The UK communications regulator and concurrent competition authority, Ofcom, announced on April 5 its proposal to refer the UK cloud services market to the Competition and Markets Authority (CMA) for further investigation. This coincided with publication of the interim report of Ofcom’s market study of the largest providers of cloud services (referred to by the authority as “hyperscalers”) in the United Kingdom’s £15 billion ($18.7 billion) cloud services market.

Interim Report – Provisional Findings

Ofcom’s study focused on cloud infrastructure services, which includes Infrastructure as a Service (IaaS) and Platform as a Service (PaaS). It gathered evidence through responses to its call for inputs, statutory information requests, stakeholder meetings, and market research.

Ofcom stated that it found evidence of active competition in cloud infrastructure, especially for attracting new customers, and that this is contributing to benefits for customers, including product innovation, discounts, and improved choice of services.

Ofcom also provisionally identified potential difficulties in respect of customers switching and using multiple suppliers (“multi-cloud”), including

• high egress fees that are charged to customers for transferring their data out of a cloud;
• technical restrictions on interoperability imposed by leading firms that require customers to put additional effort into reconfiguring their data and applications to work on different clouds; and
• committed spend discounts that are structured in a way that may incentivize customers to use a single cloud service provider for all or most of their cloud needs.

Ofcom also cited evidence of customers already in the cloud facing significant price increases when they come to renew their contracts.

Potential Antitrust Investigation

Based on the above, the regulator is consulting on a proposal to refer the cloud infrastructure market as a whole to the CMA, which would allow the CMA to further examine if there are interventions that could address the potential issues identified by Ofcom and improve how the market works for customers. Ofcom identified potential interventions specifically targeted at enhancing multi-cloud and switching, including setting egress fees either at cost or no higher than the price of internal data transfers within a cloud, increasing transparency and simplicity in pricing and billing, requiring transparency about interoperability of services, and prohibiting or restricting certain discount structures.

As we previously highlighted, a market investigation reference to the CMA would grant the CMA broad enforcement powers ranging from imposing remedies such as the above to ordering the breakup of one or more cloud services providers.

Next Steps

Ofcom will be hosting a webinar on May 10 to present its report. It invites feedback on its provisional findings and its proposed market investigation reference by May 17.

The regulator intends to publish a final report setting out its findings and recommendations, including a decision on a market investigation reference, by no later than October 5.