Regulator CMA To Scrutinize Microsoft And Other Cloud Service Providers In The UK
- by Tech Today News
- Posted on October 15, 2023
The U.K.’s Competition and Markets Authority has initiated an investigation into all cloud service providers in the country, following concerns raised by the U.K.’s telecoms regulator Ofcom. The investigation comes on the heels of a report released by Ofcom in which the regulator identified a range of issues plaguing the cloud services market that presents implications for businesses and consumers. In CMA’s press release about the investigation, Microsoft is named 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 70%-80% of the U.K.’s cloud service market share compared to Google Cloud’s 10%. Jump to: Among the issues raised by Ofcom, one of the most pressing concerns is the cost associated with migrating data out of cloud platforms. This cost barrier discourages customers from switching between cloud providers, stifling competition in the sector. Ofcom also raised questions over discounts that bind customers to using a single cloud provider, limiting their ability to explore multiple options and potentially locking them into long-term agreements. This has raised questions about the competitiveness and fairness of the cloud services market in the U.K. The report also pointed at technical barriers to transitioning between cloud providers as customers complain that migrating their data and applications from one provider to another not only hampers flexibility, but can also lead to vendor lock-in, where businesses find themselves heavily reliant on a single cloud provider for their operations. Following these findings, Ofcom has made a referral for the CMA to review the matter. “We welcome Ofcom’s referral of public cloud infrastructure services to us for in-depth scrutiny. This is a £7.5 billion ($9.1 billion) market that underpins a whole host of online services – from social media to AI foundation models. Many businesses now completely rely on cloud services, making effective competition in this market essential,” Sarah Cardell, chief executive officer of the CMA, said in the press release. DOWNLOAD: TechRepublic Premium’s Cloud Platform Services Quick Glossary This will be the second time this year that Microsoft has been called out by the CMA. 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 concern that the acquisition would kill competition in the U.K.’s 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 protracted, with a statutory deadline set for April 4, 2025. Over this period, the regulator will explore the issues and consider possible ways to address the concerns raised by Ofcom. The CMA holds the authority to impose structural solutions, which could potentially trigger business consequences relating to how public cloud providers run their businesses in the U.K. Reacting to the CMA’s move to investigate the U.K. cloud services market, Daniel Tremayne-Pitter, chief executive officer of Dark Matter, a U.K. technology research company, emphasized the need to democratize the cloud computing market. He said: “Even without the identification of anti-competitive practices, I believe there is a significant need to democratize the cloud computing landscape. Namely because of resiliency. Academics, sustainability experts, cloud architects and now, even regulators across the globe, are acknowledging that the power and intelligence a small number of providers hold is concerning.” In response to Ofcom’s cloud market survey, Amazon and Microsoft published lengthy responses. Here are brief excerpts from those responses.Amazon offered a counter-perspective. “We do not agree with the concerns raised in the Interim Report that ‘committed spend discounts’ can dampen competition by incentivizing customers to use a single provider for most or all of their cloud needs, or that we require customers to increase the amount of their committed spend upon renegotiation of 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 read: “Azure does not exploit ‘locked in’ customers on price while it competes for new ones, not least because this dichotomy is false. Nor is there a realistic possibility that Microsoft or any other cloud vendor can profitably slow their rapid pace of innovation as a result of IT lock-in effects.” But Tremayne-Pitter had a different opinion, arguing that “Nearly every technologist describes ‘lock-in’ as being a very real risk factor.” He commented: “The exit cost to move data out of the cloud is usually disproportionate to the ‘free’ nature of putting it there in the first place. At serious volume, it could make it cost-prohibitive to even consider moving it. Cloud providers’ proprietary tooling is readily consumed by ambitious and innovative organizations; however, if your application or business-critical workloads are delivered through this proprietary tooling – you’re not moving anywhere unless you can spare the time and expense to re-develop your application in another environment.” The U.K.’s cloud service market has witnessed tremendous growth in the last few years and is projected to reach $37.84 billion by 2028. However, with the CMA poised to dig deep into the activities going on in the U.K. public cloud market, the outcome could come with significant implications for various stakeholders, including business owners, cloud service providers and the broader U.K. business environment. If the CMA’s 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 array of options, encouraging providers to offer tailored services that cater to 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 a number of concerns. One is that cloud service providers may encounter increased compliance costs associated with adhering to 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 for migrating data, applications and processes to different cloud providers, or adjusting to new pricing structures. These costs can impact budgets and resources. Another concern is that government-aided fair competition measures might compress profit margins for established cloud providers. In response, these cloud providers may need to consider cost-cutting measures or adjustments in their pricing strategies and resort to lowering the quality of their services to create a balance between business costs and profits. Depending on how the investigation pans out, the U.K.’s business environment might experience more economic growth or be perceived as hostile. If the CMA comes up with measures that will ensure more competitive pricing and flexible licensing models, it could lower IT spending for businesses as well as encourage more businesses to accelerate their digital transformation efforts. However, rapid changes in regulations and enforcement actions could create uncertainty for companies operating in the U.K., affecting their long-term planning and investment decisions. The U.K.’s reputation as a tech-friendly and innovative hub could also be challenged, affecting its attractiveness to tech companies and investors.Ofcom’s main concerns about the public cloud market
CMA’s investigation: Focus and duration
Industry reaction to the investigation
Microsoft and Amazon respond to Ofcom’s survey
CMA’s investigation may have profound implications
The U.K.’s Competition and Markets Authority has initiated an investigation into all cloud service providers in the country, following concerns raised by the U.K.’s telecoms regulator Ofcom. The investigation comes on the heels of a report released by Ofcom in which the regulator identified a range of issues plaguing the cloud services market that presents…