The Competition and Markets Authority (CMA) is investigating whether big cloud infrastructure companies make it hard for businesses to switch or use multiple providers, putting the U.K. cloud market in the regulatory crosshairs.
A year ago, Ofcom announced it was starting a market study of the £7.5 billion U.K. cloud services market. At the report’s halfway point in April, the regulator indicated that it had identified concerns that could warrant escalation to the CMA. Today begins the CMA’s independent market investigation to “examine the market and consider whether there are competition concerns.”
The CMA’s inquiry group will decide the investigation’s scope and details in phase 2.
“Many businesses now completely rely on cloud services, making effective competition in this market essential,” CMA CEO Sarah Cardell said. Strong competition ensures a level playing field so that market power doesn’t go to a few players, unlocking the full potential of these rapidly evolving digital markets for people, businesses, and the UK economy.
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AWS, Microsoft, and Google, which account for up to 90% of U.K. cloud revenues, are being investigated for anti-competitive practices that lock customers into their ecosystems. Since AWS and Microsoft account for 80% of cloud revenue spend, Ofcom’s report seems to focus more on them.
The main issue is so-called “egress fees,” which cloud behemoths charge for moving data out of their clouds to a rival company, making it prohibitively expensive to switch providers. Ofcom also noted that cloud companies design their products to not work with rival services, which can cause friction for multi-cloud companies. Finally, the CMA will examine big cloud vendors’ “committed spend discounts,” which may encourage companies to stick with one vendor.
Ofcom also raised concerns about Microsoft’s software licensing practices, including how it may use its business software dominance to charge companies more to run its applications on rival clouds. Microsoft has received similar complaints from EU third-party companies.
Ofcom has decided not to directly investigate Microsoft’s software licensing practices, saying it will be “for the CMA to decide whether to investigate these issues further during the market investigation.”
However, the CMA will decide which aspects of Ofcom’s findings to focus on in a separate report it will publish “in due course.”
Zoho European managing director Sridhar Iyengar welcomed the investigation, saying the CMA should act.
Iyengar told that cloud services help businesses adopt new remote and hybrid working models and distribute wealth and skills. “Businesses shouldn’t sign cloud contracts with limited flexibility and fees to discourage switching providers.
U.K. cloud company Civo CEO Mark Boost said the price-point charged on egress “is out of control,” and the CMA should consider making lift-and-shifting data easier and cheaper.
“It will be particularly important to tackle egress fees, either through significant price controls or the most ambitious choice — abolishing them entirely,” he told .
Microsoft said it will “engage constructively” with the CMA throughout their investigation as a major target. The CMA recently blocked Microsoft’s $68.7 billion Activision acquisition on competition grounds, but a restructuring could clear it. Microsoft already has a lot of dealings with the CMA.
Amazon said it will work “constructively” with the CMA. However, it argued for this new investigation more. Company spokespersons disagreed with Ofcom’s findings, calling them based on a “fundamental misconception of how the IT sector functions.”
In a statement to , the spokesperson said only a small percentage of IT spend is in the cloud and customers can meet their IT needs with on-premises hardware and software, managed or co-location services, and cloud services. “AWS design cloud services to let customers choose their preferred technology. U.K. companies and the economy benefit from IT provider competition, and the cloud makes switching providers easier than ever. Unwarranted intervention could harm IT customers and competition.”
The CMA expects to finish its investigation by April 2025, but it will announce its priorities before then.