- First test of DMCC. The UK’s Competition and Markets Authority opened a Strategic Market Status investigation into Microsoft on 14 May 2026 — the first SMS inquiry under the Digital Markets, Competition and Consumers Act 2024 to target a software ecosystem spanning productivity, operating systems, and embedded AI.
- Fact. The probe examines whether Microsoft’s bundling of Teams, Windows, Microsoft 365 and its Copilot AI assistant gives the company “substantial and entrenched market power” — the legal threshold for SMS designation and potential conduct remedies.
- Stake. A positive SMS finding, expected by February 2027, would give the CMA powers to impose bespoke obligations on Microsoft’s licensing, interoperability and pricing practices — a de facto structural intervention in how businesses across the UK buy and deploy enterprise software.
The CMA confirmed the opening of the inquiry on 14 May, issuing an invitation to comment that set a public consultation deadline of 4 June 2026. The investigation proceeds under Part 1 of the DMCC Act 2024, the UK’s post-Brexit digital markets statute that grants the authority power to designate companies with strategic market status and impose conduct requirements without the longer timelines of a full merger or abuse-of-dominance investigation. According to the Information Technology and Innovation Foundation, which filed formal comments before the consultation closed, the probe reflects a broader regulatory concern about a single vendor controlling adjacent layers of enterprise infrastructure.
What the CMA is scrutinising
The investigation covers four categories of conduct. First, commercial bundling: the practice of offering Windows, Microsoft 365 and Teams as a combined package that makes it commercially disadvantageous for enterprise customers to substitute individual components. Second, interoperability restrictions: product design choices that the CMA believes may limit the ability of competing cloud and software vendors to connect seamlessly with Microsoft’s ecosystem. Third, self-preferencing: the use of defaults and design nudges — including Copilot’s deep integration into Windows and Office — to direct users toward Microsoft services over alternatives. Fourth, cloud competition: licensing arrangements that allegedly reduced the competitiveness of rival cloud providers by tying access to software licences to specific hosting conditions.
The inquiry sits alongside a parallel FTC investigation in the United States, which regulators on both sides of the Atlantic are treating as a signal that the full AI software stack — not just individual products — now warrants antitrust scrutiny.
SMS designation: what it means in practice
Strategic Market Status under the DMCC Act requires the CMA to demonstrate that a company holds “substantial and entrenched market power” and a “position of strategic significance” — meaning that its decisions have outsized effects on competition in adjacent or downstream markets. If Microsoft is designated, the CMA can impose bespoke obligations without needing to prove a specific breach of competition law, a lower procedural bar than traditional antitrust enforcement. Potential remedies could include mandatory interoperability requirements, unbundling of specific product combinations, and rules governing how Copilot is presented within Windows and Microsoft 365.
Timeline and outlook
The CMA has until February 2027 to issue a decision on whether Microsoft meets the SMS threshold. The consultation that closed on 4 June received submissions from cloud providers, enterprise software vendors and business customers — groups that have long argued that Microsoft’s licensing structures disadvantage alternatives to Teams and Azure. Microsoft had not made a public statement on the investigation as of publication, but is widely expected to contest an SMS designation through a formal appeals process if it is issued.