Ofcom has warned that rules set by ‘hyperscalers’ like Amazon and Microsoft could lead to higher costs of cloud services being passed on to consumers. The Competition and Markets Authority (CMA) will be investigating the UK cloud services market in response to a referral by Ofcom. The £7.5 billion market will be examined for concerns regarding fair competition and technical barriers to customer switching.
Cloud computing allows customers to access their computing resources on demand and over a network. It provides the foundation for software application development and operation, enabling faster, more flexible, and potentially cheaper operation for businesses. However, Amazon Web Services (AWS) and Microsoft dominate the market with a combined share of 70 to 80 percent, while Google holds a share of 5 to 10 percent.
Ofcom’s analysis of the market has revealed issues stifling competition, including egress fees that customers have to pay to transfer their data out of a cloud. Technical barriers to switching from one provider to another also pose a challenge as customers would need to reconfigure their data, limiting their ability to use multiple suppliers or “multi-cloud.” The regulatory body notes that discounts for using only one cloud provider may reduce costs but ultimately act as barriers to businesses exploring other market offers.
The CMA will investigate how to improve the supply of cloud services to UK customers and ensure effective competition in the market. This is crucial in unlocking the full potential and benefits of rapidly evolving digital markets for people, businesses, and the UK economy, according to CMA CEO Sarah Cardell. She emphasizes the need for a level playing field that prevents market power concentration in the hands of a few players.
“Hyperscalers” like Amazon and Microsoft dominating the market could result in higher costs for cloud services passed on to consumers. Amazon emphasizes that its customers trust AWS to power their infrastructure, increase agility, and lower costs. Microsoft, on the other hand, focuses on helping its cloud customers maximize the value of their digital spend through AI advancements.
While there are other cloud providers in the UK, such as Oracle and IBM, their market shares are considerably smaller compared to the “hyperscalers.” Building a rival ecosystem of products is challenging, as identified by Ofcom. Egress fees further discourage businesses from choosing a different provider, and 78 percent of respondents in an Ofcom survey expressed a desire to reduce or eliminate these fees. Implementing regulations similar to the proposed EU Data Act would allow customers to switch providers without incurring charges, including egress fees.
The US Federal Trade Commission is currently reviewing competitive dynamics and security risks in the cloud computing sector, as well as the economy’s reliance on cloud service providers. In the United States alone, it is estimated that companies will spend $576 billion on cloud computing in 2023.
The CMA’s investigation into cloud services will be included in Britain’s Digital Markets, Competition and Consumers Bill. The regulator’s investigation is expected to conclude by April 2025.