Ofcom calls for UK cloud antitrust probe amid competition concerns

Microsoft and Amazon are set to face a formal investigation into their dominance of the UK cloud market following a probe by Ofcom. 

The media regulator has referred the public cloud infrastructure services market to the Competition and Markets Authority (CMA) after its probe identified “features that make it more difficult for UK businesses to switch and use multiple cloud suppliers”.

Ofcom’s decision means that major cloud providers will face a thorough investigation to establish if their market share has a detrimental effect on competition. 

“Our market study has identified features that make it more difficult for UK businesses to switch and use multiple cloud suppliers. We are particularly concerned about the position of the market leaders Amazon and Microsoft,” Ofcom said in a statement today.

“The CMA will now conduct an independent investigation to decide whether there is an adverse effect on competition, and if so, whether it should take action or recommend others to take action.”

Ofcom specifically highlighted the market share of Microsoft and Amazon as a key concern following its investigation. Combined, the two ‘hyperscalers’ command a market share of 70-80%, Ofcom said.

Google Cloud, the third of the major hyperscalers, holds a market share of between 5-10%.

UK cloud dominance concerns

The decision to refer the market to the CMA follows a lengthy probe by Ofcom which began in late 2022. This investigation sought to establish whether the dominance of major providers had a detrimental impact on the broader marketplace.

Concerns that businesses seeking cloud infrastructure services were essentially being ‘locked in’ prompted an examination of ‘egress fees’ and ‘committed spend discounts’.

Ofcom said it found that egress fees, the charges organizations pay to transfer data from one provider to another, placed significant strain on customers.

“The cost of egress fees can discourage customers from using services from more than one cloud provider or to switch to an alternative provider,” the regulator said.

“Technical barriers” to interoperability and portability were also highlighted as a restrictive practice. These could make it difficult for customers to combine the services of different cloud providers in a multi-cloud approach. 

“Committed spend discounts…can benefit customers by reducing their costs, but the way these discounts are structured can incentivize customers to use a single hyperscaler for all or most of their cloud needs, even when better quality alternatives are available,” Ofcom said.

Industry reaction

CCIA senior director Matthew Sinclair called for restraint from the CMA in response to the news, noting that a lengthy inquiry could undermine current developments in the UK cloud market.

“There is no case for a broad inquiry that could undermine the flexibility that allows cloud providers to constantly innovate with new services and new commercial offers,” he said. “The CMA needs to show restraint.”

Meanwhile, Paul Mackay, RVP Cloud – EMEA at Cloudera , welcomed the CMA investigation as a positive move to ensure customers can get better value for money when choosing cloud services.

Mackay compared current market conditions to other industries such as banking or energy, in which customers previously found it difficult to switch providers.

“Ofcom and CMA’s investigation into the UK cloud market will be welcomed by many organizations. I think back to how difficult switching banks or energy, internet and mobile providers used to be. It was more trouble than it was worth, fraught with delays and endless red tape,” he said.

“As a result, regulators stepped in, industries modernized, and it became much easier to move between service providers, giving consumers more flexibility and choice.

“Cloud providers don’t currently offer the same flexibility to customers. Organizations face huge exit fees and the integrations, security, tools, and skills needed to manage data is different for each cloud provider. Because of these costs and complexities, many organizations are locked into cloud services.”

AWS said it disagrees with Ofcom’s findings and its decision to refer the investigation to the CMA, but revealed it will work “constructively” with the regulator. 

The hyperscaler suggested that “unwarranted intervention” could harm customers and the broader UK cloud computing market. 

“We disagree with Ofcom’s findings and believe they are based on a fundamental misconception of how the IT sector functions, and the services and discounts on offer,” a spokesperson said. 

“AWS designs cloud services to give customers the freedom to choose technology that best suits their needs. UK companies, and the overall economy, benefit from robust competition among IT providers, and the cloud has made switching between providers easier than ever. 

“Any unwarranted intervention could lead to unintended harm to IT customers and competition. AWS will work constructively with the CMA.”