Ofcom: barriers to switching clouds harm competition, and it's getting worse
UK telecoms regulator proposes a fully-fledged competition probe into a market that's dominated by two hyperscalers
Halfway through a market study into the cloud computing market, UK broadcasting and telecoms regulator Ofcom is proposing that the matter be referred to the Competition and Markets Authority (CMA) for investigation.
According to Ofcom, two US vendors Microsoft and Amazon enjoy a 60% - 70% share of the £15 billion UK cloud services market.
With business and the public sector ever more reliant on cloud services, this represents an imbalance that is bad for customer choice. "If left unchecked, competition could deteriorate further in a critical digital market for the UK economy," the regulator said in a blog post.
The regulator launched its market study in October last year. Its interim findings focus on three key areas:
- High data egress charges which make it expensive to change suppliers, effectively locking users in to one platform.
- Technical restrictions on interoperability, which again tie customers into the vendor's platform, increasing the friction of moving to an alternative.
- Committed spend discounts, which "can incentivise customers to use a single hyperscaler for all or most of their cloud needs, even when better quality alternatives are available."
Together with the difficulty in negotiating with the big cloud firms, these practices push organisations into placing all their eggs in one hyperscaler basket, even when better solutions may exist elsewhere. This means the market is not functioning as it should.
"We are concerned that constraints on customers' ability to use more than one provider could make it harder for smaller cloud providers to win business and compete with the market leaders," Ofcom said.
"Revenues are already concentrated with a few players, and there is a risk that the features we have identified could lead the market to concentrate further towards the market leaders."
The regulator says it has "significant concerns" about the concentration of power in the cloud marketplace, which is why it is proposing the unusual step of referring the matter to the CMA.
"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," wrote Fergal Farragher, Ofcom's director responsible for the market study.
While Ofcom is concerned primarily with the impact on customers, the CMA covers market competition directly.
The regulator is inviting feedback on both its interim findings and its proposal to refer the matter to the CMA by 17th May.
The Ofcom investigation follows prior scrutiny from the UK's financial regulators, the PRA, FCA and the Bank of England, This had a focus on concentration risk - the operational risk consequences to the financial services sector due to its increasing reliance on the hyperscalers' cloud-based service, explained Tim Wright, partner and specialist tech regulation lawyer at law firm Fladgate.
"Ultimately, this lead to HM Treasury's proposed critical third party regime which will likely come into effect later this year, which will require financial services firms to consider their dependencies on critical third parties as well as pushing for stronger levels of assurance including data resilience measures and protections."
Computing's research in this area chimes with Ofcom's interim findings, with Microsoft Azure and Amazon AWS by far the biggest players in UK IaaS /PaaS.
There is a growing desire among customers to diversify this base, with 30% of respondents to a recent survey having a deliberate multi-cloud strategy, up from 23% a year before.
However, respondents said that cloud agnosticism comes with increased complexity and costs, which for many means it is not a viable option. Others pointed to contracts in which egress charges are generally levied as an additional fee, rather than being bundled as part of a package. The need to bring in new skills to handle additional platforms was another significant barrier.
It's not just the in the UK that the cloud services market is dominated by two large players.
Michel Paulin, CEO of French cloud provider OVHcloud, said that European cloud providers need to stand up to the US hyperscalers.
"Not giving freedom of choice is not good for the market and of course not good for the customers in the end," he said.
In a statement sent to Computing, an Amazon AWS spokesperson said: "The UK has a thriving and diverse IT industry with customers able to choose between a wide variety of IT providers. At AWS, we design our cloud services to give customers the freedom to build the solution that is right for them, with the technology of their choice."
