The UK Competition and Markets Authority (CMA) may be focusing now on the cloud market, but the broader implications could extend to generative AI development. While cloud services are the immediate target, the next steps may be to shape the future landscape of GenAI. However, any changes would not take effect before May 2026
What’s the issue?
The CMA published on January 28, 2025, its provisional decision in its market investigation into the supply of public cloud infrastructure services in the UK. The regulator found competition concerns that mostly affect Amazon Web Services (AWS) and Microsoft, but leave Google off the hook. The concerns include high egress fees (costs to transfer data out), restrictive software licensing, and limited interoperability, which may hinder competition and make it harder for businesses to switch providers.
The regulator found that Amazon and Microsoft have a combined market share between 70-90% in the cloud service infrastructure, followed in their place by Google, and much further, IBM and Oracle. These market shares, together with barriers to entry and expansion, according to the regulator provide AWS and Microsoft market power that may be used to engage in some anti-competitive conducts.
What’s at Stake?
For AWS and Microsoft, the long-term implications of this study may be particularly significant, especially regarding the provision of cloud computing services to foundation model (FM) developers.
In the short term, the CMA’s findings highlight Microsoft’s substantial market power across several key products, including Windows Server, SQL Server, Windows 10/11, Visual Studio, and its productivity suites. The regulator believes Microsoft has both the ability and incentive to partially foreclose AWS and Google by leveraging its software products, thereby harming competition in cloud services. As a result, the CMA may eventually order Microsoft to amend its licensing terms to foster greater competition. However, this is not an isolated issue in the UK—the European Commission and the U.S. Federal Trade Commission have already scrutinized similar practices, making this a familiar challenge for Microsoft.
Another key implication concerns public sector cloud procurement. The report advises the UK government to collect more data and implement best practices, which could lead to restrictions on AWS and Microsoft in certain contracts or increased competition in government tenders, which could benefit Google, Oracle and IBM.
But perhaps, the most important development is the recommendation to the CMA board to use its new digital markets powers to prioritise commencing investigations to consider designating AWS and Microsoft with Significant Market Status (SMS) in relation to their respective digital activities in cloud services. If the CMA determines that AWS and Microsoft have SMS, the regulator could use its new powers to impose almost any structural or behavioral remedies on the parties to eliminate any competitive concern. And this determination will last for 5 years, giving the regulator sufficient tools to order changes in the cloud service market for years to come.
What’s Next?
Following the publication of these findings, the CMA will hold a hearing with interested parties in February or March 2025 to discuss the preliminary findings. With this feedback, the CMA will continue the study. The regulator expects to publish its final decision by July 2025, although the statutory deadline for the study is August 2025,
If the CMA board approves the recommendation to launch an SMS investigation into AWS and Microsoft, the probe will take approximately nine months, concluding around May 2026. At that point, the regulator could determine that the companies hold Significant Market Status (SMS) and impose measures through a “Conduct Requirement Notice.”
What are the possible outcomes?
Once the market study is complete and the CMA reaches a final decision, it may either recommend action or take no further steps—though the latter seems unlikely given the preliminary findings indicating anticompetitive concerns. While the regulator will not impose direct measures as part of the market study, it will decide on a course of action, such as launching a competition law infringement investigation or, more likely, opening an inquiry to determine whether AWS and Microsoft hold Significant Market Status (SMS).
The report has already ruled out individual antitrust investigations, citing their limitations in addressing the broader structural concerns within the cloud market.
Note for Investors
This market study is part of a larger effort by the CMA to understand and monitor the provision of cloud computing services and how this could affect the development of FMs developers in the UK.
During 2024, the CMA reviewed five partnerships between cloud service providers (CSPs) and GenAI foundational model (FM) developers, and while all these partnerships were cleared, the regulator’s decisions provide useful insights into the potential antitrust issues that may arise in the Generative Artificial Intelligence space. Interestingly enough, the deal that raised more concerns was the one between Amazon and Anthropic.
In that decision, the regulator was concerned that FMs could be dependent on CSPs, whether it is about cloud computing infrastructure, or chips (Amazon provides Inferentia2 and Trainium2 chips for GenAI development) this situation could eventually lead to a lessening of competition.
However, the report also highlights that AWS and Microsoft hold 70-90% of the market, a fast-growing market, and there are significant barriers to entry. This provides both companies a competitive advantage vis-a-vis any other challenger like IBM or Oracle.
Therefore, the recommendation to the CMA board to carry on a SMS investigation on Amazon and Microsoft may be more oriented to future developments in the GenAI space, than in the current cloud services market.
