Ofcom demands UK antitrust investigation into Microsoft’s and Amazon’s cloud dominance

Ofcom, the UK’s communications regulator, has referred the $500bn industry of cloud computing to the Competition and Markets Authority (CMA) for an antitrust probe after finding that Microsoft and Amazon dominate the market.

In the UK, regulators called for more scrutiny on Thursday. Meanwhile, EU and US regulators also examine cloud computing firms after customers complained of being “locked-in” to one provider. Regulators are concerned that prices and profits could be higher in a more concentrated market. The market is already being investigated by competition authorities in France and the Netherlands.

Cloud computing is a crucial way for businesses to store and deliver data, while the demand for data centres has increased due to new artificial intelligence-based products.

Ofcom’s study concluded that Amazon Web Services and Microsoft Azure have a combined market share of 70-80 per cent. Google is the biggest competitor, with a share of 5 to 10%.

Fergal Farragher is the director of Ofcom responsible for the study.

Gartner estimates that global spending by customers on public cloud services will grow 19% in 2022, reaching $490.3bn. This year, Gartner expects the number to increase another 21%, to nearly $600bn. According to the CMA, its value in Britain is £7.5bn.

Ofcom’s study on the market concluded that customers face obstacles such as high “egress” fees to leave a particular service, and technical difficulties which prevent them from switching to another cloud provider. Tech companies offer discounts to their clients for sticking with a single provider.

Ofcom stated that they were “concerned” that a large number of customers (especially those with complex requirements) may be faced with significant obstacles when switching providers or using different cloud platforms to better suit specific applications.

It said: “We expect that this will be the case for an increasing number as the market matures.” Some customers have already told us that they are concerned about being “locked in” to their current provider.

Ofcom said: “High levels in profitability for market leaders AWS, and Microsoft as well as a gradual increase of market concentration are consistent to limits on the overall level competition.”

CMA is now launching its own investigation that could lead to market intervention. Over the last few years, the UK’s competition regulator is becoming more active in the technology sector.

Sarah Cardell is the chief executive officer of CMA. She welcomed Ofcom’s referral. She said that strong competition helps to ensure a level playing ground so that the market doesn’t become dominated by a few companies.

Microsoft stated that it would “engage in constructive dialogue” with the CMA. Microsoft stated that it was committed to making sure the UK cloud industry remained innovative, highly-competitive and an engine of growth for the entire economy.

Amazon has said that it does not charge separate fees when switching data providers.

Farragher stated that Ofcom’s research found that “all cloud service providers, including AWS charge these fees [egress] for moving data out of their cloud”.

AWS stated that “we disagree with Ofcom findings, believing they are based upon a fundamental misunderstanding of the IT sector’s functioning and the services and discount offers available.” Any unwarranted interference could cause unintended harm for IT customers and the competition. AWS will cooperate constructively with CMA.”

Cloud Infrastructure Service Providers in Europe (CIPSE), an organization representing Microsoft rivals, including AWS and AWS, has called for the CMA’s investigation of what it calls “pernicious, anti-competitive and unfair software license terms”.

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