UK Cloud Services Market “Not Working As Well As It Could,” Says Competition Authority

The U.K.’s Competition and Markets Authority has published the provisional findings of an investigation into all cloud service providers in the country, following concerns raised by telecoms regulator Ofcom.

The current conclusion is that the cloud services market is “not working as well as it could,” as it is difficult for customers to switch cloud providers or use multiple clouds. A lack of competition is likely leading to higher costs, less choice, less innovation, and lower quality of 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 CMA said in a press release.

4 main concerns about the U.K. cloud services market

In its investigation, the CMA’s independent inquiry group found four primary concerns:

1. Cloud customers face a limited choice of providers and are not aware that multiple providers can offer the same services.
2. Technical and commercial barriers make it difficult to switch cloud providers or use multiple clouds, leading to vendor lock-in.
3. It is difficult for new providers to enter the market and compete due to the very large capital investment necessary to supply cloud services.
4. Microsoft is making it harder for rivals, such as Google and Amazon Web Services, to compete for customers who want to use Microsoft software on the cloud.

Microsoft and AWS each have a share of up to 40% of U.K. customer spend on cloud services, dominating the market considerably; the third largest provider, Google, has a much smaller share. Even if the dominant players are overcharging by just 5%, this could be costing U.K. businesses £430 million a year, according to the CMA.

The investigation came on the heels of a 2023 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. The CMA looked into egress fees, technical barriers, and committed spend discounts upon Ofcom’s recommendation, but provisionally found that only the former two harm competition.

A decision about whether to make these provisional findings and recommendations final will be made by Aug. 4, 2025.

AWS and Microsoft could be subject to the new Digital Markets, Competition and Consumers Act

The inquiry group behind the investigation has recommended that the CMA considers giving AWS and Microsoft “Strategic Market Status” under the new Digital Markets, Competition and Consumers Act, which came into force on Jan. 1, 2025. The act was specifically designed to regulate the behaviour of major digital firms with significant market power in the U.K.

The CMA conducts investigations into companies it expects to have Strategic Market Status. If companies are given that designation, regulators will draft bespoke conduct requirements for them to follow, preventing anti-competitive practices. The inquiry group said that regulating AWS and Microsoft under the DMCCA will allow it to take a “targeted and flexible approach to remedies” and “better provisions for ongoing monitoring and oversight.”

Conduct requirements for the dominant cloud services providers might encourage technical standardisation, reduce data transfer charges incurred in switching providers or using multiple clouds, and ensure the fair licensing of software.

Investigations into whether Google and Apple should receive SMS designations are ongoing. Both companies are both being looked at with regards to their mobile ecosystems. Google is also being investigated in search and search advertising services.

SEE: UK Regulator Probes Apple’s Mobile Browser Dominance

Industry reaction to the CMA’s investigation

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.”

Microsoft and Amazon respond to Ofcom’s survey

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.”

CMA’s investigation may have profound implications

The U.K.’s cloud service market has experienced tremendous growth in the last few years and is projected to reach $82.87 billion by 2029. 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.

Franklin Okeke contributed to this article.