The Competition and Markets Authority (CMA) has published the provisional findings stemming from its investigation of the UK cloud services markets.

Based on the opinions of an independent inquiry group, the government watchdog’s provisional report identified some competition concerns arising from features within the cloud services market, including significant barriers to entry for smaller providers.

According to the regulator, UK customers face a highly concentrated cloud market, where Amazon Web Services (AWS) and Microsoft dominate both infrastructure-as-a-service and platform-as-a-service offerings, each with a 30% to 40% share.

The CMA said that the third largest provider, Google, accounts for a much lower share of the current market, while other firms like Oracle and IBM are being squeezed.

Despite finding that the costs for consumers of different cloud services have moved in different directions, with some increasing in price over time and others falling, the CMA’s inquiry highlighted the substantial returns being generated by AWS and Microsoft, with both firms making substantially above their cost of capital in cloud services for a number of years.

Microsoft, in particular, was noted as using its strength in software to make it harder for AWS and Google to compete effectively for customers who want to use Microsoft software on their cloud — with the CMA claiming this has reduced the competitive challenge to Microsoft.

The CMA’s initial investigation found that Microsoft’s licensing practices could also be causing undue harm to its competitors, with the firm being able to limit AWS and Google’s access to relevant Microsoft software products.

Added to that, the report claims to have identified differences in price and quality when customers use Microsoft’s software products on its cloud compared to its competitors, with the company charging these rivals higher prices for some products than it charges its own customers at retail.  

The CMA further claims that the broad portfolios of the three main players in the UK’s cloud market, and their planned investments to expand their services, could have a chilling effect on potential rivals’ market entry and expansion.

Meanwhile, the report said that technical and commercial barriers are making it harder for cloud customers to switch and multi-cloud between providers, locking them into their initial choices, and potentially leading to UK customers paying millions more for cloud services than otherwise might be the case. 

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“The ability of UK businesses to put pressure on cloud providers to offer better deals is important to ensuring good outcomes and to unlocking the potential benefits of cloud services,” said the CMA.

“The inquiry group’s provisional view is that competition is not working as well as it could, and that improvements could make cloud services markets work better for UK businesses in terms of improved prices, quality and choice.

“Interventions to address some of these issues would allow UK businesses to get better deals from cloud providers, enabling them to contribute to economic growth.”

The inquiry group has proposed that the CMA should use its new digital markets powers to examine whether to designate AWS and Microsoft with having strategic market status (SMS) in cloud services and, if so, consider making interventions.

The CMA is currently inviting responses to these initial findings, due by the 18th February.