FMs are versatile AI systems with the potential to revolutionise various sectors, from information access to healthcare. The CMA’s report, published today, outlines a set of guiding principles aimed at safeguarding consumer protection and fostering healthy competition within this burgeoning industry.

Foundation models – known for their adaptability to diverse applications – have witnessed rapid adoption across various user platforms, including familiar names like ChatGPT and Office 365 Copilot. These AI systems possess the power to drive innovation and stimulate economic growth, promising transformative changes across sectors and industries.

Sarah Cardell, CEO of the CMA, emphasised the urgency of proactive intervention in the AI:

“The speed at which AI is becoming part of everyday life for people and businesses is dramatic. There is real potential for this technology to turbocharge productivity and make millions of everyday tasks easier – but we can’t take a positive future for granted.

That’s why we have today proposed these new principles and launched a broad programme of engagement to help ensure the development and use of foundation models evolves in a way that promotes competition and protects consumers.

While I hope that our collaborative approach will help realise the maximum potential of this new technology, we are ready to intervene where necessary.”

Research from Earlybird reveals that Britain houses the largest number of AI startups in Europe. The CMA’s report underscores the immense benefits that can accrue if the development and use of FMs are managed effectively.

These advantages include the emergence of superior products and services, enhanced access to information, breakthroughs in science and healthcare, and even lower prices for consumers. Additionally, a vibrant FM market could open doors for a wider range of businesses to compete successfully, challenging established market leaders. This competition and innovation, in turn, could boost the overall economy, fostering increased productivity and economic growth.

Claire Trachet, tech industry expert and CEO of business advisory Trachet, said:

“With the [UK-hosted] global AI Safety Summit around the corner, the announcement of these principles shows the public and investors that the UK is committed to regulating AI safely. To continue this momentum, it’s important for the UK to strike a balance in creating effective regulation without stifling growing innovation and investment. 

Ensuring that regulation is both well-designed and effective will help attract and maintain investment in the UK by creating a stable, secure, and trustworthy business environment that appeals to domestic and international investors.” 

The CMA’s report also sounds a cautionary note. It highlights the potential risks if competition remains weak or if developers neglect consumer protection regulations. Such lapses could expose individuals and businesses to significant levels of false information and AI-driven fraud. In the long run, a handful of dominant firms might exploit FMs to consolidate market power, offering subpar products or services at exorbitant prices.

While the scope of the CMA’s initial review focused primarily on competition and consumer protection concerns, it acknowledges that other important questions related to FMs, such as copyright, intellectual property, online safety, data protection, and security, warrant further examination.

Sridhar Iyengar, Managing Director of Zoho Europe, commented:

“The safe development of AI has been a central focus of UK policy and will continue to play a significant role in the UK’s ambitions of leading the global AI race. While there is public concern over the trustworthiness of AI, we shouldn’t lose sight of the business benefits that it provides, such as forecasting and improved data analysis, and work towards a solution.

Collaboration between businesses, government, academia and industry experts is crucial to strike a balance between safe regulations and guidance that can lead to the positive development and use of innovative business AI tools.

AI is going to move forward with or without the UK, so it’s best to take the lead on research and development to ensure its safe evolution.”

The proposed guiding principles, unveiled by the CMA, aim to steer the ongoing development and use of FMs, ensuring that people, businesses, and the economy reap the full benefits of innovation and growth. Drawing inspiration from the evolution of other technology markets, these principles seek to guide FM developers and deployers in the following key areas:

• Accountability: Developers and deployers are accountable for the outputs provided to consumers.
• Access: Ensuring ongoing access to essential inputs without unnecessary restrictions.
• Diversity: Encouraging a sustained diversity of business models, including both open and closed approaches.
• Choice: Providing businesses with sufficient choices to determine how to utilize FMs effectively.
• Flexibility: Allowing the flexibility to switch between or use multiple FMs as needed.
• Fairness: Prohibiting anti-competitive conduct, including self-preferencing, tying, or bundling.
• Transparency: Offering consumers and businesses information about the risks and limitations of FM-generated content to enable informed choices.

