Ofcom has spent some of its time in recent months investigating the UK cloud services market amid growing concerns about the increasingly dominant presence of US-based hyperscalers, namely Amazon Web Services (AWS), Google Cloud and Microsoft Azure.

The UK telecom and media regulator has clearly seen enough to set the alarm bells ringing and is proposing to refer the matter to the Competition and Markets Authority (CMA) for further investigation. Ofcom particularly highlighted concerns about "the practices of Amazon and Microsoft because of their market position."

The regulator signaled back in September that it planned to embark on a study of the market and kicked off the consultation in October.

Figure 1: UK authorities are growing alarmed about the role of Big Tech in the cloud.
(Source: Data Transformation/Alamy Stock Photo)

At the time, Ofcom said that the UK's cloud market was worth £15 billion (US$16.7 billion) and that the three hyperscalers generate around 81% of revenues in the UK public cloud infrastructure services market, according to data from Synergy Research Group (SRG). In 2021, AWS accounted for 40%, Microsoft for 25% and Google for 16% of the total revenues.

John Dinsdale, chief analyst and managing director at SRG, previously told Light Reading that the trio is "followed at a distance by IBM, Salesforce, Oracle, Rackspace, BT, SAP and iomart."

Fast forward to April, and Ofcom said its study so far has "provisionally identified features and practices that make it more difficult for customers to switch and use multiple cloud suppliers."

Areas of concern

Ofcom now estimates that AWS and Microsoft have a combined market share of 60–70%, with Google accounting for 5–10%. It has highlighted concerns about so-called egress fees, or the charges that customers pay to transfer their data out of a cloud, noting that the hyperscalers "set them at significantly higher rates than other providers."

Other red marks have been set against anti-competitive practices such as technical restrictions on interoperability between services from other providers and discounts that are structured in a way to incentivise customers to use a single hyperscaler for all or most of their cloud needs.

Ofcom emphasized that referring the market for further investigation "would be a significant step" for it to take.

"Our proposal reflects the importance of cloud computing to UK consumers and businesses, the significant concerns we have about the cloud infrastructure market and our view that the CMA is best placed to undertake any further investigation. We will continue to engage closely with the CMA during the second half of the study," the regulator added.

Fergal Farragher, Ofcom's director responsible for the market study, noted that the "deep dive" has uncovered some concerning practices. "High barriers to switching are already harming competition in what is a fast-growing market. We think more in-depth scrutiny is needed, to make sure it's working well for people and businesses who rely on these services," he said.

AWS has already defended its UK business practices with an emailed comment attributed to a spokesperson.

"These are interim findings and AWS will continue to work with Ofcom ahead of the publication of its final report. The UK has a thriving and diverse IT industry with customers able to choose between a wide variety of IT providers," the spokesperson said.

They added: "At AWS, we design our cloud services to give customers the freedom to build the solution that is right for them, with the technology of their choice. This has driven increased competition across a range of sectors in the UK economy by broadening access to innovative, highly secure, and scalable IT services.

Ofcom is now inviting feedback on its interim findings, as well as on its proposal to refer the market to the CMA, by May 17. It intends to publish a final report by October 5, 2023.

Global dominance, too

SRG provides regular reports on global cloud markets and has documented the growing dominance of AWS, Google and Microsoft.

In a recent report in February, it estimated that the top three hyperscalers accounted for 66% of worldwide enterprise spending on cloud infrastructure services at the end of 2022, up from 63% a year ago.

"Microsoft saw a strong uptick in its worldwide market share which has now reached 23%, compared to an average 21% in the previous four quarters. Meanwhile market leader Amazon stayed within its long-standing market share band of 32–34%, while Google's share stood at 11%, in line with the previous quarter but a percentage point up from a year ago," SRG said.

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— Anne Morris, contributing editor, special to Light Reading