Competition Law and Competition Implications of Digital Sovereignty Ecosystems

1. Introduction

Digital sovereignty ecosystems refer to technological and economic systems designed to give a country, region, public authority, or group of institutions greater control over its data, digital infrastructure, cloud services, AI systems, cybersecurity, software, platforms, digital identity, telecommunications and critical technologies.

Digital sovereignty is therefore broader than data protection. It concerns the ability to maintain technological autonomy and meaningful control over critical digital infrastructure.

Typical components include:

sovereign cloud infrastructure;

domestic or regional data centres;

government digital platforms;

national digital identity systems;

domestic payment infrastructure;

local AI models and compute infrastructure;

cybersecurity systems;

telecommunications networks;

semiconductor supply chains;

public-sector software;

digital public infrastructure;

data spaces; and

locally controlled cloud and AI ecosystems.

The competition-law issue arises because measures intended to increase sovereignty can have two opposite effects:

They may reduce dependence on dominant foreign technology providers, but they may also create protected domestic monopolies or oligopolies.

This creates a difficult relationship between competition, national security, technological autonomy and economic sovereignty.

The issue is increasingly important in cloud computing. In June 2026, the European Commission preliminarily indicated that Amazon Web Services and Microsoft Azure should be designated as DMA gatekeepers for cloud computing, citing their entrenched positions, lock-in, switching costs and ecosystem effects. (Digital Markets Act (DMA))

2. Meaning of a Digital Sovereignty Ecosystem

A digital sovereignty ecosystem can be represented as:

Government / citizens / businesses

↓

Digital identity + data infrastructure

↓

Cloud + data centres

↓

AI + computing infrastructure

↓

Cybersecurity + telecommunications

↓

Digital platforms + applications

The important feature is interdependence.

For example, a government may use:

a national digital identity;

a sovereign cloud;

domestic payment infrastructure;

a national health-data platform;

locally controlled AI;

domestic cybersecurity technology.

These components can reinforce each other and create a sovereign digital ecosystem.

3. Objectives of Digital Sovereignty

Governments generally pursue digital sovereignty for several reasons.

3.1 National security

Critical digital infrastructure may be protected from external interference.

3.2 Data control

Governments may seek greater control over sensitive personal, commercial and governmental data.

3.3 Technological independence

Dependence on a small number of foreign technology suppliers may be reduced.

3.4 Economic resilience

Domestic capacity may be developed in:

cloud computing;

AI;

semiconductors;

cybersecurity; and

telecommunications.

3.5 Strategic autonomy

A country or region may seek the ability to maintain essential digital services even during geopolitical or supply-chain disruptions.

4. Why Digital Sovereignty Is a Competition-Law Issue

Digital sovereignty measures can influence competition through:

government procurement;

market-access restrictions;

subsidies;

data localization;

licensing requirements;

interoperability rules;

public-sector technology standards;

state-owned digital infrastructure;

domestic-preference rules;

merger control; and

exclusive government contracts.

Thus, a measure intended to protect sovereignty may inadvertently:

protect domestic competitors → reduce competitive entry → increase concentration → reduce innovation.

Conversely, a sovereignty policy can sometimes increase competition by reducing dependence on a dominant private provider through interoperability and portability.

5. Digital Sovereignty and Market Concentration

One of the central problems is the possibility of replacing:

Foreign private monopoly

with:

Domestic or regional protected monopoly.

For example:

Foreign hyperscaler dominance

→ sovereignty policy

→ mandatory domestic cloud

→ only two domestic providers qualify

→ government contracts concentrated among those providers

→ high barriers to entry

→ domestic cloud oligopoly.

The policy may achieve sovereignty while simultaneously reducing competitive rivalry.

Therefore:

Digital sovereignty and competition are related but not identical policy objectives.

6. Digital Sovereignty and Cloud Computing

Cloud computing is perhaps the clearest example.

Businesses increasingly depend on:

infrastructure-as-a-service;

platform-as-a-service;

databases;

AI computing;

storage;

cybersecurity;

developer tools; and

cloud-based enterprise applications.

The European Commission has identified concerns regarding cloud lock-in, interoperability, switching barriers, tying and bundling, and data portability. (European Commission)

In 2026, the Commission's cloud investigation specifically examined interoperability, financial conditions and contractual terms affecting cloud customers. (Digital Markets Act (DMA))

This creates an important sovereignty-competition connection:

A company that cannot easily move its data, applications and workloads between cloud providers may lose practical technological autonomy.

