The preference for a market investigation reference would be a significant step for Ofcom to take; reflecting the seriousness of the concerns identified
Cloud market study reaches the mid-way point: At the halfway point of its probe into UK cloud services, Ofcom is proposing to refer the market to the Competition and Markets Authority for further investigation. The study (using Ofcom’s powers as a competition authority under the Enterprise Act 2002) of the £15bn industry, which itself forms part of a wider programme of work into digital communications markets, is exploring the strength of competition in cloud services today and how it might evolve. It is considering whether any market features might limit innovation and growth in this sector, or present barriers to entry. Should Ofcom have found that the market is not working well, it had the option to respond through:
recommendations to government to change regulations or policy;
competition or consumer enforcement action;
a market investigation reference to the CMA; or
undertakings in lieu of making a market investigation reference.
The preference for a market investigation reference is a significant one and is a reflection of both the concerns Ofcom has and the suitability of the CMA to take this forward and the toolbox of remedies it has available.
Three main concerns identified:
So-called ‘egress fees’ – the charges that customers pay to transfer their data out of a cloud and that hyperscalers set them at significantly higher rates than other providers. The concern is that these fees can discourage customers from using services from more than one cloud provider or to switch to an alternative provider.
Technical restrictions on interoperability. These are imposed by some hyperscalers and prevent some of their services working effectively with services from other providers. The concern is that customers need to put additional effort into reconfiguring their data and applications to work across different clouds.
Committed spend discounts. These can benefit customers by reducing their costs, but the way these discounts are structured can incentivise customers to use a single hyperscaler for all or most of their cloud needs, even when better quality alternatives are available.
While all hyperscalers are the focus of the market study, Amazon and Microsoft have been singled out because of their market position (a combined market share of 60-70%). Ofcom is now consulting on this proposal until 17 May 2023 and, after that, they intend to publish a final report that sets out their findings and recommendations, including their decision on a market investigation reference, by no later than 5 October 2023.
The US becomes the latest to examine the cloud market: The cloud is facing greater regulatory scrutiny in a number of other jurisdictions. At the EU level there are competition remedies on cloud switching in the draft Data Act, while authorities in France, Japan and the Netherlands have all undertaken their own market investigations. The most recent review was launched in the US, where the FTC is looking for input on competitive dynamics in cloud computing and the business practices of providers. In this sense, the authority’s ‘Request for Information’ largely mirrors the focus of international peers; however, the FTC is also seeking comment on potential security risks in the use of cloud, as well as its impact on industries such as healthcare, finance, transport, e-commerce and defence.
