Ofcom Probes the Cloud

Amazon (AWS), Microsoft and Google are the leading providers of cloud infrastructure services globally, with AWS and Microsoft boasting a combined share of more than 70% of an estimated ￡7.5B market in the UK.

The dominance of AWS and Microsoft and to a lesser degree Google, means that businesses can leverage their infrastructures to ensure continuity of networks, applications, and services in just about any location, and a guarantee of homogenous services globally. This sounds, and is great, with many businesses adopting cloud to accelerate their digital offerings to customers. However, Ofcom in the UK has further scrutinised the big players with a view to improving market practises.

Ofcom’s market study identified a number of features in the supply of cloud services that could limit competition and should be improved to allow customers to switch and use multiple cloud suppliers with greater ease.

The features which Ofcom identified are:

• Egress fees – charges that cloud customers must pay to move their data out of the cloud. These should be lowered to allow customers to use services more easily from multiple or alternative cloud providers.
• Discounts – which may incentivise customers to use only one cloud provider.
• Technical barriers to interoperability and portability – which may prevent customers from being able to switch between different clouds or use more than one provider.

Ofcom’s has also noted potential software licensing practices, in particular Microsoft, that require greater scrutiny.

Ofcom have now instructed the Competition and Markets Authority (CMA) to investigate further. So, what does this mean for businesses?

The CMA could intervene by imposing price controls or even prohibit providers from charging data egress fees; this would make it easier for customers to switch providers or integrate other cloud services into their IT environments.

Committed spend discounts are viewed as advantageous by many organisations, however, Ofcom’s view is that this could dissuade business from using other or better technology and services. Both views are valid, and any changes intended to improve competition in this area will have to consider customers willingness to prioritise cost over technology and allow cloud providers to gain enough committed spend to protect investment and innovations. Any proposed changes will have to balance both of these against altering the structure of the discounts that can distort competition.

Perhaps the biggest issue for many organisations is interoperability between providers. Potential interventions could include ordering providers to be transparent about the interoperability of their services and tools working with competitors; and enforcing a greater degree of standardisation between competing cloud platforms to make cloud services easier to interoperate with.

The CMA has until April 2025 to decide what potential market interventions it may make to improve the UK cloud market.

The CMA’s independent inquiry group will carry out an investigation to determine whether competition in this market is working well and if not, what action should be taken.

The CMA’s areas of focus for the next three years, includes ensuring effective competition in digital markets as a priority. The CMA’s investigation into cloud services will form an important part of its wider programme of work in digital markets including the incoming Digital Markets, Competition and Consumer Bill.

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