Microsoft and Amazon’s ‘high barriers’ could soon trigger U.K. cloud antitrust probe

Cloud services offered by Microsoft and Amazon Web Services are the latest lucrative sphere of the tech industry to land in the country’s regulatory crosshairs, with a likely antitrust probe into their business practices emerging as a closely watched test case.

The British communications regulator Ofcom opened a broad investigation into the cloud services market last October, and its interim report dropped this morning. In it, Ofcom proposed asking the Competition and Markets Authority (CMA) to step in and investigate further, saying the two biggest “hyperscalers”—who have a combined U.K. market share of up to 70%—may be abusing their positions.

“High barriers to switching are already harming competition in what is a fast-growing market,” said Ofcom director Fergal Farragher. “We think more in-depth scrutiny is needed, to make sure it’s working well for people and businesses who rely on these services.”

The watchdog highlighted three practices that give it “cause for concern”: The hyperscalers charge particularly high “egress fees” when customers want to transfer data out of their clouds; they place technical restrictions on interoperability with other cloud providers’ services; and they allegedly structure their committed spend discounts to “incentivize customers to use a single hyperscaler for all or most of their cloud needs, even when better quality alternatives are available.”

“These are interim findings, and AWS will continue to work with Ofcom ahead of the publication of its final report,” said an AWS spokesperson. A Microsoft spokesperson said their company is “committed to ensuring the U.K. cloud industry stays highly competitive.”

Ofcom’s move is interesting not just because the cloud business is such a huge money-spinner for the top vendors—and a market that’s rapidly becoming even more hotly contested, thanks to the computationally intensive explosion in A.I. services—but also because it reflects how tech giants increasingly have to submit to British oversight.

Ever since the country left the European Union three years ago, it’s been doing its best to match or even exceed the EU’s enthusiasm for regulating Big Tech. The CMA and other agencies such as Ofcom and the Information Commissioner’s Office (the U.K.’s privacy watchdog) have repeatedly strengthened their cooperation, with Ofcom and the antitrust regulator recently saying they would jointly tackle “how algorithms, data, and user interfaces shape consumer engagement with online services.” The U.K. Financial Conduct Authority is also currently investigating Apple, Google, and Amazon’s conduct in the fintech space.

And these actions can have international impacts—it’s the British CMA that slammed the brakes on Microsoft’s $69 billion Activision Blizzard takeover in February, and that recently forced Meta to unwind its 2020 acquisition of GIF repository Giphy. If the CMA ends up forcing Microsoft and Amazon to offer their British cloud customers improved terms, those changes would likely reshape the sector across the world.

The EU’s antitrust authority also has Microsoft in its sights over cloud competition. Last October, Microsoft changed some of the cloud licensing terms for its productivity software, raising the cost for customers who want to shift their licensed software to non-Microsoft clouds. Smaller cloud providers complained to the EU competition regulator, and last month Reuters reported that Microsoft had agreed to a provisional settlement with them—though not with the Cloud Infrastructure Services Providers in Europe (CISPE) trade group, which had also complained, and which happens to count AWS as a member. 

CISPE said Microsoft hadn’t offered “changes that will ensure that all European customers have the chance to run the software they want in the cloud of their choice free of unfair license terms or discriminatory pricing,” so it’s not dropping its complaint. Google also criticized the proposed settlement with the smaller European cloud providers, with Google Cloud vice president Amit Zavery last week saying Microsoft should provide better terms “for everybody, not just for one or two they’ve chosen.”

Separately, check out my colleague Michal Lev-Ram’s interview with Gary Shapiro of the Consumer Technology Association, in which he discusses how the North American tech industry is handling the economic slowdown and the Silicon Valley Bank fallout, along with the impact of current geopolitical tensions.

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David Meyer

Data Sheet’s daily news section was written and curated by Andrea Guzman. 

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