CMA regulator to examine Microsoft and other cloud service providers in the UK

The UK Competition and Markets Authority has launched an investigation into all cloud service providers in the country, following concerns raised by UK telecoms regulator Ofcom. The investigation comes hot on the heels of a report published by Ofcom in which the regulator identified a number of issues affecting the cloud services market, with implications for businesses and consumers.

In the CMA press release about the investigation, Microsoft is mentioned as one of the companies whose software licensing practices will be reviewed. Ofcom’s report also references AWS and Google. Microsoft’s Azure and AWS have between 70% and 80% of the UK cloud services market share, compared to Google Cloud’s 10%.

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Ofcom’s top concerns about the public cloud market

Among the issues raised by Ofcom, one of the most pressing is the cost associated with migrating data away from cloud platforms. This cost barrier deters customers from switching between cloud providers, stifling competition in the sector.

Ofcom also raised questions about discounts that force customers to use a single cloud provider, limiting their ability to explore multiple options and potentially locking them into long-term deals. This has raised questions about the competitiveness and fairness of the cloud services market in the UK.

The report also noted technical barriers to transitioning between cloud providers, with customers complaining that migrating their data and applications from one provider to another not only hampers flexibility but can also lead to vendor lock-in. , which means that companies find themselves depending largely on a single supplier. cloud provider for your operations.

Following these findings, Ofcom has referred the matter to the CMA for review.

The CMA investigation: focus and duration

“We appreciate Ofcom referring public cloud infrastructure services to us for in-depth scrutiny. It is a £7.5bn ($9.1bn) market that underpins a host of online services, from social media to basic AI models. “Many businesses are now completely reliant on cloud services, making effective competition in this market essential,” Sarah Cardell, CMA CEO, said in the news release.

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This will be the second time this year that the CMA has criticized Microsoft. In April 2023, CNBC reported that the CMA had initiated a move to block Microsoft’s $69 billion acquisition of video game publisher Activision Blizzard. While Microsoft appealed the decision and was later given the green light to seal the deal, the CMA’s stance at the time centered on concerns that the acquisition would kill off competition in the UK gaming industry. Today the CMA granted Microsoft’s request to acquire Activision Blizzard.

The duration of the CMA’s cloud market investigation is expected to be lengthy, with a legal deadline set for April 4, 2025. During this period, the regulator will explore the issues and consider possible ways to address concerns. raised by Ofcom. The CMA has the authority to impose structural remedies, which could potentially trigger commercial consequences relating to the way public cloud providers run their businesses in the UK.

Industry reaction to the investigation

Reacting to the CMA’s decision to investigate the UK cloud services market, Daniel Tremayne-Pitter, CEO of Dark Matter, a UK technology research firm, emphasized the need to democratize the cloud services market. Cloud Computing.

He said: “Even without the identification of anti-competitive practices, I believe there is a significant need to democratize the cloud computing landscape. That is, due to resilience. “Academics, sustainability experts, cloud architects, and now even regulators around the world are recognizing that the power and intelligence possessed by a small number of vendors is worrying.”

Microsoft and Amazon respond to Ofcom survey

In response to Ofcom’s cloud market survey, Amazon and Microsoft published extensive responses. Here are short excerpts from those responses. Amazon offered a contrary perspective. “We disagree with concerns raised in the Interim Report that ‘committed spend discounts’ may stifle competition by incentivizing customers to use a single provider for most or all of their cloud needs, or that we require to customers to increase the amount of their committed spending after renegotiating their agreements,” the company said. “AWS prices are listed publicly on our website and any customer can use our services at these listed prices as much or as little as they need.”

Microsoft’s response said: “Azure does not exploit the prices of ‘locked-in’ customers while competing for new ones, especially because this dichotomy is false. “There is also no realistic chance that Microsoft or any other cloud provider will be able to profitably slow their rapid pace of innovation as a result of the effects of IT lockdown.”

But Tremayne-Pitter had a different opinion, arguing that “Almost all technologists describe ‘lockdown’ as a very real risk factor.”

He commented: “The egress cost to get data out of the cloud is often disproportionate to the ‘free’ nature of putting it there in the first place. At significant volume, it could be cost-prohibitive to even consider moving it. Cloud providers’ proprietary tools are easily consumed by ambitious and innovative organizations; However, if your application or business-critical workloads are delivered through this proprietary tool, you are not going anywhere unless you can spend the time and expense to redevelop your application in another environment.”

CMA investigation may have profound implications

The UK cloud services market has seen huge growth in recent years and is forecast to reach $37.84 billion by 2028. However, with the CMA set to delve deeper into the activities taking place in UK public cloud market, the result could come with significant implications for various stakeholders including business owners, cloud service providers and the wider UK business environment.

If the CMA investigation results in regulatory changes that promote fair competition, businesses could make more informed decisions about their cloud service providers, reducing the risk of unexpected costs or vendor lock-in. A more competitive cloud services market could also lead to a wider range of options, encouraging providers to offer customized services that meet different business needs.

While the outcome of the investigation may force cloud providers to adjust their pricing models, licensing agreements and data migration processes, as well as create opportunities for new players to enter the market, there are several concerns. One is that cloud service providers may face increased compliance costs associated with complying with new regulations and adapting their business models. These additional expenses could potentially be passed on to customers.

Likewise, regulatory changes and increased competition in the cloud services market may require business owners to incur transition costs to migrate data, applications and processes to different cloud providers, or adapt to new pricing structures. These costs can affect budgets and resources.

Another concern is that government-backed fair competition measures could compress the profit margins of established cloud providers. In response, these cloud providers may need to consider cost-cutting measures or adjustments to their pricing strategies and resort to reducing the quality of their services to create a balance between costs and business profits.

Depending on how the investigation turns out, the UK business environment could see further economic growth or be perceived as hostile. If the CMA proposes measures ensuring more competitive pricing and flexible licensing models, it could reduce businesses’ IT spending and encourage more businesses to accelerate their digital transformation efforts.

However, rapid changes in regulations and enforcement actions could create uncertainty for businesses operating in the UK, affecting their long-term planning and investment decisions. The UK’s reputation as an innovative and tech-friendly hub could also come into question, affecting its attractiveness to tech companies and investors.

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