April 19. 2024. 8:38

The Daily

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UK regulator mulls proposing full cloud service market investigation

Amazon and Microsoft could be set to face increased scrutiny in the UK after the communications regulator proposed referring its ongoing investigation into the cloud services market to the country’s competition authority.

Ofcom, the British communications regulator in charge of the telecom and broadcasting sectors, is midway through an assessment of cloud infrastructure service in the UK, a market dominated by Amazon Web Services (AWS) and Microsoft.

On Wednesday (5 April), however, it announced that it had identified several features of concern and may therefore refer the case to the Competition and Markets Authority (CMA) for further investigation.

Ofcom began its probe into UK cloud services in October, intending to investigate the market’s functionality. Now at the halfway point, the regulator has revealed that it has identified three key issue areas that risk hampering activity in the sector.

It also points to Amazon and Microsoft as players of particular concern, given their combined market share between 60 and 70%. The services of these two hyperscalers, along with those of Google, which holds a 5-10% market share, are used in some way by most UK cloud customers.

Areas of concern

The first area of concern identified by Ofcom is ‘egress fees’, charges paid by customers to transfer their data out of a cloud. Hyperscalers are setting these fees considerably higher than other providers, the regulator says, which can discourage customers from using multiple cloud providers or switching between them.

The second issue is technical restrictions on interoperability. These conditions, set by leading companies, prevent elements of their services from fully functioning when used in conjunction with other providers’ services, meaning customers need to go out of their way to reconfigure their data and applications to work across services.

Finally, committed spending discounts are listed as the third area of concern. These, Ofcom notes, can aid customers by reducing costs but are often structured to incentivise customers to stick with a single hyper-scaler for most or all of their cloud service needs, even where more appropriate alternatives might exist.

Together, these features can make it difficult for customers to strike good deals with their providers, Ofcom concludes in its interim report, raising the price of contract renewals and making it more difficult for users to switch providers or combine their services.

Interoperability between cloud services and slashing egress fees are at the centre of the discussion of the EU’s Data Act, a landmark legislative proposal intended to open up competition in the cloud market.

Competition in cloud markets

From a competition perspective, the high profitability of both AWS and Microsoft in the UK market indicates limits to the market’s competitiveness overall, the regulator says, raising concerns that smaller cloud providers may be restricted from attracting customers and operating competitively within the sector.

“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, the director responsible for the market study at Ofcom.

“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.”

As a result of its conclusions so far, Ofcom has proposed referring the market to the CMA for a full market investigation, which the regulator describes as “a significant step”.

Feedback on the findings so far is being accepted until 17 May, with the final report and recommendations, including the decision on whether or not to officially refer the case to the CMA, due by 5 October.

“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,” an AWS spokesperson said in reaction to the announcement.

“We look forward to continuing our engagement with Ofcom on their cloud services market study. 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,” a Microsoft spokesperson said.