The Competition and Markets Authority (CMA) is in the midst of an investigation into the cloud infrastructure services market, after communications regulator Ofcom uncovered evidence of anti-competitive behaviour in the sector.
The investigation is also looking into whether technical barriers and the charging of data egress fees make it harder for customers to switch providers.
Stakeholder feedback
Cloud industry stakeholders – including AWS and Microsoft – have been invited by CMA to share their opinions on whether the areas the investigation is focused on are affecting competition within the sector.
However, in the most recent release of feedback documents, both AWS and Microsoft appear to be suggesting that if the CMA’s investigation concludes that they must change how they operate, this could compromise the level of Amazon and Microsoft’s investment in the UK.
In one of its submissions, Microsoft claims that if the CMA introduced measures to, for example, curtail its ability to offer discounts via committed spend agreements (CSAs) to customers, this could negatively impact its ability to invest in its UK infrastructure.
“CSAs are central to effective price competition between competing cloud providers, resulting in lower prices and supporting the significant levels of long-term investment in UK cloud infrastructure,” said Microsoft in its July 2024 response.
“Any proposed intervention by the CMA would likely lead to worse outcomes for UK customers [including] higher cloud consumption prices, less competition for switching/migrating/multi-cloud customers and less certainty for long-term infrastructure investment.”
In its submissions, published online on 16 September, AWS said there is no evidence that offering committed spend discounts to customers is an anti-competitive practice, and for that reason “intervention is unwarranted”.
If an intervention were to occur that stopped AWS offering committed spend discounts to customers, that would result in “less predictability in AWS’s revenues, which could make AWS more cautious in how it invests in its business,” the document warned.
The cloud giant also went on to claim that any intervention would have dire consequences for AWS’s UK customers.
“The CMA’s emerging proposed interventions are not only unwarranted but would result in UK customers paying higher prices, particularly compared to customers outside the UK, putting [them] at a competitive disadvantage and introducing impediments to their growth,” said AWS.
“This would threaten the overall growth and competitiveness of the UK, particularly if this results in UK customers (or indeed business outside the UK) preferring alternative, more competitive jurisdictions.”
It added: “Any intervention that restricts [committed spend discounts] and leads to higher prices for customers [risks] making the UK less competitive [and] would risk isolating the UK, as customers would seek similar discounts and alternative options for sourcing their services.”
Drilling down into committed spend discounts
While AWS believes that committed spend discounts are pro-competitive, that is not a view shared by others in the UK cloud market.
AWS operates a committed spend discount scheme, known as the One Government Value Agreement (OGVA), that allows public sector IT buyers to access discounts on AWS products and services. The first iteration of OGVA ran for three years from October 2020 and saw participants rewarded with baseline discounts of up to 18%.
News emerged in December 2023 that the agreement had been quietly renewed for a further three years, several months after the CMA confirmed committed spend discounts would be in scope of its anti-trust investigation.
According to data shared with Computer Weekly by public sector IT market-watcher Tussell, there have been 86 public sector contracts awarded to AWS since October 2020, which is when the first iteration of the OGVA came into force, worth a total of £1.45bn.
Of these, 26 were awarded after October 2023, when the second iteration of the OGVA scheme went live, and are valued at £1.03bn, and at least 11 of these were issued under the terms of committed spend discount contracts.
Notable deals among the post-October 2023 crop of AWS contracts are three totalling £894m that all went live on the same day, including one valued at £450m with the Home Office, another worth £350m with HM Revenue & Customs, and a third worth £94m awarded by the Department for Work and Pensions.
Each of these deals was a contract renewal and significantly larger than its predecessor, with the value of the Home Office contract nearly four times higher than the department’s previous AWS deal.
This led to concerns that committed spend discount schemes, such as the OGVA, risk locking public sector bodies into lengthy and increasingly expensive contracts that may prove difficult to exit.
Nicky Stewart, former head of ICT at the Cabinet Office, is among the cloud industry experts to have aired concerns about the long-term implications of the public sector’s growing reliance on the OGVA scheme.