Over the next few months, the CMA plans to engage extensively with a diverse range of stakeholders both within the UK and internationally to further develop these principles. This collaborative effort aims to support the positive growth of FM markets, fostering effective competition and consumer protection.

Gareth Mills, Partner at law firm Charles Russell Speechlys, said:

“The principles themselves are clearly aimed at facilitating a dynamic sector with low entry requirements that allows smaller players to compete effectively with more established names, whilst at the same time mitigating against the potential for AI technologies to have adverse consequences for consumers.

The report itself notes that, although the CMA has established a number of core principles, there is still work to do and that stakeholder feedback – both within the UK and internationally – will be required before a formal policy and regulatory position can be definitively established.

As the utilisation of the technologies grows, the extent to which there is any inconsistency between competition objectives and government strategy will be fleshed out.”

An update on the CMA’s progress and the reception of these principles will be published in early 2024, reflecting the authority’s commitment to shaping AI markets in ways that benefit people, businesses, and the UK economy as a whole.

(Photo by JESHOOTS.COM on Unsplash)

See also: UK to pitch AI’s potential for international development at UN

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Nvidia announced plans to acquire Cambridge-based Arm back in September 2020 in a deal worth $40 billion. As two of the biggest names in chip manufacturing, the deal naturally caught the attention of competition regulators around the world.

In November 2021, UK Digital Secretary Nadine Dorries decided to block the merger pending the results of a 24-week ‘Phase 2’ investigation.

Wouldn’t an IPO be an alternative to all of this?

Arm has been struggling from relatively flat revenues and rising costs despite the huge success of the company’s licensees such as Apple, Qualcomm, and Amazon. Arm’s current owner, SoftBank, considered and subsequently rejected the idea of pursuing an IPO (Initial Public Offering) of the company in 2019 and again in early 2020.

Simon Segars, CEO of Arm, explained: “We contemplated an IPO but determined that the pressure to deliver short-term revenue growth and profitability would suffocate our ability to invest, expand, move fast, and innovate.”

In addition, Arm’s largest market, mobile, is saturated and it could be difficult for Arm to crack the datacentre and PC markets in the face of strong incumbents like Intel and AMD that have established ecosystem of developers, software, systems, and peripherals, and profits that enable them to make large R&D investments.

“These observations are not criticisms of Arm’s technology or engineering team. Arm has great engineering talent in the areas where it focuses. But as a standalone IP licensing business, and without access to further capital, Arm has inherent scale, scope, and economic limitations that would impact Arm’s future as a standalone licensing firm,” reads the response.

Addressing competition concerns

Nvidia believes that its acquisition would provide Arm with the resources to move forward in the face of limited options. Capital markets. meanwhile, would expect Arm to cut costs to maximise the company’s value.

“Nvidia is particularly concerned that these pressures would drive Arm to deprioritize datacenter and PC and to instead focus on its core mobile and growing IoT businesses. The result would be a concentrated CPU market largely controlled by Intel/AMD (x86),” the response continues.

The company goes on to say that soaring profits for Arm’s customers are not a win for the company or for competition. Nvidia argues the “industry titans will be powerful and competitive, no matter what path Arm takes” and “the question at hand is whether regulators will approve the transaction and allow Arm to take the steps needed to enable others to compete.”

Nvidia highlights that it was SoftBank that approached the company about the potential of acquiring Arm rather than the other way around. Nvidia says it will continue to support x86 as it has a vested interest – building platforms such as Omniverse on such systems – but thinks that it can help Arm build a viable alternative ecosystem that will increase options and encourage the x86 giants to innovate.

Arm’s future as a British tech icon

From the UK’s perspective, another major concern was the impact on jobs and even the company’s future in the country. Hermann Hauser, the founder of Arm, once suggested the acquisition would be “surrendering the UK’s most powerful trade weapon to the US”.

