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Ofcom referred the matter of cloud competition to the U.K.'s Competition and Markets Authority
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Defenses mounted by AWS and Microsoft in response to Ofcom's market study failed to make an impact
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The CMA has 18 months to conduct its investigation
The U.K.’s Competition and Markets Authority (CMA) is taking a closer look at the supply of public cloud infrastructure services in the country, after a market study conducted by another U.K. regulator identified the existence of several barriers to effective competition there.
After a year of investigating the market, U.K. watchdog Ofcom issued a report which stated it has “reasonable grounds to suspect” that several cloud business practices “prevent, restrict, or distort competition in the UK.” These include egress fees for moving data out of a provider’s cloud environment; technical barriers related to interoperability and portability; and discounts associated with committed spending arrangements. Accordingly, it referred the case to the CMA for further review and potential intervention.
“This is a £7.5bn market that underpins a whole host of online services – from social media to AI foundation models,” CMA CEO Sarah Cardell said in a statement. “The CMA’s independent inquiry group will now carry out an investigation to determine whether competition in this market is working well and if not, what action should be taken to address any issues it finds.”
The move isn’t necessarily a surprise: Ofcom indicated as early as April that it planned to ask the CMA to launch a probe, citing some of the very issues mentioned in the newly-released report. But it reflects mounting efforts by regulators to reign in cloud hyperscalers.
In the U.S., the Federal Trade Commission (FTC) is also looking at competitive dynamics in the cloud market. A request for information from the agency yielded some interesting responses, with tech experts telling the FTC that cloud giants are anticompetitive and Google Cloud and Oracle each slamming their larger rivals’ business practices.
Playing defense
Ofcom’s report offered some insight into the arguments cloud providers like Amazon Web Services (AWS) and Microsoft made in their own defense.
AWS, for instance, stated it has “reduced prices 129 times since launch” and argued that IT services are highly competitive, with only 15% of IT dollars spent on the cloud today. It pointed to Google, Microsoft, Rackspace, IBM, Dell, OVHcloud, DigitalOcean, UpCloud, Aruba, HPE, Oracle, Deutsche Telekom, Cloudflare and Flexential as among a growing number of cloud service providers.
It concluded Ofcom’s competition concerns “are based on fundamental misconceptions about the IT sector, global networking technology, the actual interoperability of IT services, and discounts on offer.”
“Rather than inhibiting customer choice, the cloud has made switching between IT providers easier than ever before,” AWS wrote. “Customers using on-premises IT solutions have been and continue to be largely ‘locked-in’ to costly infrastructure legacy hardware, as well as software that only runs on specific hardware. Before cloud services were on offer, switching IT providers was often a prohibitively expensive, multi-year process….a customer that chooses a cloud provider for a particular workload need not choose the same provider for another workload.”
Microsoft, meanwhile, made the case that Ofcom failed to provide a benchmark for what the ideal level of cloud switching (and thus competition) should be. It added that “even if switching levels can robustly be characterized as (comparatively) ‘low’, this finding is wholly inconclusive: low switching is perfectly consistent with a competitive market in which existing customers are not exploited relative to new customers.”
Obviously, these arguments failed to persuade Ofcom to change course, but it remains to be seen what the CMA will dig up and conclude.
The CMA has 18 months to conduct its investigation and expects to conclude its work by April 2025.