2. Defining the digital resource utility
This document outlines the challenges and potential opportunities for creating a fair and equitable cloud infrastructure market. To understand the cloud market, its business models and infrastructure, it is helpful to compare it to another critical infrastructure sector – the energy sector. The similarities are striking. We can apply many of the regulatory and policy lessons-learned from the development of the energy sector to the cloud infrastructure industry, as the economic issues are so similar.
Digital resources power digital products and services. These resources become useful when they enable software applications to deliver services to customers. Here's how it works:
Digital resources are commodities produced by IT infrastructure
Digital resources store and process data, produced by digital generators (computers or network devices) that convert electricity into computing power
These generators operate in facilities called digital resource generation plants—essentially data storage and processing centers—which provide energy and cooling for efficient operation
A digital generator is simply a computer optimized to maximize digital resource output per unit of energy consumed.
This mirrors the energy sector: A digital resource plant functions like a power plant, converting one commodity (electricity) into another (computing power) using large-scale generators. Like power plants, they can be either decentralized smaller units or large-scale facilities that benefit from economies of scale.
This parallel extends to Hyperscale digital resource generation plants (massive and highly efficient), Enterprise plants, and Edge plants (small to medium scale, sometimes on-site). The latter resembles having a power plant at a factory location.
Data transfer to and from these plants relies on networks. There are two main types:
Internet Access networks connect citizens to remote digital resource generators.
High bandwidth transport networks connect medium-and-large-scale digital resource generators to each other and to major consumption sites like offices and manufacturing plants.
Public Cloud Providers: How and why to regulate digital resource utility companies
Similar to how roads converge at major intersections, high-volume connectivity meets at network exchanges. These exchanges, operated by network and data center facility companies, provide "cross connects" that form the foundation of both transport networks and Internet access networks.
Drawing another parallel to the energy sector: Internet access networks serving citizens function like District System Operators (DSOs), while transport networks mirror transmission lines and Transmission System Operators (TSOs).
However, unlike the universal availability of electricity, network connectivity varies in both coverage and speed. This means most customers—both enterprise and private—rely on personal digital generators (devices like home computers, gaming consoles, smart TVs, smartphones, and laptops). These devices can either process data locally or, when connected to a high-speed network, utilize resources from remote digital resource generation plants (data centers).
A digital resource utility, therefore, is an infrastructure function that provides data storage and processing to businesses and customers through transport networks.
3. Traditional digital resource utilities
Digital resource utilities existed before cloud providers. Traditional providers offered local, regional, and multinational services, while many businesses maintained their own internal infrastructure and IT teams. These services grew organically to support enterprise and consumer needs through websites, e-commerce, and other solutions - similar to how municipal utilities provide power, water, and network access.
Today, local and regional utilities face consolidation pressure as global cloud providers gain momentum. However, they continue to serve essential roles by providing:
Resilient infrastructure for regional needs
Local IT expertise for digital transformation guidance
Customized, flexible services that address specific local requirements
The global IT sector's skilled labor shortage, particularly in cybersecurity, poses challenges as large corporations attract talent with higher wages. This impacts smaller companies and less prosperous regions.
While cloud providers excel at standardized, scalable services, local operators provide more adaptable and interoperable solutions tailored to community needs.
4. It’s not a Public Utility, yet we call it so
We must be cautious not to mislead people about the complex nature of the digital economy and ICT sector. While global digital resource utility companies have achieved remarkable success as "Public Cloud Providers," this terminology creates an illusion that their infrastructure is public, a public good, or publicly owned.
The Misconception of Public Ownership
The general public often mistakenly believes the Internet is a public utility or form of common ownership. In reality, the Internet consists of private networks owned by corporations and is better understood as a set of interoperability standards rather than an infrastructure platform. The term "Public Cloud" deliberately builds on this misconception, positioning the large IT infrastructure platforms of AWS, Microsoft, and Google as another form of public utility.
The IT community adopted this terminology primarily because "public" distinguishes these resources from "in-house/private" resources (those accessible only through private corporate networks).
The Dangers of This Misconception
This illusion of a shared "public" utility obscures the entirely private ownership of ICT infrastructure. The widespread misconception of both the Internet and its supporting digital resource generators as public utilities serves a specific strategic purpose—associating them with the perceived public benefits of "digitalization."
