UK IaaS market: Deeper probe by competition regulator lands soon

Updated The Reg can reveal the UK's communications watchdog Ofcom is expected to refer the findings of its six-month inquiry into the health of Britain's cloud computing landscape to the nation's Competition Markets Authority later this week for a deeper probe.

Multiple insiders at organizations dealing with Ofcom since it launched its close inspection of the cloud industry told us the regulator has indicated the direction of travel – that there may be anti-competitive and monopolistic practices that need scrutiny.

“We’ve certainly been given some heavy hints that there will be a recommendation to the CMA to open an inquiry into the cloud market for competitive reasons,” said one source close to a cloud provider who spoke to The Reg on the condition of anonymity.

“It is more than likely that [the CMA] look at things like portability, egress fees, interoperability, and it may also include an inquiry into software licensing and how that can be used to distort the marketplace.”

Another told us: “We expect the investigation to focus on the technical and non-technical barriers to interoperability, which obviously includes some of the licensing stuff. It would also focus on egress, which is a big debate, and might look into the topics of cloud credits in the context of AI.”

We asked Ofcom to comment and a spokesperson sent us a statement: “We’ll be announcing our decision on whether or not to refer the market to the CMA by the statutory deadline, which is Thursday 5 October 2023.”

Ofcom stuck a probe into the £15 billion ($16.97 billion) Brit cloud infrastructure market a year ago, saying it wanted to ensure digital services are working for local businesses and consumers.

In its interim report published in July, the regulator found that AWS and Microsoft Azure accounted for up to 70 percent market share of UK cloud infrastructure revenues, with Google accounting for another 10 percent.

Areas of concern already highlighted by the regulator – and our sources – include big cloud operators charging hefty egress fees to move data out of their systems, making a switch costly, and forcing customers to think again before migration.

As of August, for example, AWS's monthly data transfer costs for outbound data to the public internet are $0.09 per GB for the initial 10TB, and it then drops on a tiering basis. These prices are for EC2 virtual machines and S3 storage.

“No bandwidth is included in the base compute rate, so users will always pay extra for bandwidth, which naturally scales data transfer charges as an application’s user base grows. Inbound data transfer is included for most services,” said Digital Ocean.

“Things get even more expensive for inter-regional AWS data transfer costs. Transferring data between two EC2 instances in different AWS regions, called availability zones, is charged at $0.02 per GB, meaning that even transferring data between one AWS region and another incurs charges that can quickly grow," it added.

Digital Ocean claims AWS egress fees can be five times more expensive than smaller rivals, including its own. A source close to AWS told us the company is braced for greater market scrutiny, and is “already moving on most of the issues.”

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AWS refused to comment until later this week when Ofcom publishes its report.

As for technical restrictions on interoperability, Ofcom was already assessing the amount of effort it takes customers to initiate a preferred cloud architecture and customize applications so they can run smoothly. There is also the time and expense of training staff to use different vendors’ clouds.

Ofcom said its analysis of the sector showed the biggest providers can help customers switch or use multi-cloud services, but that customer uptake so far was limited to date.

More than half of responders to the interim report professed that a lack of interoperability between services run by different cloud providers was their primary concern.

Cloud licensing practices by some vendors, mostly notably Microsoft, is also expected to fall under the spotlight when the Competition and Markets Authority launches the probe. Microsoft's own marketing material says it is five times more expensive to run Microsoft wares on AWS, Google or Alibaba than on Azure, yet there is no technical reason for this.

Microsoft has already caught the eye of the EU antitrust regulators, it a subject of interest to the Federal Trade Commission in the US, and is now expected to be at the center of the CMA's investigation when it grasps the nettle this week.

The process this week involves Ofcom making a recommendation. The CMA then has two weeks – or maybe slightly longer – to confirm it will launch its own probe. Ultimately, the CMA will be able to make demands of cloud providers to solve any problems it encounters.

"It is not necessarily a quick process but it is more streamlined than the one in Europe," a source told The Reg.

Another told us they expect the CMA's own study will take up to 12 months, with any resulting remedies implemented in six to 10 months. These are just estimates.

"There will be a market investigation referral and we’re told it will be broad, so the inclusion of multiple things," a source said.

We have asked Microsoft and Google to comment. ®

Updated at 1841 UTC on October 4, 2023 to add

Following publication, an AWS spokesperson emailed this statement to The Register:

“AWS does not charge separate fees for egress — that is, for switching data to another IT provider — and over 90% of our customers pay nothing for data transfer because we provide them with 100 gigabytes per month for free. AWS customers can use this 100 gigabytes per month for free no matter what AWS service they utilize.

“AWS fees reflect the costs of transferring data across our network. AWS has invested tens of billions of dollars to build a first-in-class global network that offers unrivalled security, efficiency, reliability and speed. Our pricing reflects the costs of establishing and maintaining this network.

“AWS has also worked to reduce our data transfer costs and to pass these cost savings on to our customers. Our fees for transferring data out to the internet fell over 50 percent globally between 2018 and 2022.”