Amazon, Microsoft under UK regulator's eye as cloud market probe confirmed

Watch out, Amazon and Microsoft – the UK’s competition watchdog this morning confirmed it will investigate the big cloud infrastructure services players.

The move follows a recommendation from telecoms regulator, Ofcom. The Competition and Markets Authority (CMA) said it will carry out its own scrutiny into public cloud infrastructure services over the issues Ofcom identified. Under the microscope will be companies making it difficult for customers to switch cloud provider, or to use more than one provider to adopt a multi-cloud strategy.

The CMA said it has already appointed independent panel members to an inquiry group, who will act as the decision makers on the investigation. The group will soon publish a consultation document on the proposed focus of the investigation, and the CMA said it expects to wrap up proceedings by April 2025.

CMA chief exec Sarah Cardell said in a statement that the watchdog welcomed Ofcom’s referral of cloud infrastructure services for more in-depth scrutiny.

“This is a £7.5 billion ($9.1 billion) market that underpins a whole host of online services - from social media to AI foundation models. Many businesses now completely rely on cloud services, making effective competition in this market essential,” she said.

The inquiry group will now determine for itself whether competition in the cloud market is working well, and what remedies should be adopted should it be found otherwise.

Ofcom, otherwise known as The Office of Communications, first started looking into the cloud infrastructure market in September last year. It published an interim report in July saying there were “clear indications the local cloud infrastructure market isn't working as well as it should”, and that it was minded to refer the matter to the CMA.

All of the indications were that a referral leading to a more in-depth investigation by the CMA was likely, with The Register reporting only this week that it was imminent.

Ofcom found that Amazon’s AWS and Microsoft’s Azure accounted for 70-80 percent of the UK cloud infrastructure services market in 2022, with Google Cloud making up another 5-10 percent.

In its market study, Ofcom identified several areas of concern that could make it difficult for customers to switch or use multiple cloud providers. Chief among these were egress fees, technical restrictions on interoperability and discounts.

As we reported previously, Ofcom found that the big cloud operators charge significantly more than other providers to move data out, and this may discourage customers from moving their data.

Technical barriers to switching involve the different APIs, protocols and workflows that customers must use for their application to work with each cloud, while discounts for committing to using a certain amount of resources may incentivise customers to use a single provider.

However, another notable area that Ofcom highlighted concerns software licensing practices, in particular Microsoft, with its widely used software that was found to be much more expensive to run on rival clouds than on its own Azure platform.

“Some UK businesses have told us they’re concerned about it being too difficult to switch or mix and match cloud provider, and it’s not clear that competition is working well. So, we’re referring the market to the CMA for further scrutiny, to make sure business customers continue to benefit from cloud services,” said Ofcom's director responsible for the study, Fergal Farragher.

Response to the announcement of the pending CMA inquiry has been mixed.

Mark Boost, CEO of UK-based cloud operator Civo welcomed the move.

“A referral to the CMA is an unprecedented opportunity to make the cloud market a truly competitive space. This means empowering any company to develop and grow cutting-edge cloud services, and ensuring customers can readily move around to find the best solution to match their needs,” Boost told The Register.

Microsoft told us: “We are committed to ensuring the UK cloud industry remains innovative, highly competitive and an accelerator for growth across the economy. We will engage constructively with the CMA as they conduct their Cloud Services Market Investigation.”

AWS said it disagrees with Ofcom’s findings, and it believes they are based on a “fundamental misconception” of how the IT sector functions. It warned that unwarranted intervention might actually lead to unintended harm to customers, but indicated it will “work constructively with the CMA.”

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“Only a small percentage of IT spend is in the cloud, and customers can meet their IT needs from any combination of on-premises hardware and software, managed or co-location services, and cloud services. AWS designs cloud services to give customers the freedom to choose technology that best suits their needs,” a spokesperson for the cloud giant told us.

On the specific claim of high egress charges, the company responded that “AWS does not charge separate fees for switching data to another IT provider. Customers make hundreds of millions of data transfers each day in the ordinary course of business, and over 90 percent of our customers pay nothing for data transfer because we provide them with 100 gigabytes per month for free."

Google indicated that Ofcom’s referral demonstrates the need to create an open cloud market with no vendor lock-in.

“UK government agencies, businesses, and consumers want to move easily across cloud platforms and choose which services best meet their needs. We will continue to allow our products to run on any cloud without penalty, separately offer our platform and productivity tools, and provide simple and transparent licensing and pricing,” said Google Vice President and Head of Platform for Cloud, Amit Zavery.

The Cloud Service Providers in Europe (CISPE) trade group also welcomed the move. It has already filed a complaint with the European Commission over what it sees as Microsoft's unfair licensing for software in the cloud.

“Ofcom clearly understands the significance of these technical interoperability and commercial lock-in practices, and how some software companies use their ‘strong position in software products to distort competition in cloud infrastructure.’ We urge the CMA to take an enforcement action on unfair software licensing in the cloud,” said CISPE secretary general Francisco Mingorance.

However, Omdia Chief Analyst Roy Illsley said the move announced today seems like “a late reaction to a situation that has been common practice for years.”

“Customers do find that putting data into the cloud is free, and taking it out costs money, but this is now a well-established cost of using cloud. It has been discussed at just about every event for the last few years, and some in the industry - OVHcloud and Oracle - have changed policy on this. However, the TCO for moving to the cloud should factor in these costs,” Illsley argued.

On technical barriers, he agreed this is an area that needs looking at. “Even if an application is developed using Kubernetes, which is an open technology, the settings and other config requirements mean these workloads cannot just be moved between environments,” he said.

Organizations need to be most cautious of fully managed cloud services to avoid lock-in, according to Illsley.

“Yes these help companies adopt technologies faster, but they do not get to control and understand the underlying technology. They risk losing all the skills and knowledge and becoming reliant on the cloud provider,” he warned. ®