The competition regulator is to investigate the dominance of Amazon and Microsoft in the UK’s cloud market.
It follows a study by the telecoms watchdog Ofcom which “identified features that make it more difficult for UK businesses to switch and use multiple cloud suppliers”.
Ofcom added: “We are particularly concerned about the position of the market leaders Amazon and Microsoft.”
The investigation raises the prospect of a fresh battle between the Competition and Markets Authority (CMA) and Microsoft after the pair locked horns over the tech firm’s £55bn takeover of Activision Blizzard.
“The CMA will now conduct an independent investigation to decide whether there is an adverse effect on competition, and if so, whether it should take action or recommend others to take action,” Ofcom’s statement continued.
Amazon said in a statement that it rejected the conclusions of Ofcom’s market study.
The watchdog had previously expressed worries about the practices of Amazon Web Services (AWS) and Microsoft because of their market positions in the cloud sphere – online infrastructure that gives firms data applications and storage without the need to buy their own hardware or software.
Ofcom’s study found the pair had a combined market share of 70% to 80% in 2022, with Google their closest competitor with a share of up to 10%.
Issues of concern for the watchdog included so-called Egress fees – the charges that customers pay to transfer their data out of a cloud.
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Ofcom said they were set at “significantly higher rates” by the dominant players than other providers.
It also highlighted worries about committed spend discounts which, Ofcom feared, could incentivise customers to use a single major firm for all or most of their cloud needs.
“These market features can make it challenging for some customers to switch or use multiple cloud providers,” the regulator added.
“This can make it difficult to bargain for a good deal with their provider, or to mix and match the best quality services across different providers.
“High levels of profitability for the market leaders AWS and Microsoft indicate there are limits to the overall level of competition.”
Fergal Farragher, Ofcom’s director responsible for the market study, said: “The cloud is the foundation of our digital economy and has transformed the way companies run and grow their businesses.
“From TV production and telecoms networks to AI innovations – all of these things rely on remote computer power that goes unseen.
“Some UK businesses have told us they’re concerned about it being too difficult to switch or mix and match cloud provider, and it’s not clear that competition is working well.
“So, we’re referring the market to the CMA for further scrutiny, to make sure business customers continue to benefit from cloud services.”
That inquiry is due to conclude by April 2025.
Microsoft said it would work with the CMA on its investigation.
“We are committed to ensuring the UK cloud industry remains innovative, highly competitive and an accelerator for growth across the economy,” it said.
Amazon’s statement accused Ofcom of a “fundamental misconception” in its understanding of the market
An Amazon Web Services spokesperson responded: “We disagree with Ofcom’s findings and believe they are based on a fundamental misconception of how the IT sector functions, and the services and discounts on offer.
“Only a small percentage of IT spend is in the cloud, and customers can meet their IT needs from any combination of on-premises hardware and software, managed or co-location services, and cloud services.
“AWS designs cloud services to give customers the freedom to choose technology that best suits their needs.
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“UK companies, and the overall economy, benefit from robust competition among IT providers, and the cloud has made switching between providers easier than ever.
“Any unwarranted intervention could lead to unintended harm to IT customers and competition. AWS will work constructively with the CMA.”
Its statement also rejected any suggestion that it charged clients separate fees for switching data to another IT provider.
