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Cloud services market to be referred to competition regulator

Written by: Emma Lunn
Telecoms regulator Ofcom has raised concerns about Amazon and Microsoft’s dominance in the UK cloud infrastructure services market and has referred the issue to the Competition and Markets Authority (CMA).

Ofcom is halfway through its probe into UK cloud services, and has provisionally identified features and practices that make it more difficult for customers to switch and use multiple cloud suppliers.

It says it is particularly concerned about the practices of Amazon and Microsoft because of their market position.

Cloud computing has become critical for many businesses across the economy – including telecoms companies, broadcasters and public sector organisations – and has transformed the way they deliver services on which we all rely. It uses data centres around the world to provide remote access to services such as software, storage and networking.

In October, Ofcom launched a study under the Enterprise Act 2002 into cloud infrastructure services in the UK, to assess how well this market is working.

It has examined the strength of competition and any features that might limit innovation and growth in this sector by making it difficult for other cloud providers to enter the market or smaller companies to expand.

What Ofcom has found so far

Ofcom says there are two leading providers of cloud infrastructure services in the UK: Amazon Web Services (AWS) and Microsoft. The two firms have a combined market share of 60 to 70%. Google is their closest competitor with a share of 5 to 10%.

Collectively, these firms are known as the ‘hyperscalers’ and the vast majority of cloud customers use their services in some form.

Ofcom says that while competitive market forces are delivering benefits to customers in the form of innovative products and discounts, other features of the market give cause for concern.

Key issues with cloud providers

These include ‘egress fees’ – the charges that customers pay to transfer their data out of a cloud. Ofcom found the hyperscalers set them at significantly higher rates than other providers and says the cost of egress fees can discourage customers from using services from more than one cloud provider or to switch to an alternative provider.

Ofcom also identified technical restrictions on interoperability. These are imposed by the leading firms that prevent some of their services working effectively with services from other providers.

The regulator also raised concerns about committed spend discounts. These can benefit customers by reducing their costs, but the way these discounts are structured can incentivise customers to use a single hyperscaler for all or most of their cloud needs, even when better quality alternatives are available.

Ofcom says these market features can make it difficult for some existing customers to bargain for a good deal with their provider, with some cloud customers facing significant price increases when they come to renew their contracts.

It is also concerned that constraints on customers’ ability to use more than one provider could make it harder for smaller cloud providers to win business and compete with the market leaders.

Fergal Farragher, Ofcom’s director responsible for the market study, said: “We’ve done a deep dive into the digital backbone of our economy, and uncovered some concerning practices, including by some of the biggest tech firms in the world.

“High barriers to switching are already harming competition in what is a fast-growing market. We think more in-depth scrutiny is needed, to make sure it’s working well for people and businesses who rely on these services.”

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