Ofcom calls for further investigation into UK cloud market

Ofcom has proposed to refer the UK cloud sector to the Competition and Markets Authority (CMA) to investigate possible risks to consumers. 

The regulator has been investigating the market dominance of cloud "hyperscalers", namely Amazon's AWS and Microsoft's Azure, which together hold approximately 60 to 70 per cent of the cloud services market share. Google is their closest competitor with a share of somewhere between 5 and 10 per cent.

The results of this investigation have shown that the two companies' practices “could limit competition” and make it more difficult for users to switch providers, Ofcom has said. 

The regulator pointed out that the two massive suppliers charge “significantly higher” fees than smaller providers to move data out of the cloud and to another company’s servers. Moreover, the two companies also prevent some of their services from working effectively alongside those from other suppliers.

“There is a risk that the features we have identified could lead the market to concentrate further towards the market leaders,” Ofcom said.

The regulator pointed out that there are "indications this is already causing harm", with evidence of cloud customers facing significant price increases when they come to renew their contracts. However, Ofcom said the Competition and Markets Authority would be best placed to investigate this further.

“We’ve done a deep dive into the digital backbone of our economy and uncovered some concerning practices, including by some of the biggest tech firms in the world," added Fergal Farragher, the Ofcom director who led the study into the sector. 

“High barriers to switching are already harming competition in what is a fast-growing market. We think more in-depth scrutiny is needed to make sure it’s working well for people and businesses who rely on these services.”

Cloud computing has become critical for many businesses across the economy, including telecommunication companies, broadcasters and public sector organisations. It uses data centres around the world to provide remote access to services such as software, storage and networking.

If Amazon and Microsoft's dominance over the sector is left unchecked, competition could deteriorate further in a critical digital market for the UK economy, the regulator warned. 

In response to the news, an AWS spokesperson said: “These are interim findings and AWS will continue to work with Ofcom ahead of the publication of its final report. The UK has a thriving and diverse IT industry with customers able to choose between a wide variety of IT providers.

"At AWS, we design our cloud services to give customers the freedom to build the solution that is right for them, with the technology of their choice. This has driven increased competition across a range of sectors in the UK economy by broadening access to innovative, highly secure, and scalable IT services.” 

Ofcom launched its probe into the cloud market in October 2022, under the Enterprise Act 2002. It said it would take feedback on its findings until mid-May and would then make its final decision later this year, on October 5.

The review is said to be part of a broader digital strategy push by Ofcom. The watchdog is also set to launch an investigation into encrypted messaging services such as WhatsApp, FaceTime and Zoom, as well as smart speakers and connected televisions.

Ofcom has also been selected as the enforcer of strict new rules policing harmful content on the internet under the UK government’s proposed Online Safety Bill.

Edited at 16:14 to add a statement from AWS.