On 22 September 2022, the UK’s communications regulator Ofcom announced that it will shortly be launching a market study into cloud services, using its powers under the Enterprise Act 2002. The market study will form part of a broader programme of work seeking to ensure that digital communications markets work well for people and businesses in the UK. Unveiling its new programme, Ofcom stated:

“How well digital markets function will be increasingly important to the outcomes consumers experience across the sectors we regulate. We need to be looking as much at how companies are using digital infrastructure and services as we do the cables, masts and satellites that we have focused on in the past.”

Cloud services market study

Cloud computing is a large and fast-growing sector, with some analysts predicting that 45% of businesses’ IT spending will be on public cloud services by 2026 (see here). Ofcom also notes that the cloud has become “an essential part of how products are delivered to telecoms users, as well as viewers and listeners of TV, radio and audio content”.

The market study will assess the strength of competition in cloud services and, in particular, the position that the three largest providers – Amazon Web Services, Microsoft and Google – hold in the market. Ofcom will also consider any market features that might limit innovation and growth by making it difficult for other firms to enter and expand.  Liaising closely with the CMA, Ofcom plans to consult on its interim findings and publish a final report, setting out any concerns or recommendations, within twelve months.

Personal communication apps and ‘audiovisual gateways’

Over the next year, Ofcom will also start a broader programme of work examining other digital markets, including:

• Online personal communication services. Ofcom will consider how services such as WhatsApp, FaceTime and Zoom are affecting the role of traditional calling and messaging; how competition and innovation in these markets may evolve in the future; and any features of these markets, such as network effects and limited interoperability, that may give rise to potential concerns.
• Devices for accessing audiovisual content. Ofcom is interested in what it calls ‘audiovisual gateways’ – connected TVs, smart speakers and the supporting digital assistants and operating systems through which users access traditional TV and radio, as well as online content. The regulator will examine the nature and intensity of competition among such gateways, paying particular attention to the role and business models of major players and their bargaining power with content providers. The reference to ‘gateways’ is resonant of the EU focus on ‘gatekeepers’ in the Digital Markets Act: Ofcom will no doubt be seeking to spot the risks of one player acquiring gatekeeper status (or ‘strategic market status’ under the UK’s Digital Markets Unit regime) in relation to the audiovisual devices it is examining.

Multi-jurisdictional scrutiny

Ofcom’s new programme of work – and the cloud services market study in particular – is yet another example of attempts by regulators to grapple with the competition implications of ‘Big Tech’ at a point in time when the Digital Markets Unit is still awaiting legislative approval. In a paper published on the same day that the market study was announced, Ofcom echoed concerns that have been voiced for some time:

“The evolution of business models that deliver [digital communications services] has led to some platforms becoming essential trading partners for businesses to reach consumers. It has also resulted in the presence of strong, vertically-integrated global firms that control many of these platforms. Few digital communications and broadcasting services are delivered to end-customers without the involvement of a multinational tech company, whether in the development, distribution, or through the device in the consumer’s hand. […] In some cases the strength of these firms means others cannot compete fairly, risking holding back innovation, investment and growth, and harming the people and businesses that rely on these services.”

Nor is Ofcom the only regulator examining competition issues in the cloud services sector. Earlier this month, the Netherlands Authority for Consumers and Markets (ACM) published its own market study highlighting the difficulties that cloud services users face in switching providers and combining services offered by different providers. As well as proposing amendments to the forthcoming EU Data Act to make interoperability easier, the ACM plans to investigate the extent to which switching barriers cause competition problems in practice, and whether such problems can be addressed under existing competition rules.

Meanwhile, German software company Nextcloud has filed a complaint with the European Commission alleging that Microsoft is illegally bundling its OneDrive cloud storage offering with its Windows operating system. French cloud provider OVHcloud has also filed a complaint against Microsoft with the Commission, alleging that the US-based company has abused its dominant position in the cloud services market through its licensing practices.

The cloud services sector therefore seems set to remain in the competition law spotlight for some time to come.