The $69 billion purchase of gaming juggernaut Activision Blizzard by Microsoft on Wednesday was warned against by Britain’s competition watchdog.

The Competition and Markets Authority predicted that the acquisition would substantially lessen competition, which would result in higher prices, fewer options, and less innovation in a press release on Wednesday.

Microsoft and Activision Blizzard have received letters from the CMA outlining potential solutions to its issues. The businesses have until February 22 to reply. The regulator’s suggested remedies have not been made publicly available.

On April 26, the CMA is expected to make a final determination. It might impose “behavioral remedies,” demand that Microsoft sell Activision, or stop trying to take over.

Following the CMA announcement, Activision Blizzard shares fell 4.6% in US pre-market trading on Wednesday.

“We are committed to offering effective and easily enforceable solutions that address the CMA’s concerns,” said Rima Alaily, Microsoft corporate vice president and deputy general counsel, in an emailed statement to CNBC.

“Our commitment to grant long term 100% equal access to Call of Duty to Sony, Nintendo, Steam and others preserves the deal’s benefits to gamers and developers and increases competition in the market.”

According to Microsoft, providing 10 years of parity in terms of content, pricing, features, quality, and playability constitutes “100% equal access.”

“These are provisional findings, which means the CMA sets forth its concerns in writing, and both parties have a chance to respond,” an Activision Blizzard spokesperson said in an emailed statement.

“We hope between now and April we will be able to help the CMA better understand our industry to ensure they can achieve their stated mandate to promote an environment where people can be confident they are getting great choices and fair deals, where competitive, fair-dealing business can innovate and thrive, and where the whole UK economy can grow productively and sustainably.”

In a separate internal memo to staff, Activision CEO Bobby Kotick stated that the company was “confident that the law – and the facts – are on our side.”

“In this case, our combined companies will bring more competition to an already crowded field of world-class gaming competitors, including Sony, Tencent, NetEase, Apple, Amazon, and Facebook. We believe this merger gives us additional resources to compete with such giants,” he added.

According to the CMA announcement, the regulator was worried that the Activision deal might help Microsoft gain ground in the market for cloud gaming by bringing lucrative games to its cloud-based Xbox Game Pass service. Through the internet, this would enable gaming on platforms other than consoles.

The technology of cloud gaming is still in its infancy and is not yet widely used.

The CMA added that the deal might help Microsoft’s console division.

The tech titan “would find it commercially beneficial to make Activision’s games exclusive to its own consoles (or only available on PlayStation under materially worse conditions),” the regulator said.

Microsoft has pledged to continue releasing new Call of Duty games on Sony’s PlayStation and Nintendo’s Switch gaming systems for the next ten years.

In the U.S. and the European Union, the Activision deal is also under investigation. In the United States, the Federal Communications Commission is attempting to halt the acquisition on the grounds of competition, and the European Commission is also looking into the deal on the basis of competition. According to Reuters, the commission has submitted a charge sheet, also known as a statement of objections, outlining its concerns with the transaction.

(Adapted from CNBC.com)

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