Ofcom calls for UK antitrust probe into Microsoft and Amazon’s cloud dominance

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Ofcom has referred the $500bn cloud computing industry to the Competition and Markets Authority for an antitrust investigation, after the UK communications regulator found that Microsoft and Amazon dominated the market.

The call on Thursday for further scrutiny in the UK comes as EU and US regulators are also examining cloud computing companies after customers complained about being “locked in” to a single provider. Regulators fear prices and profits may be higher than they would be in a less concentrated market. Competition authorities in France, the Netherlands and Japan are already investigating the market.

Cloud computing has become a vital way for companies to store data and deliver internet services, with the development of new artificial intelligence products only increasing demand for data centre resources.

Amazon Web Services and Microsoft’s Azure command a combined share of 70 to 80 per cent of the market, Ofcom found after a year-long study. Google is their largest competitor with a 5 to 10 per cent share.

“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,” said Fergal Farragher, the Ofcom director responsible for the market study.

According to market researcher Gartner, global customer spending on so-called public cloud services grew 19 per cent in 2022 to $490.3bn and is projected to rise another 21 per cent, to almost $600bn, this year. The CMA pegs its value in the UK at £7.5bn.

Customers face barriers including high “egress fees” to leave a service and technical challenges that inhibit switching to a different cloud provider, Ofcom’s market study concluded, while tech companies also offer discounts for using a single cloud provider.

Ofcom wrote that it was “concerned that a material number of customers, especially those with more complex requirements, may face significant barriers” to switching between providers or using multiple cloud platforms that better suit particular applications.

“We expect this will be true of an increasing number of customers as the market matures,” it said. “Some customers have told us they are already concerned about being ‘locked in’ to their current provider.”

Ofcom added: “High levels of profitability for the market leaders AWS and Microsoft and a gradual increase in market concentration are consistent with limits to the overall level of competition.”

The CMA will now begin its own investigation, which could lead to intervention in the market. The UK’s competition regulator has become increasingly active in the tech sector over the past few years.

Sarah Cardell, chief executive of the CMA, welcomed Ofcom’s referral. “Strong competition ensures a level playing field so that market power doesn’t end up in the hands of a few players,” she said on Thursday.

Microsoft said it would “engage constructively” with the CMA. “We are committed to ensuring the UK cloud industry remains innovative, highly competitive and an accelerator for growth across the economy,” Microsoft said.

Amazon said it did not charge “separate fees for switching data to another IT provider”.

However, Farragher said Ofcom’s study found that “all cloud providers, including AWS, charge these [egress] fees for moving data outside of their cloud”.

“We disagree with Ofcom’s findings and believe they are based on a fundamental misconception of how the IT sector functions, and the services and discounts on offer,” AWS said. “Any unwarranted intervention could lead to unintended harm to IT customers and competition. AWS will work constructively with the CMA.”

Cloud Infrastructure Service Providers in Europe, an organisation representing rivals to Microsoft, including AWS, called on the CMA to examine what it called “pernicious anti-competitive, unfair software licensing terms” in the industry.