Modern warfare: how big business operates covertly

So, might prevails. Britain’s competition regulator, admired the world over for its independence and rigour, has capitulated to the world’s second biggest company. The about-turn from the Competition and Markets Authority (CMA) on Microsoft’s proposed purchase of Activision for $69bn (£53bn) marks a sad and dangerous moment.

In addition to cracking down on cartels and investigating the state of competition in different sectors, the watchdog assesses business mergers where these involve firms active in the UK. There was always going to be a row, from when the CMA ruled that the US behemoth would have to make concessions if the merger with gaming giant Activision was to proceed. It would be instructive to see what would happen if the authority stood in the way of a company of Microsoft’s size and importance.

In January 2022, Microsoft announced its largest ever deal: to buy Activision Blizzard, the video gaming group. Through its gaming division and Xbox Game Studios, Microsoft was already a major presence in the huge global computer gaming market – only behind China’s Tencent and Japan’s Sony. Yet competition regulators in most countries did not see a problem. Microsoft promised to keep Activision’s popular games, like Call of Duty, available to other platforms. That was enough for most competition regulators, including the European Commission, to allow the marriage to proceed.

In the US, the Federal Trade Commission (FTC) disagreed, arguing Microsoft could make Activision’s games exclusive to its own platforms, thereby reducing competition. Yet the FTC has no power to block a merger by itself, it must go to court. And so far, the US courts have not been persuaded by its arguments. The FTC lost again in the federal court last week.

Only the CMA was holding out. In April, the CMA announced, “the merger would make Microsoft even stronger and substantially reduce competition”. In the absence of any structural remedy from Microsoft (like selling off Call of Duty), the behavioural remedies offered by Microsoft had “several shortcomings” and could not be accepted.

Microsoft and Activision were understandably furious. Activision said: “We will reassess our growth plans for the UK… the UK is clearly closed for business”. Microsoft added a sinister touch: “The impact of this decision is far broader than on Microsoft or this acquisition alone... Microsoft has been in the United Kingdom for 40 years and we play a vital role, not just supporting businesses and non-profits but even defending the nation from cybersecurity threats.”

This isn’t about the rights or wrongs of the CMA’s decision. It’s about what happened next, about the integrity of the UK’s entire regulatory framework.

Under the rules set out by statute approved by parliament, if the CMA blocks a merger from proceeding, then that is meant to be that. Companies can bring a challenge to the Competition Appeals Tribunal (CAT), but even if the CAT finds procedural mistakes have been made, it sends the case back to the CMA, which to date has always stood by its original decision. Companies prevented from merging are usually prohibited from trying again for a period of 10 years or so.

Not anymore. Microsoft went to work, pushing the prime minister, chancellor of the Exchequer and many others across government. The chancellor, Jeremy Hunt, initially praised the UK system of “independent regulators that are not controlled by politicians”. He did add, though, “it’s important all our regulators understand their wider responsibilities for economic growth.”

Microsoft representatives met with Hunt and his colleagues. In principle this and all the other Microsoft steps should have made no difference since ministers are not meant to intervene in the handling of specific cases by the CMA.

But it’s clear the CMA has come under severe pressure to rethink. It’s now saying Microsoft can submit a “modified” transaction and that it would be “prepared to engage with them on this basis”.

It stinks and it’s dangerous. No multinational is going to take the CMA seriously if they see that all you need to do is talk to the government instead.

There has been much mention of “regulatory capture” over the years. Currently, Ofwat is accused of failing to prevent the water companies from skimping on investment while paying massive dividends. Meanwhile, Ofgem has done little to keep energy prices down and doesn’t investigate customer complaints, leaving that to the toothless and ineffective Energy Ombudsman. The latter is funded by the energy companies themselves.

The CMA was supposed to be different, less susceptible to the blandishments of big business. Some may feel the CMA has only itself to blame for having got itself into this mess – and it is true most other global regulators, apart from the FTC, have not shared its concerns about the Activision merger.

That isn’t the point: the CMA should be able to do as it sees fit. Now that is threatened with being lost – and the principle of independent competition regulation with it.

The ultimate loser is the UK consumer. If we can’t rely on independent regulators to be independent, perhaps we should bring back the old system of having ministers make the final decisions, rather than having covert influence behind the scenes. After all, we can at least hold ministers to account through parliament, the media and at the ballot box. Right now, the Microsoft-Activision case threatens to leave us with the worst of all worlds: no clear rules-based system, just the power of might over right.