Amazon and Microsoft face referral to UK regulator over cloud services market

Amazon and Microsoft face referral to UK regulator over cloud services market

Ofcom has proposed referring the sector to CMA, amid ‘significant concerns’ about the behaviour of some providers.

Published on 11th April 2023

Amazon and Microsoft are facing a referral to the UK’s competition regulator over allegedly harming competition in the online cloud services market, amid “significant concerns” that big tech companies are abusing their positions.

The British communications regulator, Ofcom, said it was proposing to refer the whole sector to the Competition and Markets Authority (CMA), adding that it was “particularly concerned about the practices of Amazon and Microsoft because of their market position”.

It said it had “significant concerns” after finding “behaviours by some providers that could raise barriers to switching and use of multiple providers”.

The companies and other interested organisations will have until 17 May to respond to Ofcom’s consultation, and the regulator will make a final decision on whether to refer the sector to the CMA by 5 October.

The cloud services market – providing easy access to remote datacentres for a fee – has grown rapidly in the last decade to become a vital foundation for many of the world’s biggest websites and online services ranging from video streaming to mobile apps and government webpages.

That expansion has been behind the soaring global profits of Amazon and Microsoft in particular. Amazon Web Services (AWS) and Microsoft Azure control between 60% and 70% of the UK market, Ofcom said. Google, owned by Alphabet, was the nearest competitor to the pair, with between 5% and 10% of the UK market.

An investigation of the cloud services sector would represent yet more regulatory scrutiny of big tech companies in the UK. The Financial Conduct Authority is looking into whether companies such as Apple, Google and Amazon could harm competition in Britain’s financial services sector, while the CMA has previously said it would strengthen its ability to investigate big tech companies under its digital markets unit.

The CMA has wide-ranging powers to insist on changes to business models of companies who are found to distort competition and the government plans to publish legislation as soon as this month that would give the watchdog the power to fine a company up to 10% of its global turnover. The digital markets, competition and consumer bill will also allow the CMA to apply to ban people from acting as company directors in the UK.

Fergal Farragher, Ofcom’s director who carried out the study of the sector, said: “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.

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

Ofcom said it had found “reasonable grounds to suspect that there are features in the public cloud infrastructure services market that may have an adverse effect on competition in the UK”.

Those included exit fees, which charge companies to move their data to another cloud provider, restrictions on the ability of different platforms to work with each other, and discounts that could distort competition.

“These market features can make it difficult for some existing customers to bargain for a good deal with their provider,” Ofcom said in a statement. “There are indications this is already causing harm, with evidence of cloud customers facing significant price increases when they come to renew their contracts.”

The alleged practices make it difficult for customers to switch, to use multiple providers simultaneously, and for smaller providers to compete, Ofcom said.

Amazon and Microsoft said they will work with Ofcom.

An Amazon spokesperson said: “The UK has a thriving and diverse IT industry with customers able to choose between a wide variety of IT providers.”

The spokesperson said AWS gave customers “freedom to build the solution that is right for them, with the technology of their choice”, which had “driven increased competition across a range of sectors in the UK economy by broadening access to innovative, highly secure, and scalable IT services”.

A Microsoft spokesperson said: “We remain committed to ensuring the UK cloud industry stays highly competitive, and to supporting the transformative potential of cloud technologies to help accelerate growth across the UK economy.”


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