“I find AWS’s argument that a restriction on committed spend discounts equates to a restriction on competition completely baffling,” she told Computer Weekly.
“Just look at the predicament of UK government. Locked into a multi-year commitment of just shy of a billion pounds. I doubt that other cloud providers aspiring to supply the government would see the market as anything other than well and truly foreclosed for the foreseeable future.
“And that’s before you get into how value for money was tested for taxpayers before the deal was made. Or the fact that committed spend discounts are fundamentally at odds with what attracted government to the cloud in the first place – the flexibility to scale at will, paying only for what it uses.”
Stewart pointed out that Microsoft also made veiled threats in its July 2024 working paper about how it might have to curb its UK investments if the CMA orders it to change the way it operates due to anti-competitive concerns.
This paper detailed Microsoft’s responses to various remedies put forward by the CMA to tackle the technical barriers that could prevent customers switching between cloud providers.
One of the suggested remedies put forward by the CMA is that cloud providers could be required to free up space within their datacentres for rivals to use, to put them on an equal footing from a latency perspective.
In its response, Microsoft states that the CMA is aware that introducing a measure like this could act as a “potential disincentive for future investment in UK datacentres”.
In Stewart’s view, AWS and Microsoft are simply trying to use scare tactics to get their own way, and the CMA would be well-advised to pay no attention.
“The CMA needs to ignore the hyperscale tanks now parked on its lawns, maintain its independence, not bow to any direct or third-party pressure and get on with its job,” she said.
Owen Sayers, an independent security consultant and enterprise architect with over 20 years’ experience in delivering national policing systems, said the wording of AWS and Microsoft’s submissions suggests both parties feel in a position of power.
In Amazon’s case, that might be because it has years left to run on sizeable government contracts, such as the £450m Home Office deal, whereas Microsoft knows its technologies are deeply entrenched in the public sector.
Add to that the new Labour government’s recent efforts to court investment from the hyperscalers, with its push to lower the barriers to new datacentre builds, and it is easy to see why AWS and Microsoft might be feeling emboldened to make such threats, added Sayers.
“We’ve seen this new government make changes to the categorisation of datacentres to enable fast-tracked planning approvals, which is clearly to advantage the hyperscalers, and those same hyperscalers will obviously seek to leverage that,” he said.
“If [AWS and Microsoft] decide not to spend billions of pounds in the UK because of the CMA’s interventions, this will be presented as a ‘change to business priorities’ but it’s a tangible threat when the UK cannot afford to lose such investments.”
He added: “The hyperscalers think they’re in the driving seat, which is bizarre because the CMA investigation was specifically set up to determine if they have a monopoly position unhealthy to UK interests. When any service provider feels they can exert influence over a regulator and are also clearly able to influence government policy, they have an unhealthy share of the market.”
Mark Boost, CEO of Stevenage-based cloud service provider Civo, told Computer Weekly that committed spend discounts look “benign enough at first glance” but the CMA is right to make them a focus of its investigation because they are another form of customer lock-in
“The way committed spend discounts work is straightforward – the more years an organisation commits to, the greater the savings. This may lead to short-term benefits, but it will always result in long-term costs by locking enterprises into a single provider,” said Boost.
“The CMA mustn’t be swayed by the excuses offered by AWS and Microsoft. It should consider measures to limit the excess of these discounts and improve transparency around their terms and conditions.”
Boost said he would like to see the CMA probe expanded to explore a topic that is adjacent to committed spend discounts, which is the offering of free cloud credits by providers to entice users to initially build applications on their platforms.
“Cloud credits work in a similar way to committed spend discounts,” he said. “An initial offer of free credits is appealing. However, once applications are built and data stored in the hyperscaler’s environment, it’s often prohibitively costly to move to a different provider.”
He added: “Despite this, cloud credits were not mentioned once during the most recent hearings. The CMA must urgently look into these practices if they’re to truly address the anti-competitive behaviour that’s holding back the UK’s cloud market.”