October 5, 2023
The Competition and Markets Authority (CMA) has formally launched an investigation into the UK cloud market, based on concerns flagged by telco regulator Ofcom.
The watchdog didn’t reel off the names of all the companies in its sights, but that isn’t necessary because everyone already knows the biggest fish in this pond are Amazon Web Services (AWS), Microsoft Azure, and Google Cloud. That alone suggests the market merits an investigation.
The three biggest areas of concern identified by Ofcom are:
Egress fees – the charges levied on customers moving their data out of the cloud
Discounts – which incentivise customers to only use one cloud provider
Technical barriers to switching – which can make life difficult for customers that want to switch, or use multiple providers
The CMA will also follow up Ofcom’s concerns regarding certain software licensing practices, in particular those of Microsoft.
It’s also worth bearing in mind, when considering the structure of the cloud services market, that hyperscalers have extensive networks of third-party resellers – consultancies; systems integrators; IT service providers; telcos and so-on – each one incentivised to attract and retain clients. This extra sales channel offers an easy on-ramp into hyperscale cloud for companies big and small, and it begs the question: how are smaller cloud providers supposed to compete with that?
“This is a £7.5bn market that underpins a whole host of online services – from social media to AI foundation models. Many businesses now completely rely on cloud services, making effective competition in this market essential,” said CMA chief executive Sarah Cardell, in a statement.
“Strong competition ensures a level playing field so that market power doesn’t end up in the hands of a few players – unlocking the full potential of these rapidly evolving digital markets so that people, businesses, and the UK economy can get the maximum benefits,” she added.
This week’s development won’t have come as a surprise to AWS et al.
Ofcom first began sniffing around last September, inviting comment on whether the business practices of the big three cloud providers could stifle innovation and competition. It noted at the time that Amazon, Google and Microsoft together account for 81% of UK cloud revenues. In April, Ofcom confirmed it had identified those aforementioned concerns, and referred the matter to the CMA pending its final report, which came out this week.
“Some UK businesses have told us they’re concerned about it being too difficult to switch or mix and match cloud provider, and it’s not clear that competition is working well,” said Fergal Farragher, Ofcom director of Market Study. “So, we’re referring the market to the CMA for further scrutiny, to make sure business customers continue to benefit from cloud services.”
Ofcom’s preliminary probe was just the tip of the iceberg. Now the CMA is involved, hyperscalers need to settle themselves in for the long haul.
It has given itself until April 2025 to complete the investigation, so it should have plenty of time to figure out whether the hyperscalers are playing fairly.
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