Competition Watchdog Goes Soft on Structural Remedies for UK Cloud Market

The Competition and Markets Authority (CMA) has issued a technical update on their investigation into the UK’s public cloud infrastructure services market, which is currently dominated by Amazon (AWS) and Microsoft (Azure). As part of this, the CMA hints that they’re “not currently minded to prioritise further consideration of structural or operational separation remedies” (e.g. divestment).

Just to recap. Ofcom formally referred the market to the CMA in October 2023 (here), which came after the regulator found that high fees for transferring data out, committed spend discounts and technical restrictions were making it difficult for business customers to switch cloud provider or use multiple providers. Ofcom feared that, if left unchecked, “competition could deteriorate in a critical digital market for the UK economy“.

NOTE: Microsoft and Amazon, combined, hold about 70-80% of the market, while Google comes in third on 5-10%. The firms are known as “hyperscalers” and the vast majority of cloud customers use their services in some form. The market for cloud infrastructure in the UK was worth £7.0bn to £7.5bn in 2022.

Ofcom’s work focused on ‘cloud infrastructure services’, which are built on physical servers and virtual machines hosted in data centres around the world. Cloud infrastructure provides the foundation for how software applications are developed and run. This consists of products called infrastructure as a service (IaaS), which includes storage, computing and networking, and platform as a service (PaaS), which includes the software tools needed to build and run applications.

The CMA could, if it were – like Ofcom before – to find fault with the market, impose a broad range of remedies, including market-opening measures, structural measures, or recommendations to Government (or other regulatory bodies) to change policy, legislation, or regulatory frameworks.

The competition watchdog has now posted a number of new documents as part of this investigation, which includes one that examines the potential remedies (PDF). Such remedies are typically classified as either “structural” or “behavioural“. Structural remedies in market investigations are generally one-off measures that seek to increase competition by altering the competitive structure of the market (e.g. divesting a business unit or set of assets).

By comparison, behavioural remedies are generally ongoing measures that are designed to regulate or constrain the behaviour of parties in a market and/or empower customers to make effective choices (e.g. making it easier to switch companies, forcing greater informational transparency and so forth).

The CMA’s Updated Viewpoint

At this point it’s very important to stress that the CMA hasn’t yet come to a firm conclusion on anything, although we are expecting them to eventually propose a “package of measures“. The new document gives us an early glimpse into the CMA’s emerging views on structural remedies and things like operational separation.

CMA’s Position on Structural Remedies

Given that we have identified alternative potential remedies, discussed in working papers, and the initial concerns we have [identified], we are not currently minded to prioritise further consideration of structural or operational separation remedies. However, we would welcome responses on our emerging views in this area.

Assuming this position holds, then that would leave the CMA to focus more on behavioural remedies, which they say are “likely to be targeted on reducing barriers to switching and/or using a multi-cloud approach for customers, and reducing barriers to entry and expansion for rival cloud providers,” among other things.

The CMA currently expects to publish their provisional findings in September or October 2024. After that a final decision must be made and published by the statutory deadline of 4th April 2025.

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