This false equivalence creates an aura of progress around digital technology that primarily benefits the technology industry and its largest players. Because these new infrastructure platforms are perceived as public, they gain unwarranted trust.
This trust, based on misunderstanding, becomes increasingly dangerous as these resources remain largely unregulated in private hands. The risk intensifies as control of critical IT infrastructure consolidates among just three American-owned mega-corporations, whose economic power exceeds that of most nations.
The supercharged global digital resource utility: Multinational Public Cloud Providers
Let's examine how the supercharged digital resource utility emerged.
Building a digital resource utility requires investment in both generation plants and digital generators. Digital generators (computing or ICT equipment) have a relatively short lifecycle of 3–5 years, while the data center facilities housing them typically last 15–20 years. This short lifecycle makes digital generators an unattractive investment. Consequently, while investors are pouring billions into new facilities (projected to reach $432 billion annually by 2025)1, few are willing to invest in ICT equipment. This creates a capital access barrier for potential competitors to hyperscale cloud providers.
Financing digital resource generators through traditional means requires securing long-term customer contracts spanning the depreciation period. However, companies have grown accustomed to purchasing digital resources on-demand from Public Cloud Providers without commitments. This "pay as you go" model strengthens the position of supercharged cloud providers, despite often being more expensive than traditional IT infrastructure and operation models2.
Offering on-demand digital resources demands substantial investments in generators while accepting the risk of underutilization. This is where vertical integration becomes advantageous. Each Public Cloud Provider maintains a core cash-generating business:
Google:
• Main Cash Generator: Advertising
• Free Cash Flow: $60.01 Billion (2022)
Microsoft:
• Main Cash Generator: Software Licensing
• Free Cash Flow: $65.14 Billion (2022)
Amazon / AWS:
• Main Cash Generator: E-Commerce
• Free Cash Flow: $-11.56 Billion (2022), $31.02 Billion in 2019
These cash-generating core activities enable hyperscale Public Cloud Providers to invest in digital resource generators at an unprecedented scale—accepting the risk of underutilization. Since their ancillary business activities are also digital, they themselves are large digital resource consumers. This allows them to mitigate underutilization risk by using their own digital resource generators.
This creates a perfect circle: generate cash through core activities, invest in digital resource generators, build a supercharged utility, and generate even more revenue.
In Q1 2022, Amazon Web Services (AWS), Amazon's supercharged digital resource utility, generated nearly all of the corporation's $6.5 billion in profit.
To reiterate: Without both the cash-generating core business and vertical integration, building a supercharged digital resource utility of today's scale would be economically unfeasible. Since few businesses generate as much free cash flow as these tech giants, significant future competition is unlikely.
This consolidation of hardware and infrastructure under mega-corporations—which also provide software, enterprise applications, and advertising—intensifies fair market risks. Their size and economic leverage further reduce choice and competition.
The internal market design of the supercharged utility
In the energy sector, marketplaces have been created to ensure efficient use of power-generating infrastructure and provide transparency on price and demand signals. The supercharged digital resource utilities have replicated these markets but without transparency on price, demand, or utilization efficiency. (For example, while customers can buy from a hyperscale public cloud provider, they cannot sell back into the market even if they own a digital resource generation plant.)
This market design is reflected in their digital resource pricing structure:
On Demand: Highest price, no upfront costs, pay-as-you-go with guaranteed supply availability—equivalent to Day Ahead markets in the energy sector.
− Reserved: Lowest price for 1, 3, or 5-year contracts with fixed digital resource capacity, essentially functioning as a futures market.
− Spot: Purchase under-utilized capacity at low prices when available (fluctuating supply), similar to the energy sector's Intraday market.
This structure clearly aims to maximize the utilization rate of digital resource generators—the key profitability driver in infrastructure sectors.
The supercharged utility initially launched with the on-demand model, risking their digital resource generators. This disrupted the existing market, which previously operated on monthly or annual commitments (Reserved or Futures) through regional and national digital resource utilities. This strategy allowed supercharged utilities to rapidly gain market share, particularly among startups struggling with upfront costs.
