Amazon Web Services (AWS) and Microsoft command the cloud infrastructure market to the point that United Kingdom communications regulator Ofcom is referring its investigation into the cloud market's competition concerns to that country's Competition and Markets Authority (CMA), just halfway through the probe's initial investigation period.

The Ofcom examination falls under the Enterprise Act 2002, and was part of a program to ensure digital communications markets work well for both people and businesses in the U.K. When markets don't work well, businesses and customers experience negative impacts like higher prices, reduced service quality, and less innovation, according to Ofcom.

While Ofcom initially took the lead on the market study, it has been working closely with CMA on the process and previously identified the potential to pass the investigation along to CMA, which will "further examine the nature and extent of barriers" and decide if any interventions might improve the state of the U.K. cloud market.

"The CMA is best placed to undertake any further investigation," Ofcom said, adding that it plans to engage closely with CMA as the market study continues. Ofcom Director Feral Farragher added that "more in-depth scrutiny is needed to make sure [the market is] working well for people and businesses who rely on these services."

In its examination thus far of the cloud infrastructure market, which includes infrastructure-as-a-service (IaaS), platform-as-a-serivce (PaaS) and software-as-a-serivce (SaaS), Ofcom determined AWS and Microsoft are the two major players, with Google trailing behind.

And while Ofcom found there are competitive market forces driving benefits for customers, like "innovative products and discounts," other features of the market sparked concern.

The investigation determined "high levels of profitability for the market leaders AWS and substantial consistent growth in Microsoft’s profits indicate there are limits to the overall level of competition," and egress fees, technical restrictions on interoperability and committed spend discounts are "already causing harm," the regulator noted.

Cloud egress fees are charges to the customer for transferring data out of a provider's cloud, and the hyperscalers tend to set those rates much higher than small cloud providers.

These fees also make it harder for existing cloud customers "to bargain for a good deal with their provider," Ofcom said, highlighting "evidence of cloud customers facing significant price increases when they come to renew their contracts." These costs are concerning to regulators because they contribute to vendor lock-in and discourage customers from using more than one cloud or switching to a different provider.

The investigation also found technical restrictions on interoperability are imposed by leading providers like AWS and Microsoft to "prevent some of their services working effectively with services from other providers," Ofcom explained. As a result, cloud customers end up exerting extra effort toward reconfiguring data and applications for a multi-cloud environment.

And although committed spend discounts can help reduce customers' costs, these discounts are structured in a way that incentivizes organizations to use a single hyperscaler for "all or most of their cloud needs, even when better quality alternatives are available," the regulator explained.

Ofcom expressed concern that these constraints on customers' ability to use more than one cloud provider are making it more difficult for smaller providers to gain market share and compete with hyperscalers. Regulators noted cloud market revenues "are already concentrated with a few players, and there is a risk that the features we have identified could lead the market to concentrate further toward the market leaders."