On 28 January 2025, the Competition and Markets Authority (CMA) published its provisional findings on the UK cloud services market, identifying adverse effects on competition (AEC) and significant competition concerns.

The CMA (provisionally) found that the market is highly concentrated with Amazon Web Services (AWS) and Microsoft holding significant market power in cloud services, limiting customer choice, leading to higher costs, reduced innovation, and lower service quality. Customers face significant technical and commercial barriers that make switching providers difficult, while the substantial capital investment required to enter the market restricts competition. The CMA also highlighted concerns that Microsoft’s software licensing practices are making it harder for AWS and Google to compete effectively, reducing overall competitive pressure.

Cloud services are a critical part of the UK’s digital infrastructure with businesses and public services spending £9 billion on them in 2023. Despite the market growing by over 30% annually, the CMA’s has provisionally concluded that competition is not functioning as effectively as it should. The report notes that barriers such as high egress fees, restrictive licensing practices, and technical limitations are preventing customers from freely moving between providers. This lack of flexibility reduces businesses’ ability to negotiate better terms, potentially leading to long-term harm in terms of pricing, innovation, and service quality.

In response, the CMA has recommended that the CMA consider using its new powers under the Digital Markets, Competition and Consumers Act 2024 (DMCC Act) to investigate designating AWS and Microsoft with ‘Strategic Market Status’ (SMS). This designation would allow the CMA to impose legally binding conduct requirements and pro-competition interventions, such as enforcing fairer licensing terms, reducing switching costs, and promoting technical standardisation. The CMA’s final decision is expected by 4 August 2025, following a consultation process on the provisional findings.

The CMA’s investigation was initiated following a referral from Ofcom, which had previously identified key competition concerns in the cloud services market. While the CMA confirmed that egress fees and technical barriers restrict competition, it found that committed spend discounts, though widely used, do not currently distort the market as rivals can still compete. The CMA’s report suggests that addressing these competition concerns through its new digital markets powers would be more effective than traditional market interventions, as the DMCC Act framework allows for ongoing monitoring and targeted remedies.

If AWS and Microsoft receive SMS designation, potential interventions could include measures to ensure fairer licensing, reduce barriers to switching, and promote interoperability between cloud providers.

The hands of the Digital Markets Unit are quickly being filled!

See here for the CMA’s press release.