Ofcom to probe cloud, messenger, smart-device markets
September 22, 2022
By Colin Mann
UK comms regulator Ofcom is to examine the position of Amazon, Microsoft and Google in cloud services, as part of a new programme of work to ensure that digital communications markets are working well for people and businesses in the UK.
According to Ofcom, cloud computing is a huge and fast-growing market, which uses remote servers to offer services such as software, storage and computing power. The user, who could be a person or business, makes use of these services but doesn’t manage them directly. The cloud has become an essential part of how products are delivered to telecoms users, as well as viewers and listeners of TV, radio and audio content.
In the coming weeks, Ofcom will launch a market study under the Enterprise Act 2002 into the UK’s cloud sector. The largest providers of cloud services – known as ‘hyperscalers’ – are Amazon Web Services (AWS), Microsoft and Google. Collectively, these three firms generate around 81 per cent of revenues in the UK public cloud infrastructure services market.
Ofcom’s study will formally assess how well this market is working. It will examine the strength of competition in cloud services generally and the position the three hyperscalers hold in the market. Ofcom will also consider any market features that might limit innovation and growth in this sector by making it difficult for other companies to enter the market and expand their share.
Because the cloud sector is still evolving, Ofcom will look at how the market is working today and how it expects it to develop in the future – aiming to identify any potential competition concerns early to prevent them becoming embedded as the market matures.
When Ofcom launches the market study, it will invite initial views on the UK cloud market from interested or affected parties. It plans to consult on its interim findings and publish a final report – including any concerns or proposed recommendations – within twelve months.
If it finds a market is not working well, there can be negative impacts on businesses and ultimately consumers, through higher prices, lower service quality and reduced innovation. In these circumstances, Ofcom can take one or more of the following steps:
- make recommendations to government to change regulations or policy;
- take competition or consumer enforcement action;
- make a market investigation reference to the Competition and Markets Authority (CMA);
- accept undertakings in lieu of making a market investigation reference.
Ofcom has engaged closely with the CMA in planning the market study, and will continue to do so during the course of the project. Ofcom will lead the market study, drawing on its strong expertise in communications markets and reflecting that cloud is increasingly becoming an important element of the infrastructure of the Internet.
Over the next year, Ofcom will also start a broader programme of work to examine other digital markets, including online personal communication apps and devices for accessing audiovisual content.
Ofcom is interested in how services such as WhatsApp, FaceTime and Zoom are affecting the role of traditional calling and messaging, and how competition and innovation in these markets may evolve over the coming years. It also wants to understand whether any limitations on their ability to interact with each other raises potential concerns.
Another future area of focus for Ofcom is the nature and intensity of competition among digital personal assistants and audiovisual ‘gateways’ – such as connected televisions and smart speakers – through which people access traditional TV and radio, as well as online content.
Ofcom will explore competition dynamics in this sector and identify whether there are any potential areas that require more formal examination. Its work will include analysis of consumer behaviour, future developments, as well as the role and business models of major players and their bargaining power with content providers.
“The way we live, work, play and do business has been transformed by digital services,” notes Selina Chadha, Ofcom’s Director of Connectivity. “But as the number of platforms, devices and networks that serve up content continues to grow, so do the technological and economic issues confronting regulators.”
“That’s why we’re kick-starting a programme of work to scrutinise these digital markets, identify any competition concerns and make sure they’re working well for people and businesses who rely on them.”
According to Paolo Pescatore, TMT Analyst at PP foresight, there are different aspects and it is not a clear ‘slam dunk’. “Each area needs to be independently assessed. Ultimately, Ofcom is concerned with the dominance of a small number of players which has seen their share grow significantly,” he suggests.
“It is becoming increasingly harder for new entrants or any emerging player to compete given the established position of the big ones. In Cloud, there are fewer providers with the market dominated by AWS with Microsoft Azure and Google Cloud challengers competing in large part by price.
For Pescatore, the timing is interesting as people have shown a strong appetite to buy and use a slew of connected devices such as smart speakers and messaging services. “These have been highly sought-after during the pandemic and have now become the norm in everyday usage,” he notes.
“Therefore, it is hard to see what Ofcom will do if the big tech are stifling competition. We might see restrictions, incentives to foster new players,” he says.
“Let’s not forget the current uncertain geo-political and macroeconomic climate with prices heading in one direction. Can the market sustain new players or significant price increases that will impact consumers,” he asks.