By Paul Sandle

LONDON (Reuters) -Britain's competition regulator said it may force Google to rank businesses more fairly in search results and offer alternative services to consumers, marking the first use of expanded powers to oversee the world's biggest tech companies.

The Competition and Markets Authority (CMA) is proposing to designate Alphabet-owned Google with "strategic market status", it said on Tuesday, giving it more power to intervene in search services to increase innovation and economic growth.

If confirmed in October, the designation could compel Google to enhance transparency for publishers, simplify access to rival search services including artificial intelligence assistants, and facilitate data portability for competitors.

Google warned that "punitive regulation" could stop it bringing new features and services to Britain, and described the scope of the CMA's considerations as "broad and unfocused".

"Proportionate, evidence-based regulation will be essential to preventing the CMA's roadmap from becoming a roadblock to growth in the UK," said Oliver Bethell, Google's senior director for competition.

CMA Chief Executive Sarah Cardell said Google, which accounts for more than 90% of search queries in Britain, had delivered tremendous benefits but the regulator had found ways to make markets more competitive and innovative.    

"These targeted and proportionate actions would give UK businesses and consumers more choice and control over how they interact with Google's search services - as well as unlocking greater opportunities for innovation across the UK tech sector and broader economy," she said.

Millions of Britons relied on Google as a gateway to the internet and more than 200,000 businesses depended on Google search advertising to reach their customers, the regulator said.

The CMA, which gained global prominence when Britain left the European Union, aims to use its expanded power to rein in the power of tech giants such as Google, Apple, Meta and Microsoft without stifling investment or growth.

The CMA's targeted approach contrasts with the EU's broader enforcement of digital regulations, as Britain seeks to balance curbing the dominance of tech giants with fostering economic growth post-Brexit.

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Cardell said the CMA had set out a roadmap of changes the company could make ahead of a final decision in October.

Google said on Tuesday that the CMA's SMS designation did not imply anti-competitive behaviours, but that it presented clear challenges to critical areas of its business in Britain. 

The development and adoption of generative AI has the potential to upend the search market that Google dominates. The CMA said that Google was already incorporating generative AI features - such as AI Overviews - into its search products and developing its own assistant, Gemini.

Its proposed designation would include AI-based search features, although not Gemini AI Assistant itself, adding that this would be kept under review as usage evolved, the regulator said.

The CMA said it planned further action to address more complex issues, starting in 2026, such as concerns about Google's treatment of rival specialised search firms and transparency and control in search advertising.

The regulator's second investigation under its new powers into mobile operating systems also targets Google, as well as Apple. It could see the company receive another designation focused on its Android operating system. 

The CMA can impose fines for non-compliance and has direct enforcement powers.

Google has been subject to increasing regulatory scrutiny in the United States and the European Union, spanning search, advertising, AI, and digital platform practices.

Over the past year it was found to have monopolised search and online ads in two major U.S. rulings, and it was charged in March by the European Commission with breaching landmark EU digital rules.

(Reporting by Paul Sandle and Muvija M in London and Yamini Kalia in Bengaluru; Editing by Michael Perry, Kate Holton and Louise Heavens)