UK raises cloud competition concerns, names Microsoft and Amazon as dominant players

The provisional findings recommended that the CMA should consider a probe into AWS and Microsoft’s cloud unit to determine whether they should be designated as having “strategic market status” (SMS).

This would subject them to new restrictions that the regulator can impose under the DMCC to prevent anti-competitive behavior.

Rima Alaily, corporate vice president and deputy general counsel of competition law group at Microsoft, said over email that the CMA inquiry group’s draft report “should be focused on paving the way for the UK’s AI-powered future, not fixating on legacy products launched in the last century.”

“The cloud computing market has never been so dynamic and competitive, attracting billions in investments, new entrants, and rapid innovation. What could be better for UK businesses and government?” Alaily added.

An AWS spokesperson said the CMA’s recommended intervention “is not warranted,” adding that “the evidence demonstrates the IT services industry is highly competitive.”

“Cloud computing has lowered costs for UK businesses with on-demand services and pay-as-you-go pricing, expanded product choice, and increased competition and innovation,” the AWS spokesperson added.

The Amazon division urged the CMA to “carefully consider how regulatory intervention in other areas will stifle innovation and ultimately harm customers in the UK.”

Alex Haffner, a competition partner at Fladgate, said the CMA inquiry group’s provisional decision to probe whether AWS and Microsoft have strategic market status under the DMCC could result in a prolonged review.

He nevertheless added that, “assuming such SMS is found, the CMA will argue it will have more arsenal at its disposal to use in order to keep the parties in check and in keeping with the way it is looking to deal with Big Tech more generally.”

Previously, the CMA said it was concerned by several elements of the cloud market that could pose competition issues, from so-called “egress” fees on transfers of data from one cloud to another to software licensing fees.

Cloud infrastructure services is a market dominated by U.S. technology giants Amazon and Microsoft. Amazon is the largest player, offering cloud services via its Amazon Web Services (AWS) arm. Microsoft is the second-largest, selling cloud products under its Microsoft Azure unit.

A key issue in focus for the CMA is licensing practices deployed by Microsoft in its cloud business.

Smaller vendors in the industry have alleged that Microsoft charges customers more to run its Windows Server software on competing cloud services than Mirosoft’s own Azure offering. This, they argue, creates a “lock-in” effect whereby it becomes difficult for firms to leave Azure for other cloud services.

The CMA’s independent inquiry said in its preliminary decision out Tuesday that it concluded the price that Microsoft charges rivals for certain software products including Windows Server “can be higher than the retail price it charges its own customers.”

“We have provisionally found that Microsoft has the ability and incentive to partially foreclose AWS and Google using the relevant Microsoft software products and that its conduct is harming competition in cloud services,” the inquiry group noted.