UK Competition and Markets Authority calls for increased competition in cloud market

The report recommends the CMA takes steps to address potential market inequalities

Following an investigation into the UK’s cloud services market, the Competition and Markets Authority (CMA) has put forward a number of recommendations aimed at addressing potential inequalities in the provision of cloud-based infrastructure.

The CMA’s report highlighted a number of concerns around the nature of competition in cloud service markets. The report noted both the Infrastructure-as-a-Service (IaaS) and Platform-as-a-service (PaaS) markets were highly concentrated between the major providers, with both Microsoft and Amazon Web Services (AWS) accounting for around 30-40 per cent of share.

According to the report, both companies have “been generating sustained returns from their cloud services substantially above their cost of capital in cloud services for a number of years” and that this situation is likely to endure. The CMA stated increased competition would lead to better market outcomes including consistency of pricing and improvements in quality and innovation.

The report also considered the effects of AI on competition in the market. Again, it found the major players, AWS, Microsoft and Google enjoy significant strengths over smaller competitors, including partnerships with AI model developers. While recognising the increasing importance of AI-related cloud services, the CMA said current evidence suggests AI has not yet had a material impact on competitive dynamics in the marketplace. However, the report highlighted the potential for this to change as AI services continue to expand.

Significant barriers to entry were uncovered, with economies of scale effectively preventing smaller providers from competing. Pointing to the product portfolios of Microsoft, Google and AWS in both IaaS and PaaS, the report said these were also likely to deter smaller providers.

Customers also face commercial and technical barriers to switching provision, the report found, noting egress fees, latency difference and a skills deficit as possible limiters on choice. Licensing practices were also a cause for concern, with the CMA claiming Microsoft’s practices in this regard are “adversely impacting the competitiveness of AWS and Google in the supply of cloud services.”

Recommendations

The report recommended that the CMA Board should prioritise commencing strategic market status (SMS) investigations to consider designating Microsoft and AWS with SMS in relation to their digital activities in cloud services. This would enable the CMA to impose targeted and bespoke interventions using its powers under the DMCC Act.

Any such interventions could be adapted in response to further developments and would reduce the risk of regulatory divergence with interventions in other jurisdictions, including those in Europe under the Data Act.

The CMA stated it intends to keep possible options under review and anticipates the Board will consider the position in early 2026.

Responding to the report, a spokesperson for AWS said: “The Inquiry Group’s final report disregards clear evidence of robust competition in the UK’s IT services industry, which cloud computing has revolutionised by dramatically reducing costs and expanding customer choice and flexibility.

“The action proposed by the Inquiry Group is unwarranted and undermines the substantial investment and innovation that have already benefitted hundreds of thousands of UK businesses. It risks making the UK a global outlier at a time when businesses need regulatory predictability for the UK to maintain international competitiveness. We will continue to engage constructively with the CMA as they consider their next steps.”

The full report is available to read here.