7. Cloud Lock-In

Suppose a company uses:

Cloud Provider A

for:

storage;

AI;

databases;

cybersecurity;

analytics;

identity;

application development.

After several years, switching may require:

migration of massive datasets;

rewriting applications;

retraining employees;

changing APIs;

renegotiating contracts;

rebuilding security systems.

The formal existence of competitors therefore does not necessarily mean that the market is contestable.

The European Commission has identified customer lock-in and switching barriers as important issues in its current cloud competition work. (Digital Markets Act (DMA))

8. Data Sovereignty and Competition

Data sovereignty policies can require data to remain:

within national territory;

within a particular region;

under specified legal jurisdiction; or

with approved service providers.

Potential benefit

Data localization may:

increase security;

support regulatory compliance;

protect sensitive information; and

develop domestic digital capacity.

Potential competition problem

Localization can also:

increase operating costs;

prevent foreign firms from competing;

favour domestic incumbents;

fragment markets;

reduce economies of scale; and

increase entry barriers.

Therefore, competition authorities must distinguish between legitimate security requirements and unnecessary exclusion of competitors.

9. Case Law 1 — Schrems II

Data Protection Commissioner v Facebook Ireland and Maximillian Schrems

Case C-311/18, CJEU (2020)

Although primarily a data-protection case rather than a competition case, Schrems II is highly relevant to digital sovereignty.

The Court invalidated the EU-US Privacy Shield and examined whether EU personal data transferred to the United States received adequate protection.

Competition relevance

The case demonstrates that:

jurisdiction matters in digital markets;

control over data infrastructure can have strategic significance;

cross-border data transfers can influence digital-market structure.

It therefore provides an important background principle for understanding data sovereignty and digital market architecture.

10. Case Law 2 — Google Android

Google and Alphabet v European Commission

Case T-604/18

The European Commission found that Google had abused a dominant position in relation to Android through several contractual arrangements. The General Court substantially upheld the Commission's findings while adjusting the fine. (Eur-Lex)

Competition relevance

Android demonstrates the importance of:

operating systems;

app ecosystems;

network effects;

default arrangements;

interoperability; and

ecosystem control.

Digital sovereignty significance

A sovereign digital ecosystem may itself be organized around:

Operating system → app store → identity → payments → cloud → AI

If one company controls several layers, sovereignty and competition concerns can overlap.

11. Case Law 3 — Google Shopping

Google and Alphabet v European Commission

Case T-612/17

The General Court upheld the central finding that Google had abused its dominant position by favouring its own specialised comparison-shopping service in search results. The case concerned leveraging and preferential treatment of Google's own service. (Eur-Lex)

Importance for digital sovereignty

A sovereign ecosystem could potentially create a similar concern if a state-supported platform gives preferential treatment to:

its own services;

state-owned enterprises;

preferred domestic suppliers; or

affiliated digital platforms.

The key competition principle is that control over a bottleneck platform can affect downstream competition.

12. Case Law 4 — Microsoft v Commission

Case T-201/04

The Microsoft case concerned abuse of dominance in software markets, including interoperability issues and tying.

The European Commission's case focused particularly on Microsoft's refusal to provide interoperability information and its tying of Windows Media Player to Windows.

Importance for digital sovereignty

The case demonstrates that:

Interoperability can be central to competition.

This is particularly important for sovereign ecosystems.

If a national cloud, identity system or digital platform cannot interoperate with competing systems, competitors may be excluded even if they are technically capable of offering better services.

13. Case Law 5 — United States v Microsoft Corp.

The U.S. Microsoft litigation concerned Microsoft's maintenance of its operating-system monopoly through exclusionary practices.

The case demonstrated the importance of:

network effects;

applications barriers to entry;

control of distribution;

interoperability; and

platform leverage.

Digital sovereignty significance

The case provides a useful model for understanding how control of a foundational technology can influence adjacent markets.

A sovereign technology ecosystem could similarly become difficult to challenge if government procurement, network effects and technical standards reinforce one incumbent.

14. Case Law 6 — Ohio v American Express

585 U.S. 529 (2018)

American Express concerned a two-sided transaction platform connecting merchants and cardholders.

The U.S. Supreme Court emphasized the importance of considering both sides of the platform when assessing competitive effects.

Digital sovereignty significance

Sovereign digital platforms are frequently multi-sided ecosystems.

