Microsoft has warned that it could cut investment in digital infrastructure in Britain if the competition watchdog decides to make changes to the cloud computing sector.
In the technology group’s latest clash with the UK regulator, which is investigating the market, it said: “Intervention into a well-functioning market is likely to have significant consequences, including increasing prices for cloud users (vis-à-vis their global competitors) and reducing investment in cloud infrastructure services from both Microsoft (including in UK data centres and cloud applications) and customers.”
It also heavily criticised the Competition and Markets Authority’s analysis to date, saying its reports “fail to engage with the direct and consistent evidence of positive customer outcomes” and that some facts had been “glossed over in the conclusions”.
Microsoft has had a fraught relationship with the authority since its attempt to buy Activision Blizzard, the video games maker, initially was blocked in April last year. Brad Smith, Microsoft’s president, accused Britain of being “closed for business” after the regulator’s decision.
He has rowed back on those comments since then, but the American company has run up against the CMA again over its huge investments in artificial intelligence. The watchdog is looking at whether Microsoft’s acquisition of Inflection and its team, including Mustafa Suleyman, the co-founder of Google DeepMind, and its $13 billion partnership with OpenAI count as mergers.
Last year, Microsoft committed to investing £2.5 billion in the UK over three years, doubling its data centre infrastructure, funding security, AI skills and procuring more than 20,000 of the most advanced graphics processing units — the chips that power AI — by 2026. Although this funding is not understood to be under threat, the spectre of any withdrawal will be a headache for the new Labour government, which is looking to improve Britain’s digital infrastructure and systems, in part to make public services more efficient.
Microsoft’s thinly veiled threat on investment came in response to a series of working papers from the CMA as part of its investigation into the cloud computing market, sparked by a referral by Ofcom in October. It is exploring concerns about issues including Amazon’s and Microsoft’s dominance over the sector, as well as fees that companies pay to switch providers, technical barriers to switching and whether customers are tied unfairly to Microsoft through its popular software licences.
Often described as the “digital backbone” of the economy because of its increasing importance to business, cloud computing allows people to gain access to and to use computing resources, such as databases and software, over the internet. It is akin to renting a powerful computer, rather than owning and managing one. Ofcom has estimated that the UK market was worth up to £7.5 billion in 2022.
It found that Microsoft and Amazon controlled 70 per cent to 80 per cent of the market, while Google has 5 per cent to 10 per cent. However, Microsoft hit back against the idea that the market was skewed by two players while others struggled to get a foothold. Competition in the cloud market was “not soft, weak or cosy,” it said. “Amazon, Microsoft and Google are punching each other hard.”
Microsoft said the characterisation of Google as a small player was misleading: “At over $2 trillion market capitalisation, it is worth more than Amazon. At over $300 billion in annual revenue and over $85 billion in earnings before interest and tax, Google has balance sheet firepower.”
The competition authority is expected to publish its provisional decision by October and to reach a final conclusion between February and April next year.
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