Microsoft has warned that it could cut investment in Britain’s digital infrastructure if the competition watchdog decides to make changes to the cloud computing sector.
In a recent clash with UK regulators investigating the market, the tech group said: “Interference in a well-functioning market could have significant consequences, including higher prices for cloud users (relative to global peers) and reduced investment in cloud infrastructure services by both Microsoft (including in UK data centres and cloud applications) and customers.”
The committee also harshly criticised the Competition and Markets Authority’s previous analysis, saying the report “failed to address direct and consistent evidence of favourable outcomes for customers” and that some facts were “downplayed in the conclusions”.
Microsoft has had tense relations with British authorities since it initially blocked a bid to buy video game maker Activision Blizzard in April last year, with Microsoft president Brad Smith accusing the UK of being “closed for business” following the decision.
He has since walked back those comments, but the US company is once again at odds with the CMA over its huge investments in artificial intelligence. The watchdog is considering whether Microsoft’s acquisition of Inflexion and its team (which includes Google DeepMind co-founder Mustafa Suleiman), and its $13 billion partnership with OpenAI, constitute a merger.
Microsoft pledged last year to invest 2.5 billion pounds in the UK over three years, doubling its data centre infrastructure, funding security and AI technology and procuring more than 20,000 cutting-edge graphics processing units – the chips that power AI – by 2026. While this funding is not thought to be under threat, the threat of it being withdrawn will cause a headache for the new Labour government, which is seeking to improve Britain’s digital infrastructure and systems, including making public services more efficient.
The allusion to Microsoft’s investment was in response to a series of working papers submitted by the CMA as part of its inquiry into the cloud-computing market, which was launched with a referral from Ofcom in October. The inquiry is looking into concerns about a range of issues, including the dominance of Amazon and Microsoft in the cloud-computing market, the fees that businesses pay when switching providers, the technical barriers to switching, and whether customers are unfairly tied to Microsoft through popular software licences.
Often described as the “digital backbone” of the economy due to its increasing importance to businesses, cloud computing allows people to access and use computing resources such as databases and software over the internet – like renting a powerful computer rather than owning and managing it. Ofcom estimates the UK market could be worth up to £7.5bn in 2022.
The study found that Microsoft and Amazon control 70-80% of the market, with Google at 5-10%. But Microsoft disputed the idea that the market is distorted by the two companies, while other companies struggle to gain a foothold. Competition in the cloud market is “neither gentle, weak nor comfortable,” the study said. “Amazon, Microsoft and Google are competing aggressively with each other.”
Microsoft said it was misleading to consider Google a small company, saying: “With a market capitalization of over $2 trillion, Google is worth more than Amazon. With annual revenue of over $300 billion and earnings before interest and taxes of over $85 billion, Google has a powerful balance sheet.”
The competition authority is expected to publish its provisional decision by October and reach a final decision between February and April next year.
