Context: One month ago, the UK Competition & Markets Authority (CMA) released a preliminary ruling in an investigation of what it calls public cloud services (January 28, 2025 ai fray article). Earlier this month, however, it turned out during the “earnings season” that Google, which complains about Amazon and Microsoft, and Amazon, which complains about Microsoft, are actually rather bullish on the growth prospects of their cloud services (February 9, 2025 ai fray article).
What’s new: Today the CMA published the comments it received from various stakeholders, among them the three largest cloud service providers Amazon (PDF), Microsoft (PDF) and Google (PDF). Microsoft’s submission also comes with a report by economics firm Keystone discussing how well its competitors are actually doing based on publicly known numbers.
Direct impact: The submissions published today will require careful analysis by the CMA. While stakeholders are always just advocating what’s best for them and some of the submissions may have been orchestrated by Google, some arguments are stronger than others.
Wider ramifications: The UK government wants the CMA to focus on what is conducive to investment and economic growth. The CMA’s chief executive officer, Sarah Cardell, recently told UK newspaper The Guardian that her agency does not always “need to have a seat at the table” when there is a major global competition matter. It appears that this cloud services market investigation is part of the legacy of the “old” CMA that did not ask itself whether an issue was reasonably UK-specific and, even more so, whether any remedies would particularly benefit UK companies and/or consumers.
Inexplicably, the CMA decided to focus in its preliminary ruling only on market leader Amazon Web Services (AWS) and second-placed Microsoft Azure. Both companies naturally oppose that arbitrary scope of the investigation. After all, Google entered the market a little bit later, but is also performing very strongly. It may hope to seek an advantage from regulatory intervention against its main rivals.
Both Amazon and Microsoft explain that the cloud market is characterized by decreasing prices, a high level of innovation (many new features) and major investment in growth (capital expenditures, or “capex”). Amazon also mentions, more or less in passing, that it disagrees with Microsoft’s software licensing terms, but its priority is clearly on the defensive side. One can infer from Amazon’s prioritization that, at the end of the day, licensing terms for legacy software are not a major concern.
Most computing tasks are still carried out on-premise, meaning that there is still a lot of opportunity for all cloud service providers to compete for new workloads.
The CMA will have to ask itself how it can justify putting a thumb on the scales of the cloud services market in Google’s favor without there being a pressing need to intervene in order to safeguard competition in the UK market. Some of the submissions also voice concern over the (potential) plan to make Amazon’s and Microsoft’s cloud services subject to the DMCC ( Digital Markets, Competition and Consumers Act) regime, which would mean that after the UK’s telecommunications regulator Ofcom and the CMA’s inquiry group for this investigation, there would be a third organization (the CMA’s new Digital Markets Unit (DMU)) looking into the same market.
What is viewed particularly skeptically is the idea of the DMU then directing some sort of standard-setting effort, given that standards development is a process that always takes years and requires highly specialized skills and expertise. ai fray‘s sibling site ip fray frequently reports and comments on issues surrounding standard-essential patents (SEPs). As a result, we are regularly in contact with experts who oversee or otherwise contribute to standard-setting efforts. It is true that even for sizable groups of representatives of major industry players, it is a major challenge and involves numerous iterations. It is easy to see that the CMA could make better use of that time.
With respect to AI, both Amazon and Microsoft set different priorities in their explanations, though in the end it is best to view their comments together. From two different angles, AI-related cloud services (which the CMA calls “accelerated compute”) fail to meet the criteria for a distinct antitrust market:
- Customers typically buy cloud services for conventional and AI-specific purposes at the same time. It’s a mix. The distinction would be blurred.
- It’s not even possible to narrowly define the “accelerated compute” infrastructure the CMA is referring to. For example, there are distinct use cases such as LLM training and inferencing, each of which comes with its own cloud demands. That means it’s a rather more heterogeneous landscape than the CMA’s inquiry group may have thought.
Predicting AI-related demands over a multi-year period is extremely difficult, if not impossible, given how rapidly technology changes. Amazon mentions DeepSeek, which seemingly came out of nothing, as an example.
It’s also interesting to read inhowfar certain proposed or contemplated remedies could even be counterproductive. For example, Amazon itself says in the same paragraph that software licensing is an “artificial” barrier because it allegedly does not contribute to “price” reductions. But the whole complaint in the end comes down to the discounts Microsoft grants, which are nothing but price reductions. With respect to egress (outbound data transfer) fees, there is a possibility that an obligation only on AWS and Azure to make egress available for free could lead some users to use those services in multi-cloud configurations, and in the end there might be more market concentration, not less.
The CMA should look for an exit strategy from this investigation that is not going to lead to anything that benefits UK companies or consumers. Switching lanes and continuing as a DMCC matter (when there are far more important DMCC topics, such as mobile app stores) would just raise a host of new issues, and the problem that the CMA intends to treat Google differently from Amazon and Microsoft would not be solved that way.
The Trump Administration has also been very clear how it views European overregulation that targets major U.S. companies. While the message was primarily directed at the EU, it would apply to the UK as well.