Written submission from Coalition for Fair Software Licensing (PRO0037)

Coalition for Fair Software Licensing Response to the UK Parliament Call for Evidence:

The Impact of Restrictive Software Licensing on the UK Economy and

Recommendations for Pro-Growth Reform

Summary

The Coalition for Fair Software Licensing (“CFSL” or the “Coalition”) welcomes the opportunity to submit this comment in response to the Call for Evidence by the Business and Trade Committee. The Coalition launched in September 2022 and is dedicated to protecting fair and transparent software licensing terms, and educating interested parties about the limiting impact that unfair and oblique licensing practices have on growth, opportunity, investment, and security.[1] The Coalition advocates adoption, support, and use of the Principles of Fair Software Licensing, which provide the foundation needed to spur innovation, choice, and growth in the digital economy.[2] The Coalition’s members include customers and providers of information technology (“IT”) services throughout the cloud stack, which have been and are being harmed by Microsoft’s conduct.

As outlined in our comments, restrictive software licensing remains a major structural barrier to competition, choice and digital growth in the UK. Practices such as non-portable licenses, differential pricing, discriminatory barriers to technical integration, and vendor lock-in inflate costs for both private and public sectors, inhibit innovation, slow adoption of digital transformation strategies, and reduce the UK’s productivity and international competitiveness. Recent evidence — including a published figure that the UK public sector is set to spend around £9 billion over five years on Microsoft under one contract arrangement — underscores the scale of potential opportunity cost.

We have engaged closely with the CMA and warmly welcome the evidence it has found of restrictive software licensing practices and the impact these have on the market. While we appreciate its work through the Cloud Markets Investigation, with proven evidence of anti-competitive software licensing practices being incurred over several years and its continued prevalence, there is a strong need for the CMA to take enforcement action imminently. Precedents are being set, market power entrenched, and prices artificially rising. Waiting for the Digital Markets Unit process could take two years, with the UK not realising the benefits of enforcement for 3-4 years. In a time where growth will be marked by the success of equitable digital transformation, this stunts the UK market from doing so.

The Economic Impact of Restrictive Licensing

Virtually every business uses a combination of hardware and software to conduct its operations. Before the emergence of cloud computing, businesses generally managed their own IT systems. They owned or leased physical hardware on their premises, and they licensed software from vendors to run on that hardware. Cloud computing disrupted that model, allowing businesses to access computing resources over the Internet, rapidly and on-demand, including the ability to scale their computing resources up and down to meet their needs. Cloud also permitted users to leverage far greater compute power more efficiently, facilitating among other things the recent explosion of artificial intelligence tools for consumers and businesses alike. As a result of these innovations, those consumers and businesses saw the promise of lowered costs, increased innovation, and growing competition in cloud services and elsewhere. Restrictive software licensing practices undermine that promise in both the commercial and public sectors.

Restrictive software licensing practices are contractual, technical, or commercial terms imposed by a software vendor that unreasonably limit customer choice, interoperability, or portability of software, data, or workloads — thereby increasing dependency on the vendor and reducing innovation and effective market competition. Though an exact number has not been calculated across all vendors, in 2024 the Social Market Foundation found that Microsoft’s restrictive software licensing practices alone — such as “bring-your-own-license” limitations and vendor-specific entitlements — create additional private-sector costs of over £586 million for repurchasing of Office licenses and nearly £300 million overcharge for deploying SQL server and additional public-sector costs of £56 million for repurchasing of Office licenses and nearly £7.8 million overcharge for deploying SQL server on clouds other than Microsoft Azure.[3] Over a Parliament (5 years), this totals a projected additional £300 million in taxpayer costs. However, based on recent reporting, there is reason to suspect that these estimates are low, especially given the emphasis for digital adoption and modernisation.

