Ofcom cloud report: What interventions could the CMA take against AWS and Microsoft?
Ofcom’s work uncovered three sorts of prevailing anti-competitive behaviour and practices inside the UK public cloud market, which is what prompted it to refer the sector over to the CMA for a extra thorough probe.
This behaviour included the charging of egress charges when clients try to extricate their knowledge from a public cloud supplier’s servers, the existence of interoperability points between competing cloud platforms and the providing of dedicated use reductions to incentivise cloud clients to stay with one provider.
According to Ofcom, Amazon Web Services and Microsoft (which boast a mixed market share of 70-to-80% in 2022) are each responsible of “displaying some form of” these regarding behaviours.
“We are most concerned in relation to AWS and Microsoft, given their market position and the fact they display some form of all of the above behaviours that limit competition,” mentioned Ofcom, in its interim report.
Perhaps unsurprisingly, AWS and Microsoft each issued prolonged public responses to Ofcom’s evaluation of their respective behaviours, the place they each argued against Ofcom’s proposal to contain the CMA, with each events claiming the transfer was pointless and unwarranted.
Despite their protestations, the CMA now has till April 2025 to resolve what market interventions (if any) it’s going to make to assist right a few of these behaviours and stage the enjoying discipline for the different suppliers that make up the UK cloud market.
Alex Haffner, competitors accomplice at UK legislation agency Fladgate, mentioned the CMA has a “range of tools at its disposal” to mitigate any “perceived competition-related concerns”, however it’s unlikely any of them will probably be utilized in haste.
“What is interesting here is that Ofcom has chosen to ask the CMA to open a market-wide investigation, which suggests that the regulators perceive there to be structural issues with the cloud computing market that need broader investigation and consideration,” mentioned Haffner.
“It is also a sensible approach given the wide-ranging impact that the cloud computing market has on many different industries and the broader economy, and fits with the CMA’s stated desire to target effective competition in digital markets.”
What additionally complicates issues barely is that the two entities the CMA might want to take to activity in its work are the largest public cloud companies in the world.
“That Amazon and Microsoft are the largest players on this market raises the stakes somewhat, although the fact that a market investigation can take 18-24 months overall means that this one will likely take on a more considered path.”
What actions can the CMA take?
Ofcom detailed a few of the attainable interventions, based mostly on market stakeholder suggestions, the CMA could enact in its 254-page remaining report on the interior workings of the cloud market.
The CMA could intervene by prohibiting cloud suppliers from charging knowledge egress charges, provided Ofcom, which – in flip – would make it simpler for purchasers to modify suppliers as wanted or combine the cloud choices of different companies into their IT estates.
Mark Boost, CEO of Stevenage-based cloud companies firm Civo, mentioned he would absolutely assist any transfer by the CMA to sort out the concern of excessive egress price prices.
“Action will need to be a balancing act. It will be particularly important to tackle egress fees, either through significant price controls or the most ambitious choice: abolishing them entirely,” he mentioned.
“The worth level charged on egress by hyperscalers is uncontrolled, and creates big sensible and monetary obstacles for purchasers to maneuver to a different cloud supplier.
“Urgent changes are also needed to how hyperscalers structure their services to enable customers to reap the benefits of simultaneously accessing multiple different providers, as well as a review of the fairness of incentives for loyal customers.”
To handle the interoperability points that make it tougher for companies to maneuver their purposes and workloads to various clouds, Ofcom mentioned a possible intervention could be ordering the hyperscalers to be extra clear about how properly (or not) their companies and instruments work with their rivals’.
Additionally, there could be necessities launched to extend the diploma of standardisation that exists between competing cloud platforms and make their cloud companies simpler to interoperate with.
Where the concern of dedicated spend reductions are involved, any interventions right here could have damaging implications for purchasers, Ofcom acknowledged.
This is as a result of whereas these setups do incentivise companies to make use of one type of cloud expertise over one other, the cash clients save is essential to them however these schemes additionally present some extent of funding certainty for suppliers.
“Any intervention would need to be targeted at addressing the structure of the discounts that risk distorting competition”, mentioned Ofcom.
“It would be important to preserve the ability of cloud providers to gain the commitments of customers to the extent that these are necessary to protect investment and innovation, and the ability of customers to exercise their bargaining power to gain lower prices and other concessions from cloud providers.”
The Ofcom doc goes on to acknowledge that any interventions have the potential to incur prices or result in unintended penalties for suppliers, and that some could work higher together with different corrective items of motion.
“We note stakeholder concerns on these issues and note that these points will be considered in the round during the CMA market investigation,” Ofcom added.
Whatever type of intervention the CMA decides is important, the general intention ought to be to scale back the boundaries for enterprises that wish to embrace a multicloud technique or change between suppliers with larger ease, mentioned Ofcom.
“It could enable greater scope for smaller providers to gain scale by challenging the market leaders for all or some of the workloads of their customers… [because] we think there are real risks that smaller providers will find it increasingly difficult to expand as the growth of new customers slows,” mentioned Ofcom.
“And an increasing number of existing customers face material barriers to switch all or substantial parts of their demand away from the ecosystems of the market leaders – AWS and Microsoft.”
While the Ofcom report touches on the plight of smaller cloud suppliers and the risk AWS and Microsoft’s practices pose to their companies, what it doesn’t speak about is the harm that has already been carried out to a few of the smaller cloud companies that used to function in the UK.
Since each companies opened their UK datacentre areas in late 2016, a handful of homegrown cloud service suppliers have both been acquired, gone into administration or been pressured to pivot their enterprise fashions in new instructions to make up for the lack of enterprise.
One of the highest profile casualties on this group is the now defunct public sector-focused infrastructure-as-a-service (IaaS) supplier UKCloud, which was positioned into liquidation in October 2022.
Until 2017, UKCloud was the third-biggest supplier of cloud companies to the public sector, based mostly on the authorities’s personal G-Cloud spending knowledge, with the agency reaching a gross sales peak of £8.1m throughout the first quarter of 2016/17. The agency’s 2017 monetary report additionally noticed it submit a revenue of £4.4m.
In the wake of Amazon and Microsoft’s UK datacentres opening, the firm skilled a downturn in revenue, income and buyer utilization, with its 2018 accounts attributing this to the elevated competitors in the UK from the US cloud giants. That 12 months the agency posted a lack of £2.5m.
The firm’s former CEO, Simon Hansford, repeatedly spoke out about the risk the US cloud giants posed to the UK’s homegrown suppliers in the years main as much as the agency’s collapse. And, in a blog post published on the professional social networking LinkedIn in the wake of the Ofcom report, he reiterated his considerations as soon as extra.
“The stranglehold that AWS and Microsoft have on the UK’s cloud computing market is detrimental to British businesses, consumers and the sovereignty of our critical data,” Hansford wrote.
“Their dominance stifles competitors and innovation, hampering the development of native cloud service suppliers and limiting buyer selection. It additionally raises considerations about knowledge safety and resilience, as the nation turns into overly reliant on a choose few suppliers.
“It’s imperative that we break free from the grip of these hyperscalers, not only to nurture a more competitive market, but also to safeguard our technological sovereignty and foster innovation. As the inquiry unfolds, it will be fascinating to see how the balance of power in the UK’s cloud industry shifts, and how it impacts businesses, consumers and the nation’s digital future.”
