REG - Competition and Mkts - Statement re Cloud Services Market Investigation

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28/01/2025 13:00

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RNS Number : 9733U  Competition and Markets Authority  28 January 2025

CMA independent inquiry group publishes provisional findings in cloud services
market investigation

Provisional findings show competition in the £9 billion UK cloud services
markets is not working as well as it could be.

·    The inquiry group's report provisionally recommends that the CMA
board considers investigating AWS and Microsoft's cloud service activities
using new digital markets powers.

The Competition and Markets Authority's (CMA) independent inquiry group has
today published provisional findings following an in-depth assessment into
cloud services. It has provisionally found that competition is not working as
well as it could be, which is likely to be leading to higher costs, less
choice, less innovation and lower quality of service for businesses and
organisations across the UK economy.

Cloud services provide vital infrastructure which supports improved
innovation, productivity and scaling for most businesses and organisations in
the UK. Customers include financial services, retailers, digital start-ups and
key public services who spent £9 billion on cloud services in 2023, a figure
growing by over 30% each year.

In its report, the inquiry group provisionally found:

·    Cloud customers face a limited choice of providers and do not
consider many providers are able to provide the range of services that they
need. Amazon Web Services (AWS) and Microsoft are the two large providers of
cloud services, each with a share of up to 40% of UK customer spend on cloud
services. Google is the next largest provider with a much smaller share.

·    Technical and commercial barriers make it difficult for cloud
customers to switch between and use different cloud providers, locking them
into their initial choices which may not reflect their evolving business
needs.

·    There are significant barriers to entry and expansion due to the very
large capital investment needed to supply cloud services, making it harder for
alternative cloud suppliers to enter and grow in these markets.

·    Microsoft is using its strong position in software to make it harder
for AWS and Google to compete effectively for cloud customers that wish to use
Microsoft software on the cloud. This reduces the competitive challenge that
AWS and Google can provide in cloud services and to Microsoft's position.

The inquiry group provisionally believes these concerns make it harder for
customers to switch cloud provider or use multiple clouds, which may
ultimately impact the price and quality of cloud services. The ability of UK
businesses to put healthy pressure on cloud providers to offer better deals is
key to ensuring good outcomes and to unlocking the potential benefits of cloud
services.

The inquiry group provisionally recommends that the CMA use its powers under
the Digital Markets, Competition and Consumers Act 2024 (DMCCA) to consider
whether to designate the two largest providers, AWS and Microsoft, with
strategic market status (SMS) in relation to their respective digital
activities in cloud services.

Kip Meek, chair of the CMA's independent inquiry group, said:

"Cloud services underpin most business operations, providing vital
infrastructure to businesses and organisations across the UK economy. Our
provisional view is that competition in this market is not working as well as
it could be. So, we propose that the CMA considers investigating the largest
cloud service providers using its new digital markets powers.

"Effective competition in the delivery of these vital services could drive
choice, quality and competitive prices - not only helping UK businesses but
boosting innovation, productivity, growth and investment across the UK
economy."

The inquiry group will consult on its provisional findings and recommendations
before making a final decision by the statutory deadline of 4 August 2025.

For more information, including how to respond to the consultation, visit the
cloud services market investigation
(https://www.gov.uk/cma-cases/cloud-services-market-investigation) case page.

Notes to Editors:

1.   The CMA defines cloud services as infrastructure as a service (IaaS)
and platform as a service (PaaS). IaaS includes services, such as compute,
networking and storage and PaaS includes platforms based on this
infrastructure which enable customers to develop and run applications in the
cloud.

2.   The purpose of a market investigation is to decide whether any feature
or combination of features of the cloud services markets in the UK prevents,
restricts or distorts competition in connection with the supply or acquisition
of any goods or services in the UK or a part of the UK (an 'adverse effect on
competition' or 'AEC'). Should we find an AEC, we are required to decide
whether we should take any remedial action or whether we should recommend the
taking of action by others to remedy, mitigate or prevent the AECs we have
found.

3.   The group provisionally considers that the DMCC Act powers would be
better suited to addressing the concerns it has identified than the powers
directly available to it in the market investigation because they would allow
the CMA to take a targeted and flexible approach to remedies, as a result of
their greater flexibility, including new powers designed to enhance the
effectiveness of remedies, and better provisions for ongoing monitoring and
oversight.  Greater competition in cloud services has the potential to unlock
benefits for UK businesses and drive economic growth.

4.   As set out in the full provisional findings report which will be
available on the case page
(https://www.gov.uk/cma-cases/cloud-services-market-investigation#statutory-timetable)
in due course, the interventions the CMA could consider in this market (should
AWS and Microsoft be designated with SMS) may include a range of measures
which might encourage appropriate technical standardisation, reduce data
transfer charges incurred in switching and multi cloud and/or ensure fair
licensing of software.The group provisionally considers that measures aimed at
AWS and Microsoft would address its market-wide concerns by directly
benefitting the majority of UK customers and affecting the competitive
conditions for other providers.

5.   The CMA's market investigation began following a reference from Ofcom,
which had carried out a market study on cloud services. The CMA investigated
the following features identified by Ofcom: egress fees, technical barriers
and committed spend discounts. While the CMA has provisionally found that
egress fees and technical barriers constitute features which harm competition
in the markets, it has provisionally found that committed spend discounts (as
currently implemented by cloud service providers), while widespread, do not
currently harm competition as rivals can profitably compete against them.

6.   The Digital Markets, Competition and Consumers Act (DMCCA) came into
force on 1 January 2025. For more information, visit the CMA's initial plans
following the commencement of the regime
(https://www.gov.uk/government/news/cma-sets-out-initial-plans-as-new-digital-markets-competition-regime-comes-into-force)
.

7.   Under the new digital markets and competition regime the CMA can - if
warranted - impose legally binding conduct requirements (CRs) or
pro-competition interventions (PCIs) on firms in relation to the digital
activity for which they have been designated as having SMS. The CMA board will
decide if and when to open SMS designation investigations.

8.   For media enquiries, contact the CMA press office on 020 3738 6460
or press@cma.gov.uk (mailto:press@cma.gov.uk) .

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