For example:

National digital identity

→ government agencies
→ banks
→ businesses
→ citizens
→ application developers.

Analysing only one side may fail to capture the platform's economic structure.

15. Case Law 7 — Apple v Pepper

Apple Inc. v Pepper, 587 U.S. 273 (2019)

The Supreme Court addressed antitrust standing involving Apple's App Store.

The case illustrates the economic importance of the platform intermediary between:

developers;

consumers; and

digital products.

Digital sovereignty significance

A sovereign app ecosystem can create similar competition issues where a central platform controls:

access;

payments;

ranking;

distribution;

commissions; and

technical requirements.

Thus, government ownership or national control does not itself eliminate platform-market concerns.

16. Case Law 8 — Booking Holdings v European Commission

Case T-1139/23

The EU General Court issued a judgment on 9 September 2026 concerning Booking Holdings' challenge to the Commission's prohibition of the Booking/eTraveli concentration. The case concerned the online travel-agency market and a non-horizontal merger involving an interconnected ecosystem. (Eur-Lex)

Importance

This case is significant for understanding modern competition analysis of ecosystems rather than isolated products.

Recent scholarship examining Booking/eTraveli and Microsoft/Activision notes that both involved theories concerning interconnected ecosystems, network effects and possible foreclosure of rivals. (OUP Academic)

For digital sovereignty, this demonstrates why competition analysis increasingly considers:

ecosystem expansion;

adjacent markets;

interoperability;

network effects;

vertical relationships; and

future competitive constraints.

17. Digital Sovereignty and Government Procurement

Government procurement can be one of the strongest mechanisms for creating a sovereign ecosystem.

Suppose the government announces:

"Only domestically owned cloud companies may supply government agencies."

This may support technological sovereignty.

But competition questions arise:

Is the restriction necessary?

Are foreign providers genuinely incapable of satisfying security requirements?

Could security requirements be achieved through certification instead?

Are domestic suppliers receiving an unjustified advantage?

Does the policy exclude innovative entrants?

Does it create excessive concentration?

A technology-neutral security certification system may sometimes preserve more competition than a blanket nationality-based exclusion, depending on the policy objectives and applicable law.

18. State-Owned Digital Enterprises

A sovereign ecosystem may contain state-owned companies.

This creates another competition concern.

A state-owned digital company may benefit from:

government financing;

preferential procurement;

regulatory advantages;

access to government data;

exclusive licenses;

infrastructure support.

If it competes against private companies, these advantages can affect competitive neutrality.

The issue is particularly important when the state simultaneously acts as:

Regulator + purchaser + infrastructure owner + competitor.

19. Digital Sovereignty and Subsidies

Governments may provide financial support for:

semiconductor manufacturing;

cloud infrastructure;

AI computing;

national data centres;

cybersecurity;

domestic operating systems.

Subsidies can create legitimate strategic capacity.

However, excessive or discriminatory subsidies can:

distort competition;

protect inefficient firms;

discourage foreign investment;

raise rivals' costs; and

create long-term dependence on subsidized incumbents.

Competition law therefore interacts with state-aid and subsidy disciplines.

20. Interoperability as a Sovereignty Tool

Interoperability can actually strengthen sovereignty.

Consider:

Cloud A ↔ Cloud B ↔ Cloud C

If customers can freely migrate:

data;

applications;

workloads; and

computing resources,

then no single provider can easily lock them in.

This produces:

Portability → switching → contestability → competitive pressure.

The EU's current cloud policy work specifically identifies interoperability and portability as mechanisms relevant to cloud contestability. (European Commission)

21. Data Portability

Data portability allows users or businesses to transfer their information between providers.

This can:

reduce switching costs;

promote entry;

facilitate multi-homing;

encourage innovation;

reduce dependence on incumbents.

The CCI has previously emphasized that data portability can make switching easier and can help new providers compete using information previously controlled by incumbent platforms. (Competition Commission of India)

22. Sovereign Cloud and Competition

A sovereign cloud can take several forms:

Model 1 — State-owned cloud

Government owns the infrastructure.

Model 2 — Domestic private cloud

Domestic companies provide the infrastructure.

Model 3 — Regional sovereign cloud

Multiple countries share infrastructure and legal safeguards.

Model 4 — Sovereignty-by-design

Foreign providers can operate, but must satisfy:

data governance;

security;

transparency;

portability;

local control requirements.

From a competition perspective, the fourth model can raise different issues from a closed national market because foreign and domestic firms may remain capable of competing subject to common requirements.

