The telecoms watchdog raises competition concerns, suggesting UK businesses might not be getting a fair deal, but Amazon disputes the findings, citing a “fundamental misconception.”
The competition regulator will investigate the dominance of Amazon and Microsoft in the UK’s cloud market. This comes after a study conducted by the telecoms watchdog Ofcom, which pointed out aspects making it challenging for UK businesses to switch between and utilize multiple cloud suppliers.
The Dominance of Amazon and Microsoft in the UK Cloud Sector is Under Investigation
Ofcom expressed its concern, stating, “We are particularly concerned about the dominant positions of market leaders Amazon and Microsoft.” This investigation could lead to another conflict between the Competition and Markets Authority (CMA) and Microsoft, following their previous disagreement regarding the tech company’s £55 billion acquisition of Activision Blizzard.
The CMA will perform an independent investigation to determine if competition is negatively affected and, if so, whether it should take or recommend corrective actions,” as stated in Ofcom’s announcement.
Amazon responded with a statement, rejecting the findings of Ofcom’s market study.
The watchdog had previously voiced concerns about Amazon Web Services (AWS) and Microsoft due to their dominant positions in the cloud sector. This online infrastructure provides businesses with data, applications, and storage without requiring them to invest in their own hardware or software.
Ofcom’s study determined that these two companies jointly held a market share of 70% to 80% in 2022, while Google, their nearest competitor, accounted for up to 10%.
The watchdog identified concerns related to “Egress fees,” which are the charges customers incur when moving their data out of a cloud service.
Ofcom noted that these fees were established at rates “considerably higher” by the dominant players compared to other providers.
The study also raised concerns about discounts related to committed spending. Ofcom was concerned that these discounts might encourage customers to rely on a single major company for the majority of their cloud requirements.
These aspects of the market may create difficulties for certain customers when attempting to switch or engage multiple cloud providers. This complicates their ability to negotiate favorable terms with their provider or to blend the highest quality services from various providers. The substantial profitability of the market leaders, AWS and Microsoft, suggests limitations to the overall competitive landscape.
Fergal Farragher, the director at Ofcom responsible for the market study, stated, “The cloud underpins our digital economy and has revolutionized how companies operate and expand their businesses. Everything from TV production and telecoms networks to AI advancements relies on remote computer power that operates behind the scenes.
Uk Businesses Express Concerns in Switching or Combining Cloud Providers
The concerns raised by some UK businesses about the challenges of switching or combining cloud providers and the effectiveness of competition have led us to refer the market to the CMA for further investigation.
The goal is to ensure that business customers can continue to enjoy the benefits of cloud services. This inquiry is expected to conclude by April 2025.
Microsoft stated its commitment to collaborating with the CMA on its investigation. The company emphasized its dedication to maintaining an innovative, highly competitive UK cloud industry that contributes to economic growth.
An Amazon Web Services spokesperson expressed disagreement with Ofcom’s findings and asserted that they believe the findings stem from a fundamental misconception of how the IT sector operates, including the services and discounts provided.
The spokesperson further stated, “Only a small portion of IT expenditures are allocated to the cloud, and customers have the flexibility to fulfill their IT requirements through a mix of on-premises hardware and software, managed or co-location services, and cloud services. AWS develops cloud services to provide customers with the flexibility to select the technology that aligns with their specific requirements.
UK businesses and the broader economy thrive on strong competition among IT providers, and the cloud has simplified the process of transitioning between providers.
Any unjustified interference might result in unintentional harm to IT customers and competition. AWS will collaborate with the CMA in a constructive manner.
In its statement, it also denied any implication that it imposed additional charges on clients for transferring data to another IT provider.
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