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April 5, 2023

AWS and Azure ‘limiting competition’ in UK cloud market – Ofcom

The regulator says the strength of the hyperscale duo may be bad for customers, and is recommending an antitrust probe be launched.

By Matthew Gooding

Communications regulator Ofcom is recommending a competition investigation should be launched into the state of the UK cloud computing market after raising concerns about the dominance of the market by Amazon’s AWS and Microsoft Azure.

AWS and Azure hold 60-70% of the UK cloud market. This has caused competition concerns. (Photo by Tada Images/Shutterstock)

Ofcom is halfway through a market study on UK public cloud services, and says it has uncovered practices and features “that could limit competition“. It is proposing to make a referral to regulator, the Competition and Markets Authority (CMA), which could then launch its own probe.

An Ofcom statement said: “This would allow the CMA to further examine the nature and extent of barriers and consider if there are interventions that could improve how the market works for customers and ultimately UK consumers.”

What are Ofcom’s concerns about the UK cloud computing market?

The Ofcom investigation has so far identified three key areas which it believes could be hindering competition

It says egress fees, the charges that customers pay to transfer their data out of a cloud to another provider, are set at a particularly high rate by the hyperscalers when compared to 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,” the regulator said.

A lack of interoperability is also highlighted, with comparable services from different vendors not being compatible with one another, which means when clients want to switch platforms they need to put “additional effort into reconfiguring their data and applications to work across different clouds”. Ofcom adds that so-called committed spend discounts, though beneficial for reducing costs, are structured in such a way as to incentivise businesses to use a single vendor, even if better options are available.

These problems are particularly acute for users of AWS and Azure, Ofcom says, because of their dominant market position. The regulator says the duo have a combined 60-70% share of the UK market, with the third hyperscaler, Google Cloud, trailing behind on 5-10%. This means it is likely they are even more omnipresent in the UK than they are globally, where they hold some 55% of the market.

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"In addition, some customers are concerned about their ability to switch and use multiple providers where this limits their ability to mix and match the best quality services across different providers," Ofcom said. "High levels of profitability for the market leaders AWS, and substantial consistent growth in Microsoft’s profits, indicate there are limits to the overall level of competition."

What happens next in the UK cloud market?

Ofcom is concerned this difficulty in switching providers, and the lack of ability to mix services from different vendors, could make it harder for smaller cloud providers to win business and compete with the market leaders. "Revenues are already concentrated with a few players, and there is a risk that the features we have identified could lead the market to concentrate further towards the market leaders," it said.

A referral is likely to be made to the CMA in six months' time, when the market study is completed. The competition regulator will then decide whether to launch its own investigation.

"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 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."

If a competition investigation is launched, the UK will be following in the footsteps of the US government, which announced it is investigating the cloud providers' market dominance last month. Microsoft is also fighting to ward off an antitrust investigation from the EU following a complaint from European cloud providers that its practices are anti-competitive. Tech Monitor reported last week that MSFT has reportedly agreed a deal which will settle this complaint.

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. This has driven increased competition across a range of sectors in the UK economy by broadening access to innovative, highly secure, and scalable IT services.”

A Microsoft spokesperson said the company "looks forward to continuing our engagement with Ofcom on their cloud services market study." They added: "We remain committed to ensuring the UK cloud industry stays highly competitive, and to supporting the transformative potential of cloud technologies to help accelerate growth across the UK economy.”

Read more: Alibaba six-way split will see cloud division become separate company

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