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Ofcom calls for investigation of UK cloud market over competition concerns

Image: Adobe Stock / Gorodenkoff

Ofcom has referred the UK cloud market to the Competition and Markets Authority (CMA) over concerns that competition could be holding back UK businesses.

In a statement, Ofcom said it had identified features that make it difficult for UK businesses to switch and use multiple cloud suppliers, and that the regulatory body is “particularly concerned about the position of the market leaders Amazon and Microsoft.”

“The cloud is the foundation of our digital economy and has transformed the way companies run and grow their businesses. From TV production and telecoms networks to AI innovations – all of these things rely on remote computer power that goes unseen,” said Fergal Farragher, Ofcom’s Director responsible for the Market Study.

“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.”

Back in October 2022, Ofcom began looking more closely at cloud services in the UK to establish whether any regulatory action was required. Its most recent findings highlight that the two leading providers of cloud infrastructure services in the UK are Amazon Web Services (AWS) and Microsoft, which had a combined market share of 70-80% in 2022. Google is the next largest, with a share of 5-10%.

Ofcom’s decision to refer the market to the CMA will mean that these major cloud providers will now undergo an investigation that will look at how their market share affects competition.

Ofcom has specifically highlighted three areas of concern; the cost of egress fees to transfer data out of a cloud, which hyperscalers have set at significantly higher rates than other providers; technical barriers to interoperability and portability; and committed spend discounts, which can lead to customers using a single hyperscaler for all or most of their cloud needs, even when better quality alternatives are available.

Ofcom has said that barriers to switching and using multiple providers could mean competitors struggle to gain scale and challenge AWS and Microsoft effectively.

In response to the news, Mark Boost, CEO of Civo said, “A referral to the Competition and Markets Authority (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.

“The CMA’s broad enforcement powers opens the door to wide-ranging remedies. Action will need to be a balancing act. It will be particularly important to tackle egress fees, either through significant price controls or the most ambitious choice: abolishing them entirely. The price point charged on egress by hyperscalers is out of control, and creates huge practical and financial obstacles for customers to move to another cloud provider. Urgent changes are also needed to how hyperscalers structure their services to enable customers to reap the benefits of simultaneously accessing multiple different providers, as well as a review of the fairness of incentives for loyal customers.”

Sridhar Iyengar, Managing Director for Zoho Europe, added, “Businesses should carefully evaluate their vendor partners to understand factors such as flexibility, long-term strategy and integrations to ensure cloud platforms align with their needs. A multi-cloud approach remains popular, particularly among large enterprises, and it is important for cloud providers to recognise the need for flexibility by not tying customers down to long contracts and offering features such as API connections to third-party applications. This can greatly boost customer experience for the end user and enable them to run their businesses without friction, with apps working together harmoniously.”

Josh Boer, Director of VeUP also commented, “As businesses increasingly make the switch to cloud, it is good to see the CMA paving the way for increased supply and widespread adoption of cloud services for businesses. Over the coming years, it is expected that more businesses will transition to the cloud, taking advantage of cost optimisation as a top priority, while alleviating the concerns of AWS billing and cost management.

“AWS in particular offers businesses the ability to increase agility, drive down costs and promote innovation, tapping into a suite of tailored services catering to their unique organisational requirements. However, if cloud services provide businesses with cost-related issues, the appeal can significantly decrease meaning providers must address this to allow businesses to optimise the benefits of cloud and navigate market shifts through scalable resources.”

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