UK Says Microsoft Has Businesses Trapped in Its Software

London — Britain's competition watchdog has effectively decided that UK businesses cannot leave Microsoft.

On Friday, the Competition and Markets Authority proposed designating the American software giant with "strategic market status" in business software — the regulatory equivalent of declaring that roughly 20 million monthly users are locked in, and that the lock-in itself is the problem. Microsoft says it disagrees. Somebody is wrong here, and the CMA has until February to say who.

The proposal is the most aggressive move yet under Britain's new digital-markets regime. If it goes through, Microsoft becomes only the third company under its microscope — after Google and Apple, both designated last October — opening the door to direct intervention in how the company bundles Excel, Teams and Copilot.

Photo: Microsoft's Building 92 at its Redmond, Washington headquarters. The CMA's proposed designation covers the business software ecosystem built from this campus — Windows, Office and Copilot. (Jiaqian AirplaneFan / Wikimedia Commons, CC BY 3.0)

What the CMA actually proposed

The facts first. The CMA launched this investigation on 14 May under Part 1 of the Digital Markets, Competition and Consumers Act 2024, examining whether Microsoft's bundling of its business software products — Windows, Word, Excel, Teams, Copilot and the rest — was uncompetitive. Five months later, the regulator's proposed decision is blunt: Microsoft holds a strong position across personal computer operating systems and productivity software suites, and, in the CMA's words, "Microsoft's strength in business software comes from the barriers customers face when switching, limiting their choice and weakening the constraints of other software developers."

That sentence is the whole case in one line. The regulator is not accusing Microsoft of a specific dirty trick — it is saying the trap itself is the market failure.

We checked the CMA's case page this morning: the consultation on the proposed designation closes at 5pm on 13 November, with responses invited by email to business.software.sms@cma.gov.uk, and the statutory deadline for the final decision is 13 February 2027. Alongside the proposed decision the CMA published an indicative roadmap of possible interventions — the areas where it would gather evidence and consider action if Microsoft is designated. The dry email address is the giveaway that this is now a process, not a press release: anyone from a rival vendor to an annoyed IT director can write in.

The argument: you cannot leave

Strip away the legal vocabulary and the CMA's theory is simple. Around 20 million people a month use Microsoft's business software across the UK. The company is dominant in the operating system on their PCs and in the productivity suite on top of it. Switching — really switching, not just trying a rival app for a week — is so painful that most organisations never seriously attempt it. Rivals, meanwhile, cannot get a fair hearing because they are competing against the bundle, not the product.

Sarah Cardell, the CMA's chief executive, put it in the regulator's press release: "Business software and cloud services underpin workplaces across the UK, from small firms to vital public services. The evidence shows Microsoft has a long-standing and significant presence in the UK's business software market." And then the mission statement: "Organisations should be able to choose the products that work best for them, switch provider when they want to and combine services from different suppliers."

Microsoft's answer is equally simple: there is no trap. A company spokesperson said Microsoft did not share the CMA's views in the proposed decision, adding: "All our products — including Copilot — are open and interoperable, giving customers the ability to use them alongside competing services."

This is where the case gets genuinely interesting, because both sides can be telling the truth as they see it. Microsoft's products do interoperate with rivals — on Microsoft's terms, inside Microsoft's ecosystem, billed through Microsoft's contracts.

The CMA's question is whether "alongside" is good enough when the bundle makes "instead of" commercially irrational.

The CMA is also still examining three live fronts, according to the regulator: whether customers can freely choose the best AI tools and whether rival AI providers get a level playing field against Copilot; whether the way Microsoft bundles and integrates its security products limits customer choice; and whether its licensing practices restrict which cloud customers can deploy their software on. The Copilot question is the one with the money in it — enterprise AI assistants are the fastest-growing line item in corporate software budgets, and whoever controls the default controls the market.

Brussels has seen this film before

None of this is happening in a vacuum. Just over a year ago, the European Commission closed its own long-running case against Microsoft over the bundling of Teams with Office — and the way that case ended should worry Redmond.

The EU saga started with a complaint from Slack in 2020, became a formal investigation in 2023, and produced preliminary findings in early 2024 that Microsoft had abused its dominant position. Microsoft's first response was a botched attempt at unbundling that Brussels deemed insufficient — the price difference was too small, the interoperability too thin. So the Commission sent it back.

What Microsoft finally offered, and what the Commission accepted on 12 September 2025, was far more serious: Teams-free Office suites at a genuinely lower price, with the price gap widened by 50 per cent; data portability into rival apps; and better interoperability for competitors' tools. The commitments are legally binding for seven years — ten for the interoperability provisions — policed by an independent trustee, with fines of up to 10 per cent of global turnover for non-compliance.

"Today's decision therefore opens up competition in this crucial market, and ensures that businesses can freely choose the communication and collaboration product that best suits their needs," said Teresa Ribera, the EU's competition chief, at the time. Microsoft's vice-president for European government affairs, Nanna-Louise Linde, responded: "We appreciate the dialog with the Commission that led to this agreement, and we turn now to implementing these new obligations promptly and fully."

Photo: Microsoft chief executive Satya Nadella. The company says it does not share the CMA's views in the proposed decision on its business software. (Brian Smale and Microsoft / Wikimedia Commons, CC BY-SA 4.0)

The lesson for the CMA is obvious: Brussels asked politely once, got a shoddy answer, and came back with a legally binding seven-year fix.

