Tech companies target EU cloud computing profit

BRUSSELS, Belgium — Let there be no doubt the European Union is deeply committed to its “Digital Agenda,” the plan to maximize the EU’s use of — and profit from — high technology.

In the first-ever EU State of the Union address Sept. 7, European Commission President Jose Manuel Barroso declared: “We will deliver a single digital market worth 4 percent of EU GDP by 2020.”

Barroso began his second term at the helm of the commission by creating a position with the high rank of vice-president — Commissioner for the Digital Agenda — specifically to help bring the plan to reality. And he gave the job to none other than “Steely" Neelie Kroes, the former competition commissioner who busted Intel for unfair market dominance and won the bloc’s long fight to get Microsoft to pay up for its failure to allow interoperability. 

But those antagonistic chapters between Kroes and the big-tech players may now be overshadowed by a new shared interest — and potential flashpoint — in the form of cloud computing.

The issue of creating integrated digital networks across the 27-member bloc is shaping up as a passionate high-stakes battle between the commission and potential commercial providers on one side and the governments of member states on the other.

Microsoft is among the companies making sure it’s in on the ground floor of what the tech world believes will be a “revolution,” according to Vice President for EU Affairs John Vassallo. Company representatives meet with the commission regularly, he said, along with telecom providers and others interested in building the "cloud." 

Vassallo is passionate about the subject.

“It’s as big as moving to PCs was in the 70s,” he said. “It will change the economics of doing business; it will change the economics of running governments. It will create a productivity gain that some say can be measured 15 percent to 20 percent — and that’s a lot.”

But to get there from here will require huge changes in both modalities and mentalities. That’s because to create a “digital single market” connected to a cloud, where software or data is stored in a central location and accessed when needed, the laws on data protection would have to be the same in each of the 27 EU countries.

Currently, every member state has its own version of privacy protection and data-retention laws. And while they have accepted the necessary convergence to achieve other single markets (in goods, services and movement of people), when it comes to private data the threshold for sharing is infinitely higher.

The sovereignty of national regulations means that now, services like Microsoft’s Hotmail or Google’s Gmail, which store the service and the data outside personal computers, must treat each piece of European data according to the laws of its country of origin. The period a company is allowed to store users’ data ranges from six months in some EU nations to two years in others. Some countries, including Germany and France, forbid sensitive data from leaving the country at all and there are powerful lobbies against a pan-European cloud.

In France, for example, the 70-member Association for the Development of a Digital Economy in France has petitioned its government to keep the legislative status quo. The association wholeheartedly subscribes to the concept of cloud computing, but at a national — not EU — level. 

The president of the association, J.P. Brulard, said that this was in the best interests of both French citizens and French companies.

“A lot of people are reluctant to locate their data in Ireland, in the data center of Microsoft,” he said, referring to the enormous new data-storage facility Microsoft has built in Dublin in anticipation of cloud-computing business. “They prefer to have it in (their) country.”

Giles Hogben, who authored a study on cloud security at ENISA, the EU’s European Network and Information Security Agency, said he couldn't completely dispel the mistrust with hard facts because there was not yet enough transparency from providers, nor a standard system for assessing protection capabilities of various companies.

But neither does he confirm a reason for fear. “There’s a psychological perspective that having [data] in-house is much more secure,” he said, noting that he has even run into this attitude in his own organization.  “But actually, these cloud providers have a lot more money to spend on it and their reputation depends on it, so oftentimes the cloud provider is in a position to provide more [security].”

Security isn’t the only reason some want to keep borders in place. 

There’s also a strong financial incentive. If data must remain within French borders, then a greater allocation of the national budget stays there too.

“We are really fighting for this community cloud investment, done at the local level,” Brulard said.  “We don’t think that it will become a monopoly between Google, Amazon and Microsoft to be the only cloud provider on the planet.  We strongly believe there’s a role for the local provider.”

Interestingly, that’s one of Microsoft’s own arguments in favor of a pan-European cloud. Microsoft’s Vassallo says that no matter who provides the large cloud capability, local companies would still be needed to customize cloud services for consumers and he believes there would be a net gain in both the number of companies and resulting employment.

It’s an argument EU leaders are also making — and making policy to go along with it.

On Monday the commission is expected to announce a controversial new initiative designed to lower prices and increase competition in the broadband market, contributing to the Digital Agenda’s goal of all citizens having access to the internet. If passed by the European Parliament and heads of state, the measure will require large telecommunications companies to share their newly installed super-fast fiber optic lines with smaller competitors. This would be a big step toward the feasibility of large-scale cloud computing.

But it will also be an early hurdle, with the likes of powerful providers including Deutsche Telekom and Spanish multinational Telefonica staunchly opposed to sharing the valuable lines. Even with her strapping new friend Microsoft behind her, it will require Kroes’ famous tenaciousness to clear the EU sky for the clouds can roll in.