Ofcom to investigate cloud, communication application and smart-device markets

On 22 September, Ofcom announced a new work programme for the communications sector, focusing on cloud, messenger and smart device markets. Ofcom has recognised that new digital communications services are playing a greater role and are challenging traditional communications services. For example, cloud services increasingly play a role in telecoms, online communications platforms are replacing traditional telephony services, and connected devices are now central to consumers accessing content.

Reacting to these changes, Ofcom has published a set of priorities and actions to inform its understanding of the value chain for digital communications markets.

Priorities for digital communications markets

Ofcom outlines its two priorities:

1. Ofcom will promote competition as a sectoral regulator including its upcoming work examining services that are disrupting SMS and linear TV, and cloud services (outlined below).
2. Ofcom will fulfil its role in achieving wider policy objectives as part of the Digital Regulatory Corporation Forum, its expected advisory role to the new Digital Markets Unit and duties expected under the upcoming Online Safety Bill.

Mapping digital communication services

A central part of Ofcom’s announcement is the value chain in digital communication services and five identified categories of services across the vertical level:

• End user services including services Ofcom has listed such as WhatsApp, Netflix and Facebook which offer messaging, content and content dissemination services;
• Digital content gateway services (“gateways”) that are required in order for consumers to access other services, including online search engines, news aggregators and user interfaces such as smartphones, smart TVs and speakers;
• Wholesale inputs that provide services which are foundational to the services accessed by consumers. For example, advertising networks, content production, safety tech and payment services which feed into end user services;
• Cloud computing services which are increasingly used as a critical resource for the delivery of digital services. Furthermore, cloud services and connectivity services are becoming increasingly interlinked, with cloud providers relying on connectivity providers to connect to their customers; telecoms operators beginning to ‘virtualise’ parts of their networks; and cloud providers beginning to offer last-mile 5G networks to industrial clients;
• Internet connectivity services that connect consumers or services that they use. This includes telecoms and broadband networks and services, as well as internet-specific infrastructure and wholesale services, including content delivery networks (CDNs) and Domain Name System (DNS) registries and registrars.

Plans to address competition in digital communications markets

To examine these service categories further, Ofcom plans a series of work streams to gather further information and inform its next steps, covering:

• Cloud services – Ofcom will carry out a market study under the Enterprise Act 2002 to assess the competitive landscape and the positions held by Amazon, Microsoft and Google in the market. For the purposes of their study, Ofcom will consider two areas: raw cloud computing services (often known as Infrastructure as a Service, “IaaS”), and cloud software applications used for a variety of purposes (often known as Software as a Service, “SaaS”). Ofcom will focus initially on IaaS markets but will also consider how strength in SaaS can influence competition in cloud infrastructure. The study will also examine how any identified competitions issues in the cloud sector affect Ofcom’s core markets of telecoms and broadcasting;
• Net neutrality – Ofcom will “shortly” launch a consultation on the relationship between internet service providers and online content providers;
• Audiovisual digital content gateways – Ofcom will examine the perceived risks posed by connected devices, such as connected TVs and speakers, as gateways to accessing content and consider whether there are underlying competition issues and what options might remedy these; and
• Online personal communications services – Ofcom will examine how services such as WhatsApp and Zoom are impacting traditional calling and messaging markets; how competition and innovation in these markets may evolve over the coming years; and any features in these markets, such as network effects and limited interoperability.

Next steps

In the coming weeks, Ofcom will issue a formal notice to begin a cloud computing market study, which will lead to a call for input that details the scope of its planned study, with an opportunity for stakeholders to comment. At the end of the study, Ofcom can either recommend that the government change regulations or policy; take competition or consumer enforcement action of its own; make a market investigation reference to the CMA; or accept undertakings in lieu of making a market investigation reference.

The wider activities addressing competition in digital communications markets above do not have set timelines, however we expect these to play out over the coming year.

For further information contact: Matthew Buckwell, Anthony Rosen and Rory Coutts