Background
Under the Enterprise Act 2002 (Act), the CMA may initiate a market investigation if there are reasonable grounds to suspect that any feature, or combination of features, of a market in the UK for goods or services results in adverse effects on competition in that market. The investigation is carried out by a selection of CMA members operating independently of the CMA Board. An investigation involves the publication of an issues statement outlining the proposed scope of the investigation, evidence gathering, the publication of provisional findings, further hearings, and finally, the publication of a final report. In the final report, if the CMA identifies an adverse effect on competition, it has the authority to impose its own remedies (e.g. structural remedies, which can require companies to sell parts of their business to enhance competition). Additionally, the CMA can make recommendations to other bodies, such as sectoral regulators or the government, particularly when legislation might be necessary. This investigation commenced in October 2023.
Provisional findings
Cloud services enable customers to access technology resources remotely and on demand over a network. The CMA defines cloud services as infrastructure as a service (IaaS) and platform as a service (PaaS). IaaS encompasses services such as compute, networking, and storage. PaaS includes platforms built on this infrastructure, allowing customers to develop and run applications in the cloud.
In the provisional decision, published on 28 January 2025, concluded that:
1. Cloud services markets in the UK are highly concentrated and each of the two largest providers, AWS and Microsoft, has a high share of supply (each with a share of up to 40%). The third largest provider is Google, whose share of supply is smaller.
2. There are significant barriers to entry and expansion for rival cloud service providers, including large sunk costs and the broad product portfolios of AWS, Microsoft and Google. Customers therefore face a limited choice of suppliers.
3. Customers face commercial and technical barriers which make it difficult for them to diversify their suppliers of cloud services (multi-cloud), or switch supplier, including for example exit fees.
4. Microsoft has significant market power in the provision of cloud-hosted software products. Microsoft can leverage this power to make it more difficult for AWS and Google to attract customers who want to use cloud services to deploy Microsoft software.
5. The use of minimum committed spend agreements (1) for customers of AWS and Microsoft, however, does not harm competition in the market.
The inquiry group expects that the harms it has provisionally found will result in “substantial customer detriment”. In particular, they are likely to have a material impact on customers’ ability to switch, multi-cloud and exercise choice over their cloud provider, which will ultimately impact the price and quality of cloud services in the UK.
Proposed remedies
The inquiry group provisionally recommends that the CMA use its powers under the DMCCA to consider designating AWS and Microsoft with 'strategic market status' in relation to their respective digital activities in cloud services. This would allow the CMA to proceed with interventions to address the concerns raised by the inquiry group. In particular, the inquiry group considers that the new digital markets powers are “better suited” to addressing the concerns identified (as opposed to the remedy-making powers available to the inquiry group under the current market investigation) because they have “greater flexibility” and “better provisions for ongoing monitoring and oversight”.
Comment and next steps
Procurement professionals and IT leads charged with ensuring their firms have use of resilient and cost effective hosting infrastructure are likely to find much they agree with in the investigation's provisional findings. Many will recall their initiation to the market and the inflexibility of its suppliers to requests for even the most reasonable tweaks to commercial or contractual terms. Others may be eyeing a scheduled retender with the sense that it offers a Hobson's choice, given all the pain that decoupling from an incumbent supplier and migrating to new infrastructure is likely to bring.
This decision is significant not only for major players like AWS and Microsoft but also for the majority of UK cloud service customers and smaller rival providers. If the final decision aligns with these provisional findings, it could lead to lower prices and improved quality for cloud service customers, while also making it easier for smaller providers to penetrate the market. Of particular interest (to lawyers, at least), is the inquiry group's choice not to exercise its own powers, instead suggesting that the digital markets regime is better suited to address the concerns.
The CMA must publish a final decision by 4 August 2025. Third parties have until 18 February 2025 to submit their views on the provisional findings to the CMA. If you are affected by or interested in the decision and have any views, we are on hand to assist.
Co-authored by Amanpreet Kaur.
References:
“Committed spend agreements are agreements between a. cloud provider and a customer in which the customer commits to spend a. minimum amount across the cloud provider's cloud services over a period of. years, and in return, receives a percentage discount on its spend with that provider”. See: CMA, Cloud services market investigation (Committed spend agreements working paper, 24 May 2024) https://assets.publishing.service.gov.uk/media/664f0300f34f9b5a56adccfd/Committed_spend_agreements_working_paper.pdf last accessed 5 February 2025.
