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Cloud companies respond to CMA referral

Ofcom said the decision to refer the UK's cloud market for investigation is a "significant step" for it to take

Amazon and Microsoft have both responded to Ofcom’s announcement it is referring the UK’s cloud market to the Competition and Markets Authority (CMA) for investigation.

The regulator has carried out a Market Study that it says identified features that “make it more difficult for UK businesses to switch and use multiple cloud suppliers”. Ofcom said it 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.”

As part of its study, Ofcom identified Amazon, Microsoft and Google as the market leaders, describing them as “hyperscalers”.

Among the features Ofcom highlighted as a concern are:

  • Egress fees. These are the charges that customers pay to transfer their data out of a cloud and the hyperscalers set them at significantly higher rates than other providers. The cost of egress fees can discourage customers from using services from more than one cloud provider or to switch to an alternative provider.
  • Technical barriers to interoperability and portability. These can result in customers needing to put additional effort into reconfiguring their data and applications so they can work on different clouds. This makes it more difficult to combine different services across cloud providers or to change provider.

The CMA will now conduct an investigation to decide whether there is an adverse effect on competition, and if so, whether it should take action or recommend others to take action, said Ofcom.

The regulator added that the decision to refer the market for investigation is a “significant step” for it to take. “Our reference reflects the importance of cloud computing to UK consumers and businesses and the significant concerns we have about the cloud infrastructure market,” added Ofcom.

Both Amazon and Microsoft have responded to the decision to refer them to the CMA.

An AWS spokesperson said the company disagreed with Ofcom’s findings, and believes they are based on a “fundamental misconception of how the IT sector functions, and the services and discounts on offer”.

“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,” added the spokesperson. “AWS designs cloud services to give customers the freedom to choose technology that best suits their needs. UK companies, and the overall economy, benefit from robust competition among IT providers, and the cloud has made switching between providers easier than ever. Any unwarranted intervention could lead to unintended harm to IT customers and competition. AWS will work constructively with the CMA.”

A spokesperson for Microsoft added: “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.”