Market Watch

UK Competition Regulator Eyes Behavioural Remedies for Cloud Market Giants

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The UK’s Competition and Markets Authority (CMA) is unlikely to demand that dominant cloud service providers Microsoft and AWS break up their businesses or divest assets. However, it is considering several other market interventions to ensure fair competition.

The CMA’s latest update on its investigation into the public cloud infrastructure sector, initiated late last year on Ofcom’s recommendation, suggests that structural remedies such as asset divestments or operational separations are off the table. These measures, which could have included splitting cloud operations or segregating business units, were found to have more drawbacks than benefits.

“Given that we have identified alternative potential remedies…we are not currently minded to prioritize further consideration of structural or operational separation remedies,” the CMA stated.

Instead, the regulator is focusing on behavioural remedies. While details are sparse, these would likely aim to reduce barriers to switching providers and promote multi-cloud usage. Enhancing standardization and interoperability of cloud services and addressing the anti-competitive impact of high egress fees, which hinder customers from moving data between providers, are also on the CMA’s agenda.

The investigation, set to conclude by April next year, will determine if these remedies are necessary based on evidence of adverse effects on competition. Preliminary findings suggest significant market concentration, with AWS and Microsoft holding substantial market power. AWS leads with a 30%-40% share in the combined IaaS and PaaS markets, with Microsoft close behind and growing. In contrast, smaller providers like Google, IBM, and Oracle hold much smaller market shares and are growing more slowly.

The CMA noted that the market share of smaller providers and independent software vendors (ISVs) has been declining, while AWS and Microsoft have strengthened their dominance. The regulator also highlighted the high margins and return on investment enjoyed by these two giants, further indicating their market power.

Many large customers see no viable alternatives to AWS and Microsoft, with Google seen as a closer competitor than others. The CMA’s emerging view points to significant market power held by these leading providers, supported by their high market shares and substantial barriers to entry for new rivals. The investigation’s findings are likely to prompt recommendations for competitive remedies, with the CMA continuing its scrutiny until next year.

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