On December 28, 2022, the Korea Fair Trade Commission (the “KFTC”) announced the results of its “Study on the Status of Cloud Service Sector” which was conducted to identify the current status and competitive landscape of the Korean cloud service sector. This sector survey was conducted in two phases, (i) the first phase involving a survey completed by 32 key cloud service providers, and (ii) the second phase involving a survey completed by around 3,000 relevant stakeholders who have business relationships with cloud service providers including customers, distribution partners, and marketplace solution providers. The key findings of the sector survey are as follows:
1. Current Status and Transaction Structure of the Cloud Sector
The Korean cloud services market was found to be fairly concentrated with the leading cloud service provider holding considerable market shares followed by the second to fourth-largest cloud service providers gradually expanding their shares. Cloud service customers displayed a tendency to concentrate their workload on one or two specific cloud service providers. It was also found that global cloud service providers work with local distribution partners (MSPs) to reach customers in Korea in most part, and the majority of local MSPs distribute/resell services of multiple cloud service providers on a non-exclusive basis. Regarding cloud customers’ cost predictability, a high proportion of customers responded that it is difficult to predict cloud costs due to factors such as complex pricing mechanisms and unpredictability of data transmission volumes.
2. Competitive Constraints in the Cloud Sector
It was identified that cloud customers face difficulties in switching cloud service providers or adopting multi-homing due to a lack of interoperability when switching cloud services or implementing multi-cloud and other restrictions such as the cost and time required for migrating data/workload. Based on this finding, the survey suggests that a closer examination of cloud service providers’ transaction practices may be required to confirm whether cloud service providers engage in anti-competitive practices such as self-preferential treatment or setting disadvantageous transaction terms on customers.
3. Response of Foreign Competition Authorities
The KFTC also gave attention to the fact that key foreign competition authorities in the EU, the US, Germany, etc. have recently prepared or are currently pursuing regulatory measures for allowing an ex-ante regulation of large platform operators that provide cloud services to preempt certain anti-competitive conduct such as restricting data transferability or interoperability.
The KFTC’s announcement highlights some of the key characteristics of the Korean cloud industry that give rise to potential anti-competitive concerns such as a high degree of concentration on large-sized global companies, lack of interoperability, concentration of data/workload, etc. The KFTC plans to utilize the results of the sector survey to establish a policy direction over the cloud service sector and regularly monitor any conduct that may restrict competition or impose disadvantages on Korean customers.
Related Topics
