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Euro clouds lodge another complaint against Microsoft over anti-competitive licenses

CISPE says Redmond's recent concessions did not level the playing field

Updated A trade group representing 24 cloud infrastructure providers in Europe is filing a formal competition complaint with the European Commission over Microsoft's licensing of software in the cloud.

The legal missive, sent by Cloud Infrastructure Service Providers in Europe (CISPE) to the EC's Directorate-General for Competition, follows a separate complaint from its members OVHcloud and Italian hosting biz Aruba, also alleging Redmond's behavior is anti-competitive.

That complaint centers on the higher costs of acquiring and running Microsoft software in clouds other than Azure, and technical adjustments required to run some programs on rival clouds.

Under the threat of a public review of its licensing practices by the EC, Microsoft admitted in May it needed to make certain concessions and introduced them from October 1.

Microsoft's changes included Flexible Virtualization, allowing customers with Software Assurance (SA) or subscription licenses to use licensed software to build and/or install systems and run them on any cloud providers' infrastructure. The Windows giant also added an option to SA that allows Windows Server to be licensed on virtual cores without tying users to the physical cores present on a server.

Microsoft also eliminated the Virtual Desktop Application add-on license for Microsoft 365's F3, E3 and E5 bundles, and customers were given the choice of one- and three-year subscriptions for products including Windows Server, Remote Desktop Services and SQL Server via the Cloud Solution Provider Program.

More changes needed to level the playing field

Yet CISPE believes Microsoft has not addressed some of the allegations at the core of the complaints, and is seeking remedies that it says will ensure a "vibrant marketplace" for tech businesses and customers.

"Recent announcements, blogs and FAQ documents published by Microsoft in an effort to head-off market investigations have not provided the detail, clarity or assurance that it truly intends to bring a swift end to its anti-competitive licensing practices," CISPE claimed.

"On the contrary, the new contractual terms imposed unilaterally by Microsoft on 1st October 2022 add new unfair practices to the list. Microsoft's ongoing position and behaviors are irreparably damaging the European cloud ecosystem and depriving European customers of choice in their cloud deployments."

According to an executive summary of the complaint, Microsoft uses "unjustified and discriminatory bundling, tying, self-preferencing pricing and technical and economic lock-in" to "restrict choice". The alleged unfair practices are in violation of Article 102 TFEU, and are grounds for the EC to launch a formal probe, CISPE added.

In November 2021, Nextcloud filed a complaint with the European Commission over Microsoft bundling OneDrive with Windows software and other services, including Teams.

A source at one service provider that asked to remain anonymous told The Register that customers using Azure Hybrid receive extended security updates free of charge, but that under the Service Provider Licensing Agreement the same customer would need to license an entire physical host with a hosting provider for a fee.

"So you have to provide enormous amounts of extending security update (ESU) licensing to run a workload with a host as opposed to running on Azure. That's been completely unaddressed [by the October changes]," they said.

Another example, we're told, is that in Azure, customers can run a datacenter VM, "which is the default VM, you install it, they're using a standard license from on-prem, but you also cannot do that in a hosting scenario. We are getting individual licenses now but they're tied to the VM type and the bits that you have to install."

Microsoft is promoting interoperability, the source added, and "at the same time, whenever you're provisioning a VM in Azure, you're doing it with a specific edition of Azure Windows or Windows Server – the Windows Server Data Centre Azure edition. And under the terms, you're only allowed to run that on Azure, which means you have no portability rights for those VMs."

"Many of these things, if you actually drill into the product terms, what sounds like 'Oh, now we have parity,' we really don't. The key message here is that it has the appearance of solving a problem but it doesn't. It doesn't breed better competition either."

"We're looking at a 'solution' that doesn't actually really solve the fundamental challenge, which is that it's very difficult to compete with a platform like Microsoft when they provide services at no cost that we have to pay quite a high cost to provide."

More to hide too

The hidden charge for customers is lock-in, the source added.

Infrastructure hosts in CIPSE's ranks also feel they are being ushered into the Cloud Service Provider program – effectively becoming Microsoft resellers. In order to use that program, each end customer has to have a contract with Microsoft, stoking fears Microsoft will circumvent hosts at some point.

CISPE told us it felt it had no other option but to file the complaint to spur the EC into action in the hope it opens a formal investigation.

CISPE said potential remedies can be "quickly and efficiently implemented" by Microsoft via an auditable control framework to "test compliance" with the Ten Principles of Fair Software Licensing. These were devised and launched by CISPE with Cigref – the French association of digital customers.

In a statement sent to The Register, Francisco Mingorance, Secretary General of CISPE, said:

"CISPE members represent the vibrant, autonomous and independent foundations of Europe's digital transformation and growth. We have filed this sector complaint to rectify the harms suffered by vendors and customers alike as a result of unfair software licensing practices.

"Leveraging its dominance in productivity software, Microsoft restricts choice and inflates costs as European customers look to move to the cloud, thus distorting Europe's digital economy. DG Comp must act swiftly to open a formal investigation with a statement of objections against Microsoft's software license abuses to defend the robust cloud ecosystem Europe needs and deserves."

An impartial observer

The trade group wants to see the formation of a European Observatory that has the power and capacity to run the rule over compliance of software licensing Ts&Cs against the Ten Principles. This could turn the tables on software companies that are then facing their own audit of terms.

Without change, the local cloud infrastructure providers are doomed, CISPE said in its complaint against Microsoft. "If allowed to continue, these abuses will inevitably lead to the demise of a European cloud infrastructure sector. European businesses and public sector organizations will be permanently and irrevocably deprived of any option to build, operate or support cloud services using the IT service provider of their choice.

“These are European businesses which provide specific, important and differentiated services to thousands of business and public sector customers across Europe. Their customers in turn offer cloud-based products and services to millions of European citizens. The loss of these players will not only remove choice for customers, but pave the way for increased prices, remove the impetus for innovation and lower quality of service.”

According to Synergy Research Group, the big three – AWS, Microsoft and Google – account for 72 percent of customer spending on public cloud in Europe. In the past half decade, local service providers grew 167 percent in total but their market share more than halved to 13 percent as they were outgrown by the American giants.

In the UK, Ofcom is taking a closer look at whether the cloud market is functioning well, and this month collated responses from interested parties.

Over in the US, Microsoft and other software vendors have faced criticism from the Coalition for Fair Software Licensing – a campaign group that wants to address what it sees as restrictive licensing policies that cause vendor lock-in and "impede" a move to the cloud by customers.

We have asked Microsoft to comment. ®

Updated to add:

A Microsoft spokesperson told us: "The licensing changes we introduced this October give customers and cloud providers around the world even more options for running and offering our software in the cloud. We remain committed to addressing valid licensing concerns and support a competitive environment where all providers can thrive."

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