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Britain’s anti-competition regulators have been tasked with investigating Microsoft and Amazon‘s dominance of the cloud computing market.
Media watchdog Ofcom on Thursday referred its inquiry for further investigation to the Competition and Markets Authority, kickstarting the method.
Ofcom said that it had identified features which make it tougher for U.K. businesses to modify cloud providers, or use multiple cloud services, and that it’s “particularly concerned” in regards to the position of market leaders Amazon and Microsoft.
“Some UK businesses have told us they’re concerned about it being too difficult to modify or mix and match cloud provider, and it is not clear that competition is working well,” Fergal Farragher, Ofcom’s director chargeable for the market study, said in a press release Thursday.
“So, we’re referring the market to the CMA for further scrutiny, to ensure business customers proceed to profit from cloud services.”
Ofcom is anxious that so-called “hyperscalers” like Amazon Web Services and Microsoft Azure are limiting competition within the cloud computing market. These are firms that allow businesses of all stripes to perform critical computing tasks — like storage and management of knowledge, delivery of content, analytics and intelligence — over the web, reasonably than through servers stored on site, or “on premise.”
An Amazon spokesperson said in a Thursday statement that the corporate disagrees with the Ofcom finding. Microsoft said it plans to interact “constructively” with the CMA to deal with the regulator’s concerns.
AWS and Microsoft Azure are the most important players out there. AWS’ cloud solution is primarily targeted at startups, while Microsoft prioritizes big enterprises. AWS and Microsoft Azure account for roughly 60% to 70% of cloud spend, in keeping with an Ofcom estimate. Combined, Amazon, Microsoft and Google generate roughly 81% of revenues within the U.K.’s cloud infrastructure services market, in keeping with Ofcom, which estimates the market to be value £15 billion ($18.2 billion).
The CMA probe comes amid the fast adoption of AI — cloud services, that are enabled by vast data centers, underpin lots of the power-intensive generative AI models, resembling OpenAI’s ChatGPT, Microsoft’s Bing Chat and Google’s Bard.
The Competition and Markets Authority said in a press release that it welcomes the Ofcom probe referral, adding that the cloud space “underpins a complete host of online services – from social media to AI foundation models.”
“Many businesses now completely depend on cloud services, making effective competition on this market essential,” Sarah Cardell, CEO of the CMA, said in a press release Thursday.
“Strong competition ensures a level playing field in order that market power doesn’t find yourself within the hands of a couple of players – unlocking the total potential of those rapidly evolving digital markets so that folks, businesses, and the UK economy can get the utmost advantages.”
The CMA’s independent inquiry group will now examine the market and discover what, if any, motion ought to be taken. The CMA will conclude its investigation by April 2025.
Amazon, Microsoft respond
Amazon said in a press release that it believes the Ofcom findings are “based on a fundamental misconception of how the IT sector functions, and the services and discounts on offer.”
Amazon Web Services (AWS), the e-commerce giant’s cloud computing division, designs services “to offer customers the liberty to decide on technology that most closely fits their needs,” a spokesperson for the corporate said.
“UK firms, and the general economy, profit from robust competition amongst IT providers, and the cloud has made switching between providers easier than ever. Any unwarranted intervention may lead to unintended harm to IT customers and competition. AWS will work constructively with the CMA.”
Microsoft said it was “committed to making sure the UK cloud industry stays progressive, highly competitive and an accelerator for growth across the economy.”
“We are going to engage constructively with the CMA as they conduct their Cloud Services Market Investigation,” a spokesperson for the firm told CNBC via email.
Competition concerns
Ofcom, the agency responsible regulating technology, broadcast and telecom operations within the U.K., said that it identified quite a lot of practices within the cloud industry that were of particular concern.
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The regulator said that so-called “egress fees” charged by cloud vendors like Amazon and Microsoft make it tougher for businesses to maneuver their data between providers, or to “multi-cloud” by utilizing multiple cloud providers. Egress fees are charges for cloud firms to remove the information of firms from a cloud environment.
An AWS spokesperson said it “doesn’t charge separate fees for switching data” to a different cloud provider. The spokesperson added that over 90% of its customers pay nothing for data transfers, as they’re given a monthly 100 gigabytes without spending a dime.
Ofcom also said that cloud firms have introduced “technical barriers” to interoperability — the flexibility of various cloud platforms and services to work together and exchange data with none barriers or disruptions. The authority said that this “makes it tougher [for firms] to mix different services across cloud providers or to alter provider.”
Lastly, Ofcom raised alarm bells over committed spend discounts, or incentives to offer customers a reduction in the event that they spend a specific amount of cash. While this could reduce customer costs, it also encourages firms to make use of a single cloud provider for all or most of their cloud needs, even when a less expensive alternative is accessible.
Competing cloud firms including Google, in addition to regulators, have flagged concerns with Microsoft Azure, specifically — namely, allegedly unfair licensing terms that serve to “lock in clients,” keeping them attached to only Microsoft’s technology and making it harder to modify to other providers.
“I feel what we would wish to see is a good playing field for competition out there, and I feel that is all about ensuring that the business customers who depend on the cloud can switch and use multiple providers easily,” Farragher told CNBC’s “Squawk Box Europe” on Thursday.
“That may allow those rival providers to actually challenge Amazon and Microsoft, [to] grow their business within the U.K. and even have a much wider product set portfolio that appears attractive to businesses who use the cloud.”
Farragher added that, as a part of its investigation, Ofcom checked out solutions that included the egress fees being limited or removed.
Microsoft’s cloud licensing terms are the topic of a separate European Union inquiry. The EU is not formally investigating Microsoft’s Azure cloud computing platform, however it has been assessing complaints from firms including France’s OVHCloud about Microsoft’s licensing terms.