Ofcom finds that “hyperscalers” like AWS and Microsoft Azure are limiting competition in the UK's cloud market by making it difficult for businesses to switch

CNBC 2023-10-06 Ryan Browne

Context & Ripple Effects

Ofcom’s conclusion follows its earlier warning that AWS, Azure and Google might be weakening cloud-market competition after a review begun in 2022, including concerns over barriers to switching cloud providers.

The issue also intersects with customer complaints that Microsoft’s licensing rules can make running Windows and Office on rival clouds more costly, a separate form of software-linked cloud lock-in.

First-order effects

AWS and Microsoft Azure face heightened UK regulatory scrutiny over commercial and technical practices that make it harder for business customers to move workloads.
UK cloud customers gain an authoritative basis to challenge switching friction when negotiating contracts, migrations and licensing terms.

Second-order effects

Rivals such as Google Cloud can use the finding to compete on portability and lower migration friction, while large customers may demand more interoperable terms from incumbent providers.
The finding increases the stakes of any competition review: remedies aimed at switching could alter how hyperscalers package cloud services and associated software licensing.

Third-order effects

If regulators treat switching costs as a competition problem, cloud-market oversight may shift from headline pricing toward the practical portability of data, workloads and software entitlements.
The case is an early test of whether concentrated infrastructure markets can preserve customer choice without rules that constrain platform gatekeeper leverage.

The trend: Cloud competition policy is increasingly focusing on lock-in mechanics—migration, interoperability and licensing—rather than provider count alone.

Discussion

@ofcom @ofcom on x
☁️ Cloud computing is critical for businesses across the UK. But if left unchecked, competition could deteriorate in the market. We're concerned it's difficult to switch provider due to: ➡️ High fees for transferring data out ➡️ Committed spend discounts ➡️ Technical barriers
@tboormantony Tony Boorman on x
Important implications for providers and users. Given the increasing reliance we all place on the public cloud providers this is a much needed intervention. Given the scale of global demand the returns to scale should not inhibit more effective competition.
@ofcom @ofcom on x
📢 We are referring the UK cloud market to @CMAgovuk for further investigation. Our market study has revealed features that could limit competition among providers - and we are particularly concerned about the position of the market leaders Amazon and Microsoft. [1/3] [image]
@ryan_browne_ Ryan Browne on x
This is big. Ofcom, the media watchdog, has referred its probe into the UK cloud industry to the CMA. This means that Amazon Web Services and Microsoft Azure, the market leaders, will face much tougher scrutiny. https://www.cnbc.com/...
@arjunkharpal Arjun Kharpal on x
Amazon and Microsoft's cloud dominance referred for UK competition probe. UK regulators continuing on the front foot against U.S. big tech firms. I believe they probably have one eye on the AI market and are concerned about $AMZN + $MSFT dominance there https://www.cnbc.com/...

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