Their ability to invest in at-risk digital resource generators and willingness to buy market share is demonstrated by AWS's startup program (also offered by Google and Microsoft), which provides up to $100,000 in free digital resource credits.
National or regional players cannot match these financial incentives, which require substantial capital investments without guaranteed customer contracts. For these smaller companies, debt financing is not viable because they lack vertical integration and built-in revenue generators.
Packaging digital resources with services, for customer lock-ins and building demand
In the early days of the energy sector, utility companies like General Electric sold electricity-consuming appliances to create predictable base load utilization for their generators.
Modern cloud providers use a similar "as-a-service" strategy, offering IT departments and developers pre-built components to create applications.
These cloud services are more effective at customer retention than appliances were, since they bundle both service and resource contracts inseparably.
Cloud services typically combine:
• Open-source software (like databases)
• Provider-specific implementation instructions
While the underlying software (like Kubernetes) is free, providers package it as proprietary services (e.g. Amazon EKS, Microsoft AKS).
This bundling benefits providers by making their services non-portable - they only work with that provider's infrastructure. Regional providers cannot run another provider's cloud services.
Software creators can distribute through cloud marketplaces but must accept provider terms. These controlled marketplaces face increasing regulatory scrutiny.
Cloud providers excel at packaging open-source software, offering over 300 services. AWS adds 50-100 annually.
Each provider has a distinct focus:
• Microsoft: Enterprise email/office migration to Azure, restricting value-adds like Teams
• Amazon AWS: New application development tools for startups, agencies, and governments
• Google Cloud: Data analytics and AI services to drive resource usage
Their shared strategy: Reinvest infrastructure revenue into creating more bundled services that increase platform lock-in.
8. Incentivising IT consultants
Another strategy for rapid-scale growth involves incentivizing IT consultants who help companies build applications. Many small and medium enterprises (SMEs), corporations, and governments rely on external expertise when developing new applications, particularly during digital transformation initiatives.
From the beginning, Public Cloud Providers ensured that major IT consultancies worldwide—including Atos, Capgemini, and Accenture—were strongly incentivized to do two things:
Build all new client applications using cloud services (bundled with digital resources and lock-ins)
Actively promote the migration or rebuilding of all "legacy" applications to the public cloud, ensuring exclusive use of digital resources from major providers
While channel and reseller programs are standard industry practice, the scale of these incentives and their lack of transparency is unprecedented. Cloud providers justify higher customer acquisition costs through a business model that maximizes long-term customer lock-in.
AWS, Microsoft, and Google each offer $20,000 to $100,000 in service credits to new customers—an investment they expect to recover through future revenue from locked-in customers.
Smaller regional and national digital resource utilities simply cannot compete with these cash-rich companies, which can fuel their growth through vertically integrated business models based on advertising, licensing, and e-commerce revenue.
By owning the majority of digital resource
generation capacity, any form of digitalisation is
perceived as a good thing
The Need for Regulation
Critical infrastructure industries like energy and water typically operate as large "public" utilities within highly regulated environments. While telecommunications networks began as public utilities before becoming privatized, ICT infrastructure has evolved differently despite becoming equally vital to society.
Unlike telecommunications, there is no comprehensive regulatory framework for modern ICT infrastructure. This gap has allowed multinational cloud providers to build massive operations that stifle competition from smaller companies.
Key Risks
Service Disruption Impact
Government Vulnerability
Current Challenges
The ICT sector faces several regulatory challenges:
Limited political oversight despite clear sustainability concerns
Strong industry influence through lobbying
Increasing concentration of power in few providers
While digitalization offers benefits, the current situation creates mounting risks. Cloud providers continue to expand their influence by supporting digitalization initiatives, ultimately increasing dependency on their platforms through bundled services and vendor lock-in.
10. Then they build a moat around it
Supercharged digital resource utilities have established market dominance in most of the developed world and are rapidly expanding into developing nations by leveraging their resources to "subsidize" services for cash-strapped governments. Extended public procurement contracts and the difficulties of migrating large, complex, integrated platforms make these investments highly lucrative long-term.
