Ofcom proposes referring cloud service market to Competition and Markets Authority

At the halfway point of a probe into UK cloud services, telecoms regulator Ofcom is proposing to refer the market to the Competition and Markets Authority for further investigation and is consulting on whether to do so..
Ofcom said its market study had provisionally identified features and practices that make it more difficult for customers to switch and use multiple cloud suppliers. It said, “We are particularly concerned about the practices of Amazon and Microsoft because of their market position”. The two companies are the leading providers of cloud infrastructure services in the UK
Ofcom identified high fees for transferring data out, committed spend discounts and technical restrictions as barriers to business customers switching cloud provider or use multiple providers. It said, “If left unchecked, competition could deteriorate further in a critical digital market for the UK economy”.
Ofcom began the study in October 2022, looking at 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. It said it wanted identify any potential competition concerns early to prevent them becoming embedded as the market matures.
Amazon Web Services (AWS) and Microsoft have a combined market share of 60-70%, while Google is their closest competitor with a share of 5-10%.
Ofcom said that while competitive market forces are delivering benefits to customers – especially where providers are competing to attract new customers – there was cause for concern over:
· Egress fees.
· Technical restrictions on interoperability.
· Committed spend discounts, which may be structured to incentivise customers to use a single hyperscaler, even when better quality alternatives are available.
Ofcom said these practices made 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.”
Some customers are concerned about their ability to switch and use multiple providers, which could make it harder for smaller cloud providers to win business and compete with the market leaders. “Revenues are already concentrated with a few players, and there is a risk that the features we have identified could lead the market to concentrate further towards the market leaders.”
Ofcom has asked for feedback on its interim findings, and on our proposal to make a market investigation reference into the supply of cloud infrastructure services in the UK, by 17 May 2023. It will publish a final report, including its decision on a market investigation reference, by 5 October 2023.
Respond to the consultation here