In October 2022, Ofcom formally launched a market study under the Enterprise Act 2002 into the UK’s £15 billion cloud services market.

As Ofcom explains, there are two leading providers of cloud infrastructure services in the UK: Amazon Web Services (AWS) and Microsoft, who have a combined market share of 60-70%. Google is their closest competitor with a share of 5-10%. Collectively, these firms are known as “hyperscalers” and most cloud customers use their services in some form.

Ofcom’s ongoing study is formally assessing how well the cloud services market is working by examining the strength of competition in cloud services generally and the position the three hyperscalers hold in the market. Ofcom is also considering any market features that might limit innovation and growth in this sector by making it difficult for other companies to enter the market and expand their share.

Ofcom’s interim report sets out its findings to date. It has found that competitive market forces are delivering benefits to customers, especially where providers are competing to attract new customers, in the form of innovative products and discounts. However, the interim report finds, other features of the market give cause for concern, such as egress fees, technical restrictions on interoperability and committed spend discounts.

Ofcom says that these market features can make it difficult for some existing customers to bargain for a good deal with their provider and that there are indications this is already causing harm, with evidence of cloud customers facing significant price increases when they come to renew their contracts.

Ofcom is therefore proposing to refer the cloud infrastructure market to the Competition and Markets Authority (CMA) to carry out a market investigation. This would allow the CMA to further examine the nature and extent of barriers and consider if there are interventions that could improve how the market works for customers and ultimately UK consumers.

Ofcom is inviting feedback on its interim findings and on its proposal to make a market investigation reference into the supply of cloud infrastructure services in the UK. The deadline for responses is 17 May 2023. Ofcom intends to publish a final report setting out its findings and recommendations, including its decision on a market investigation reference, by no later than 5 October 2023. To access the interim report and consultation, click here.