While energy companies hold similar positions, fundamental differences in energy market operations result in lower costs and risks for citizens. Transparency in price, supply, and demand—coupled with mature, strong regulatory frameworks—enables regulators to control energy markets in the public interest. We must develop and implement similar schemes in the ICT sector before the economic power of a few multinational companies makes regulation and competition impossible.
The telecommunications sector's regulatory framework provides a foundation for ICT regulation, just as the highly regulated energy distribution grid ensures safe, sustainable operation. The most pressing example of needed regulation for cloud providers' ICT infrastructure use lies in egress charges.
For telecommunications providers, the unit cost of moving data is direction-agnostic, even when bandwidth availability is asymmetric (i.e., different upstream and downstream capacities). However, Public Cloud Providers impose a stark differential between free inbound traffic and expensive outbound traffic—effectively creating an "export tax."
These "egress charges" clearly aim to make data removal from the provider's platform economically infeasible, despite identical transport costs for inbound and outbound data. Public Cloud Providers appear to want all data contained within their infrastructure, where it can only be stored and processed by their digital resource generators.
Based on Cloudflare's analysis, AWS's "export tax" markup for outbound network traffic (egress charges) ranges from 357% to 7,959% (as shown in Table 1).
Table 1: Report by Cloudflare on AWS egress charges (Source: Cloudflare)
This export tax creates a moat that organizations often overlook when migrating to Public Cloud Provider infrastructure or building cloud-based digital services. These pricing policies transparently attempt to create a barrier around the provider's platform—a cost and risk frequently underestimated during service migration.
This represents clear anticompetitive behavior, deliberately designed to prevent customers from using competitors' digital resources by making data transport prohibitively expensive. The intent becomes even more apparent since data movement between locations within the provider's platform incurs no such egress charges.
In essence, public cloud pricing policy for data transport mirrors the "walled garden" approach used in software application marketplaces and other ICT areas. Open standards and interoperability would better serve the public interest, as demonstrated by clear, well-documented benefits.
11. The Public Cloud Tax
While public cloud creates the illusion of being public infrastructure, it effectively collects revenue from different countries and nations.
Technology-savvy companies like software startups should be able to optimize their IT infrastructure costs. Yet many spend 50% or more of their operating costs on public cloud platforms. The operating cost model for digital infrastructure services and platforms (digital resource utilities) generates larger revenue streams for the platform providers than for the software companies themselves. This makes these software companies perpetual acquisition targets for Public Cloud Providers seeking to strengthen their market position through reduced competition and increased economies of scale.
As cloud services mature and acquired companies' components and software are integrated into core platforms, revenue, lock-in related export taxes, and migration costs continue to rise.
Market Concentration and Control
Under the current unregulated model for cloud services, virtually all private and public ICT platforms for compute, storage, and processing—as well as most software applications—will likely end up controlled by just three companies. Notably, despite their economic power, these companies have avoided acquiring telecommunications providers, likely because such acquisitions would subject them to increased regulation and government scrutiny.
Given the opaque corporate structures of vertically integrated digital platform companies like Google, Microsoft, and Amazon AWS, it remains unclear whether profits from operating this Public Infrastructure are taxed in the countries where the infrastructure is used or in the United States.
12. Options to act:
Forcing the split of the digital resource utility from the digital platform business (e.g., from advertising, search engines, or e-commerce) — OR — Building a regulatory framework for the data processing, storage, and transport functions of ICT infrastructure that extends concepts already well established in telecommunications regulation such as ownership restrictions, neutrality, and price/tariff-based controls.
Creating a public market for digital resources — which enables any owner of digital resource generators to sell into it, and any provider of services to buy digital resources from it — with transparency and fair competition on price and efficiency.
Restricting the bundling/packaging of cloud services with digital resources or enforcing that all produced digital resources are sold to a public market, and services must buy from the market (analogous to the energy market).
Eliminating or restricting the use of "export tax" egress charges for data leaving a cloud platform — for example, by requiring all data transport to be priced the same regardless of direction.
Restricting the use of anti-competitive discounting and credits (e.g., giving $100,000 incentives), or repurposing the schemes to increase rather than decrease competition by incentivizing the use of local or regional providers.
Matching the transparency of ownership, usage, and tariffs that exists for most telecommunications networks for all ICT infrastructure that is or has the potential to be "Critical Information Infrastructure" (CII).