UK regulator Ofcom is proposing to have the Competition and Markets Authority (CMA) investigate the cloud infrastructure market and see if regulation is needed to improve competition.

The regulator this week said it was proposing to refer the market to the CMA for further investigation as it believes there are “reasonable grounds for suspecting that one or more features prevent, restrict, or distort competition in the UK.”

alibaba cloud.jpg
– Alibaba Cloud

Ofcom has been carrying out a market study into the supply of cloud services in the UK to explore if these markets are working well and whether any regulatory action is required.

While only at the "interim stage" of its study, the agency said that it has found “some evidence” of active competition in the sector and Ofcom’s provisional view is that competition is being “limited” by market features that make it more difficult for customers to switch and use multiple suppliers.

These limitations include high egress fees to remove data from the cloud, limitations on interoperability, and committed spend discounts which encourage companies to spend more with one provider.

“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 behaviors that limit competition,” Ofcom said.

Further investigation by the CMA could lead to a number of "market-opening and/or structural measures," as well as potential recommendations to the Government or other regulatory bodies to change policy, legislation, and/or regulatory frameworks.

“We have identified some potential interventions that could be implemented through such routes, but it would ultimately be up to the CMA group to assess their proportionality and consider their effectiveness alongside other suitable remedies they may identify.”

Interventions could include mandating the use of specific standards for interoperability, greater pricing transparency, and placing controls on egress fees.

“We’ve done a deep dive into the digital backbone of our economy, and uncovered some concerning practices, including by some of the biggest tech firms in the world,” said Fergal Farragher, Ofcom's director who is responsible for the market study. “High barriers to switching are already harming competition in what is a fast-growing market. We think more in-depth scrutiny is needed, to make sure it’s working well for people and businesses who rely on these services.”

Interested parties are invited to submit their views on the Ofcom consultation page. The consultation runs until May 17, and a report is expected by October.

According to Ofcom, the market for cloud infrastructure in the UK was worth £4.5-5 billion ($5.6-6.2bn) in 2021, with AWS and Microsoft controlling a combined market share of 60-70 percent. Google is the pair’s closest competitor with a share of 5-10 percent.

An AWS spokesperson said: “These are interim findings and AWS will continue to work with Ofcom ahead of the publication of its final report. 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.”

Ivo Ivanov, CEO of DE-CIX, said: “Ofcom's move should not really come as a surprise. Make no mistake, the UK regulator’s desire to ensure open competition among cloud services is likely to be the first of many such initiatives across the world. Whilst companies are aware of the amazing benefits that cloud technology offers, problems such as high egress fees, lack of interoperability, and vendor lock-ins create a new set of challenges.”

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