October 3, 2023

Microsoft And Amazon Apple Inc was accused by UK regulators on Wednesday of unfairly restricting competition in the cloud services market, in a significant development that could eventually lead to an antitrust probe into their business practices.

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British media watchdog Ofcom published preliminary findings of a market study examining the massive cloud service market. Ofcom reviewed the sector in September, seeking to establish whether companies offering public cloud infrastructure pose any barriers to competition.

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Ofcom said, “Our provisional view is that competition is being limited by market features that make it more difficult for customers to switch and use multiple suppliers (known as ‘multi-cloud’)”. Is.” Those market features include:

  • The “egress fees” cloud vendors charge companies to transfer data out of the cloud – Ofcom said so-called “hyperscalers” such as Microsoft and Amazon set their egress fees “significantly higher” than most other providers.
  • Technical restrictions on “interoperability” from major cloud firms that prevent some of their services from working effectively with other providers.
  • The committed spend discount is structured in such a way that they can incentivize customers to use a single hyperscaler for all or most of their cloud needs.

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The regulator proposed to refer the matter for further investigation by the Competition and Markets Authority, the UK regulator tasked with ensuring that markets are healthily competitive.

“We received provisional findings today from Ofcom regarding the cloud market study and are in the process of reviewing these,” a spokesperson for the CMA told CNBC via email.

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“We stand ready to investigate the market in this area if Ofcom determines it is needed following the completion of its consultation process.”

Microsoft, Amazon and Google, sometimes called “hyperscalers” because of their ability to provide enterprise-scale computing and storage, are the largest players in the massive cloud infrastructure market, worth £4.5 billion ($5.6 billion). ) was estimated to occur. According to Ofcom, up to £5.0 billion in 2021.

According to the regulator, Microsoft and Amazon’s Amazon Web Services unit control 60% to 70% of the market, with Google accounting for 5% to 10% of the total market share.

Ofcom said it was concerned by allegations of fixed licensing terms by cloud vendors, specifically citing Microsoft as an example of companies “using their strong position in software products to distort competition in cloud infrastructure.”

The regulator said it has found evidence that Microsoft makes it difficult for customers of its Office productivity apps to run them on cloud infrastructure other than Microsoft Azure.

“We look forward to continuing our engagement with Ofcom on their market study of their cloud services. We are committed to ensuring that the UK cloud industry remains highly competitive, and to accelerate is committed to supporting the transformative potential of cloud technologies to help.” Growth in the UK Economy”.

A spokesperson for Amazon Web Services told CNBC: “These are interim findings and AWS will continue to work with Ofcom ahead of the publication of their final report.”

“At AWS, we design our cloud services to give customers the freedom to build the solutions that are right for them with the technology of their choice,” he added. “It has increased competition across many sectors in the UK economy by broadening access to innovative, highly secure and scalable IT services.”

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Last month, Microsoft Reportedly offered more change for cloud computing practices to avoid facing an EU antitrust probe, according to Reuters. This comes after Microsoft announced a number of changes to its cloud contract terms last year, effectively making it easier for customers to use competing cloud services.

The European Union is looking into competition concerns over the company’s cloud business following complaints from France’s OVH Cloud and other smaller cloud vendors.

Francisco Mingorense, secretary general of Cloud Services Providers in Europe, said Ofcom’s findings about Microsoft’s licensing practices show regulators are “waking up to the ways in which Microsoft continues to distort fair competition in the cloud” and that national and recommended the EU antitrust authorities open a formal investigation into the matter.

Ofcom’s provisional findings come as a blow to two giants of the technology world, Amazon and Microsoft. These companies fared well from the COVID-19 pandemic as people were forced to stay in their homes, which increased the demand for more digital means of staying connected and doing business.

However, recently, they have faced struggles as pandemic restrictions have been lifted and higher interest rates have clouded the outlook on technology stocks. Amazon, Microsoft and Alphabet all reported slowdowns in their respective cloud units in the fourth quarter of 2022.

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