The Competition and Markets Authority (CMA) is currently investigating the cloud infrastructure services market following findings from communications regulator Ofcom that indicated potential anti-competitive practices in the industry. This inquiry also aims to assess whether technical hurdles and data egress fees hinder customer switching among providers.
Stakeholder Feedback
Key players in the cloud industry, such as AWS and Microsoft, have been invited by the CMA to provide their insights on whether the areas under scrutiny are adversely impacting competition. In recent feedback documents, both companies have suggested that if the CMA’s investigation results in mandated operational changes, it could jeopardize their investments in the UK.
In a submission, Microsoft expressed concerns that if the CMA restricts its ability to provide discounts through committed spend agreements (CSAs), it could adversely affect its investment in UK infrastructure. “CSAs are crucial for sustaining effective price competition among cloud providers, leading to lower costs and fostering substantial long-term investment in UK cloud infrastructure,” Microsoft stated in its July 2024 response. Microsoft warned that any intervention by the CMA could result in negative outcomes for UK consumers, including higher cloud prices, reduced competition, and uncertainty for future infrastructure investments.
AWS also voiced its stance in its submissions made public on September 16, arguing that there is no evidence that committed spend discounts are anti-competitive; hence, intervention would be unnecessary. They cautioned that curtailing such discounts could lead to unpredictability in AWS’s revenues, potentially making the company more hesitant in its investments. AWS further argued that the CMA’s proposed interventions would unfairly disadvantage UK customers by raising prices compared to those outside the UK and could impair the broader growth and competitiveness of the UK market.
Analyzing Committed Spend Discounts
While AWS defends committed spend discounts as pro-competitive, this view is not universally shared within the UK cloud landscape. Specifically, AWS has implemented a committed spend discount scheme known as the One Government Value Agreement (OGVA), which provides public sector IT buyers with discounts on AWS services. The initial phase of OGVA, which lasted three years starting in October 2020, yielded baseline discounts of up to 18%. The scheme was extended for another three years in December 2023, shortly after the CMA announced that committed spend discounts would be part of its anti-trust investigation.
Data from public sector IT market analysts Tussell indicate that since the OGVA’s initiation, AWS has secured 86 contracts totaling £1.45 billion. Notably, 26 contracts valued at £1.03 billion were awarded after the launch of the second iteration of OGVA in October 2023, with at least 11 contracts involving committed spend discounts. Significant contracts among this cohort include three major renewals worth a total of £894 million, including a £450 million deal with the Home Office.
Concerns have been raised that such committed spend discount arrangements could lock public sector entities into long-term and increasingly costly contracts, complicating exit strategies. Experts like Nicky Stewart, former head of ICT at the Cabinet Office, have highlighted the risks associated with the public sector’s dependence on the OGVA scheme, arguing that it ultimately limits competition and flexibility for government entities.
Stewart criticized AWS’s assertion that restricting committed spend discounts equates to restricting competition, noting the significant long-term commitments into which UK government entities may be locked. Microsoft has similarly hinted at the potential consequences of CMA intervention on its UK investments in its July 2024 paper, where it expressed concern over suggestions that it may need to grant rival cloud providers access to its data centers to foster competition.
Stewart believes that AWS and Microsoft are attempting to exert influence over the CMA and urged the authority to remain steadfast and independent in its proceedings. Independent security consultant Owen Sayers echoed this sentiment, suggesting that both giants seem to think they hold considerable power in the situation, partly due to ongoing government contracts and favorable changes in policy.
Mark Boost, CEO of cloud service provider Civo, asserts that while committed spend discounts may seem innocuous, the CMA is correct to scrutinize them as forms of customer lock-in. He argued for measures to limit excessive discounts and enhance transparency regarding their terms. Furthermore, he advocates expanding the CMA’s investigation to cover free cloud credits, which he described as another potentially anti-competitive practice that warrants examination.
In summary, the CMA’s investigation into the cloud infrastructure services sector continues to gather attention as major providers articulate their concerns over potential regulatory changes that could impact their operations and investments in the UK.