23. AI Sovereignty

AI adds another layer.

A sovereign AI ecosystem may require domestic access to:

GPUs;

data centres;

foundation models;

training datasets;

cloud computing;

research institutions;

AI talent.

The competitive concern is that these resources are already concentrated.

Therefore:

AI sovereignty policy

may accidentally strengthen:

compute concentration + cloud concentration + data concentration + model concentration.

This can create an integrated ecosystem where new AI competitors face multiple simultaneous barriers.

24. Digital Sovereignty and Merger Control

Sovereignty policies can influence merger decisions involving:

cloud providers;

cybersecurity firms;

AI companies;

semiconductor companies;

telecom operators;

digital identity providers.

A merger may be justified as creating a stronger sovereign champion.

But competition authorities may need to ask whether the transaction:

removes an emerging competitor;

increases ecosystem control;

reduces innovation;

concentrates strategic data;

increases switching costs; or

creates a bottleneck.

The modern ecosystem approach to merger analysis is increasingly concerned with such interconnected effects. (OUP Academic)

25. Digital Sovereignty and Network Effects

Network effects can make sovereignty ecosystems self-reinforcing.

For example:

More government users

↓

More developers

↓

More applications

↓

More private-sector adoption

↓

More data

↓

Better services

↓

Still more users

This can create rapid ecosystem expansion.

The positive side is scale and innovation.

The negative side is potential market tipping.

26. Digital Sovereignty and Essential Facilities

A sovereign digital infrastructure may become indispensable.

Examples include:

national digital identity;

payment infrastructure;

government cloud;

telecommunications networks;

public data exchanges.

If access becomes indispensable to competitors, questions may arise concerning:

refusal to supply;

discriminatory access;

excessive access charges;

technical restrictions; and

preferential access to affiliated entities.

However, the existence of an important infrastructure does not automatically establish an essential-facility obligation. The applicable legal test must still be satisfied.

27. Competition Between Sovereign Ecosystems

Digital sovereignty may also create ecosystem-versus-ecosystem competition.

For example:

EU ecosystem

versus

US ecosystem

versus

Chinese ecosystem

versus

Indian ecosystem

Each may develop different:

cloud systems;

data standards;

AI models;

digital identity;

payments;

cybersecurity systems.

This can produce technological competition between ecosystems while reducing interoperability between them.

Consequently:

More sovereignty can sometimes mean more resilience but also greater digital fragmentation.

28. Digital Fragmentation

Excessive localization can divide the global digital market into national compartments.

Potential consequences include:

duplicated infrastructure;

higher compliance costs;

reduced economies of scale;

smaller addressable markets;

reduced cross-border innovation;

higher prices; and

fewer competitors.

For SMEs, fragmentation can be particularly significant because they may not have the resources to comply with multiple sovereign digital regimes.

29. Competition Implications for Consumers

Digital sovereignty can produce positive consumer effects:

stronger data protection;

greater security;

local accountability;

greater resilience;

alternative service providers.

But potential negative effects include:

higher prices;

fewer digital services;

reduced interoperability;

limited international applications;

lower innovation;

reduced choice.

Competition authorities therefore need to examine both security benefits and competitive effects.

30. Competition Implications for Businesses

Businesses may benefit from:

more cloud alternatives;

domestic providers;

better portability;

diversified supply chains;

greater negotiating power.

But they may face:

multiple compliance regimes;

localization costs;

limited supplier choice;

technical incompatibility;

higher migration costs.

The central issue is therefore contestability.

31. Digital Sovereignty and the DMA

The EU Digital Markets Act provides an important example of ex-ante regulation addressing digital gatekeepers.

Its objective includes improving:

fairness;

contestability;

interoperability;

data portability.

The Commission's current cloud investigations demonstrate that these principles are increasingly being considered in relation to cloud infrastructure. (Digital Markets Act (DMA))

In June 2026, the Commission's preliminary view was that AWS and Azure could qualify as DMA gatekeepers despite not meeting the ordinary quantitative designation thresholds, reflecting the importance attributed to their ecosystem position and gateway role. (Digital Markets Act (DMA))

32. Digital Sovereignty and the Data Act

The EU Data Act is also relevant because portability and interoperability can reduce technological dependency.

From a competition perspective:

Data portability

→ lower switching costs

→ greater multi-homing

→ more competitive entry

→ reduced lock-in.

