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Ofcom refers UK cloud market to competition watchdog

Ofcom is “particularly concerned” about Amazon and Microsoft’s position in the UK’s public cloud infrastructure.

The media regulator has undertaken an investigation into the country’s cloud infrastructure services market, finding that if it were left unchecked “competition could deteriorate in a critical digital market for the UK economy.”

It stated today that high fees for transferring data out, committed spend discounts and technical restrictions were making it difficult for business customers to switch cloud provider or use multiple providers.

This is why it has referred the market to the CMA.

“The cloud is the foundation of our digital economy and has transformed the way companies run and grow their businesses. From TV production and telecoms networks to AI innovations – all of these things rely on remote computer power that goes unseen,” explained Fergal Farragher, Ofcom’s Director responsible for the Market Study.

“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. So, we’re referring the market to the CMA for further scrutiny, to make sure business customers continue to benefit from cloud services.”

Ofcom started the study in October and examined the strength of 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 also looked at how the sector was evolving and sought to identify concerns early, so they weren’t embedded into systems as the market matured.

AWS and Microsoft had a combined market share of 70-80% in 2022, with Google their closest competitor with a share of 5-10%. 

The report found that competitive market forces were delivering some benefits – including innovative products and discounts.

However, there were concerns about:

Egress fees – the charges to transfer their data out of a cloud. It said that these hyperscalers (AWS, Microsoft and Google) set them at significantly higher rates than other providers. 

Technical barriers to interoperability and portability. These can result in customers needing to put additional effort into reconfiguring their data and applications so they can work on different clouds. 

Committed spend discounts. It stated that the way these discounts are structured can incentivise customers to use a single hyperscaler for all or most of their cloud needs, even when better quality alternatives are available.

Ofcom said that these market features could make it “challenging” for some customers to switch or use multiple cloud providers. 

Following today’s announcement, the CMA will conduct an independent investigation to decide whether there is an adverse effect on competition, and if so, whether it should take action or recommend others to take action.

In response WS has released this statement:

“We disagree with Ofcom’s findings and believe they are based on a fundamental misconception of how the IT sector functions, and the services and discounts on offer. Only a small percentage of IT spend is in the cloud, and customers can meet their IT needs from any combination of on-premises hardware and software, managed or co-location services, and cloud services.

“AWS designs cloud services to give customers the freedom to choose technology that best suits their needs. UK companies, and the overall economy, benefit from robust competition among IT providers, and the cloud has made switching between providers easier than ever. Any unwarranted intervention could lead to unintended harm to IT customers and competition. AWS will work constructively with the CMA.”

Addressing the egress fees directly the AWS spokesperson added:

“AWS does not charge separate fees for switching data to another IT provider. Customers make hundreds of millions of data transfers each day in the ordinary course of business, and over 90% of our customers pay nothing for data transfer because we provide them with 100 gigabytes per month for free.”

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