The heavy hand of the CMA, on Google and tech companies it barely understands, will stop the UK from capitalising on AI, writes Matthew Lesh
“One Billion Customers – Can Anyone Catch the Cell Phone King?” ran the cover story in Forbes magazine. But this wasn’t about Apple, or even Android. The headline captured Nokia’s heyday in November 2007. Just a few months earlier, Apple announced the iPhone, and the following year, Google would release Android. Nokia’s supposedly unassailable monopoly would rapidly evaporate.
In the same era, commentators claimed Myspace’s network effects would guarantee its long-term dominance, only for Facebook to eat its lunch. A few years earlier, European competition authorities investigated Microsoft’s Internet Explorer, convinced that its bundling with Windows would cement an unstoppable grip on the browser market. Yet within a few short years, Internet Explorer’s dominance collapsed under the weight of Mozilla’s Firefox and then Google’s Chrome.
The lesson of history is that today’s giants can quickly become tomorrow’s case studies in obsolescence. Digital markets that may at first appear uncompetitive are not always settled, with dynamic competition threatening existing players and delivering for consumers.
The CMA’s crackdown on Google and cloud services
Regrettably, the Competition and Markets Authority (CMA) appears determined to rehash these familiar battles. They are on the verge of leveraging new digital competition powers to ‘fix’ markets just as technological advancements and increasing investment are reshaping their competitive landscape. In doing so, the CMA risks hampering the very innovation and infrastructure that the UK needs to thrive in the AI era.
To start, the CMA is on the cusp of declaring ‘strategic market status’ for Google’s search product, which would mean heavy-handed interventions in how the product operates. This is an ironic move, coming just as Google is facing an existential threat from AI chatbots, the heaviest competitive pressure in decades. In response, Google has warned that the CMA’s broad interference could result in British users losing early access to new features. Google has already been forced to delay rolling out AI tools in the European Union due to regulatory uncertainty created by the EU’s competition regime.
A similar story is unfolding in the CMA’s recently completed investigation into cloud services, focused on Amazon and Microsoft. This investigation is a case study in regulatory timing gone wrong. When Ofcom first referred the market to the CMA in September 2022, the terrain was entirely different. Large language models were still a laboratory curiosity, and cloud services were primarily judged on storage, compute and reliability.
This all changed following ChatGPT’s release in November 2022, leading to the generative AI boom and upending the sector. Since then, cloud providers have poured billions into AI-optimised infrastructure, including hyperscale data centres, GPU clusters and integrated AI platforms. This has fundamentally changed how businesses use the cloud. The surge in investment is not incidental. It is the new competitive battleground, with Amazon, Microsoft, Google and a growing cast of challengers racing to deliver more capability.
Yet the CMA’s findings are rooted in a pre-AI snapshot, effectively freezing the market in 2022 just as its contours were redrawn. In this new landscape, the CMA’s concerns about high switching costs and licensing terms are no longer anywhere near as significant. AI capabilities, performance for training and inference, and deep integrations are increasingly decisive.
This will have consequences on AI progress
By moving to impose strategic market status now, the CMA risks constraining the very infrastructure build-out the UK needs if it is to be an “AI maker, not an AI taker”. Investment decisions are being made today on where to locate the next wave of AI capacity. Heavy-handed intervention on outdated assumptions sends a worrying signal to investors.
The government started the year by ousting the chair of the CMA over concerns that the organisation was insufficiently focused on growth. Chancellor Rachel Reeves spoke about the need to tear down the regulatory barriers to growth. This message has yet to be reflected in the way the CMA is operating.
This situation highlights a broader challenge the government faces in terms of regulation. Reducing bureaucratic burdens on businesses requires more than just rhetoric, it entails curtailing problematic powers of quangos. A good starting point for examination will be the digital competition powers handed to the CMA in the final days of the Sunak government, which allow for pre-emptive interventions at lower evidential standards and with limited accountability.
If the government fails to reform these powers, the CMA will be free to overreach in fast-moving sectors it only dimly understands, freezing markets in outdated configurations. That risks deterring the AI-era investment the UK needs, leaving the country regulating the past while others race ahead.
Matthew Lesh is country manager at Freshwater Strategy and a public policy fellow at the Institute of Economic Affairs