This illustrates an important concept:

Digital sovereignty does not necessarily require excluding foreign providers; it can also be pursued by ensuring that users retain the ability to switch between providers.

33. Competition Law and National Security

National security can legitimately justify certain restrictions.

However, competition analysis must distinguish between:

Genuine security requirement

For example, requiring sensitive government systems to satisfy strict cybersecurity standards.

and

Protectionist restriction

For example, excluding competitors simply because they are foreign when equivalent security standards could be applied neutrally.

The competition consequences depend on:

necessity;

proportionality;

market structure;

alternatives;

duration;

scope; and

actual effects.

34. Major Competition Risks

1. Sovereign monopoly

A protected domestic provider becomes dominant.

2. State-supported concentration

Government support favours a small number of firms.

3. Procurement foreclosure

Government contracts exclude competing providers.

4. Data concentration

Sovereign data infrastructure becomes controlled by one provider.

5. Cloud lock-in

Users cannot easily migrate workloads.

6. Interoperability restrictions

Systems cannot communicate effectively.

7. Ecosystem leveraging

Power in one digital layer is transferred to another.

8. Regulatory fragmentation

Multiple sovereign systems reduce cross-border competition.

9. Reduced innovation

Protection can reduce incentives for firms to innovate.

10. State-private entanglement

The state may simultaneously regulate and participate in the market.

35. Potential Pro-Competitive Effects

Digital sovereignty can also increase competition when designed around contestability.

Potential benefits include:

diversified suppliers;

reduced dependence on a single hyperscaler;

open technical standards;

data portability;

interoperability;

multi-cloud adoption;

stronger cybersecurity competition;

domestic technological entrepreneurship;

increased investment; and

greater resilience.

The CCI has specifically recognized that lack of interoperability and portability can reinforce gatekeeper power, while portability can increase consumer choice and facilitate entry by alternative providers. (Competition Commission of India)

36. Comparative Case-Law Table

37. Important Legal Principles

For examination purposes, the following principles are important:

Principle 1

Digital sovereignty is not automatically anti-competitive.

Principle 2

Competition law must distinguish technological autonomy from protectionism.

Principle 3

Data localization can reduce some risks while increasing barriers to entry.

Principle 4

Interoperability and portability can reconcile sovereignty with contestability.

Principle 5

Government procurement can significantly shape digital-market concentration.

Principle 6

State-supported digital enterprises require consideration of competitive neutrality.

Principle 7

Cloud lock-in and switching costs can reduce effective competition even when several suppliers formally exist.

Principle 8

Digital ecosystems should be analysed across interconnected markets.

Principle 9

Control over infrastructure can permit leveraging into adjacent markets.

Principle 10

Technological sovereignty should not automatically be equated with economic self-sufficiency or exclusion of foreign competitors.

38. Future Competition-Law Challenges

The future debate will increasingly involve:

sovereign AI;

sovereign cloud;

national blockchain infrastructure;

quantum computing;

semiconductor ecosystems;

digital public infrastructure;

national data spaces;

cross-border data flows;

cybersecurity markets;

government AI procurement;

digital identity;

sovereign digital currencies; and

strategic technology mergers.

Cloud is particularly significant because it sits beneath many other digital markets. Current EU policy work already treats cloud as potentially important gateway infrastructure, with investigations examining interoperability, data access, tying, bundling and contractual conditions. (Digital Markets Act (DMA))

39. Conclusion

Digital sovereignty ecosystems create a fundamental competition-law tension between autonomy and contestability.

A government may legitimately want:

control over critical digital infrastructure, data and technology.

But excessive protection can produce:

domestic concentration, entry barriers, reduced innovation and higher switching costs.

Conversely, a carefully designed sovereignty framework based on:

interoperability;

data portability;

multi-cloud capability;

open standards;

competitive procurement;

supplier diversification; and

transparent access rules

can potentially increase both technological resilience and competitive contestability.

The key competition-law question is therefore not simply whether a digital ecosystem is foreign or domestic. It is whether its architecture and supporting government measures preserve meaningful opportunities for competing firms to enter, innovate, interoperate, switch and compete on the merits.

The case law—from Schrems II, Microsoft, Google Android, Google Shopping, American Express and Apple v Pepper to the recent Booking ecosystem litigation—shows why competition analysis increasingly has to examine data, infrastructure, interoperability, network effects, platform control and interconnected ecosystems, rather than relying solely on traditional market-share analysis.