CMA launches UK market investigation into cloud services

Following publication of Ofcom's interim report on its cloud services market study findings in May 2023, Ofcom has published its final report.

Ofcom's final report on its cloud services market study findings identifies concerns that competition between cloud providers in the UK is limited by market features such as egress fees, discounts and technical barriers. These features are of concern to Ofcom as it makes it more difficult for customers to switch to other providers, or use multiple providers (a multi-cloud approach), and makes it harder for smaller independent cloud providers to compete in a market dominated by Amazon Web Services (AWS) and Microsoft, who, according to Ofcom had a combined share of 70-80% of the UK cloud market in 2022, which was worth an estimated £7-£7.5 billion in 2022.

As a result of Ofcom's findings, Ofcom has referred the cloud infrastructure market to the Competition and Markets Authority (CMA), the competition regulator in the UK, for an independent market investigation to determine whether there are competition concerns, and if so, what action should be taken to improve the cloud services market.

The CMA has published an issues statement outlining its initial proposals for the scope of its investigation into the UK cloud services market. The CMA proposes to examine:

• whether technical barriers are present that make customers' ability to switch cloud providers or adopt a multi-cloud approach difficult, effectively locking-in a customer to a single provider;

• whether egress fees (fees connected with the transferring of data outside of a cloud provider's infrastructure) act as a barrier to multi-cloud and switching, contribute to unpredictable costs for customers and restrict competition between cloud providers;

• whether discounts offered by some cloud providers which are conditional on customers committing to spend a minimum amount with that cloud provider, act as a barrier to entry for smaller independent cloud providers by encouraging customers to keep their business with one provider, leading to long-term harm to competition; and

• whether the nature of software licensing practices by some cloud services providers may restrict customer choice and reduce competition, or raise barriers to entry. Such licensing practices the CMA may examine are pricing-related practices which allege it is cheaper to deploy licensed software on the cloud provider's own infrastructure, rather than the infrastructure of another cloud provider, and quality-related practices which allege that software benefits from additional features work more effectively when used on the cloud provider's own infrastructure, rather than a competitor's infrastructure.

In the CMA's issues statement, it identifies potential remedial actions that it may consider if issues are identified. Such actions include standardising requirements or terms offered by cloud providers, ensuring version equivalence for software hosted on cloud infrastructures, improving transparency about the interoperability of their cloud services, preventing the charging of or capping egress fees, and prohibiting the use of certain discount structures.

The CMA invited submissions commenting on the issues and possible remedies, and will now work towards publishing working in papers in the first half of 2024. The CMA intends to conclude its investigation and publish its final decision in April 2025.