The UK’s Competition and Markets Authority (CMA) has published provisional findings of its probe which was aimed at assessing competition in the UK’s cloud services.

Amazon Web Services (AWS) and Microsoft have been singled out for holding a market hegemony in the UK’s cloud services, leaving little room for others to compete.

In a press release, the regulator has said its in-depth assessment has “found that competition is not working as well as it could be, which is likely to be leading to higher costs, less choice, less innovation and lower quality of service for businesses and organisations across the UK economy.”

The backdrop to the CMA’s investigation is the recognition of the importance of “healthy competition” in the cloud services market given its importance for innovation and improved productivity in a UK economy increasingly reliant on digital infrastructure. 

The CMA’s findings, targeting some of the biggest investors in the UK’s tech industry, comes at a time the regulator is coming under increasing pressure from both the industry and the government to cut back unnecessary regulation and focus on growth.

The agency’s new interim chair has said it wants to create “a regulatory environment that encourages the greatest possible level of business investment, subject to respecting the absolute importance of healthy competition and strong consumer protection.”

Market hegemony

The CMA’s provisional decision differentiates between infrastructure as a service (IaaS) and platform as a service (PaaS). It defines IaaS as including services such as networking and storage and PaaS as platforms based on cloud infrastructure that enable customers to “develop and run applications in the cloud.”

The regulator has unsurprisingly determined that cloud services supporting IaaS and Paas in the UK are “highly concentrated” and has singled out AWS and Microsoft as the dominant players.

The following is a breakdown of the CMA’s findings illustrating the extent of the concentration of service provision in this market:

	IaaS (%)	PaaS (%)
AWS	40-50	30-40
Microsoft	30-40	30-40

According to the CMA Google “has a much lower share of supply in UK cloud services markets” with other providers, including Oracle and IBM, representing an even smaller share of the market.

The regulator’s decision points to the following concerns about the current state of the market:

• Significant existing barriers to entry and expansion in terms of capital expenditure
• The ability by dominant players to leverage economies of scale to deter market entry and expansion by potential competitors
• A broad product portfolios controlled by the two dominant players
• The presence and magnitude of egress fees for data reduce the ability and incentives for customers to switch between providers and for suppliers to compete for their rival’s customers

Microsoft’s conduct questioned

The CMA singles out Microsoft and its licensing practices as potentially “partially foreclosing its rivals in cloud services.”

Microsoft products “are important inputs to cloud services” and the CMA has found that the prices it charges rivals for some of its key products “can be higher than the retail price it charges its own customers.”

The regulator has therefore concluded that Microsoft’s conduct “is harming competition in cloud services” as a result and that Microsoft licensing practices are “exacerbating” the harm “arising from high market concentration and barriers to entry and expansion in relation to Microsoft’s significant unilateral market power.”

Interestingly the CMA has also indicated that it does not believe that committed spend agreements harm competition in this market, even though they can influence customers’ choices in relation to workload allocation.

Coupled with the focus on Microsoft “foreclosing AWS and Google”, this seems to suggest that the regulator may, in the short term at least, be prioritizing encouraging competition between the dominant market players themselves.

Is it possible that this is a pragmatic acknowledgement by a local competition regulator of the fact that their combined market dominance is unlikely to be challenged because of the global nature of the dominant players’ businesses? It is difficult to analyze further without a closer examination of the evidence and data points accessible to the authority’s staff.

“Competition [in UK’s cloud services market] is not working as well as it could be.”

CMA provisional findings

The CMA has also concluded that there is “substantial customer detriment” in this market, with existing cloud customers not being able to “multi-cloud” and access innovative new services as a result of the large cloud providers’ dominance and business practices.

This conclusion seems a plausible one, particularly when one considers small and medium specialist market participants who are innovating and attempting to win market share and who can often be seriously hampered not only by the dominant position of the large cloud service providers, but also by their egress fees and other practices such as the bundling of other products including software (e.g. Teams) with the cloud services they provide.

The CMA is proposing commencing strategic market status (SMS) investigations of AWS and Microsoft and is also proposing imposing appropriate measures to address should the two providers be designated as such. The regulator is seeking views on its provisional findings and has a statutory deadline to release a final decision on 4 August, 2025.

The provisional decision comes only days after the launch of two similar SMS investigations into the mobile ecosystem, this time targeting Google and Apple. And it follows swiftly on from the UK government forcing out the CMA’s chair in a strong signal to the UK regulators to target growth.