Microsoft offered 'several iterations' of its cloud remedy to the CMA

Agency CEO Sarah Cardell says that the Competition and Markets Authority's independent panel group analyzed multiple versions of Microsoft's proposed Cloud Remedy, but none of them convinced the group that a significant lessening of competition would not occur.

At a recent hearing with the UK's Business and Trade Committee, the CEO of the Competition and Markets Authority Sarah Cardell outlined more specific details as to why regulators decided to block the Microsoft-Activision merger.

According to Cardell, Microsoft created multiple remedy proposals in the effort of addressing key concerns in the cloud gaming market. These remedies include 10-year licensing deals to offer both Xbox and Activision games to competing cloud streaming service providers like NVIDIA's GeForce Now. While Microsoft's remedy was enough to win over the European Commission, who approved the Microsoft-Activision merger, the concessions did not persuade the CMA.

The Competition and Market Authority addressed Microsoft's Cloud Remedy in its final decision report, and you can find a breakdown on this remedy here.

In a lengthy transcription, the CMA's CEO Sarah Cardell explains:

"As you may be familiar, our merger control decisions are taken by our independent panel groups, and the group reached the decision back at the end of April to prohibit the transaction. The reason for that was that they identified a problem in the cloud gaming market. This is a rapidly emerging part of the market, and it's a market where Microsoft has a leading position, as things stand, across its position in relation to the cloud infrastructure more broadly, as well as Xbox and Windows.

"So we were concerned about the ability of Microsoft to take that position and combine it with a very strong position that Activision has in terms of its very significant portfolio of games. The group considered the deal very, very carefully and they concluded this would lead to a lessening of competition, effectively because it would prevent other cloud gaming providers to be able to compete as that market goes forward.

"The group very carefully considered a proposed remedy that was tabled by Microsoft. The group went through several iterations of that, and ultimately concluded that it would not be effective to resolve the competition concerns.

"Now a reminder of the UK position is that when we identify a merger will result in a substantial lessening of competition, the legislation requires us to consider whether any proposed remedy will be comprehensive and effective in resolving those concerns.

"The group considered this very carefully, and concluded that the proposed remedy would not.

"Essentially the reason for that is the remedy would have involved Microsoft offering a licensing deal that would effectively set the terms of trade for the market for the next 10 years. It would have set the terms in which other cloud gaming providers would be able to get access to those games.

"The group considered that was not an effective remedy, and remembering that this is a really important evolving market in which we want to keep open to free competition. We want to make sure that competition is able to evolve in that market unencumbered by regulatory constraints.

"That was the essence for the reason to reject the remedy.

"What that means is that the CMA has decided that the deal needs to be prohibited. You will have all seen, I'm sure, the announcement from the European Commission. Now, the Commission had also agreed that the deal would give rise to competition concerns. There's no difference between the CMA and the European Commission there.

"The Commission has, however, concluded that they consider it appropriate to accept the remedy. They have their own test to apply and they've reached their own view, and obviously they're fully entitled to reach that view.

"But we remain of the view from a UK perspective that it was not appropriate to accept that remedy.

"The final thing I would add just in terms of where we are in terms of global jurisdictions is that the deal is also subject to review in the U.S. The U.S. Federal Trade Commission is suing to block the deal--it's a litigation approach in the U.S."

Cardell was asked why the European Commission felt differently about Microsoft's Cloud Remedy, and what was the overall substance to the disagreement between the CMA and the EC's DIGICOMP group.

Cardell responded:

"We don't have the details of the Commission's reasonings. What I can give you is the rationale as to why the CMA concluded it was not appropriate to accept that remedy.

"And as I say, we looked very very carefully at this. The process that we have involves a specific hearing on remedies, an opportunity for the parties to put in several rounds of remedy proposals. It was a long and careful process.

"What the group is considering there is [whether or not] a remedy will give the group confidence that this market will be able to continue with the competitive dynamics in the absence of the merger.

"This is a market which is in early gestation, where we want competition to flourish. We want all parties big and small to be able to access that market. There was a real concern on the part of the group that if you accept the proposal that was tabled by Microsoft, it would constrain the way the market would evolve going forward.

"It would not replicate the conditions of full and free competition that we would see in the absence of the merger."

Read Also: CMA on Microsoft-Activision merger: 'We're not doing bidding of other agencies'

The Business and Trade Committee goes on to ask Cardell about corporations potentially lobbying or trying to persuade the CMA's work, in which the CMA CEO responded:

"I would say overall our experience is very positive in terms of the engagement that we've had across the tech industry. One of my priorities since I've been enrolled was to make sure that I was engaging very actively with businesses large and small across the tech sector. It's absolutely critical, from my perspective, that we have good engagement, that we understand the sector, that we understand businesses.

"But also that we can have a frank and constructive dialog. I've been meeting on a regular basis with senior representatives both from the individual tech companies but also with industry groups. One of the points that I have made in those meetings, and I think that's being reciprocated, is a recognition that this is a sector that we want to work together, a sector where we want to make sure together that we can create and support the best conditions for competition that will enable companies big and small to thrive, including many UK startups.

"Of course it's the case that there will be individual decisions where we reach a difference of view. Again, that's something that we've had very frank discussions about. But I think it's absolutely critical that we maintain a constructive dialog and that's something that I seek to do and that I'm doing regularly.

"I don't find that we are operating, more broadly speaking, in a hostile environment.

"The other thing I would mention is that we have an individual case like Microsoft-Activision where obviously the parties disagree with our outcome. We have many, many other cases that we are pursuing. including other cases on the antitrust side, where we are in the process of--and have--reached constructive outcomes.

"A good example of that would be the antitrust case that we had in relation to Google's privacy. This was proposed by Google to withdraw the third-party cookies on their Chrome browser. And we identified early on that there were concerns there. Google were very constructive in the case, they came in an offered commitments--this is an opportunity to resolve the case through binding commitments rather than taking it through to a final conclusion.

"We engaged very actively with them, also with with Information Commissioner's office, and we've been able to work together to come up with a solution that's actually now being rolled out worldwide.

"That, I think, is a really good example of the kind of constructive engagement that we look to see, it's very much the model that we'd expect to see going forward with the new regime as well."