UK and EU cloud services under regulatory scrutiny

Investigations into competition in the cloud services market are being stepped up.

It is clear that the UK and EU’s cloud computing markets are coming under increasing scrutiny. In the UK, Ofcom recently published an interim update on its study into the UK cloud services market which commenced in October 2022. In the EU, political agreement has been reached on the Data Act, which has the potential to have a far-reaching impact on the provision of cloud services in Europe.

There are clear similarities between some of Ofcom’s initial findings and the stated aims of the Data Act. 

UK cloud services market

Ofcom launched the study (using its powers under the Enterprise Act 2002) to gain further understanding of the makeup and state of the UK cloud services market. As part of the study, Ofcom has been examining the competition in the market and aspects of it that have the potential to hinder its continued innovation and growth.  

The findings are largely split into two distinct areas:

  1. Ofcom has found that “competitive market forces are delivering benefits to customers”, particularly highlighting competition between providers to win new business as a driving force of innovative discounts and products.
  2. However, it has also found that “competition is being limited by market features that make it more difficult for customers to switch and use multiple suppliers (known as ‘multi-cloud’).” In particular, Ofcom highlights concerns around committed spend discounts, interoperability and egress fees.

As a result, Ofcom has proposed referring the UK cloud services market to the Competition and Markets Authority (CMA) for investigation.

It is clear from Ofcom’s report that, like the EU, they are concerned by how certain features of the UK’s cloud services industry operate – such as egress fees and interoperability. For more on how the EU has been seeking to address these in the Data Act, please see our series of articles. As Ofcom’s investigation is at an earlier stage, it isn’t yet clear whether it will recommend the UK government intervene in the market in a similar way to the EU.

European Parliament Data Act

On the June 28, it was confirmed by the European Commission that political agreement on the text of the Data Act has been reached by the European Parliament and Council. The Act is now subject to formal approval by both bodies before it is published in the Official Journal of the EU.

Alongside publishing the interim report, Ofcom ran a consultation on the report itself and on its proposal to make a market investigation reference to the CMA. It remains to be seen whether the end of Ofcom’s investigation and any potential CMA investigation will eventually lead to a UK-specific equivalent of the cloud services-focused elements of the EU’s Data Act. What appears more certain is that the UK cloud services industry will face increased regulatory scrutiny in the short and medium term. We’ll be providing further updates on the Data Act once the final text becomes available.

Ian Stevens is a partner in the Technology and Sourcing team, leads the Fintech group and is one of the leaders of the technology, media and communications sector group and Jake Sargent is an associate in the Technology & Media team at CMS.