The Competition and Markets Authority (CMA) has provided some further details on the initial scope of its anti-trust investigation into the UK cloud services market, in the wake of Ofcom’s concerns about the stronghold Amazon Web Services (AWS) and Microsoft have on the sector.
The CMA has confirmed that its investigation will initially focus on several areas that Ofcom flagged as concerning in its year-long investigation into how the UK cloud market operates to see if these are contributing towards reduced competition between suppliers in the sector.
These are areas it is inviting interested parties to provide feedback on during a four-week consultation that is due to run until Thursday 9 November 2023. The information provided during this time will be used to inform the outcome of its anti-trust probe into the UK cloud market, which is due to conclude in April 2025.
These include looking into whether there are technical barriers that prevent cloud users from switching between providers or making use of multicloud setups, and whether these barriers are contributing to some users finding themselves locked-in to certain provider’s platforms.
The Ofcom report also raised a red flag about the fact some cloud providers charge egress fees, which are sums of money that customers are charged to transfer their data out of the cloud, and this is an area the CMA has earmarked for further probing too.
The use of committed spend discounts was also another area that the Ofcom report labelled potentially problematic because it claimed they are used to incentivise customers to use a single hyperscaler for all of their of their cloud requirements.
In response to this, the CMA said it will investigate if the way discounts from existing cloud providers are structured acts as a barrier to competition, as well as digging into whether the licensing terms some providers offer disincentivise customers from using rival providers.
Kip Meek, chair of the CMA’s independent inquiry group, said how prevalent the use of cloud services are across the UK, is one of the reasons why competition within the sector is so important.
“Cloud services are an essential part of how businesses in the UK operate and they underpin many aspects of our daily activities, from banking to communications. This is why effective competition in this market is so important,” said Meek.
“Following Ofcom’s market study, we’re proposing to focus our investigation on a number of issues that may be affecting cloud customers’ ability to switch between providers and make it harder for rival firms to enter the market. We welcome views on these issues as we get this investigation underway.”
Alex Haffner, specialist competition lawyer and partner at UK law firm Fladgate, said the CMA’s statement “gives more colour” about where the organisation intends to focus its investigations.
“As expected, much of the scrutiny will fall on the commercial terms being offered by the largest providers (Microsoft and Amazon), which are structured in a way [that] rewards loyalty and dis-incentivises switching to other providers and/or makes it uneconomic for new entrants to emerge,” said Haffner.
“In so doing, the CMA has fired the starting gun on what is likely to be a lengthy process in which the incumbents will work hard to demonstrate that their practices are driven by efficiencies and economies of scale rather than any motives to foreclose competitors and competition.”