In a binding offer, Nvidia committed to expanding Arm’s engineering teams in the UK—including a pledge to create a new group dedicated to creating purpose-built CPU IP for datacentres and PCs.

Nvidia chose to build its Cambridge-1 supercomputer in the UK, which was seen by many as a bid to show its commitment to the country. The firm also opened a new AI centre in Cambridge—home to an increasing number of exciting startups in the field such as FiveAI, Prowler.io, Fetch.ai, and Darktrace.

“We will create an open centre of excellence in the area once home to giants like Isaac Newton and Alan Turing, for whom key Nvidia technologies are named,” said Nvidia CEO Jensen Huang at the time.

“Here, leading scientists, engineers and researchers from the UK and around the world will come to develop their ideas, collaborate and conduct their ground-breaking work in areas like healthcare, life sciences, self-driving cars, and other fields.”

No incentive to foreclose

The final major concern around the acquisition is that the merged entities will refuse or restrict the licensing of future IP to give Nvidia a competitive advantage.

Nvidia points to the emergence of RISC-V and other alternatives to Arm that could become preferable “if the Merged Entity were to refuse to license future datacenter IP as soon as it can”. However, it says that would be many years down the road as “customers already have the IP in their possession, and it will be many years before their contracts are up for renewal”.

Furthermore, Nvidia says that it would have no economic incentive to foreclose:

“NVIDIA knows that such a strategy would be self-defeating, and has no incentive to pursue it. The Decision does not explain why any downstream customer would embrace a sole-source ecosystem. Even x86 has always had two bona fide suppliers (Intel and AMD), and now, x86 is licensable to anyone.”

It also says that Arm’s customers are Nvidia’s customers and any attempt to foreclose would damage its own business and reputation.

While regulators have been mulling whether or not to approve the deal, Nvidia says that Arm’s competition has been exploiting the delay to continue expanding their offerings.

Nvidia makes some fairly solid arguments in its response, but whether they’re enough to woo regulators is another question. It’s not just the UK’s regulator examining the deal, but also respective agencies from the US, China, and EU.

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Arm plays a critical role in the global technology supply chain with its designs used for edge AI chips and processors for smartphones, tablets, desktops, and servers.

It’s of little surprise that Nvidia wants to bring Arm under its wing and is willing to pay $40 billion (£29 billion) for it.

Global regulators, including in the UK and EU, have launched investigations into the deal due to the widespread implications.

Holly Vedova, Director of the Bureau of Competition at the FTC, said in a statement:

“The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies.

Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets. This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals.

The FTC’s lawsuit should send a strong signal that we will act aggressively to protect our critical infrastructure markets from illegal vertical mergers that have far-reaching and damaging effects on future innovations.”

The complaint highlights that Nvidia already uses Arm’s designs for areas including DPU SmartNICs, CPUs for cloud computing, and advanced driving systems. The FTC is concerned that Nvidia would have an incentive to use its acquisition of Arm to limit competitors’ access to new designs.

Some of Nvidia’s rivals have offered to invest in Arm if it helps the company to remain independent.

Dr Lil Read, Analyst at GlobalData, commented:

“The Nvidia-ARM deal is on its last legs. The regulatory environment is much tougher now since Qualcomm has formed a consortium to invest in ARM.

The FTC won’t let it be – nor will the UK CMA or the EU regulator. It’s likely that even if the deal managed to clear those hurdles, Chinese regulators would throw another spanner in the works.

Tying the acquisition up for another two years is not in anyone’s interest – not Nvidia’s, and certainly not ARM’s. There could be hope for ARM if a non-chip firm recognises this opportunity for vertical integration – a trend that we increasingly see with the likes of Tesla and Apple.”

Arm founder Hermann Hauser even suggested the merger would amount to “surrendering the UK’s most powerful trade weapon to the US”.

