Media watchdog expresses £7.5bn sector concerns to competition regulator, emphasizing the dominance of two market leaders
The UK communications regulator, Ofcom, has formally referred the £7.5bn cloud computing market to the competition watchdog for investigation. This decision follows a study that raised concerns about the dominant positions held by industry leaders Amazon and Microsoft.
Ofcom has requested the Competition and Markets Authority (CMA) to conduct a thorough inquiry, specifically expressing concerns about the market leadership of Amazon and Microsoft.
Cloud computing, involving the provision of IT services such as data storage and computing power over the internet with a pay-as-you-go pricing model, is widely utilized 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 investigation into the cloud market, has revealed that numerous companies have voiced concerns about the challenges associated with switching between or integrating various cloud service providers. He emphasized that a diverse range of industries, including TV production, telecommunications networks, and AI, heavily rely on remote computing resources that operate behind the scenes.
According to Farragher, “Several UK businesses have shared their concerns with us, expressing reservations about the complexity of transitioning between or blending different cloud providers. Additionally, there is uncertainty about whether healthy competition is prevailing in this space. Therefore, we are referring the market to the CMA for a more comprehensive examination, aimed at ensuring that business clients can continue to derive the benefits of cloud services.
Ofcom has also expressed concerns regarding competition based on the profits generated by Amazon and Microsoft in their operations.
The regulatory body highlighted that the significant profitability of market leaders AWS (Amazon’s cloud unit) and Microsoft indicates the presence of limitations on overall competition.
In aggregate, Microsoft and Amazon hold a dominant position, accounting for as much as 80% of the £7.5bn UK cloud computing market, with Google being 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, particularly those imposed by the three major players; challenges associated with harmonizing computing requirements across diverse cloud service providers; and the structure of discounts for committing to a specific spending level with the leading cloud providers in the market.
Ofcom emphasized that these aspects of the market can present challenges for specific customers when it comes to transitioning between or utilizing multiple cloud service providers. As a result, this complexity may impede their capacity to negotiate favorable terms with their chosen provider and efficiently integrate the highest quality services from various providers.
On Thursday morning, the CMA officially declared the initiation of an investigation into the cloud computing market, prompted by the referral from Ofcom. The CMA has also established a dedicated team to carry out this inquiry.
Sarah Cardell, the Chief Executive of the CMA, underscored the importance of this £7.5bn market, which acts as a foundational element for various online services, including social media and AI foundational models. Given the substantial reliance of many businesses on cloud services, ensuring robust competition in this market is of paramount importance.
The independent inquiry team of the CMA will now conduct an examination to evaluate the effectiveness of competition in this market. If any shortcomings are identified, the team will assess the measures that should be implemented to address these concerns.
AWS disagreed with Ofcom’s findings, stating that they were based on a “fundamental misunderstanding of how the IT sector operates.” The spokesperson elaborated, highlighting that robust competition among IT providers benefits both UK companies and the broader economy. They emphasized that cloud technology has streamlined the process of transitioning between providers and cautioned against unwarranted intervention, which could inadvertently harm IT customers and competition. AWS expressed its commitment to engaging constructively with the CMA.