Historically, financial institutions faced the challenge of choosing between AWS, Google Cloud, and Microsoft Azure for their workloads due to availability constraints. However, with smaller cloud providers now offering private cloud solutions, many financial organizations are exploring hybrid or multicloud options. Ofcom, the UK’s communications regulator, has a unique perspective on this landscape.
In 2022, Ofcom revealed that AWS and Microsoft held between 70-80% of the UK’s cloud infrastructure services market share, while Google lagged significantly with only 5-10%. To address this disparity, Ofcom has requested the Competition and Markets Authority (CMA) to investigate whether this distribution poses a threat to competition. Microsoft has expressed its intention to cooperate with the CMA, while Amazon has deemed the investigation an “unwarranted intervention,” as noted by Reuters.
This investigation follows a September 2022 probe that raised concerns about the number of businesses investing in cloud services from Amazon, Microsoft, and Google. Ofcom noted that just under 10% of businesses’ global IT spending went to public cloud services in 2018, which climbed to 17% by 2022. Had Ofcom found that the market was not functioning effectively, it would have recommended policy changes and could have referred the matter to the CMA—a course of action that has now been taken.
Fergal Farragher, Ofcom’s director in charge of the market study, remarked, “The cloud is the foundation of our digital economy and has transformed the way companies run and grow their businesses. From TV production and telecoms networks to AI innovations, all of these rely on unseen remote computing power.”
He also expressed concern that some UK businesses feel it is overly difficult to switch providers or to utilize multiple cloud services simultaneously, indicating that competition may not be operating effectively. As a result, the market is being referred to the CMA for closer examination, aimed at ensuring that business customers continue to benefit from cloud services.
Amazon has strongly opposed Ofcom’s findings, arguing that they stem from a “fundamental misconception of how the IT sector functions, and the services and discounts provided.”
Key concerns highlighted by Ofcom include:
– Egress fees, which are charges imposed when companies transfer data out of the cloud, often set higher by major providers;
– Barriers to interoperability and portability, which make it challenging to reconfigure data and applications for different cloud environments;
– Committed spend discounts, where incentives are structured to favor customers who stay with a single provider.
This scrutiny of the cloud market is not unprecedented; the cloud duopoly has faced criticism before. The FCA issued guidance in July 2016 and updated it in September 2019, indicating that while the cloud can enhance flexibility and drive innovation, it also brings risks that must be managed effectively.
Risks noted include the level of control firms maintain over suppliers and data security concerns. In a conversation with Finextra in 2021, Orlando Fernández Ruiz from the Bank of England emphasized that when outsourcing, the responsibility cannot be delegated. He highlighted the necessity for firms to implement effective governance and controls to oversee service delivery, aligning with the PRA’s operational resilience framework, which integrates operational risk management and business continuity measures.
He also mentioned that new policies focus on contingency planning and exit strategies, with a technology-agnostic approach, expecting third parties to maintain business continuity plans to handle operational disruptions effectively.
The CMA’s investigation is anticipated to conclude in April 2025.