In August 2025, The Register noted that the Crown Commercial Service had entered into a memorandum of understanding (MoU)[4] in November 2024 (“SPA24”) whereby they expected to spend around £9 billion over five years on Microsoft products and services.[5] The article indicates that in the 2024/25 financial year (ending 5 April 2025) approx £1.9 billion had already been spent under the agreement. To put this in context: while the MoU is claimed to grant value to public-sector bodies, this level of spending locks large public budgets into one vendor’s ecosystem, limiting ability to adopt best-value alternatives and restricts flexibility. The article remarks the money could have been spent on reducing public borrowing or avoiding tax rises / spending cuts. Hence, the scale and concentration of procurement and licensing with one vendor raises questions about competition, public value, and strategic digital infrastructure autonomy.

This point was reinforced with the Competition and Markets Authority (CMA)’s final decision (2025) that Microsoft’s licensing of its products (Windows Server, SQL Server etc) to third-party cloud providers could involve higher costs than to its own Azure, creating a cost disadvantage for rivals and raising switching barriers (“licensing lock-in”). The documented public-sector spend of £9 billion is evidence of how pervasive dominance of Microsoft’s ecosystem has become — especially in the public domain, which sets signals to the broader market.

The concentration of public-sector digital spend towards one vendor’s software increases systemic risk: e.g., if the vendor suffers disruption, policy change, or geopolitical risk, many services may be affected in tandem. This is a point that Jen Easterly recently noted regarding “persistent weaknesses in U.S. software….because software vendors face few incentives to prioritize security. It remains cheaper and faster to shift the costs of insecurity downstream to customers.”[6] The dependence on a single or small number of vendors for software undermines core concepts of resiliency and shifts the ultimate cost of inevitable failures to the customer - be it commercial or public.

Fundamentally, restrictive software licensing is a competition issue - one that is impacting growth in both the commercial and public sectors. Microsoft’s restrictive licensing policies and practices prevent innovative companies from having a meaningful chance of competing at scale, not only limiting growth but also customer choice. This is especially important as the UK seeks to unlock the full potential of AI in the years to come.

Evidence of Harm from Licensing Practices

The CMA report (Appendix T) shows Microsoft charging higher input prices to rivals (for supplying its software to other cloud providers) than those charged internally (to Azure customers). This structural disadvantage restricts competitor offerings and reduces switching. The recent public-sector spend data underscores that large scale procurement continues to favour one vendor - Microsoft - because of legacy software dependencies and licensing restrictions, reducing competitive pressure on pricing and terms across the ecosystem.

Many software license agreements today do not allow customers to take their licenses freely across competing cloud or hybrid environments. For example, licenses tied to one vendor’s infrastructure only. This restricts multi-cloud strategy adoption and creates “lock-out”. The large MoU spend indicates that public-sector bodies may have limited incentive or ability to consider alternatives if they have committed to long-term spend and vendor-specific entitlements.

The public-sector figure of £9 billion over five years is not in itself evidence of waste; however, it does raise the question: if a significant proportion of that spend is captured only by Microsoft with restricted competition, what is the opportunity cost in terms of lower prices, innovation, or alternative investment (including open-source or new entrants)? The SMF estimate of hundreds of millions in avoidable costs combined with large public spend means the aggregate cost burden may be significant for the UK economy and public finances.

International Context

The UK Government is commendably prioritising digital transformation as part of its growth efforts. Decisive regulatory action on restrictive software licensing represents a prime opportunity to demonstrate the Government's commitment to economic growth, digital transformation and efficient public spending. Given cloud services are vital inputs to the UK economy and underpin AI model development and deployment, it represents a critical competitive frontier for the UK. The CMA has acknowledged that cloud services “support many sectors' contribution to the UK's overall economic growth and it is therefore vital that competition works well in these markets for the benefit of these businesses and the wider UK economy”[7]. Immediate enforcement action regarding anticompetitive software licensing practices would ensure UK businesses—from major firms in banking, retail, energy, media, communications and transport to innovative SMEs—can access the computing resources they need to compete globally without artificial restrictions that inflate costs and limit choice. This is particularly urgent given that global spending on cloud services is forecast to exceed $720 billion in 2025, with the UK's public cloud market expected to expand by 140% between 2024 and 2029.[8] Taking swift enforcement action would position the UK as a leader in addressing the impact of restrictive software licensing practices, particularly as cloud computing and AI become increasingly central to economic competitiveness. The UK has an opportunity to move faster than other jurisdictions in addressing these practices, sending a clear signal that the UK will protect fair competition in digital markets essential to its economic future. This leadership would support the Government's ambition for the UK to become a technology superpower, whilst maintaining the UK’s attractiveness for technology investment and innovation.

