UK communications regulator Ofcom will examine the position of Amazon, Microsoft and Google on cloud services as part of a new work program to ensure 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 that uses remote servers to offer services such as software, storage and computing power. The user, who can be an individual or a company, uses these services but does not directly manage them. The cloud has become an essential part of delivering products to telecom users and 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 cloud sector. The largest providers of cloud services – so-called “hyperscalers” – are Amazon Web Services (AWS), Microsoft and Google. Together, these three companies generate around 81 percent of the revenue in the UK public cloud infrastructure services market.
The Ofcom study will formally assess how well this market is performing. It will examine the strength of competition in cloud services in general and the position of the three hyperscalers in the market. Ofcom will also consider any market characteristics that could limit innovation and growth in this sector by making it difficult for other companies to enter the market and increase their share.
As the cloud sector is still evolving, Ofcom will study how the market works today and how it will evolve in the future – with the aim of identifying potential competition concerns at an early stage to prevent them from becoming embedded when the market matures.
When Ofcom launches the market study, it will ask interested or affected parties for initial opinions on the UK cloud market. It plans to consult its interim results and publish a final report, including any concerns or suggested recommendations, within 12 months.
When she finds that a market is not performing well, it can negatively impact businesses and ultimately consumers through higher prices, lower quality of service and less innovation. In these circumstances, Ofcom may take one or more of the following steps:
- make recommendations to the government to change regulations or policies;
- take competition or consumer protection measures;
- refer a market investigation to the Competition and Markets Authority (CMA);
- Accept letters of commitment instead of submitting a market research template.
Ofcom worked closely with the CMA in planning the market study and will continue to do so throughout the project. Ofcom will lead the market study, drawing on its strong expertise in the communications markets and reflecting that the cloud is increasingly becoming an important element of the Internet’s infrastructure.
Over the next year Ofcom will also embark on a broader work program to examine other digital markets, including personal online communication apps and audiovisual content access devices.
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 will evolve in these markets in the coming years. It also wants to understand if limitations on their ability to interact with each other raise potential concerns.
Another future focus area for Ofcom is the nature and intensity of competition between digital personal assistants and audiovisual ‘gateways’ – such as connected TVs and smart speakers – through which people access traditional TV and radio, as well as online content.
Ofcom will study the competitive dynamics in this sector and determine whether there are any potential areas that require more formal consideration. His work includes analyzing consumer behavior, future developments, and the role and business models of key players and their bargaining power vis-à-vis content providers.
“The way we live, work, play and do business has been transformed by digital services,” notes Selina Chadha, Director of Connectivity at Ofcom. “But as the number of platforms, devices and networks that deliver content continues to grow, so do the technological and economic problems that regulators face.”
“That’s why we’re embarking on a program of work to examine these digital markets, identify competitive concerns, and ensure they work well for the people and businesses that rely on them.”
According to Paolo Pescatore, TMT Analyst at PP Foresight, there are different aspects and it’s not a clear slam dunk. “Each area must be evaluated independently. Ultimately, Ofcom is concerned about the dominance of a small number of players, the proportion of which has grown significantly,” he suggests.
“Given the established position of the greats, it is becoming increasingly difficult for newcomers or aspiring players to assert themselves. There are fewer vendors in the cloud, with the market dominated by AWS, with challengers Microsoft Azure and Google Cloud competing mostly on price.
The timing is interesting for Pescatore, as people have shown a strong appetite to buy and use a range of connected devices such as smart speakers and messaging services. “These were in high demand during the pandemic and have now become the norm in everyday use,” he notes.
“So it’s hard to imagine what Ofcom will do if the big techs stifle competition. We may see restrictions and incentives to promote new players,” he says.
“Let’s not forget the current uncertain geopolitical and macroeconomic climate where prices are trending in one direction. Can the market support new players or significant price increases that will impact consumers,” he asks.
