The referral comes from Ofcom, the communications regulator, which has already found problems from its own review of the workings of the cloud computing market.
Ofcom's probe uncovered practices that could limit competition, and it is "particularly concerned" about the role of market leaders Amazon, which provides cloud services via its Amazon Web Services (AWS) arm, and Microsoft, which had a combined market share of 70-80% in 2022, with Google their closest competitor, at 5-10%.
"High levels of profitability for the market leaders AWS and Microsoft indicate there are limits to the overall level of competition," Ofcom said.
Deep Dive: Big tech is 'impossible to avoid' but few investors know how to value it
Ofcom found issues including high fees for transferring data out, committed spend discounts and technical restrictions, all of which the telecoms regulator said make it difficult for business customers to switch cloud provider or use multiple providers.
Ofcom found Amazon, Microsoft and Google set transferring out fees, so-called ‘egress fees', at "significantly higher rates than other providers", which could put businesses off switching.
"If left unchecked, competition could deteriorate in a critical digital market for the UK economy," Ofcom said.
Its concerns have now been sent to the Competitions and Markets Authority to conduct an independent investigation to decide whether there is an adverse effect on competition, and, if so, whether it should take action.
UK watchdog eases on Microsoft over Activision deal
Fergal Farragher, Ofcom's director responsible for the market study, said: "Some UK businesses have told us they are concerned about it being too difficult to switch or mix and match cloud provider, and it is not clear that competition is working well.
"So, we are referring the market to the CMA for further scrutiny, to make sure business customers continue to benefit from cloud services."
Cloud computing has been widely integrated into the processes of many companies throughout the UK, from telecoms firms to the public sector, transforming how firms work, and is now heavily relied on for day-to-day commercial activities.
In October 2022, Ofcom launched an investigation into cloud services in the UK to assess how well the market is working for businesses, which looked at the strength of competition and any barriers to innovation and growth faced by smaller providers.
UK competition regulator launches review into AI market
It found providers are competing to attract new customers, but it had concerns about product innovation and discounts.
As well as egress fees, Ofcom also flagged technical barriers put in place by the cloud companies to make it hard for customers to combine different services across cloud providers or change provider.
Committed spend discounts are also on Ofcom's radar. These are discounts given by the largest cloud companies for bulk buying their services. Ofcom raised concerns this can incentivise solely using the main players in the market, even if better alternatives were available.
"These market features can make it challenging for some customers to switch or use multiple cloud providers…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," Ofcom said.
Making a market investigation reference is a significant step for Ofcom to take, and "reflects the importance of cloud computing to UK consumers and businesses and the significant concerns we have about the cloud infrastructure market", the telecoms regulator said.