situations must not be treated in the same way,unless such treatment is justified on the basis of an objective a

309、nd reasonable criterion and is proportionate to the aim pursued in light of the fundamental objective.The freedom to conduct a business includes the right to engage in economic or commercial activity,freedom of contract,and free competition.These can be limited by law,as long as these limitations re

310、spect the essence of those rights and freedoms,and comply with the principle of proportionality.Such limitations must be necessary and genuinely meet objectives of general interest recogniszed by the EU or the need to protect the rights and freedoms of others.58 In order to expand the definition and

311、 application of the EECC to include any of these aspects of cloud,European policy makers would need to demonstrate that there are problems,including market failures,that are consistent with those the EECC was designed to address in the telecoms sector.They would also need to demonstrate that the app

312、lication of the EECC would be justified and proportionate in addressing these problems.This section addresses these questions as follows:In Section 3.1,we summarise the history of sectoral regulation in European telecoms provided in Annex A,both from the perspective of policy objectives and the spec

313、ific conditions in which the regulatory framework emerged and evolved over the last 40 years.In Section 3.2,we explore the distinct dynamics that characterise the cloud and telecoms sectors,highlighting the significant differences that exist between these sectors and how their requirements for regul

314、ation vary greatly,even if seeking to achieve similar policy objectives.In Section 3.3,we focus on specific areas where cloud and telecoms are intertwined.As discussed in Section 2.3,these include the private networks of cloud providers(including submarine cables),the connectivity required for cloud

315、 customers to access cloud services,and CDNs.58 See Charter of Fundamental Rights of the European Union,Article 16 and Article 52(1).The European telecoms regulatory framework:not a good fit for the public cloud|34 Ref:658783197-372.3.1 EU telecoms regulation reflects the transition from state-owned

316、 monopolies to a vibrant private sector where competition and regulation interplay successfully Summary The EU telecoms regulatory framework was put in place to facilitate evolution from state-owned national monopolies to an open,competitive sector.Extensive regulation was required to bring about th

317、is change.Some of these regulatory measures remain necessary and are still enforced to this day to address the specific challenges inherent to the telecoms sector.Ex-ante regulatory intervention liberalised the telecoms sector(i.e.allowed new suppliers to offer telecoms services)by addressing specif

318、ic barriers to entry and regulated actors with market power caused by persistent structural features of the telecoms sector.In addition,ex-ante regulation dealt with defined policy objectives and consumer protection issues.Over time,the regulatory framework transitioned from a patchwork of national

319、approaches to a broadly harmonised set of European rules,implemented nationally through market assessment and enforcement by national regulators,overseen by the EC.Continued areas of focus for telecoms regulation reflect this history.Market access is facilitated through the issuance of general autho

320、risations,whilst the allocation of scarce resources,such as spectrum frequency licences and numbering,is handled in a more specific manner.Some structural issues are persistent,linked to network effects,economies of scale and scope,and enduring competitive bottlenecks.In particular,the strategic inc

321、entives of vertically integrated operators(which are prevalent in the sector)are addressed through interconnection and access requirements,including to infrastructure and wholesale services,and a dispute resolution mechanism.National regulatory authorities(NRAs)can only impose additional intrusive r

322、emedies if they have undertaken a detailed market analysis,approved by the EC.Wider policy objectives addressed by the telecoms regulatory framework include access to emergency services and universal service,whilst consumer protection measures relate to end-user contracts and information.The current

323、 version of the European framework recognises the progress made towards more effective competition,encouraging deregulation where possible while still allowing NRAs to impose additional rules,ex-ante only,subject to strict tests.The telecoms sector remains subject to general competition law,which co

324、ntinues to be the main recourse mechanism for other competition issues.This is expanded further in Annex A.The European telecoms regulatory framework:not a good fit for the public cloud|35 Ref:658783197-372.3.2 The EU telecoms regulatory framework responds to specific sector dynamics and policy obje

325、ctives,which are very different to those in the cloud sector Summary The EECC framework is designed to address policy objectives within the specific dynamics of the telecoms sector.These dynamics include:The mature and stable nature of the telecoms sector,and the inherent inability of end users to s

326、elf-supply in all but niche cases,created the condition for a durable monopoly despite liberalisation.Contestability59 and competition issues relate in part to the late liberalisation of the sector(at a point when many people already had a phone line)and to persistently high barriers to entry,leadin

327、g to significant and durable market power of former state-owned incumbents.Direct network effects associated with telephony,where the ability to reach another user was at the heart of the nature of the service,benefited large established network operators at the expense of new entrants.The cloud ser

328、vices sector exhibits different dynamics,namely in its rapid growth which builds on businesses existing demand for IT infrastructure and services,which have previously been self-supplied(i.e.through on-premises deployments).This has resulted in a sector in which cloud providers continue to compete f

329、or customers by encouraging new users away from self-supply towards cloud services.Direct network effects are also not prevalent in the cloud sector,as one users demand for cloud services is not affected by the number of other users using the same cloud service.Various competition authorities in Eur

330、ope(including the UK)have in recent years conducted assessments of the cloud sector,which have highlighted a number of potential issues relating to competition.Despite these issues,no regulatory interventions have been implemented to date.The potential issues identified are distinct from those prese

331、nt in the telecoms sector,or stem from the fundamentally different dynamics between the two sectors.Therefore,applying the EECC would not be proportionate or effective in addressing these concerns.The cloud sector is already regulated through a range of general and sector-specific regulatory tools a

332、t the EU level,which competition authorities recognise may address some of the potential issues identified.These include several new regulations related directly to digital markets,including the Digital Markets Act,Digital Services Act and Data Act,which are in the process of being implemented and w

333、hose effects must be assessed in due course.Detailed references to the legal framework are provided in Annex B.This section examines the rationale for the current EU telecoms regulatory framework from the perspective of the history of competition in telecoms,and the specific sector dynamics at play in the telecoms sector.We contrast those dynamics with those at play in the cloud sector to assess t