Cloud hyperscalers Amazon Web Services, Microsoft and Google are facing a new investigation by the UK communications watchdog, Ofcom. The regulator, under powers provided by the Enterprise Act 2022, will launch a market study in the coming weeks into the three firms in order to ensure that the digital communications markets are working effectively.
Ofcom said that the UK’s cloud services market is worth £15 billion, but that at the moment just three firms (AWS, Microsoft and Google) generate 81% of revenues from the infrastructure services market, specifically.
Google estimates that at present the market is made up of the following distribution: AWS (40%), Microsoft (25%), Google (16%) and others (19%).
The investigation forms part of a new programme of work being carried out by Ofcom, which will see it invest its efforts into making ‘digital communications work for everyone’. The programme of work is a recognition from Ofcom that the way people and businesses in the UK buy products, get information and use public services has been transformed by the internet.
It notes that it needs to be looking as much at how companies are using digital infrastructure and services as it does the cables, masts and satellites that it has focused on in the past.
The new study focused on the hyperscale cloud providers will assess how well the market is working for infrastructure cloud services and will examine the strength of competition in cloud services generally. Ofcom will also consider any market features that might limit innovation and growth in the sector, by making it difficult for other companies to enter the market and expand their share.
Because the cloud sector is still evolving, we will look at how the market is working today and how we expect it to develop in the future – aiming to identify any potential competition concerns early to prevent them becoming embedded as the market matures.
When we launch the market study, we will invite initial views on the UK cloud market from interested or affected parties. We plan to consult on our interim findings and publish a final report – including any concerns or proposed recommendations – within twelve months.
If we find 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.
The regulator said that it will consider one of the following steps if the market is not working well:
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 with the CMA in planning the market study, and will continue to do so during the course of the project.
Communications apps and devices
In addition to the cloud infrastructure piece, Ofcom will also start a broader programme of work to examine other digital markets, including digital communication apps and devices for accessing audiovisual content.
The regulator said that it 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. Specifically, it is curious to understand whether any limitations on their ability to interact with each other raises potential concerns (i.e. you can’t use WhatsApp to video call someone using FaceTime, you have to be using the same application).
In addition to this, Ofcom will also explore the “nature and intensity of competition” among digital personal assistants and audiovisual always - such as connected televisions and smart speakers. It wants to better understand the competition dynamics in this sector and identify whether there are any potential areas that may require more formal examination.
It said that 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”.
Selina Chadha, Ofcom's Director of Connectivity, said:
The way we live, work, play and do business has been transformed by digital services. 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.