Ofcom's interim UK cloud market report flags competition concerns …

Ofcom has accused public cloud giants Amazon and Microsoft of indulging in anti-competitive behaviours that may financially disadvantage UK consumers and business, and is consulting on whether to make a referral to the Competition and Markets Authority (CMA) to investigate further. The regulator has reached the midway point of its investigation into the UK cloud infrastructure market and confirmed, in an interim report on its findings so far, a proposal to refer the market over to the CMA after identifying concerning behaviours that Amazon and Microsoft “display some form of”. While Ofcom said its investigation had uncovered “some evidence of active competition” in the market, which provide customers with “product innovation” and “discount” benefits, it has also discovered that competition is being limited by features that make it difficult for customers to change providers or add additional ones to their roster of cloud partners.

“Our provisional view is that competition is being limited by market features that make it more difficult for customers to switch and use multiple suppliers (known as multicloud),” said Ofcom in its 222-page interim report. These features include egress fees, which are the charges customers pay to transfer their data out of a cloud; and interoperability restrictions, which often mean customers have to put “additional effort into reconfiguring their data and applications to work on different clouds”, said Ofcom. The final feature of concern is one Ofcom terms “committed spend discounts” that it claims incentivises customers to use a single hyperscaler for “all or most of their cloud needs” and can make it less attractive to use rival providers as new needs emerge.

“As a result, we are concerned that a significant number of customers, especially those with more complex requirements, may face material barriers to switching and multicloud. This could leave some customers ‘locked-in’ to one of the leading providers,” the report continued. “We are most concerned in relation to AWS and Microsoft, given their market position and the fact they display some form of all the above behaviours that limit competition.”

In addition to this, the report said Ofcom is concerned that if customers encounter difficulties when trying to move to new providers, this could stifle the ability of other competitors to Amazon and Microsoft to challenge their status as market leaders. As a result, Ofcom said it is now planning to consult on a proposal to refer the cloud infrastructure market to the CMA to carry out a thorough market investigation. “This would allow the CMA to further examine if there are interventions that could address the adverse impact of the barriers we have identified and improve how the market works for customers,” the report added.

Amazon Web Services (AWS) and Microsoft have both issued statements in response to the interim report findings, which separately outline their commitment to working with Ofcom as its investigation continues.    A spokesperson for AWS said: “The UK has a thriving and diverse IT industry with customers able to choose between a wide variety of IT providers. At AWS, we design our cloud services to give customers the freedom to build the solution that is right for them, with the technology of their choice.

This has driven increased competition across a range of sectors in the UK economy by broadening access to innovative, highly secure and scalable IT services.” Meanwhile, the Microsoft statement said it “remains committed to ensuring the UK cloud industry stays highly competitive, and to supporting the transformative potential of cloud technologies to help accelerate growth across the UK economy”. The Ofcom investigation into the UK cloud infrastructure market began in September 2022 and the organisation has committed to publishing a final report on its findings by October 2023.

In the meantime, cloud market stakeholders have until 17 May 2023 to feedback on Ofcom’s interim findings and its plan to refer the market for further investigation by the CMA.

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