Ofcom began probing the UK cloud market in September 2022 due to concerns with the market dominance of the “Big 3”, Amazon Web Services (AWS), Microsoft Azure, and Google Cloud. Even though they are only halfway through the duration of their inspection, Ofcom is already preparing to raise this to the Competition and Markets Authority (CMA) for further investigation.

The Register published an article regarding the release of the “Consultation: Cloud services market study - Interim report” by Ofcom. Fergal Farragher, the Ofcom director in charge of the cloud study, said:

"We've done a deep dive into the digital backbone of our economy, and uncovered some concerning practices, including by some of the biggest tech firms in the world….High barriers to switching are already harming competition in what is a fast-growing market. We think more in-depth scrutiny is needed, to make sure it's working well for people and businesses who rely on these services”.

There were multiple areas of concern that Ofcom came across during their efforts so far; Egress fees, restrictions on interoperability, and the cost of transferring data.

Ofcom discovered that cloud providers charge significantly higher rates for egress fees, which are fees for transferring data from the cloud storage where it was originally uploaded. This can discourage customers from switching to other providers or using multiple providers for better performance in different areas.

The second concern is related to restricted interoperability, which refers to the ability of different cloud platforms to work together efficiently. The "big 3" have set up significant hurdles, making it challenging to ensure that data and applications can operate across different cloud providers.

The third concern lies in committing to a cloud provider for an extended period to receive discounts, such as through Committed Use Discounts (CUDs). While touted as a benefit for cost savings, customers may forfeit the ability to use alternative providers even if they offer superior services. The situation is compounded when renegotiating these commitments, as Ofcom warns that obtaining better pricing may become more challenging and may result in significant cost hikes.

"We've done a deep dive into the digital backbone of our economy, and uncovered some concerning practices, including by some of the biggest tech firms in the world … High barriers to switching are already harming competition in what is a fast-growing market. We think more in-depth scrutiny is needed, to make sure it's working well for people and businesses who rely on these services," said Fergal Farragher, the Ofcom director taking the lead in the investigation..

As a result of these difficulties, it limits a user's ability to use more than one cloud and create a multi-cloud approach therefore, smaller providers that may not compromise the user negatively struggle to attract business and get deals over the line that they may very well deserve. Ofcom suggests the increasing profitability for AWS and consistent growth in Microsoft’s profits act as potential indicators or evidence that competition is being restrained.

Forecasts by market analyst Canalys show prices for public clouds in Europe are on a path to increase by around 30% as a consequence of the current energy market and other factors.

The price of Microsoft cloud products went up by 9% in the UK at the start of this month and increased by 15% in Sweden and 11% in other European countries.

CEO of Civo, Mark Boost, commented on the interim findings by Ofcom:

"It is welcome to see Ofcom not hold back in its criticism of the pricing and services offered by the major cloud providers. Our own research found that 37 percent of public cloud users have been stung by unexpected costs in the last 12 months … For too long cloud services have drifted away from what users actually want from a provider. We now need to see the regulator, in partnership with industry, build a fairer and ultimately more successful cloud space," Boost said, citing opaque pricing that makes it difficult for users to monitor their cloud spending.

To discover more comments and information on Ofcom’s report, read The Register's article here. Or, check out the Cloud Services Market Research - Summary of Findings March 2023 by Ofcom here.