Will Microsoft be rapped after cloud investigation?

The investigation, which could lead to an SMS designation for Microsoft by the CMA, is the fourth SMS designation procedure initiated under the DMCCA - which is the UK's equivalent of the EU Digital Markets Act.

If the CMA does decide to proceed with an SMS designation for Microsoft this would allow it to act on concerns it has that the company is licensing software in a way that reduces competition in the UK’s cloud market.

That concern arose from a market investigation the CMA undertook into the supply of public cloud infrastructure services in the UK. The CMA findings noted that Microsoft’s software is widely used in cloud environments and said the company’s software licensing practices could, in some cases, make it more challenging for other providers to compete on equal terms when customers wish to use Microsoft software in non-Microsoft environments.

The CMA investigation made recommendations that an SMS designation should be considered for the two largest providers in the market - Microsoft and Amazon Web Services (AWS).

No equivalent investigation has yet been announced in respect of Amazon but the CMA confirmed that both Microsoft and Amazon had agreed to act in relation to other issues that it had identified during its market investigation.

“In consultation with the CMA, both firms are taking material steps to lower egress fees and improve interoperability…,” the CMA said. “These actions create benefits for UK businesses, enabling greater scope for multi-homing to support customer choice and the resilience of UK tech stacks.”

The CMA also said it is in “ongoing dialogue” with Microsoft and Amazon about enabling UK cloud customers to use, and switch more easily to, other service providers and that its Board intends to review progress in six months’ time.

The CMA accepted improvements offered by Microsoft and AWS for all involved to avoid the lengthy process of SMS designation and potential conduct requirements/interventions.

There was a significant amount of engagement during the relevant market investigation, but only time will tell whether the CMA decision represents a pragmatic approach or a missed opportunity.

The CMA’s approach in this case is notably more restrained than that of the European Commission, which opened EU Digital Markets Act (DMA) designation investigations into Amazon’s and Microsoft’s respective cloud services in November, as well as launching an assessment of the DMA’s wider application to cloud markets in the EU.

The CMA’s openness to “negotiated commitments” from Microsoft and Amazon here reflects a continued willingness on the CMA’s part to accept voluntary undertakings from potential and designated SMS businesses, rather than to impose hard and fast enforcement orders. It will be interesting to see how the market views the efficacy of this approach in the context of cloud services.

Ian Hastings, Senior Associate, and competition law specialist at Pinsent Masons​