The UK communications regulator has referred the country’s £7.5bn cloud computing market to the competition watchdog for a formal investigation after a study raised concerns about industry leaders Amazon and Microsoft. Ofcom has asked the Competition and Markets Authority to launch an inquiry, saying it is “particularly concerned about the position of the market leaders Amazon and Microsoft”. Cloud computing, or the delivery of IT services such as data storage and computing power over the internet with a pay-as-you-go pricing structure, is widely used by businesses and has emerged as a significant piece of infrastructure in the development of the next generation of artificial intelligence (AI) models. Fergal Farragher, the Ofcom director who oversaw the watchdog’s study into the cloud market, said companies had expressed concerns about the difficulty of switching or mixing and matching cloud providers. Industries ranging from TV production to telecoms networks and AI “rely on remote computer power that goes unseen”, he said. “Some UK businesses have told us they’re concerned about it being too difficult to switch or mix and match cloud provider, and it’s not clear that competition is working well. So, we’re referring the market to the CMA for further scrutiny to make sure business customers continue to benefit from cloud services.” Ofcom also said the profits generated by Amazon and Microsoft from their operations pointed to competition issues. “High levels of profitability for the market leaders AWS [Amazon’s cloud unit] and Microsoft indicate there are limits to the overall level of competition,” the regulator said. Microsoft and Amazon together control up to 80% of the £7.5bn UK cloud computing market, with Google the next closest with up to 10%. Ofcom said its concerns about the market included: costly exit fees for transferring data to another provider, particularly those charged by the three market leaders; difficulty combining your computing needs across different cloud providers; and the structuring of discounts for committing a certain level of spend with market-leading cloud suppliers. “These market features can make it challenging for some customers to switch or use multiple cloud providers,” said Ofcom. “This can make it difficult to bargain for a good deal with their provider, or to mix and match the best quality services across different providers.” The CMA confirmed on Thursday morning it had launched an investigation into the market after the Ofcom referral and had established a group to investigate cloud computing. Sarah Cardell, the chief executive of the CMA, said: “This is a £7.5bn market that underpins a whole host of online services – from social media to AI foundation models. Many businesses now completely rely on cloud services, making effective competition in this market essential. “The CMA’s independent inquiry group will now carry out an investigation to determine whether competition in this market is working well and, if not, what action should be taken to address any issues it finds.” The CMA will set out the scope of its probe soon and is expected to complete the investigation, including potential remedies if it finds anti-competitive practices in the cloud market, by April 2025. AWS said the company disagreed with Ofcom’s findings, adding that they were based on a “fundamental misconception of how the IT sector functions”. The spokesperson said: “UK companies, and the overall economy, benefit from robust competition among IT providers, and the cloud has made switching between providers easier than ever. “Any unwarranted intervention could lead to unintended harm to IT customers and competition. AWS will work constructively with the CMA.” A Microsoft spokesperson said the company was committed to a competitive UK cloud industry and would engage with the CMA investigation.