UK regulator identifies competitive issues in public cloud market
The U.K.’s antitrust watchdog has tentatively determined that the public cloud market is not as competitive as it should be.
The Competition and Markets Authority, or CMA, published its findings today. The investigation could lead the regulator to assign so-called strategic market status to Amazon Web Services Inc. and Microsoft Corp., the two largest players in the U.K. cloud market. Companies with this status are subject to closer antitrust scrutiny.
The CMA’s investigation of the cloud market began after Ofcom, a U.K. regulator focused on the telecommunications sector, published a study about the local cloud market in April 2023. The study found that the major cloud providers engage in several business practices with the potential to harm rivals. Ofcom referred the matter to the CMA, which opened its investigation a few months later.
The CMA summarized the provisional findings of its probe in a seven-page document published this morning. One core focus of the report is the fact that cloud providers charge so-called egress fees when users move data out of their platforms. According to the CMA, this practice may reduce customers’ incentive to move workloads between platforms or adopt multicloud operating models.
Some market players have adjusted their billing practices since the CMA opened its probe in 2023. Last year, Google’s cloud business and AWS scrapped egress fees for customers.
Microsoft’s software business was another focus of the CMA probe. Officials scrutinized Windows Server, a version of Windows optimized to power cloud environments, and the SQL Server relational database. The CMA determined that deploying those products on Google Cloud and AWS is often more expensive than running them on Azure.
“The price that Microsoft charges these rivals for some of these products can be higher than the retail price it charges its own customers,” the CMA wrote in today’s report.
Officials also identified a number of competitive issues that stem from technical and economic factors rather than the major cloud operators’ business practices. “There are significant barriers to entry and expansion due to the very large capital investment needed to supply cloud services, making it harder for alternative cloud suppliers to enter and grow in these markets,” the regulator pointed out.
After the CMA inquiry group that carried out the review finalizes its findings, the regulator will consider whether it should apply strategic market status to AWS and Microsoft. Companies can receive this status if they have “substantial and entrenched market power in a digital activity.” Additionally, they must generate annual revenue of at least £25 billion worldwide or £1 billion in the U.K.
The CMA can fine companies with strategic market status up to 10% of their annual worldwide revenue for antitrust violations. Additionally, it can order changes to their business practices. The CMA stated today that it could require Microsoft to change its software licensing practices, as well as order cloud providers to lower egress fees.
“Restrictive licensing harms U.K. cloud customers, threatens economic growth, and stifles innovation, and we are encouraged that the CMA has recognised the harm of these practices,” Google said in a statement responding to the CMA’s findings.
“The evidence demonstrates the IT services industry is highly competitive,” AWS said in a statement. “Cloud computing has lowered costs for U.K. businesses with on-demand services and pay-as-you-go pricing, expanded product choice, and increased competition and innovation.”
Photo: Unsplash
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