UK launches competition probe into cloud giants in digital services

All right, what's all this, then? Three of you, are there?

The UK is to scrutinize the role of Amazon, Microsoft and Google in the country's £15 billion ($16.97 billion) cloud services market, with comms regulator Ofcom warning it will take action if competition concerns are identified.

Ofcom, otherwise known as The Office of Communications, said it is opening a study into the role of the big three cloud providers in the cloud marketplace, as part of a new effort to ensure that digital communications markets are working well for local people and businesses.

It will also probe the messenger and smart device markets, looking at services such as WhatsApp and Zoom as well as the smart speakers that are now present in many households, with as many as 11 percent of UK consumers owning one, according to YouGov figures.

"The way we live, work, play and do business has been transformed by digital services," Ofcom director of Connectivity Selina Chadha said in a statement. "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."

Ofcom noted that cloud services are a huge market that is still growing, citing predictions from tech analyst Gartner that as much as 45 percent of IT spend by some businesses globally will be on public cloud by 2026, up from less than 10 percent in 2018.

Market study into the Big Three

The regulator is therefore kicking off a market study "in the coming weeks" looking into the role of AWS, Microsoft and Google, which together account for around 81 percent of the revenue in the UK public cloud services market, it says. This is being carried out as part of Ofcom's position as a competition authority under the UK government's Enterprise Act 2002.

Ofcom said it intends to examine the strength of competition with the cloud services market, with an eye to identifying anything that might limit innovation and growth by making it difficult for other companies to enter the sector and expand their market share.

But the aim is to look beyond the way the markets are working today and consider how they may develop in future, so as to forestall any potential competition concerns and prevent these from becoming ingrained as the market matures, Ofcom said.

The regulator will invite initial views on the UK cloud market from "interested or affected parties", and said it will consult on interim findings before publishing a final report outlining any concerns or proposed recommendations within twelve months of the start of the study.

If Ofcom finds that the market is not working as it believes it should, it can recommend that the British government makes changes to regulations or policy, refer matters to the UK Competition and Markets Authority (CMA), or take competition or consumer enforcement action itself.

Paul Stone, Senior Counsel at law firm Charles Russell Speechlys, said that this probe is a sign of the increasing scrutiny being given to the tech sector by UK regulators, and that it may act as a catalyst for a larger-scale market investigation that would have a significant impact on the big tech companies.

UKCloud boss Simon Hansford told The Reg he welcomes Ofcom's examination of online infrastructure services. "We hope that Ofcom's work will pave the way for a level playing field that will benefit the UK's own cloud hosting industry – in doing so creating a vibrant, competitive and innovative market that gives back to the UK, in terms of revenue for the exchequer, local job creation and economic and social value."

As well as cloud services, Ofcom will also look into other digital markets, including online personal communication apps and devices for accessing online content, such as connected televisions and smart speakers. The latter are used to access traditional TV and radio services, as well as online content.

In particular, the regulator said it wants to examine the effect VoIP services such as WhatsApp, FaceTime and Zoom are having on traditional calling and messaging, and how competition and innovation in these markets may evolve over the coming years. The interoperability between these messenger and communications services has also been highlighted as an area of concern.

A future area of focus for Ofcom is the level of competition among digital personal assistants and the devices that embody them, such as connected televisions and smart speakers. This will look at consumer behaviour, as well as scrutinizing the role of the major players, their business models, and the effects of their bargaining power with content providers.

Services like WhatsApp and Zoom are now competing with traditional telecoms services, while smart TVs and smart speakers play a central role in how content is distributed and discovered by consumers, Ofcom said.

Telecoms industry analyst Paolo Pescatore at PP Foresight said that this was a wide-ranging investigation for Ofcom, and each area will need to be independently assessed.

"Ultimately, Ofcom is concerned with the dominance of a small number of players which have seen their share grow significantly," Pescatore said, with reference to cloud in particular, "it is becoming increasingly harder for new entrants or any emerging player to compete given the established position of the big ones."

On smart devices, Pescatore said that people have shown a "strong appetite" to buy and use a slew of connected devices such as smart speakers and messaging services, especially during the pandemic, and these have now become the norm in everyday usage.

"Therefore, it is hard to see what Ofcom will do if it decides big tech are stifling competition. We might see restrictions, incentives to foster new players," he added. ®