Britain’s competition regulator is set to deepen its probe into the UK cloud services market, targeting Microsoft and Amazon over their combined dominance in the infrastructure-as-a-service (IaaS) sector.
The Competition and Markets Authority (CMA) has raised concerns that the pair hold “significant unilateral market power,” enabled by high barriers to entry and sustained profits well above capital costs.
The watchdog believes these conditions are undermining fair competition and harming innovation.
The scrutiny comes under the UK’s new Digital Markets, Competition and Consumers (DMCC) Act, which empowers authorities to intervene in markets controlled by so-called “strategic” firms.
Lock-in effects and restricted switching at centre of concern
According to the CMA, several commercial practices by Amazon and Microsoft are creating friction for businesses trying to switch providers.
These include costly egress fees — charges for transferring data out of a provider’s cloud — and restrictive licensing terms, which the CMA says are leading to customer “lock-in.”
The regulator specifically flagged Microsoft’s licensing structure, where it is cheaper to use Windows Server on Azure than on a rival cloud platform.
This, the CMA argues, narrows the attractiveness and affordability of alternative offerings.
Google, though not under direct investigation, supported the probe.
In a statement posted online on Thursday, Google’s EMEA vice president for customer engineering called the move a “watershed moment” for British businesses.
He added that swift action would be essential for driving innovation and ensuring fair prices.
Microsoft and Amazon command up to 80% of UK IaaS market
The CMA reported that Microsoft and Amazon each control around 30% to 40% of the UK’s IaaS market, which includes core cloud infrastructure such as networking, data storage, and computing power.
By contrast, Google Cloud holds just 5% to 10% market share. IaaS forms the foundational layer of cloud computing, and the dominance of these two firms gives them an outsized role in shaping access and pricing for digital services across the economy.
The regulator’s concern centres around the outsized influence this concentration creates.
It allows these firms to extract profits beyond their investment costs and maintain customer bases despite the emergence of alternative technologies, including those driven by artificial intelligence.
The CMA believes this entrenched market power limits customer choice, slows the uptake of innovation, and disincentivises other players from entering the UK cloud ecosystem.
DMCC Act gives watchdog more power to act
The fresh investigation recommended by the CMA would take place under the DMCC Act, which became law earlier this year.
The Act allows the UK government to designate large digital firms as having “strategic market status.”
Once designated, these firms can be subject to tailored rules designed to prevent anti-competitive conduct.
That could include mandatory interoperability, fairer contract terms, and measures to reduce switching costs.
The CMA noted that Microsoft’s response to the probe disputed the regulator’s position, arguing that the market is more competitive than ever due to ongoing investment and AI-driven transformation.
Amazon also opposed the regulator’s move, warning that further investigation could harm the UK’s global competitiveness.
However, the CMA maintains that the current landscape gives Microsoft and Amazon a structural advantage that needs to be addressed.
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