The UK’s competition and consumer protection watchdog has recommended assigning special designation to the duo of firms that collectively hold as much as four fifths of the public cloud market
The public cloud market’s two dominant forces – Amazon Web Services and Microsoft – have formally refuted concerns about the competitiveness of the sector raised by the Competition and Markets Authority.
However, the duo’s main competitor Google and a range of smaller players have given support to a provisional decision report (PDR) issued by the CMA earlier this year which found that “high levels of market concentration and barriers to entry and expansion have enabled… AWS and Microsoft to hold significant unilateral market power in these markets, [and] this harms competition in cloud services in the UK”.
The regulator’s investigation found that, across the infrastructure- and platform-as-a-service markets, the two firms account for as much as 80% of the collective market.
Remedial proposals set out by the CMA include using powers newly provided in last year’s Digital Markets, Competition and Consumers Act to launch “investigations to consider designating the two largest providers AWS and Microsoft with strategic market status (SMS) in relation to their respective digital activities in cloud services”.
“The new regime will allow the CMA, if it designates one or both of AWS and Microsoft with SMS, to take a targeted and iterative approach to address [its] concerns,” the PDR document adds. “We consider that measures aimed at AWS and Microsoft would address market-wide concerns by directly benefitting the majority of UK customers and producing wider indirect effects by altering the competitive conditions for other providers.”
A month on from issuing its decision, the CMA has published a collection of formal responses to its findings.
“It should come as no surprise that we disagree with substantial portions of the PDR,” Microsoft says at the beginning of its response.
The software giant says that the CMA “grounds much of its analysis in hypothetical scenarios and focuses on largely theoretical issues”.
“We are particularly concerned about its singling out of Microsoft and its accusation that Microsoft is unfairly using some of its software products to prevent AWS and Google Cloud from competing effectively for UK customers,” the response adds.
The submission accuses “Google [of] talking out of both sides of its corporate mouth” – by decrying alleged non-competitive practices at the same time as boasting about the strong growth of its cloud business.
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Google, for its part, says that “we strongly agree with the CMA’s finding that Microsoft’s software licensing practices are giving rise to an adverse effect on competition”.
“We broadly support the package of remedies that the CMA recommends to address Microsoft’s harmful licensing practices, provided that the strategic market status investigation required to implement such remedies is launched without delay so as to avoid any further harm to the UK cloud market,” the firm’s response adds.
AWS’s response states that “the PDR’s reasoning suffers from a number of fundamental misconceptions, as a result of which key characteristics of the cloud industry are viewed as barriers rather than inherent, and indeed pro-competitive”.
The cloud firm describes the regulator’s proposals as “unwarranted intervention applicable to only two players in one of the most competitive, well-functioning, and fast-growing sectors of the UK economy”.
But, outside of AWS and Microsoft, the responses reflect a high level of support for the CMA’s findings and its intent to take action.
The Open Cloud Coalition (OCC) – a recently formed industry body comprised of 18 members, including Google Cloud and various other smaller cloud players – says that “we strongly support the CMA’s recognition of harmful market concentration, restrictive software licensing practices, and lock-in mechanisms that limit choice and innovation”.
“Swift action is needed to prevent further harm to businesses and taxpayers,” the coalition’s response adds. “We strongly urge the CMA to expedite the designation process and explore interim measures to ensure that the UK’s cloud market remains open, competitive, and primed for growth while the… process is underway.”
In another response to the PDR, one of the OCC’s members, hosting provider Prolinx, says: “The CMA has clearly recognised that the current marketplace offers limited choice, includes deliberate technical barriers to switching, significant barriers of entry to UK native sovereign cloud providers and bundling practices that limit opportunities for competitive challenge.”
Public sector-specialised provider UKCloud went out of business in 2022. Responding to the watchdog’s provisional decision, the firm’s boss Simon Hansford said “as the former CEO of UKCloud, I’ve experienced first-hand the challenges facing cloud providers in today’s cloud market”.
He adds: “The CMA’s report confirms what many cloud providers in the UK already know: the UK cloud market is broken, anti-competitive, and the odds are stacked against challenger cloud providers. Egress fees, restrictive software licensing, and a lack of interoperability are not just barriers to entry – they are active deterrents to the investment and innovation in the UK that the current government is determined to secure. The failed investment round that led to UKCloud’s compulsory liquidation attests to this.”
The responses to the provisional decision form part of an ongoing consultation process, and the PDR concludes by saying that the regulator “will consider further evidence and submissions received before reaching our final decisions later this year”.
