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April 5, 2023
Some of Microsoft and Amazon’s business practices might be hurting competition in the cloud market.
UK telco watchdog Ofcom is halfway through an investigation it launched in September into the dominance of hyperscalers, and it seems sufficiently perturbed by what it has found so far that on Wednesday it proposed referring the matter to the Competition and Markets Authority (CMA).
Ofcom found certain features and practices that make it harder or discourage businesses from switching provider.
One of these practices is the egress fee, which is charged to customers that want to transfer their data out of a cloud. Ofcom found that hyperscalers’ egress fees are significantly higher than smaller cloud providers, and that these costs can prevent businesses from switching or using multiple suppliers.
Hyperscalers also offer what Ofcom calls committed spend discounts. While they have the benefit of reducing costs for the customer, the way they are structured encourages businesses to use a single hyperscaler for most or all of their needs, even if a better quality alternative is available.
Finally, and this seems like an IT problem as much as a questionable business practice, Ofcom found technical restrictions on interoperability. Hyperscalers prevent some of their services working effectively with services from other cloud providers. It means customers need to put extra work into making sure their apps work and that their data is accessible in a multi-vendor environment.
“These market features can make it difficult for some existing customers to bargain for a good deal with their provider. There are indications this is already causing harm, with evidence of cloud customers facing significant price increases when they come to renew their contracts,” said Ofcom, in a statement. “In addition, some customers are concerned about their ability to switch and use multiple providers where this limits their ability to mix and match the best quality services across different providers.”
It is hardly surprising that big tech, with its rich history of trying to dominate whichever market it enters – whether that be search, social media, app stores, e-commerce, operating systems and so-on – should adopt the same approach to cloud.
It is also understandable given the amount of revenue up for grabs. Gartner predicts that global public cloud spending will reach $591.8 billion this year, up from $490.3 billion in 2022.
When it comes to cloud hyperscalers, Ofcom is particularly concerned with Microsoft Azure and Amazon Web Services (AWS) because together they already have a combined UK market share of 60-70 percent. Google Cloud, the closest competitor, has a share of 5-10 percent.
“High levels of profitability for the market leaders AWS, and substantial consistent growth in Microsoft’s profits, indicate there are limits to the overall level of competition.” the watchdog said.
Ofcom wants to ensure smaller providers have a shot at winning business from the hyperscalers, so it wants the CMA to further examine the nature and extent of barriers to competition, and consider if there are any remedies that would improve how the market functions to the benefit of customers.
“Making a market investigation reference would be a significant step for Ofcom to take. Our proposal reflects the importance of cloud computing to UK consumers and businesses, the significant concerns we have about the cloud infrastructure market and our view that the CMA is best placed to undertake any further investigation,” Ofcom said.
Ofcom has requested feedback on its interim findings; submissions are due by 17 May. A final report is due out no later than 5 October.
Nick is a freelancer who has covered the global telecoms industry for more than 15 years. Areas of expertise include operator strategies; M&As; and emerging technologies, among others. As a freelancer, Nick has contributed news and features for many well-known industry publications. Before that, he wrote daily news and regular features as deputy editor of Total Telecom. He has a first-class honours degree in journalism from the University of Westminster.
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