Ofcom turns its attention to the hyperscalers

Ofcom has expanded its remit under the Enterprise Act 2002 to investigate the public cloud and internet communications market. As part of this drive, the regulator plans to launch a market study examining the position of Amazon, Microsoft and Google in the UK’s £15bn cloud services market.

In response to the way digital markets function is increasingly important to the outcomes consumers experience across the sectors it regulates, Ofcom said it needed to go beyond the cables, masts and satellites that it has previously focused on, expanding its remit to cover how companies that offer consumer-facing services are using digital infrastructure and services.

It said the first area of work is the market study, under the Enterprise Act 2002, looking into cloud services in the UK. “We will assess the strength of competition in cloud services and the position key companies hold in the market,” said Ofcom.

In spite of the worsening economic climate, public cloud revenue is continuing to grow rapidly. John Dinsdale, a chief analyst at Synergy Research Group, said: “Cloud usage continues to grow at truly impressive rates. This has caused a clear acceleration in both the launch of new hyperscale datacentres and the level of spending on datacentre hardware and software. Our forecasts show continued strong growth in all key cloud market metrics.”

Synergy recently reported that quarterly cloud infrastructure service revenues – including infrastructure as a service (IaaS), platform as a service (PaaS) and hosted private cloud services – from the major providers totalled $54.7bn. The analyst firm noted that dominance of the major cloud providers was even more pronounced in public cloud, where the top three – Amazon Web Services (AWS), Microsoft Azure and Google Cloud – control 72% of the market. Geographically, the cloud market continues to grow strongly in all regions of the world.

Looking at the UK, Ofcom said AWS, Azure and Google Cloud collectively generate around 81% of revenues in the UK public cloud infrastructure services market.

Earlier this year, Ofcom commissioned Analysys Mason to undertake research into the digital communications value chain. The resulting Digital comms value chains paper, published in April, found that enterprise connectivity services have been undergoing a transition from traditional services to more software and cloud-based alternatives, a market the hyperscalers are directly addressing through cloud infrastructure and services.

As part of its role in regulating the communications market to ensure it works well for consumers and businesses, Ofcom said it needed to keep pace with disruptive developments in the communications sectors. These include new and emerging technologies, and changes in commercial models and supply chains.

For instance, services such as WhatsApp or Zoom, provided by internet-based firms working across the value chain, are competing with traditional telecoms services. Smart TVs and smart speakers also now play a central role in how content is distributed and discovered.

“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,” said Selina Chadha, director of connectivity at Ofcom.

“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.”