Published on the 11/04/2023 | Written by Heather Wright

UK watchdog joins challenge to tech giants…

High data transfer fees, technical restrictions and committed spend discounts which make it difficult for companies to switch cloud providers have raised the ire of the UK communications regulator, with Microsoft and AWS in particular in the firing line.

Ofcom – the Office of Communications – is halfway through a probe into cloud services in the UK, and has now proposed referring the market to the Competition and Markets Authority for further, in-depth, investigation, amid rising concern.

It’s the latest in a growing list of regulators, and competitors, lining up against the cloud giants.

“High barriers to switching are already harming competition in what is a fast-growing market.”

The interim report from Ofcom finds ‘reasonable grounds’ to suspect cloud providers of unfair practices to prevent, restrict or distort competition and says it is ‘particularly concerned’ by the practices of AWS and Microsoft, for whom cloud has become big, big business.

Between them the two companies hold a combined market share of 60-70 percent in the UK market. Third placed Google owns between five and 10 percent of UK cloud spend.

Globally the three control around two-thirds of the market according to Synergy Research, which put AWS’s global share at 32-24 percent, with Microsoft on 23 percent and Google around 11 percent in Q4 2022. And their grip on the market is growing – the 66 percent of Q4 is up from 63 percent a year ago in a fast-growing market which itself was up 21 percent – or $10 billion – for the quarter.  

It’s the market consolidation among the hyperscalers, and the strength it provides them to enforce policies, fees and restrictions that make it harder for smaller providers to gain traction, that lies at the heart of Ofcom’s concerns.

It’s concerned that if left unchecked the dominance of the big players could result in customers paying more and small players being squeezed out of the market.

Fergal Farragher, Ofcom’s director responsible for the market study, says the six-month-old study into ‘the digital backbone of our economy’ has uncovered ‘some concerning practices, including by some of the biggest tech firms in the world’.

The regulator says it has ‘provisionally’ identified practices which make it more difficult for businesses to switch between providers, or use multiple providers, harming competition in a fast-growing market.

Key among those practices are egress fees, forcing customer to pay to transfer data out of a cloud – and set by hyperscalers at significantly higher rates than other providers, Ofcom says. Those fees are typically higher than the cost to transfer data into, or within, a single provider’s cloud.

Technical restrictions on interoperability, which mean services from leading cloud providers often don’t play well with services from competitors, are also highlighted by Ofcom, which notes that businesses are often required to put additional effort into reconfiguring data and applications to work across different clouds.

Committed spend discounts are also drawing ire, with Ofcom saying the way discounts are structured can incentivise customers to use a single hyperscaler for all or most of their cloud needs even when better alternatives are available.

Those market features make it difficult for some existing customers to bargain for a good deal with their provider, Ofcom says.

“There are indications this is already causing harm, with evidence of cloud customers facing significant price increases when they come to renew their contracts.”

Farragher says the high barriers to switching are already harming competition in the market and more in-depth scrutiny is needed to ensure it’s working well for people and businesses who rely on the cloud services.

With public cloud spend growing and large parts of the economy relying on cloud computing services for a range of services, regulatory scrutiny is also intensifying around the world.

In the US, the Federal Trade Commission launched an inquiry into cloud market competition last month. It issued a request for information seeking public comment on the business practices of cloud computing providers, including their market power, impact on competition and potential security risks.

It followed a US Department of Treasury cloud banking report in February which warned of the dangers of a market concentrated around a small number of cloud providers and the dynamics in contract negotiations – and the providers potential ‘outsized bargaining power’.

In Europe similar concerns are being voiced, with a not for profit trade association, Cloud Infrastructure Services Providers in Europe (CISPE), filing an antitrust complaint against Microsoft in November alleging the company was using its dominance in productivity software to lock customers into its Azure cloud infrastructure. (It should, however, perhaps be noted that AWS is a member of CISPE.)

Microsoft has also been in the sights of the EU antitrust authority after it changed some of its cloud licensing terms late last year, raising the cost for customers wanting to shift licensed software to non-Microsoft clouds.

In late March, Reuters reported that Microsoft had reportedly offered to change its cloud computing practices to ward off the antitrust complaints filed by smaller rivals in Europe – and avoid an EU investigation.

Ironically, Google quickly alleged Microsoft’s plans amounted to anticompetitive behaviour.

Both Amazon and Microsoft say they believe their solutions provide customers with freedom to build solutions that are right for them and support businesses.

Ofcom’s year-long study is due to conclude in October.