Earlier this year Ofcom proposed to refer the UK cloud infrastructure market to the CMA for investigation given that two large cloud service providers, known as the ‘hyperscalers’ control a combined market share of between 70-80%. This referral was officially made on 5 October 2023. The CMA will carry out a market investigation to determine whether there is a healthy competitive environment in the UK public cloud infrastructure market.
Cloud services facilitate remote access to computing resources over a network. Amazon and Microsoft combined make up approximately 70-80% of the market in the UK with next in line Google making up only 5-10% of the market. Amongst the factors concerning Ofcom are:
Data Egress Fees: Charges that cloud service providers charge a customer for moving data out of their cloud platform to another cloud service provider. Data ingress fees when transferring data into their cloud platforms are generally free but egress charges are significantly higher than other smaller cloud service providers.
Technical Barriers: Whether the Hyperscalers cater for customers wishing to use their data and applications across multiple cloud platforms. Any barriers to interoperability make it difficult for customers to procure services of multiple providers.
Committed Spend Discounts: Loyalty discounts structured in a way to tie customers into purchasing all of their cloud-based solutions from the same provider when better products may be available from other providers.
The CMA will conclude its investigation by April 2025.
The CMA has powers to bring changes to the sector where its investigation determines that competition needs to be improved. Such changes could encourage smaller cloud service providers to gain more traction in the market as well as creating fewer barriers for new market entrants. They may also impact service provision for example, by restructuring the way discounts are given or streamlining the ease with which multiple platforms may be adopted.
The CMA also has powers to make referrals to relevant government bodies to introduce legislation to create a healthier competitive environment in the UK where required.
With many businesses now relying on cloud services for the delivery of their digital services, this will be an important investigation not only for the CMA but also for the sector as a whole. Whilst April 2025 seems some time away, this independent investigation will decide whether there is healthy competition for new and existing consumers of public cloud services. The mere fact that the investigation is on-going may well also inform how the hyperscalers introduce new and innovative products into the market in the meantime.
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