The UK currently has existing legal powers and completed investigation findings regarding Microsoft’s software licensing practices that position it to act decisively on these practices. Delay risks being overtaken by other jurisdictions, reducing the UK’s influence over how these issues are addressed globally and potentially forcing the UK to accept less favourable solutions designed elsewhere. Without prompt action, the UK forfeits the opportunity to shape international approaches to restrictive software licensing and risks appearing reactive rather than proactive in protecting its economic interests in critical digital infrastructure. In the meantime, these practices are setting a dangerous precedent and have become the template for market dominance through artificial restrictions for others to follow. Delay allows these lock-in effects to strengthen, making future intervention progressively more difficult and costly. This is not a hyperbolic position. Indeed, it is a pattern of practice that Microsoft has already established as evidenced by the recent settlement with the European Commission regarding the Slack complaint over the bundling of Teams in their productivity suite. Though Microsoft was forced to end their anticompetitive practices by EU regulators with regards to how it drove adoption of Teams, this happened 5 years too late - after irreversible market share was achieved and to the detriment of all other participants in the communications and collaboration tool markets

Without decisive CMA intervention, these anticompetitive practices have and will spread throughout the UK's critical software infrastructure. Other vendors are watching closely and learning from the success of restrictive licensing as a business model. Each month of inaction validates this approach and encourages its adoption across the software industry, multiplying the harm to the UK economy. The practices entrench legacy positions, making it more difficult for innovative challengers to access customers being priced out, inflating costs across entire sectors, stifling innovation, and threatening the UK's leadership in operating a dynamic and competitive digital market. Once embedded across critical infrastructure that supports healthcare, finance, transport, and government services, these practices become exponentially harder to remedy.

Policy Recommendations for a Pro-Growth Framework

Please find below some policy recommendations to help support a pro-growth framework:

●        Utilize existing CMA authorities to strengthen competition and interoperability

○        Adopt and promote a “portable software parity” principle: software licenses should be portable across compliant infrastructure options (on-premise and cloud) on fair, reasonable and non-discriminatory (FRAND) terms.

○        Mandate that public-sector procurement frameworks require license portability when specifying software procurement (e.g. via frameworks such as the Crown Commercial Service Technology Products & Associated Services agreements).

●        Regulatory and legislative reform

○        Introduce legislation or regulation requiring transparency in software license terms (especially for public-sector procurement).

●        Procurement and SME support

○        The public sector should centralise bulk licensing negotiation to ensure best value, but also ensure that agreements do not lock out alternatives or prevent switching. For example, the MoU with Microsoft could have embedded portability/clause for license transfer to non-Microsoft clouds and interoperability with alternative SaaS providers.

○        Provide SMEs and smaller public bodies with standard-form “fair licensing” contracts, guidance, and support to avoid being locked into disadvantageous terms.

Conclusion

Restrictive software licensing represents a tangible drag on the UK’s digital economy — from higher costs, weaker competition and innovation, to reduced multi-cloud adoption and diminished public-sector value. The recent disclosure that the UK public sector is planning to spend about £9 billion on Microsoft over five years highlights the magnitude of the issue and the degree of vendor-concentration in licensing and procurement. To unlock growth, the UK should pursue regulatory and procurement reform to ensure license portability, transparency, competition, and vendor neutrality — thereby giving organisations (public and private) the freedom to choose, switch and innovate. Such reforms would help drive productivity, reduce public-sector cost burdens, and support the UK’s global position in AI and digital infrastructure.

7