UK Regulator Targets Microsoft with AI Cloud Licensing Probe

The UK’s Competition and Markets Authority (CMA), responsible for overseeing the digital markets competition regime for the most powerful digital firms, will launch a strategic market status (SMS) investigation into Microsoft’s business software ecosystem, beginning in May. 

The investigation will look into Microsoft’s use of software licensing – including across Windows, Word, Excel, Teams and Copilot – and how it is reducing cloud competition. The aim is to provide “a level playing field among [cloud] providers at a critical moment, as A-driven innovation reshapes competition in productivity software”, according to the UK Government’s press release on the matter.

Microsoft and Amazon, which the CMA’s 2025 Cloud Services Market Investigation found to be the largest cloud providers in the UK alongside Google, have set out actions on cloud egress fees and interoperability to support greater choice for businesses and public sector organisations in the UK. These changes should lower the cost and effort required for UK customers using more than one cloud provider. 

Why the focus on Microsoft and Amazon?

The CMA’s Market Investigation identified limits to customer choice as a result of data egress fees and barriers to interoperability restricting switching and multi-cloud. 

The CMA hopes to benefit UK businesses by enabling greater scope for multi-homing to support customer choice and the resilience of UK tech stacks, so any company can easily mix and match different providers to have, for example, a Windows operating system with its data stored in Amazon or Google. 

The end result aims to allow Microsoft’s competitors to integrate with its business software so organisations are not confined to Microsoft AI software.

Paul Mackay, Vice President of AI and Cloud (EMEA) at Cloudera, says: “The CMA’s proposed regulations should help remove some of the commercial barriers that have seen data trapped on a particular hyperscalers’ platform.

“However, that does not mean AI workloads and data can simply be lifted and shifted between environments. 

“AI now sits at the heart of many critical business processes, whilst underlying technical challenges, including complex data ecosystems and dependence on cloud-specific tools, will still pose challenges. 

“Any organisation assuming it can now move data and AI at will is in for a shock, as the reality is far more complex.”

“We’re using the regime in a flexible, pragmatic way to deliver real impact, as quickly as possible, for UK customers,” says Sarah Cardell, CEO of the CMA. “This announcement shows we’re not just responding to today’s concerns but getting ahead of emerging issues too. 

“Cloud remains central to our approach – we’ve seen real progress through our engagement with Microsoft and Amazon to drive meaningful improvements on egress fees and interoperability and we expect more action from them over the coming months.

“At the same time, we’re taking action now, deciding to launch an investigation into Microsoft’s business software ecosystem. 

“An SMS designation would enable us to tackle remaining concerns around Microsoft’s licensing practices in cloud and would also enable us to ensure a level playing field as AI is rapidly embedded into everyday business software tools.

“Through this package of actions, we’re driving changes across cloud and business software to make sure these markets are competitive and resilient for UK businesses and the public sector.”

Once started, the SMS investigation can take up to nine months to complete, with the CMA setting out a provisional view prior to making a final decision. 

If the CMA decides that Microsoft has been acting unfairly after the investigation, they have two main options to fix the market: impose conduct requirements or introduce pro-competition interventions. 

This means the CMA can order Microsoft to change its behaviour and stop certain business practices, such as how it sells or licenses its software. Plus, the CMA can introduce new rules or actions specifically designed to make the market fairer, such as forcing Microsoft to make its products easier to use with rival cloud services. 

Microsoft’s response to the matter

Microsoft has already abolished its egress fees globally, since the CMA’s 2025 Market Investigation, but for UK customers it extended this further yesterday. 

Free egress will apply not only to transfers using standard ISP egress, but also to transfers using MGN from UK data centres. 

The firm has publicly recognised in a recent statement that “large-scale or complex cloud migrations often require more time than a standard migration window allows”. So, Microsoft has now granted its customers extensions for longer migrations, expanding the window from 60 to 180 days. 

Brad Smith, Vice Chair and President of Microsoft, says: “We recognise that the CMA will continue to review and assess additional issues relating to our products and services, including in the business software market. 

“We are committed to working quickly and constructively to address these issues, including by providing all the information the CMA needs to move forward with its reviews.

“Microsoft has long been committed to addressing the competition and antitrust issues raised by regulators and enforcement agencies through constructive engagement, transparency, and a willingness to address concerns promptly and in practical ways.

"We believe this has served our shareholders and customers well, avoiding protracted litigation, legal defeats and large fines."

Has Amazon got away with it for now? 

Coinciding with the CMA’s announcement, AWS has updated its terms and conditions for customers wanting to switch cloud services providers. 

Andrew DeVore, Vice President and Associate General Counsel at AWS, says: “With AI fundamentally changing the way customers engage with technology services, this engagement has delivered deeper insight and clarity about solutions that address customer feedback and foster continued vibrant competition and innovation.”

“As a direct result of this engagement, today we are announcing a new UK Addendum that formalises our commitment to customer choice through clear, comprehensive rights around multicloud adoption, data portability, and switching processes. We have also agreed to continued, structured engagement with the CMA as we support their efforts to ensure the cloud continues to power the UK’s thriving innovation economy for years to come.

While the CMA’s Market Investigation found that both Microsoft and Amazon hold strategic power in the UK cloud industry, it’s interesting that only Microsoft will undergo SMS investigation. 

Some UK-based cloud companies don’t understand the logic.

Mark Boost, CEO of the sovereign cloud and AI platform provider Civo, says: “The decision made by CMA to investigate Microsoft is encouraging, but the decision to exclude AWS raises practical concerns with both providers being structured in the same way from a structural lock-in perspective, which could create a regulatory imbalance between the two parties that would keep one side unchallenged.”

"The current announcement does not provide adequate solutions to solve the serious issues surrounding the dominance of these key foreign-based hyperscalers. There needs to be a fair digital market in which domestic innovation is encouraged, alongside continuing to help build opportunities for international collaboration and trade.

"If the CMA is serious about delivering on this, it will need to adopt an integrated approach as opposed to only partially regulating these hyperscalers. If the same standards are not applied to both parties, the UK will jeopardise its objectives related to digital sovereignty and economic stability."