Time for Britains CMA to strike hard– or risk losing the cloud competition fight

Comment The UK's ambition to become a global AI superpower hinges on a vibrant and competitive cloud market. The next few days will show if its competition regulator really appreciates both the pace of change and the scale of remedies needed to achieve both of these things.

As the Competition and Markets Authority (CMA) highlighted in its provisional findings earlier this year, this crucial foundation is currently shaky. Amazon Web Services (AWS) and Microsoft Azure collectively dominate around 80 percent of UK cloud spending, exhibiting classic and adverse signs of entrenched market power. Their practices – from high exit fees and vendor lock-in, to preferential licensing and limited technical interoperability – are stifling competition and threatening the very innovation the government seeks to foster.

The CMA's investigation has shone a spotlight on these concerning practices, recognising that a truly competitive cloud landscape is essential for nurturing a flourishing AI innovation ecosystem. If businesses are locked into a handful of providers, their ability to experiment, scale, and develop cutting-edge AI applications will be severely constrained.

The CMA has the tools – and the mandate – to act now

Fortunately, the CMA is equipped with new powers under the Digital Markets, Competition and Consumers Act 2024. These allow for "targeted interventions," including designating AWS and Microsoft as firms with Strategic Market Status (SMS). Such a designation would enable powerful remedies.

The CMA could mandate interoperability standards and open APIs to break down technical barriers, compelling providers to publish standardised data schemas and export tools. Capping or banning exit fees, which primarily deter switching, is another crucial step. Furthermore, addressing Microsoft’s discriminatory licensing practices, which favour Azure, is essential. The CMA could insist on cloud-agnostic licensing terms for all providers, leveling the playing field.

Finally, imposing pro-competition rules, such as mandatory "exit-support services" and no-tying clauses, would prevent further market distortion.

These are not merely theoretical remedies. The CMA has a proven track record, demonstrated by its 2014 retail banking investigation and subsequent Retail Banking Market Order in 2017, which was instrumental in unlocking competition and innovation, laying the foundation for the UK’s world-leading Open Banking ecosystem and delivering lasting benefits to consumers and the wider economy. Through binding orders, the CMA forced major banks to adopt common open APIs and data-sharing standards, successfully stimulating fintech innovation. Similar resolve is now imperative in the cloud market.

Why delay equals defeat

A subdued or delayed remedy framework, however, risks being toothless. Robust protections demand mandatory, not voluntary, obligations; rapid implementation within 6-12 months; and substantial penalties for non-compliance. Without these, AWS and Microsoft will continue to solidify their dominance, making barriers to entry increasingly impenetrable, even as AI becomes more integrated into every business strategy. This is essentially running out the clock.

The CMA faces a critical juncture. Its final report could lead to immediate remedy implementation or a detrimental 18-24 month regulatory pause if referred to the new Digital Markets Unit (DMU). After years of painstaking investigation, having preliminarily decided that restrictive licensing practices are anticompetitive, such a delay is untenable. During this time, cloud markets would further consolidate, making interoperability harder to reverse. Crucially, clarity and price transparency are vital for AI development, and any deferral could derail the UK's AI ambition.

The CMA already possesses the mandate, evidence, and legal powers; hesitation would undermine its credibility and the government’s digital competition agenda.

AI intensifies the urgency

Microsoft's counter-argument, suggesting the CMA's inquiry ignores AI’s role and that delayed intervention could backfire, is disingenuous. The reality is that the widespread adoption of AI will only reinforce hyperscaler lock-in due to the massive compute demands, specialized services, and co-development involved.

If left unchecked, Microsoft and AWS will use AI innovation as another mechanism to tighten their incumbency. Allowing hyperscaler lock-in to persist risks stifling the UK’s AI sector by limiting choice, inflating costs, and restricting access to the diverse and scalable computing resources essential for innovation, experimentation, and fair market growth. It is precisely because AI is so transformative, and its impact is immediate, that the CMA must prevent infrastructure markets from ossifying into a two-player oligopoly.

The CMA knows this is a problem. It is mandated to spur economic growth and innovation. So why is the plan to delay when immediate action is both possible and necessary?

The path forward: Act now, refer later

• 'Close to impossible' for Europe to escape clutches of US hyperscalers
• Google, AWS say it's too hard for customers to use Linux to swerve Azure
• AWS claims 50% of Azure workloads would jump ship if licensing costs allowed
• Microsoft: So what if it costs 4X as much to run Windows Server in AWS, Alibaba, and Google?
• AWS claims customers are packing bags and heading back on-prem

For the UK to foster competitive cloud markets and spur broad-based AI innovation, the CMA must implement targeted interventions swiftly. Pro-portability and anti-discrimination rules should be made binding with regular compliance reviews, and exit-fees either banned or capped with standardised tiers announced at the final report's publication. Real-time monitoring and enforcement, including audits and fines, are essential to keep hyperscalers accountable. Maintaining regulatory momentum by avoiding a prolonged DMU referral is paramount.

The CMA has done the hard work of diagnosing deeply entrenched structural concerns in the cloud-AI stack. Delay risks this vital work unravelling. Now is not the time to hesitate. The market cannot afford to wait. The CMA must act decisively now, before it's too late. ®

Bill McCluggage is the former UK deputy government CIO, Irish government CIO and is currently managing director at consultancy Laganview Associates.