CMA investigates UK cloud market involving Microsoft and Amazon.

Media regulator voices £7.5bn sector concerns to competition authority, spotlighting two leaders.

The UK communications regulator, Ofcom, has officially handed over the £7.5bn cloud computing market to the competition watchdog for investigation. This move follows concerns raised by a study regarding the dominant positions of industry giants Amazon and Microsoft.

Ofcom has formally requested the Competition and Markets Authority (CMA) to conduct an inquiry, expressing specific unease about the market leadership of Amazon and Microsoft.

Cloud computing, involving the delivery of IT services such as data storage and computing power over the internet with a pay-as-you-go pricing model, is widely used by businesses and plays a crucial role in advancing the development of next-generation artificial intelligence (AI) models.

Fergal Farragher, the Ofcom director overseeing the regulatory body’s examination of the cloud market, revealed that many companies have expressed concerns about the challenges of transitioning between or combining different cloud service providers. He emphasized the reliance of various industries, including TV production, telecommunications networks, and AI, on remote computing resources operating behind the scenes.

Farragher stated, “Several UK businesses have shared 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.

The regulatory body noted that the substantial profitability of market leaders AWS (Amazon’s cloud unit) and Microsoft indicates limitations on overall competition. Microsoft and Amazon collectively dominate up to 80% of the £7.5bn UK cloud computing market, with Google as the closest competitor, holding up to 10%. Ofcom’s concerns about the market encompass various issues, including expensive exit fees for data transfer to alternative providers, 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 emphasized that these market characteristics can pose difficulties for certain customers when it comes to switching between or employing multiple cloud service providers, hindering their ability to negotiate favorable terms and effectively combine services from various providers.

On Thursday morning, the CMA officially announced the initiation of an investigation into the cloud computing market, following the referral by Ofcom. The CMA has established a dedicated group to conduct this inquiry.

Sarah Cardell, the Chief Executive of the CMA, underscored the significance of this £7.5bn market, serving as a foundational component for various online services, including social media and AI foundational models. With many businesses heavily reliant on cloud services, ensuring robust competition in this market is paramount.

The CMA’s independent inquiry team will now conduct an examination to assess the effectiveness of competition in this market. If any shortcomings are identified, they will evaluate measures to address these concerns.

AWS expressed disagreement with Ofcom’s findings, asserting that they stemmed from a “fundamental misunderstanding of how the IT sector operates.” The spokesperson further explained that robust competition among IT providers benefits both UK companies and the broader economy, highlighting the streamlined process of switching between providers facilitated by cloud technology. They cautioned that unwarranted intervention could inadvertently harm IT customers and competition. AWS affirmed its commitment to engaging constructively with the CMA.