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Ofcom has referred the $500 billion cloud computing industry to the Competition and Markets Authority for an antitrust investigation after the UK communications regulator found that Microsoft and Amazon dominate the market.
The call for further scrutiny in the UK comes as EU and US regulators are also scrutinizing cloud computing companies after customers complained of being “locked in” to a single provider. Regulators worry that prices and profits could be higher than in less concentrated markets.
Cloud computing has become an important way for enterprises to store data and provide network services. Ofcom found a year later that Amazon Web Services and Microsoft Azure combined held 70% to 80% of the market share study. Google is their biggest competitor with a 5% to 10% share.
“Some UK businesses told us they were worried it would be too difficult to switch or mix and match cloud providers, and it was unclear whether competition was good,” said Fergal Farragher, Ofcom’s director of market research.
According to data from market research firm Gartner, global customer spending on so-called public cloud services will grow 19% in 2022, reaching $490.3 billion, and is expected to grow another 21% this year, reaching nearly $600 billion.
Ofcom’s market research concluded that customers face barriers including “high fees” and technical challenges preventing them from switching to different cloud providers, while tech companies also offer discounts for using a single cloud provider.
Ofcom wrote that it was “concerned that a large number of customers, particularly those with more complex requirements, may face significant barriers to switching between providers or using multiple cloud platforms that are more suitable for specific applications”.
“As the market matures, we expect this to be the case for an increasing number of customers,” the company said. “Some customers have told us they are already worried about being ‘locked in’ to their current provider.”
Ofcom added: “The high profitability levels of market leaders AWS and Microsoft and the progressive increase in market concentration are consistent with constraints on overall competition levels.”
The CMA will now begin its own investigation, which could lead to intervention in the market. The UK competition regulator has become increasingly active in the technology sector over the past few years.
Microsoft said: “We are committed to ensuring that the UK cloud industry remains innovative, highly competitive and an accelerator for growth across the economy.” “We will work constructively with the CMA as they conduct their market research on cloud services.”
Amazon said it will not charge “a separate fee to transfer data to another IT provider.”
AWS said: “We disagree with Ofcom’s findings and believe they are based on a fundamental misunderstanding of how IT departments operate and the services and discounts they offer. “Any unwarranted intervention could have consequences for IT customers and competition. Accidental injury. AWS will work constructively with the CMA.”
The European Cloud Infrastructure Service Providers group, whose members include Microsoft rivals such as AWS, has called on the CMA to review what it calls “harmful anti-competitive and unfair software licensing terms” in the industry.
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