UK regulator launches move that could give it new powers over Microsoft

Microsoft is facing a fresh challenge in the UK after the Competition and Markets Authority said it will begin an investigation into whether the company should be given strategic market status, a designation that could hand the regulator stronger powers to act against it.

The investigation is due to begin in May and will focus on Microsoft’s business software ecosystem. The CMA said hundreds of thousands of UK businesses and public sector organisations rely on products such as Windows, Word, Excel, Teams and Copilot every day. It has already identified what it called a major concern over Microsoft’s software licensing practices and the effect those practices may have on competition in cloud services.

An SMS designation would allow the regulator to step in more directly. The CMA said such a move could help it tackle concerns about the way Microsoft’s software licensing affects competition in cloud computing, while also giving it a route to address the changing landscape as AI-driven tools increasingly shape the productivity software market.

The regulator’s action comes alongside a follow-up to its earlier cloud services investigation. In that case, the CMA examined the UK cloud market and found that Microsoft and Amazon both held strong positions. It said their behaviour had harmed competition, including through fees and technical barriers that made it harder for customers to use rival cloud providers or switch between services.

As part of the latest developments, the CMA said Microsoft and Amazon have agreed to a plan involving egress fees and interoperability. According to the regulator, those changes are intended to reduce the cost and effort for UK customers who want to use more than one cloud provider. The board will review progress in six months after seeking views from customers and competitors.

The CMA has made clear that Microsoft’s productivity tools are central to its concerns. It believes that software products used across offices and organisations can influence competition in cloud infrastructure, especially when licensing terms make rival services less attractive or more expensive for customers already embedded in Microsoft’s ecosystem.

Artificial intelligence is also part of the picture. The regulator said the SMS investigation would provide a route to maintaining a level playing field as AI-driven innovation reshapes competition in business software. That means the probe is not only about traditional products such as Word, Excel and Windows, but also newer services such as Copilot that are becoming more integrated into everyday workplace systems.

This is not the first time Microsoft has come under scrutiny from the UK watchdog. The CMA previously examined the company’s relationship with OpenAI in 2023 and also looked at its hiring of staff from Inflexion AI in 2024. The new investigation adds to that pattern of sustained regulatory attention.

For Microsoft, the May investigation could become a major test of how much control large technology companies can exercise across connected markets such as software, AI and cloud computing. For the CMA, it is another signal that the UK intends to use its digital competition powers to push back against firms it believes may hold too much influence over critical business technology.