The regulator cited several concerns around competition has urged the CMA to launch an investigation into the sector.
Ofcom says the UK cloud computing market is dominated by Amazon and Microsoft, which make up 70-80% of the sector, while Google holds 5-10%.
Fergal Farragher, Ofcom’s director responsible for the market study, said: “Some UK businesses have told us they’re concerned about it being too difficult to switch or mix and match cloud provider, and it’s not clear that competition is working well.
“So, we’re referring the market to the CMA for further scrutiny, to make sure business customers continue to benefit from cloud services.”
The features that Ofcom says it is most concerned about include egress fees – charges that cloud customers must pay to move their data out of the cloud, discounts and technical barriers to switching providers.
AWS response
AWS released a statement saying that it believes Ofcom’s findings are based on a “fundamental misconception of how the IT sector functions and the services and discounts on offer”.
“Only a small percentage of IT spend is in the cloud, and customers can meet their IT needs from any combination of on-premises hardware and software, managed or co-location services, and cloud services.”
“UK companies, and the overall economy, benefit from robust competition among IT providers, and the cloud has made switching between providers easier than ever. Any unwarranted intervention could lead to unintended harm to IT customers and competition.
“AWS will work constructively with the CMA.”
AWS was keen to stress that it does not charge separate fees for switching data to another IT provider.
“Customers make hundreds of millions of data transfers each day in the ordinary course of business, and over 90% of our customers pay nothing for data transfer because we provide them with 100 gigabytes per month for free,” a spokesperson added.
The CMA said it welcomes Ofcom’s referral of public cloud infrastructure for “in-depth scrutiny”.
Sarah Cardell, CEO of the CMA said: “This is a £7.5bn market that underpins a whole host of online services – from social media to AI foundation models. Many businesses now completely rely on cloud services, making effective competition in this market essential.
“Strong competition ensures a level playing field so that market power doesn’t end up in the hands of a few players – unlocking the full potential of these rapidly evolving digital markets so that people, businesses, and the UK economy can get the maximum benefits.”
The CMA has appointed independent panel members to an inquiry group who will act as decision makers on the investigation.
It aims to complete the investigation by April 2025.
Industry reaction
Paul Mackay, EMEA regional VP for Cloud at Cloudera believes that the decision will be welcomed by many organisations.
“Cloud providers don’t currently offer the same flexibility to customers,” he says.
He adds that organisations currently face huge exit fees and the integrations, security, tools and skills needed to manage data are different for each cloud provider. Because of these costs and complexities, organisations are locked into cloud services.
“Even if new regulations come about as a result of an investigation, we’re unlikely to see a switching frenzy, with organisations changing providers on a monthly basis. Swapping cloud providers takes time, resources, and specialised skills.
However, Mackay believes that in the hybrid and multi-cloud age, organisations must have greater flexibility to move data between clouds.
“A unified data platform can help by providing a layer of abstraction that makes it easier to securely move data from cloud to cloud or from on-premise to any cloud. Having the choice to switch cloud providers is one thing, but having the ability to do so is another.”
Jake Madders, director and co-founder for UK cloud services provider Hyve Managed Hosting said: “Cloud has the power to democratise IT, helping companies digitise operations, enhance security and compliance, and improve agility.
“The idea was that one of the main advantages of the cloud for business would be the ability to avoid vendor lock-in and easily scale these digital operations.”
He adds that the cloud is an extremely fast-growing market globally, but in a country that sees itself as having a thriving tech industry, features that are being allowed in public cloud infrastructure such as exit fees, restriction on collaboration between different platforms and difficulty of switching between providers are affecting competition and stifling innovation.
“Not to mention that an overreliance on public cloud providers or any single cloud provider will open organisations up to increased security risk and enhanced possibility of system outages.
Companies need to be able to diversify their cloud approach to add redundancy, or in other words, to spread their cloud risk, and there has to be regulation to ensure this is allowed. ”
