CMA seeks to enhance competition and customer choice in UK cloud infrastructure services

It follows the conclusion of the Competition and Markets Authority (CMA) market investigation into the supply of public cloud infrastructure services in the UK.

The final market investigation report recommends that the CMA use its powers under the UK’s new digital markets competition regime to prioritise commencing “strategic market status” (SMS) investigations, to consider designating the two largest providers – Microsoft and Amazon Web Services (AWS) – with SMS in relation to their respective digital activities in cloud services.

Ian Hastings, competition law expert at Pinsent Masons, said: “While recognising the achievements and investments of leading providers, the report encourages steps to enhance customer choice and reduce barriers to entry, with the aim of fostering a more vibrant and competitive ecosystem of the long term.”

Originally launched by the CMA in October 2023, following an earlier market study by Ofcom, the CMA’s market investigation findings concluded that, while the sector has delivered substantial benefits to businesses and consumers through innovation, flexibility and scale, it also exhibits characteristics that may be limiting the full potential of competition. The market has grown rapidly, with UK customers spending £10.5 billion on cloud services in 2024 alone, and it plays a foundational role in supporting digital transformation across the economy, including the development and deployment of artificial intelligence (AI) technologies.

Hastings said: “The market investigation outcome highlights the CMA’s willingness to utilise the UK’s new digital markets competition regime to engage in a more nuanced and participative manner with key technology firms and stakeholders to strengthen competition.”

The final report observes that the market is currently led by a small number of providers such as Microsoft and AWS, as well as Google. The CMA has found that Microsoft and AWS in particular have built strong positions over time, supported by scale, investment and broad service portfolios. Their continued success reflects customer trust and the value placed on integrated offerings. However, the CMA notes that market concentration, combined with certain structural features of the market, may make it more difficult for smaller or new cloud services infrastructure providers to grow and compete effectively.

One area of CMA focus is the ability of customers to switch between providers or adopt multi-cloud strategies. While some large organisations do use multiple providers, switching remains relatively rare, particularly among smaller businesses. The CMA attributes this to a mix of commercial and technical factors, such as data transfer costs, differences in service interfaces, and the complexity of migrating workloads. These factors can reduce customer flexibility and, in turn, limit the competitive pressure on providers to innovate or adjust pricing.

The final market investigation report also explores the evolving role of AI in cloud services. While AI capabilities are becoming more prominent in provider offerings, the CMA finds that, at present, they have not significantly altered the competitive landscape. However, it acknowledges that this could change as customer demand for AI services grows and becomes a more decisive factor in provider selection.

A further area of analysis is Microsoft’s software licensing practices. The CMA notes that Microsoft’s software is widely used in cloud environments and that differences in licensing terms across platforms may influence customer decisions. It suggests that these practices could, in some cases, make it more challenging for other providers to compete on equal terms when customers wish to use Microsoft software in non-Microsoft environments.

In terms of remedies, the CMA recommends that the two largest providers – Microsoft and AWS – be considered for designation with SMS under the UK’s new digital markets competition regime established under the DMCC Act. This would allow for tailored regulatory oversight aimed at ensuring fairer and more dynamic competition. The CMA emphasises that any future interventions should be proportionate, iterative and responsive to market developments, and it encourages ongoing monitoring of the sector.

Earlier this year, the CMA commenced separate SMS designation procedures in respect of online general search services, and mobile ecosystems, respectively. It expects to issue its final SMS designation decisions in those cases during the autumn. Crucially, SMS designation allows the CMA to impose certain ex ante conduct requirements in respect of specific digital activities supplied by an SMS firm, but it does not indicate any wrongdoing or non-compliance whatsoever by the tech firm.

Tadeusz Gielas, competition law expert at Pinsent Masons, said: “The CMA has an expanded enforcement and regulatory toolkit following commencement of the DMCC Act at the start of this year. For example, it may seek to address certain concerns identified under the Enterprise Act or other ex post competition rules, via the new and more specialised digital markets competition regime.”

“It’s also important to remember that the digital and technologies sector is one of eight key growth-driving areas identified by the UK government in its recent Industrial Strategy. Pro-growth and pro-innovation considerations are expected to factor into how the CMA deploys its new DMCC Act powers, hopefully leading to more constructive engagement with stakeholders. Indeed, the CMA has recently explained how its ‘4Ps’ principles will apply to its digital markets competition work”, he said.

Gielas added that: “The UK regime remains more flexible and participative than the EU’s Digital Markets Act (DMA), which is currently subject to a ‘lookback’ review amid mixed views on its efficacy to date. It is hoped that the EU public consultation will yield valuable insights into how the DMA regime can be implemented in a more streamlined and less burdensome manner in the future.”