Microsoft's multi-front war with Britain

It is worth remembering that this is not Microsoft's first bruising encounter with the CMA. Three years ago the regulator blocked — then, after a restructured deal, approved — the company's $69 billion takeover of games publisher Activision Blizzard, in one of the ugliest transatlantic regulatory fights in recent memory. The CMA has not been shy with American tech giants since, and Microsoft knows it.

The business-software case is also only one of several fronts. In July, the CMA opened a separate consumer investigation into whether Microsoft misled personal and family subscribers when it folded Copilot into Microsoft 365 plans — customers were enrolled free in January 2025, then automatically rolled onto pricier Copilot-equipped tiers at renewal unless they found the cheaper "Classic" plan, £25 a year less. Regulators in Australia and Italy are examining the same renewal mechanics. "Consumer trust and transparency are priorities for Microsoft," a company spokesperson told The Register at the time.

Meanwhile the CMA says it has been engaging with both AWS and Microsoft outside any formal designation process on cloud services, and Cardell claims "meaningful improvements have already been made". Translation: the regulator is squeezing on every front at once.

What "strategic market status" actually means

For readers outside Britain, a word on the machinery. The Digital Markets, Competition and Consumers Act 2024, in force since January 2025, lets the CMA designate a firm with strategic market status if it has substantial and entrenched market power plus a position of strategic significance in a UK-linked digital activity — and clears a turnover bar of £25 billion globally or £1 billion in the UK. Microsoft clears that bar without breaking stride.

Designation is not a finding of wrongdoing. It is a licence for the regulator to act: bespoke conduct requirements built around fair dealing, open choices and trust and transparency, plus deeper pro-competition interventions where the CMA finds harm. The statutory investigation runs nine months, extendable by three — which is why everything converges on February.

So far the regime has two alumni: Google, designated in online search and mobile platforms, and Apple, in mobile platforms — all in October 2025. And in June the CMA showed what designation can do: conduct requirements on Google's search services, including an opt-out letting publishers stop their content powering Google's AI features, plus greater transparency on search rankings. We covered that June order in our report on Reach's collapsing Google traffic — the publisher opt-out is now live precedent, and Microsoft's rivals will have noticed.

Why this matters in America

American readers might wonder why a British regulator's paperwork should concern them. Three reasons. First, regulatory precedents travel: the EU's Teams settlement is already shaping how Microsoft sells Office worldwide, and a British order on bundling or licensing would be very hard to fence off at the Channel. Second, the US Department of Justice and the Federal Trade Commission are watching the same bundle through their own lenses — a detailed CMA evidence base becomes free ammunition. Third, and most concretely, the CMA is explicitly examining whether customers get a fair choice of AI tools against Copilot. Enterprise Copilot seats are Microsoft's fastest-growing revenue engine; anything that loosens the default could reshape AI software economics on both sides of the Atlantic.

The CMA is fighting on more than one front — its parallel antitrust complaints against Sportradar over live sports data show a regulator that has found its confidence. And Microsoft keeps generating adjacent controversies: uncovered in the company's own internal memos, its AI data practices are already under legal siege from publishers.

Our take: this is where the regime proves itself

Here is our position: the CMA has picked exactly the right fight. The bundle is the business model — Windows into Office into Teams into Copilot into Defender into Azure, each layer making the next one the path of least resistance. A regulator that cannot see a problem in that arrangement is not regulating.

But the regime's credibility now hinges on what follows a designation. Google's reward for its SMS was a set of conduct requirements — essentially a behaviour checklist. If Microsoft's punishment for trapping 20 million users is a similar list of pledges, strategic market status starts to look like a velvet glove with nothing inside it. Either the bundle comes apart in a way customers can feel — real unbundled pricing, real portability, real choice of AI assistant — or the label means nothing. Brussels needed two attempts to get there. The CMA does not have the luxury of a rehearsal.

Sources: Reuters (Oct 16, 2026); CMA press release "CMA takes first steps to ensure choice in business software" and case page, gov.uk (Oct 16, 2026); The Straits Times / Business Times (Oct 16, 2026); MLex (Oct 16, 2026); Computer Weekly (May 14 and Jul 30, 2026); The Register (Jul 29, 2026); TechXplore / Economic Times / TechSpot on the EU Teams commitments (Sep 12, 2025); legislation.gov.uk, Digital Markets, Competition and Consumers Act 2024; Mills & Reeve briefing on the SMS regime. Analysis and US framing are the author's own, except where attributed.

By Daniel Rao
Daniel Rao covers AI and enterprise tech for TechPulse USA.

 

Update, Oct. 18: the CMA showed its hand — two documents, one deadline

Since this post, the CMA has shown more of its hand. Alongside the proposed designation it published an indicative roadmap of possible interventions and opened consultation until 13 November 2026 — with a final decision due by 13 February 2027. In a parallel 23-page review of the voluntary cloud route, the CMA found Microsoft has still not altered the licensing practices its 2025 market investigation identified, though customers can now transfer data for free when switching. The pattern is unmistakable: the watchdog is building the paper trail for action, whether Microsoft cooperates or not.