Last month, UK Digital Secretary Nadine Dorries ordered the CMA (Competition & Markets Authority) to launch a “Phase Two” probe into the proposed merger.

As part of its ‘Phase One’ report, the CMA determined the merger has the possibility of a “substantial lessening of competition across four key markets”. Those markets are data centres, the Internet of Things, automotive, and gaming.

The CMA now has 24 weeks to conduct Phase Two of its investigation.

Nvidia, for its part, has promised to work with UK regulators to alleviate concerns. The company has already pledged to keep Arm in the UK and hire more staff.

“Arm is an incredible company and it employs some of the greatest engineering minds in the world,” said Jensen Huang, CEO of Nvidia. “But we believe we can make Arm even more incredible and take it to even higher levels.”

Today’s decision by the FTC to launch a lawsuit makes the likelihood of the merger proceeding ever more remote.

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The CMA (Competition & Markets Authority) has been investigating whether the deal is anti-competitive. In August, it declared the deal does indeed raise “serious competition concerns”.

Arm founder Hermann Hauser went further and suggested the merger would amount to “surrendering the UK’s most powerful trade weapon to the US”.

Among the concerns are that Nvidia could limit competitors’ access to key technologies. The CMA claims to have received “a substantial number” of concerns from rivals and some have even offered to invest in Arm if it helps the company to remain independent.

Dorries has ‘quasi-judicial’ powers under the Enterprise Act 2002 to intervene in mergers on public interest grounds.

As part of its ‘Phase One’ report, the CMA determined the merger has the possibility of a “substantial lessening of competition across four key markets”. Those markets are data centres, Internet of Things, the automotive sector, and gaming.

Beyond the impact on competition, evidence provided from departments across government have also led the Secretary of State to deem that national security could be harmed from the merger and warrants further investigation.

“I have carefully considered the Competition and Market Authority’s ‘Phase One’ report into NVIDIA’s proposed takeover of Arm and have decided to ask them to undertake a further in-depth ‘Phase Two’ investigation,” commented Dorries.

“Arm has a unique place in the global technology supply chain and we must make sure the implications of this transaction are fully considered. The CMA will now report to me on competition and national security grounds and provide advice on the next steps.”

The CMA now has 24 weeks to conduct Phase Two of its investigation, although this could be extended by eight weeks if necessary. Upon receiving the report, the Digital Secretary could take action to remedy any adverse effects to the public interest or refer it back to the CMA.

David Bicknell, Principal Analyst, and Dr Lil Read, Analyst, on the Thematic Research Team at GlobalData, commented:

“This latest government probe is another nail in the coffin for the proposed merger between Nvidia and Arm. With proceedings likely to extend into late 2022 at the earliest, Nvidia should just abandon the deal and focus on its future away from Arm.

Ordering a security review signals that the UK government doesn’t want this bid to succeed. Couple this with an already underway EU investigation and the further prospect of a China referral, and Nvidia faces some tough questions. It is unlikely it will want the continued uncertainty of a bid that is going nowhere.

We think it is time for Nvidia to move on, and for Softbank to return Arm to where it found it—the stock market.

Nvidia’s future beyond Arm extends into the metaverse, a virtual world where users share experiences and interact in real-time within simulated scenarios. Nvidia is already targeting the metaverse as a key pillar of its future – a wise decision as GlobalData believes it will be the next big technology megatheme.”

Nvidia, for its part, has promised to work with UK regulators to alleviate concerns. The company has already pledged to keep Arm in the UK and hire more staff.

The company’s announcement of a new AI centre in Cambridge last year – which features an Arm/Nvidia-based supercomputer, set to be one of the most powerful in the world – was expected to be part of a bid to show UK regulators of the firm’s commitment to the country.

“Arm is an incredible company and it employs some of the greatest engineering minds in the world,” said Jensen Huang, CEO of Nvidia. “But we believe we can make Arm even more incredible and take it to even higher levels.”

