Amazon, Microsoft Cloud Services Face UK Antitrust Probe

Ofcom proposing to refer UK cloud market and two of its leading service providers to British antitrust watchdog

Amazon and Microsoft are facing a full antitrust investigation in the United Kingdom, after Ofcom said it had concerns about some aspects of the UK cloud market.

The UK communications regulator announced this week that its market study had uncovered “practices and features that could limit competition,” which includes “high fees for transferring data out, committed spend discounts and technical restrictions.”

Ofcom had begun its market study back in September 2022, when it said it would “examine the position of Amazon, Microsoft and Google in cloud services.”

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CMA referral

Ofcom said at the time that the study was part of a “new programme of work to ensure that digital communications markets are working well for people and businesses in the UK.”

Now this week Ofcom said it was halfway through its probe into UK cloud services, and it is “proposing to refer the market to the Competition and Markets Authority (CMA) for further investigation.”

“Our market study has provisionally identified features and practices that make it more difficult for customers to switch and use multiple cloud suppliers,” said Ofcom.

“We are particularly concerned about the practices of Amazon and Microsoft because of their market position.”

The CMA is the UK’s antitrust regulator and is currently investigating a number of well known acquisitions, including Microsoft’s $69 billion acquisition of Activision Blizzard and Broadcom’s $61 billion purchase of VMware.

The CMA has achieved a number of notable successes, including ordering Facebook parent Meta to sell off its Giphy purchase.

Ofcom concerns

Ofcom said it is minded to refer the UK cloud market to the CMA because cloud computing has become critical for many businesses across the economy and has transformed the way they deliver services on which people rely every day.

Ofcom said that its market study cloud infrastructure services in the UK begun last year was to assess how well this market is working.

It noted that there are two leading providers of cloud infrastructure services in the UK: Amazon Web Services (AWS) and Microsoft, who have a combined market share of 60-70 percent.

Google is their closest competitor with a share of 5-10 percent said Ofcom.

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“Collectively these firms are known as the ‘hyperscalers’ and the vast majority of cloud customers use their services in some form,” said Ofcom. “While competitive market forces are delivering benefits to customers – especially where providers are competing to attract new customers – in the form of innovative products and discounts, other features of the market give cause for concern”

Ofcom flagged the following as areas of concern:

  • Egress fees. These are the charges that customers pay to transfer their data out of a cloud and the hyperscalers set them at significantly higher rates than 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.
  • Technical restrictions on interoperability. These are imposed by the leading firms that prevent some of their services working effectively with services from other providers. This means customers need to put additional effort into reconfiguring their data and applications to work across different clouds.
  • Committed spend discounts. These can benefit customers by reducing their costs, but the way these discounts are structured can incentivise customers to use a single hyperscaler for all or most of their cloud needs, even when better quality alternatives are available.

Causing harm

These market features can make it difficult for some existing customers to bargain for a good deal with their provider said Ofcom.

It said there are indications this is already causing harm, with evidence of cloud customers facing significant price increases when they come to renew their contracts.

So it has proposed to refer the cloud infrastructure market to the CMA to carry out a market 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,” said Farragher. “We think more in-depth scrutiny is needed, to make sure it’s working well for people and businesses who rely on these services.”

Next steps

Going forward, Ofcom is inviting feedback on its interim findings, and on its proposal to make a market investigation reference into the supply of cloud infrastructure services in the UK, by 17 May 2023.

Ofcom intends to publish a final report setting out its findings and recommendations, including its decision on a market investigation reference, by no later than 5 October 2023.

Microsoft has already offered to change its practices to settle antitrust complaints filed by smaller cloud computing rivals to EU antitrust regulators, a person with direct knowledge of the matter told Reuters last month.

Google however said such a move would not solve broader concerns about Microsoft’s licensing terms.

Both Microsoft and AWS reportedly said they would continue to work with Ofcom ahead of the publication of its final report in October.