Microsoft and Amazon are hurting cloud competition, UK regulator finds

LONDON — Britain's competition regulator on Thursday said that Microsoft and Amazon are hurting competition in the cloud computing industry and called for a probe into their market dominance under the country's strict new tech rules.

The Competition and Markets Authority said that market concentration and barriers to entry in the cloud services market have enabled both Microsoft and Amazon to hold “significant unilateral market power” and reap financial gain exceeding the cost of capital expenditure over a sustained period.

Tech giants like Amazon, Microsoft and Google have built huge businesses by offering access to computing resources — such as data storage and processing — via the internet using data centers, large facilities that contain dedicated hardware.

The CMA is concerned that certain practices within the space, such as egress fees and unfavorable licensing terms, are creating a “lock-in” effect where businesses are getting trapped into contractual agreements that are difficult to get out of.

Microsoft and Amazon were not immediately available for comment when contacted by CNBC.

The watchdog took issue with technical and commercial restrictions in the cloud market that make it harder for firms to switch cloud provider and find better offers or more innovative new services from alternative providers.

It also took aim at licensing practices from Microsoft that make it cheaper to use the tech giant's cloud-based Windows Server on its Azure cloud than competing services, saying the issue “further restricts the already limited choice and attractiveness of alternative products and suppliers.”

Microsoft and Amazon both hold a roughly 30% to 40% share of the so-called infrastructure-as-a-service (IaaS) market, which entails processing, storage, networking and other raw computing resources, the CMA said. Google is the third-biggest provider but holds a much smaller 5% to 10% IaaS market share, it said.

To address the issues, the CMA recommended a further investigation into Microsoft and Amazon under the Digital Markets, Competition and Consumers (DMCC) Act to determine whether they have “strategic market status.”

The DMCC is a recently introduced law in the U.K. that aims to prevent anti-competitive behavior in digital markets — akin to the Digital Markets Act in the European Union. Firms designated strategic market players are considered as having substantial and entrenched market power and can be subjected to targeted interventions to address competition concerns.