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Ofcom has launched a market study into the supply of cloud services in the UK to:
- explore whether the market is working well for people and businesses;
- undertake an assessment of the strength of competition in cloud services; and
- evaluate the position key companies hold within the UK market.
Under the Enterprise Act 2002, Ofcom has the power to conduct market studies where it considers that commercial activities connected with communication matters has or may have effects adverse to the interests of consumers.
Ofcom’s study will consider whether any feature of the UK market for cloud services or the behaviour of any provider could weaken competition and harm consumers through higher prices, lower quality products or less innovation.
This study forms part of a broader programme of work by Ofcom to study other digital markets, including online personal communication apps and devices such as WhatsApp and Zoom.
Why have Ofcom launched the study?
The use of cloud computing has seen exponential growth within the UK and is now an essential part of how digital services are delivered to consumers, including within the telecoms and broadcasting sector, such as digital services delivered via social media and streaming and radio and audio content.
In launching its study, Ofcom has noted that the largest providers of cloud services in the UK (known as “hyperscalers”) are Amazon Web Services (AWS), Microsoft and Google, who collectively generate around 81% of revenues in the UK public cloud infrastructure services market.
Ofcom’s study will assess the position of the three hyperscalers and whether there are any features within the market that may limit innovation and growth or act as a boundary to entry for other companies looking to enter the market.
What could the outcome of the study be?
As part of the study, Ofcom have invited views from interested or affected parties on the issues identified, with a view to publishing the final report no later than 5 October 2023. If the outcome of the study is that the market is not working well, Ofcom has the power to take one or more of the following steps:
- make recommendations to the government to change regulations or policies;
- take competition or consumer enforcement action; or
- make a market investigation reference to the Competition and Markets Authority (CMA).
Any action from Ofcom is likely to be welcomed by smaller businesses who are looking to enter the market or who are struggling to compete against the dominance of the hyerscalers, the hope being that the market becomes more open to new entrants and drives innovation. However, as the study is going to take at least 12 months, there is no immediate real threat to the existing dominance of the current hyperscalers.
We will provide a further update once the final report has been published; however, if you have any questions or would like more information regarding updates to the study and how this may affect your business, please do contact our Commercial Solicitors, who would be happy to assist.
