Digging into the CMA’s provisional take on AWS and Microsoft’s hold on UK cloud market

Digging into the CMA’s provisional findings

With the CMA’s provisional findings now out in the open, all participants in the UK cloud infrastructure services market have until 25 February 2025 to provide feedback on its initial conclusions, with the watchdog’s final judgment set to drop by 4 August 2025.

The CMA’s provisional conclusion that AWS and Microsoft have a dominant hold on the UK cloud infrastructure services market, and that targeted interventions might be needed to ensure competition in this sector “works as it should”, is the headline from its provisional findings.

However, the CMA’s January document dump of provisional findings also provides an insight into other features of how the cloud market functions that could have an “adverse effect on competition” (AEC). Not all of these, though, are worthy of regulatory intervention.

The offering of committed spend discounts is a feature of how the cloud market functions that does influence customer choice, the CMA’s seven-page provisional findings document stated, but rival firms can “profitably compete against these” so no intervention will be required here.

The report also detailed several features of the market that could be subject to regulatory corrective action from the CMA once its investigation finally concludes.

For example, the provisional findings document said there are “significant barriers to entry and expansion” in the cloud services market, due to the “significant capital investment” needed in fixed assets – such as datacentres and networking kit – to stand up a cloud infrastructure.

And due to the economies of scale providers such as AWS and Microsoft operate at, the ongoing costs of running these fixed assets is lower for them than it would be for a smaller cloud provider.

“The largest cloud providers are making very large investments to expand their services in coming years, and while this investment can have pro-competitive effects and benefit cloud customers … it may also deter market entry or expansion by potential rivals,” the CMA summary document stated.

“The broad product portfolios of AWS, Microsoft and Google in both IaaS [infrastructure as a service] and PaaS [platform as a service] are also likely to contribute to barriers to entry and expansion as range of services is an important consideration for customers when selecting a cloud provider.”

In the cloud services markets, we consider that detriment may manifest itself in terms of UK customers paying higher prices for these services than they would if the markets were more competitive

On a related point, the report stated that cloud customers face technical barriers and interoperability issues that can prove off-putting when trying to mix and match services from competing cloud providers to create a multicloud setup. “This limits customers’ ability and incentive to exercise choice of cloud provider,” the report continued.

The charging of egress fees, which effectively penalise customers for wanting to shift their data from one cloud provider to another, has a similarly negative effect on the willingness of organisations to switch suppliers, the report continued.

“We consider that the AECs we have provisionally found may be expected to result in substantial customer detriment in cloud services in the UK, in terms of a material impact on customers’ ability to switch, multicloud and exercise choice over their provider, which may ultimately be expected to impact the price and quality of cloud services,” the report continued.

“In the cloud services markets, we consider that detriment may manifest itself in terms of UK customers paying higher prices for these services than they would if the markets were more competitive.”

To ensure competition in the cloud market operates as it should, the CMA board is being asked to consider taking targeted action against Microsoft and AWS, as permitted by the newly introduced DMCC Act.

“We consider that measures aimed at AWS and Microsoft would address market-wide concerns by directly benefiting the majority of UK customers and producing wider indirect effects by altering the competitive conditions for the other providers,” said the CMA.

The CMA’s proposal to take targeted action against AWS and Microsoft has been warmly welcomed by tech industry watchers, including international competition law expert Niamh Christina Gleeson.

In her view, this approach will mark AWS and Microsoft out as being the “only two providers” in the market with the power to engage in anti-competitive behaviour, which will benefit the market’s smaller providers from a competitive standpoint.

“None of the proposed remedies will apply to any other providers and this gives a certain commercial freedom to all other operators in the UK cloud markets,” she said.

Conferring SMS on AWS and Microsoft also means both firms will have a “special responsibility” placed on them, because of the dominant hold they have on the market, to behave in a pro-competitive way at all times.

“Behaviour that is permitted by a firm with less market share is considered abuse [for an SMS company],” she said. “This is important for all future behaviour in these markets and how much freedom they have to engage in commercial practices that are permitted to other providers.”

As such, this could have implications for Microsoft and AWS when it comes to offering discounts to customers and charging egress fees, she added.  

Mark Crane, competition partner at legal firm Addleshaw Goddard, said making it possible for AWS and Microsoft’s alleged anti-competitive behaviour to be subject to targeted intervention should give their customers assurance about any concerns they have about how either firm treats them.  

“Many businesses now routinely use cloud services, and the CMA’s designation process is likely to provide an avenue for a range of concerns to be aired in a much more focused way, and to address particular behaviours,” said Crane.

“Users of cloud services are preparing for this process in earnest, considering how to engage with the new regulatory regime and how this might help to change the playing field in cloud services.”

Crane added: “Against a backdrop of intense scrutiny of the CMA and its role in facilitating growth, both users and providers of cloud services will be advocating in favour of regulatory interventions which support their own approach. The CMA will certainly have a balancing act to undertake and face pressure to do so efficiently and at speed.”

Nicky Stewart, senior advisor to public cloud competition champion the Open Cloud Coalition, said – once the consultation on the proposals closes – she hopes the CMA will waste no time in wrapping up its investigation and bringing its proposals to bear.  

“Every month that passes without action is another missed opportunity for innovation and UK economic growth,” she said. “Every pound spent on restrictive licensing markups and egress fees is a pound not spent on growing the UK’s economy.”