UK watchdog probes cloud giants over anti-competitive practices

The UK’s Competition and Markets Authority (CMA) has launched an investigation into the cloud computing market, following a referral from the media regulator Ofcom. The probe will examine whether Amazon and Microsoft, the two dominant players in the UK cloud infrastructure services market, are engaging in anti-competitive behaviour that harms customers and rivals.

What is cloud computing and why does it matter?

Cloud computing is the delivery of computing services, such as servers, storage, databases, networking, software, and analytics, over the internet. Cloud providers, such as Amazon Web Services (AWS) and Microsoft Azure, use data centres around the world to provide remote access to these services and resources.

Cloud computing is essential for many online services, such as social media, artificial intelligence, gaming, and streaming. Many businesses rely on cloud services to develop and run their applications, store their data, and scale their operations. According to Ofcom, the UK cloud infrastructure services market was worth £7.5 billion in 2022 and is expected to grow rapidly in the coming years.

Why are Amazon and Microsoft under scrutiny?

Ofcom conducted a market study into the UK cloud infrastructure services market and found that it is highly concentrated and competition is limited. AWS and Microsoft had a combined market share of 70-80% in 2022, followed by Google with a share of 5-10%. The vast majority of cloud customers use the services of these ‘hyperscalers’ in some form.

Ofcom identified several features of the market that make it more difficult for customers to switch and use multiple cloud providers, such as:

  • Egress fees: These are the charges that customers pay to transfer their data out of a cloud. AWS and Microsoft set them at significantly higher rates than other providers. The cost of egress fees can discourage customers from using services from more than one cloud provider or to switch to an alternative provider.
  • 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. This makes it more difficult to combine different services across cloud providers or to change provider.
  • Committed spend discounts: These can benefit customers by reducing their costs, but 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 these features could limit competition in the market and reduce innovation, choice, and quality for customers. It also raised concerns about the software licensing practices of some cloud providers, particularly Microsoft.

What will the CMA do?

The CMA said it will conduct an independent investigation into the UK cloud infrastructure services market to determine whether there is an adverse effect on competition, and if so, whether it should take action or recommend others to take action.

The CMA has the power to impose fines, order remedies, or refer the market for a more detailed investigation if it finds evidence of anti-competitive behaviour. It can also make recommendations to the government or other regulators on how to improve competition in the market.

The CMA said it will conclude its investigation by April 2025. It has invited comments from interested parties by Nov. 18.

How have Amazon and Microsoft responded?

Amazon and Microsoft have not yet commented on the CMA’s investigation. However, both companies have previously defended their cloud businesses against allegations of anti-competitive conduct.

In 2020, AWS CEO Andy Jassy said that AWS was not dominant in the cloud market and that there was “a lot of competition” from other providers. He also said that AWS was “very customer-focused” and that it offered “a lot of flexibility” for customers to move their data.

In 2021, Microsoft CEO Satya Nadella said that Microsoft was “committed to ensuring that our cloud platform is open, trusted, and creates a level playing field for everyone.” He also said that Microsoft was “investing in interoperability” and that it supported “customers’ choice of technology.”

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