November 29, 2023
Chicago 12, Melborne City, USA
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UK regulator refers cloud infrastructure market for investigation

UK communications regulator Ofcom has published an interim report that proposes the cloud infrastructure market be referred to the UK’s Competition and Markets Authority (CMA) due to concerns around a decline in competition.

The report said that existing cloud customers in the UK are paying more than they should be for their cloud infrastructure or having to settle for low-quality services, and that the regulator had heard concerns from some customers about their ability to switch or use multiple providers.

As a result, Ofcom said it was referring the cloud infrastructure market to the CMA for a market investigation that would allow the regulator to further examine if there are interventions that could address the barriers identified in the report and improve the market for customers.

The news comes three months after Ofcom raised “significant concerns” about Amazon Web Services (AWS) and Microsoft, alleging that they were harming competition in cloud infrastructure services and abusing their market positions with practices that make interoperability difficult.

Ofcom defines cloud infrastructure services as those which are built on physical servers and virtual machines hosted in data centers and consisting of infrastructure as a service (IaaS) products, such as storage, computing and networking, and platform as a service (PaaS), which includes the software tools needed to build and run applications.

When the initial investigation was launched, Ofcom said that AWS and Microsoft Azure had a combined UK market share of between 60% and 70%, while the next nearest competitor, Alphabet-owned Google, has a 5% to 10% share.

Consequently, between 2018 and 2021, the percentage of cloud providers that were not AWS, Microsoft, or Google fell from 30% to 19%, causing Ofcom to note that such levels of market dominance could potentially make it harder for smaller cloud providers to compete with the market leaders, further consolidating the big providers’ revenue and market share.

Ofcom estimates that in 2021, the market for cloud infrastructure in the UK was worth between $4.9 billion (£4.5 billion) and $5.5 billion.

In its report published on Friday, Ofcom reiterated its view from April, which is that it is difficult for UK customers to switch between multiple suppliers due to three factors: egress fees (charges that customers pay to transfer their data out of a cloud) technical restrictions on interoperability, and committed spending discounts that can incentivize customers to use a single cloud provider for all or most of their needs.

“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 multi-cloud,” the report read. “This could leave some customers ‘locked in’ to one of the leading providers… 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.”

The CMA said it is welcoming views on the findings in its report and that it intends to complete its study and publish the final report by October 5.

AWS took issue with the CMA’s report though said that it looks forward to a “constructive dialogue” with Ofcom.

“There are thousands of providers delivering value to customers through easily accessible, low cost, high-quality, innovative IT services, and switching between them is easier than ever before,” AWS said in a statement. 

“At AWS, we design our services to give customers freedom of choice and we believe the concerns expressed in the Interim Report are based on fundamental misconceptions about how the IT sector functions and the services and discounts on offer. The regulatory interventions proposed would be unwarranted, and could lead to significant unintended harm to customers and competition,” AWS said.

(This story has been updated with a statement from AWS).

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