“We want to propel it – and the UK – to global AI leadership.”

(Image Credit: UK Parliament under CC BY 3.0 license)

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A $40 billion merger of two of the biggest names in chip manufacturing was always bound to catch the eye of regulators, especially when it’s received such vocal opposition from around the world.

Hermann Hauser, Founder of Arm, even suggested that “surrendering the UK’s most powerful trade weapon to the US is making Britain a US vassal state”. As the UK continues to sign post-Brexit trade deals as part of its “Global Britain” endeavour and seeks to join such growing economic partnerships as the CPTPP, it’s a strong argument.

Given the size of the acquisition and its potential impact, UK Culture Secretary Oliver Dowden referred the deal to the Competition and Markets Authority (CMA) and asked the regulator to prepare a report on whether the deal is anti-competitive.

The executive summary of the CMA’s report was now been published.

Andrea Coscelli, chief executive of the CMA, said:

“We’re concerned that Nvidia controlling Arm could create real problems for Nvidia’s rivals by limiting their access to key technologies, and ultimately stifling innovation across a number of important and growing markets. This could end up with consumers missing out on new products, or prices going up.

The chip technology industry is worth billions and is vital to products that businesses and consumers rely on every day. This includes the critical data processing and datacentre technology that supports digital businesses across the economy, and the future development of artificial intelligence technologies that will be important to growth industries like robotics and self-driving cars.”

As the global tech industry continues to struggle from a chip shortage, further restricting access to new developments would provide a double-hit that’s bound to impact businesses and their consumers.

Rivals have understandably also raised concerns, of which the CMA claims to have received “a substantial number”. Some of Nvidia’s competitors have offered to invest in Arm if it helps the company to remain independent.

Nvidia, for its part, has promised to work with UK regulators to alleviate concerns. The company has already pledged to keep the business in the UK and hire more staff. Nvidia also announced a new AI centre in Cambridge –  home to an increasing number of leading startups in the field such as FiveAI, Prowler.io, Fetch.ai, and Darktrace – that features an ARM/Nvidia-based supercomputer, set to be one of the most powerful in the world.

Following receipt of the CMA’s report, Dowden will now make a decision on whether to ask the CMA to conduct a ‘Phase Two’ investigation.

An executive summary of the CMA’s report is available here.

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Over 160 billion chips have been made for various devices based on designs from Arm. In recent years, the company has added AI accelerator chips to its lineup for neural network processing.

In the wake of the proposed acquisition, Nvidia CEO Jensen Huang said:

“ARM is an incredible company and it employs some of the greatest engineering minds in the world. But we believe we can make ARM even more incredible and take it to even higher levels.

We want to propel it — and the UK — to global AI leadership.”

Given the size of the acquisition and potential impact, UK Culture Secretary Oliver Dowden referred the deal to the Competition and Markets Authority (CMA) and asked the regulator to prepare a report on whether the deal is anti-competitive.

To squash job loss concerns and avoid regulators blocking the deal, Nvidia promised to keep the business in the UK and even hire more staff.

Nvidia also announced a new AI centre in Cambridge –  home to an increasing number of leading startups in the field such as FiveAI, Prowler.io, Fetch.ai, and Darktrace – that features an ARM/Nvidia-based supercomputer, set to be one of the most powerful in the world.

However, it seems that it’s not economic concerns that could see the deal blocked.

The CMA’s report highlighted national security concerns and the UK is therefore likely to reject the acquisition. A deeper investigation is set to be launched before any final decision is made, but the deal looks to be a long shot.

“We continue to work through the regulatory process with the U.K. government,” said an Nvidia spokesperson in a statement. “We look forward to their questions and expect to resolve any issues they may have.”

If the acquisition is granted permission to proceed, it will likely come with strict conditions.

Several of Nvidia’s international rivals have offered to invest in Arm if it helps the company remain independent.

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