Media watchdog raises £7.5bn sector concerns with competition regulator, highlighting two market leaders
The UK communications regulator, Ofcom, has officially referred the £7.5bn cloud computing market to the competition watchdog for investigation. The move comes after a study raised concerns about the dominant positions of industry leaders Amazon and Microsoft.
Ofcom has requested that the Competition and Markets Authority (CMA) conduct a formal inquiry, expressing specific unease about the market leadership of Amazon and Microsoft.
Cloud computing, which entails delivering IT services like data storage and computing power via the internet with a pay-as-you-go pricing model, is extensively utilized by businesses and plays a pivotal role in advancing the development of next-generation artificial intelligence (AI) models.
Fergal Farragher, the Ofcom director responsible for overseeing the regulatory body’s examination of the cloud market, has disclosed that numerous companies have expressed apprehensions regarding the challenges associated with switching between or combining various cloud service providers. He pointed out that a wide range of industries, including TV production, telecommunications networks, and AI, heavily rely on remote computing resources that operate behind the scenes.
According to Farragher, “Certain UK businesses have shared their concerns with us, expressing reservations about the complexity of transitioning between or blending different cloud providers. Additionally, it remains uncertain whether healthy competition is prevailing in this space. Consequently, we are directing the market to the CMA for a more thorough examination, aimed at ensuring that business clients can continue to reap the benefits of cloud services.
Ofcom also raised concerns about competition based on the profits generated by Amazon and Microsoft through their operations.
Ofcom noted that the substantial profitability of market leaders AWS (Amazon’s cloud unit) and Microsoft indicates the presence of limitations on overall competition,” the regulatory body stated.
Collectively, Microsoft and Amazon dominate as much as 80% of the £7.5bn UK cloud computing market, with Google being the closest competitor, holding up to 10%. Ofcom’s apprehensions about the market encompass various issues, including expensive exit fees for data transfer to alternative providers, particularly those imposed by the three major players; challenges associated with harmonizing computing requirements across diverse cloud service providers; and the configuration of discounts for committing to a specific spending level with the leading cloud providers in the market.
Ofcom highlighted that these characteristics of the market can pose difficulties for certain customers when it comes to switching between or employing multiple cloud service providers. Consequently, this complexity can hinder their ability to negotiate favorable terms with their chosen provider and effectively combine the highest quality services from various providers.
On Thursday morning, the CMA officially announced the commencement of an investigation into the cloud computing market following the referral by Ofcom. The CMA has also formed a dedicated group to conduct this inquiry.
Sarah Cardell, the Chief Executive of the CMA, emphasized the significance of this £7.5bn market, which serves as a foundational component for a wide range of online services, including social media and AI foundational models. With many businesses heavily dependent on cloud services, ensuring robust competition in this market is of utmost importance.
The CMA’s independent inquiry team will now undertake an examination to determine the effectiveness of competition in this market. If they identify any shortcomings, they will assess what measures should be implemented to address these concerns.
AWS expressed disagreement with Ofcom’s findings, asserting that they were rooted in a “fundamental misunderstanding of how the IT sector operates.” The spokesperson went on to explain that robust competition among IT providers benefits both UK companies and the broader economy, highlighting that cloud technology has streamlined the process of switching between providers. They cautioned that unwarranted intervention could inadvertently harm IT customers and competition. AWS expressed its commitment to engaging constructively with the CMA.
