Ofcom launches consultation on cloud services

Cloud computing has become an important part of any business offering digital services to its customers and is a market that has been valued at £15 billion in the UK, in 2022. Cloud computing is becoming critical to providing remote access to services such as software, networking and storage and has attracted interest from Ofcom, who have been scrutinising the industry since October 2022.

Ofcom, the UK’s communication watchdog, has now published an interim report on its market study findings and is calling for a probe into Microsoft and Amazon Web Services, which together control between 60 and 70% of the UK cloud market. Their closest competitor, Google, has a 5 to 10% share of the market. These ‘hyperscalers’ have been found to be limiting competition by market features that make it difficult for customers to switch and use multiple suppliers (known as ‘multi-cloud’). The principal features are: egress fees, technical restrictions on interoperability and committed spend discounts.

Egress fees discourage customers from transferring data out of a cloud, as the fees are set at a significantly higher rate by the hyperscalers than other providers, thereby discouraging a multi-cloud approach. The interim report suggests that a price control could be restricted to “at cost” charges, as a way of remedying the current situation.

Technical restrictions on interoperability are often imposed by hyperscalers that prevent services from working effectively with the services of other providers. Customers are needing to put in additional effort to ensure a multi-cloud approach works with their data and applications. Ofcom has suggested that requiring cloud providers to publish comprehensive documentation on the interoperability of their services may provide further transparency for customers to help them make informed decisions on their multi-cloud approach.

Although committed spend discounts could benefit customers, they way they are structured can discourage them from looking for better quality alternatives elsewhere. Ofcom has suggested prohibiting or restricting such fee structures.

These practices have concerned Ofcom, as constraints on the customer’s ability to use more than one provider are potentially making it harder for smaller providers to win business and compete. Customers are also increasingly concerned with price increases when it comes to renewing their contracts.

As a result of these findings, Ofcom is considering referring the cloud market to the Competition and Markets Authority for investigation. If Ofcom were to take this step, the CMA would have the power to further examine the extent of barriers to entry and consider intervening to help improve the market for the benefit of customers.

Before taking this step, Ofcom has requested feedback from stakeholders on the interim findings and proposal to make a market investigation reference. The deadline to submit feedback is 17 May 2023 and Ofcom intends to publish its final report and decision by 5 October 2023.

Next Steps

Stakeholders should consider providing feedback to Ofcom on its interim findings. Are there any particular findings which resonate with their business or perhaps do not make logical sense in the context of the cloud market and should be presented to Ofcom for consideration?