In a decision that will surprise some, Ofcom has decided to refer the UK cloud market to the Competition Market Authority (CMA). The move comes mere weeks after the CMA issued its own report calling for greater diversity within the AI market.
Ofcom has issued a brief explainer for why they have done this, and the reasoning is quite interesting. Highlighting their own market study, Ofcom have pointed out key issues within the current cloud market that may be impacting customers. Alongside this they have also put Microsoft and Amazon on notice.
Amongst the key concerns that Ofcom found were egress fees, technical barriers to interoperability and portability and committed spend discounts.
Egress fees, which are the fees customers pay to transfer their data out of the cloud, were one of the key concerns highlighted by Ofcom. They found that the two dominant companies within the cloud market, Amazon and Microsoft, were charging significantly higher rates than other companies. Normally this would not be an issue, due to there being other options around. However, due to these two companies having a combined market share of 80%, there was a sense that there were no other valid alternatives.
Something that is reinforced by the next biggest single company in the market being Google, with between 5-10% of market share. Other companies were too small to register on the radar. Thus higher egress fees may be contributing to customers being unwilling or unable to use services from one or more providers. Especially if they are unaware of other providers outside of the duopoly.
The next concern that Ofcom raised was the technical barriers to interoperability and portability within the cloud market. By this Ofcom is referring to the barriers that result in customers having to put a lot of effort into ensuring their data and applications can work on different clouds. Such hassle is usually beyond the patience of many customers and thus dissuades them from combining different services across cloud providers. Or even in the most extreme cases changing providers all together.
Finally, we move onto committed spend discounts. Ofcom praises the idea behind them, in reducing the cost to customers. However, they highlight that the way these discounts are currently structured do more to harm competition within the market by encouraging customers to use one of Amazon or Microsoft. Blinding customers to possibly better alternatives within the market.
Ofcom concluded by pointing out that this duopoly makes it hard for customers to either switch or use multiple cloud providers. Making their bargaining power much weaker than it could be. Which ultimately could further harm smaller or medium sized firms from entering the market and improving competition. Ultimately worsening the situation in the long term.
Given the CMA is itself determined to bring more competition within the digital market, it will be interesting to see what they do with this referral. Might there be disruption to the duopoly or will things get tidied up with false promises?
Vivek Rajkhowa 
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