Poor levels of competition in the cloud market could be costing the UK hundreds of millions of pounds a year, a study by Britain’s competition regulator has found.

The Competition and Markets Authority (CMA) said it had provisionally found that there are adverse market effects in cloud services provided in the UK, meaning that competition “is not working as well as it could be, which is likely to be leading to higher costs, less choice, less innovation and lower quality of service for businesses and organisations across the UK economy.”

In an illustrative example, the CMA said that if prices are on average 5% above those in well-functioning markets, this would in aggregate lead to UK customers paying around £430 million more per year for these services than they would in more competitive markets. Spending on cloud services has been increasing at a rate of 30% per year, the regulator said, meaning that the cost to the economy was likely to get worse over time without effective remedies.

“We have provisionally found that high levels of market concentration and barriers to entry and expansion have enabled each of the two largest providers, AWS and Microsoft, to hold significant unilateral market power in these markets,” the CMA said.

“This harms competition in cloud services in the UK because it is harder for alternative cloud suppliers to enter and grow in these markets and customers face a limited choice of suppliers.”

The report added the harm is exacerbated by the features found arising from technical and commercial barriers, and drew particular attention to the market’s dominant player, Microsoft.

“Microsoft’s licensing practices are partially foreclosing AWS and Google which is having an impact on their competitive positions, and that this harms competition in cloud services in the UK. It also exacerbates the harm we have provisionally found arising from high market concentration and barriers to entry and expansion in relation to Microsoft’s significant unilateral market power.”

The report recommended that the CMA should “consider imposing appropriate interventions” to address competition concerns, including on technical barriers, egress fees and Microsoft’s licensing practices, by using its powers under the Digital Markets, Competition and Consumers Act.

Nicky Stewart, senior adviser to the Open Cloud Coalition, said: “The CMA’s provisional decision shines a welcome spotlight on anticompetitive practices in the cloud market, which lock in customers and harm free, fair competition.

“The CMA should accelerate the process of bringing this under the Digital Markets Unit. Every month that passes without action is another missed opportunity for innovation and UK economic growth. Every pound spent on restrictive licensing markups and egress fees is a pound not spent on growing the UK’s economy.”

In a statement, Google appeared to support the sentiment of the CMA’s report. Chris Lindsay, Vice President, Customer Engineering EMEA, Google Cloud, said: “Restrictive licensing harms UK cloud customers, threatens economic progress, and stifles innovation, and we are encouraged that the CMA has recogniszed the harm of these practices.”

However, AWS distanced itself from the report’s findings. A spokesperson said: “The proposed intervention under the Digital Markets, Competition and Consumers Act 2024 (DMCCA) is not warranted… we urge the CMA to carefully consider how regulatory intervention in other areas will stifle innovation and ultimately harm customers in the UK.”

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