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European operators heavily dependent on US cloud services

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The indisputable technological and market dominance of cloud services by US companies, especially AWS, Google Cloud and Microsoft Azure, is putting European telecommunications operators in a serious bind, because they need the support of these companies to provide services. competitive to its business customers but, at the same time, creates an unsustainable dependency in the medium term. The obligation that the data created in the European Union reside in data centers hosted within its borders encourages the establishment of beneficial agreements for both parties, but it is doubtful that the data can be separated from the service and scrupulously comply with Community legislation. information privacy.

The pandemic has caused, among other things, a spectacular growth in the demand for business services in the cloud by all companies in the last year. The increase, of the order of 35% per year in the last eighteen months, is not new and has even slowed slightly in percentage, but it has caused the global market for cloud infrastructure services to have almost tripled in three years: from 16,000 million dollars in the first quarter of 2018 to 41,800 million dollars in the same period of 2021, according to estimates by the consulting firm Canalys.

At this rate of growth, which is likely to increase, the market will approach $ 50 billion by the end of this year and may exceed $ 70 billion by the end of next year. The consulting firm Gartner expects the cloud services industry to grow at a rate three times faster than the global information and communications technology market between 2019 and 2022, as stated in a recent report.

As can be seen in the top two graphs, 58% of this huge market is in the hands of three US companies: Amazon Web Services (AWS), with 32% of the total, followed by Microsoft Azure with 19% and Google Cloud with 7%. It is followed by the Chinese company Alibaba, with about 5%, and two other Chinese companies, Tencent and Baidu, which, however, have an annual growth even higher than the three big US technology companies.

In a tough fight with all of them is IBM, which in mid-May announced its desire to accelerate its hybrid cloud and artificial intelligence services offering. Oracle and Salesforce are the other two US companies that do not want to be left behind either, although their size in the cloud services market is much smaller, but also with strong growth. SAP is the only major European company in this sector, along with the Japanese Fujitsu and NTT DoCoMo, as evidenced by the graph below, from the consulting firm Synergy Research.

Synergy Research’s graph shows that, according to their calculations, the dominance of AWS, Azure and Google Cloud will not only grow but will grow faster than the rest of the companies, accounting for about three-quarters of the total pie. The only ones that can shade the big three, and relatively, because they start from a much smaller size, are the three Chinese companies.

Alibaba, after receiving a serious warning from the Chinese monetary authorities, it seems that a compromise solution has been reached to continue offering very competitive business services in its country and Southeast Asia, but in exchange for drastically limiting its expansion in the countries. purely financial services. The remaining US companies will continue to be important, according to Synergy Research, but niche. HP, Cisco and Dell are therefore fighting an uphill battle for more than just crumbs of this huge pie.

In the Synergy graph it is clear that AWS maintains its share of around a third of the total market, in full growth, while Microsoft Azure has doubled its share in the last five years, from 10 to 20%. Among the big ones, the only ones growing are Google Cloud and Chinese companies, while IBM is slightly down. The rest of the companies have not followed the devastating pace set by AWS and Azure and their share has gone from just over 40% to just under 30% in the last five years.

Europe, in the eye of the hurricane

As is always the case in well-established, high-growth markets, everyone’s eyes are on the European continent. The North American market is a closed preserve for American companies, as well as the Chinese and Japanese markets for their respective business groups. The great territory that remains to be conquered is the European Union, now without Great Britain, which will be able to go its own way but will hardly be able to access the European continent with the new relationship.

The European Union has wanted to protect itself from the invasion of companies from outside, first with the data privacy directive, which establishes, among other issues, that data must be stored and remain within its borders and with two legislative proposals of scope, the DSA and the DMA. However, as was made clear in the recent competitiveness council held in Brussels, it is doubted that with the current wording of these proposed directives it is possible to ensure the privacy of the data of users and community companies and that is why they want to strengthen it.

The main problem facing Europe is conceptual: how to ensure that the information of users and companies in the European Union that is stored in data centers does not go outside its borders and, at the same time, allow data to be able to be treated to extract the value of the same by companies and global technological groups, which have their resources distributed throughout the world and the information and “intelligence” generated totally interconnected.

The problem is how to ensure that the information of users and companies of the European Union does not go abroad and that the data can be processed to extract the value of them by companies and global technology groups

The European Commission and its Member States have been fully aware for years of the challenge to their sovereignty posed by having data hosted in information clouds from companies outside the European Union. That is why, just a year ago, the creation of Gaia-X was made official, a totally sovereign digital infrastructure, which had already been in the making for more than a year and numerous works had been carried out, especially by Germany and France, the two countries that They had more to lose, due to the importance of their respective markets, and also more to gain if the proposed objective was achieved.

Gaia-X was to be fully operational “by early 2021”. On the day of the official announcement of its creation, the German Minister of Economy, Peter Altmaier, said that “Gaia-X is only the starting point” and did not hide the immense challenges, especially technological, that it posed, because the objective is to federate all European information technology services and make them as competitive and comprehensive as those now offered by US and Chinese companies in this market. To do this, he added, they want to cover the maximum of the European domestic market and achieve a turnover of the order of 1,500 to 2,000 million euros per year.

Microsoft was willing to collaborate in the creation of Gaia-X, as Amazon and Google also assured shortly after, although it was still surprising that this collaboration could be accepted by the European Union from adversaries that it wanted to put under control. In any case, the European Commission has continued with its legislative efforts to reinforce European sovereignty in the digital world and achieve it by 2030, exemplified in mid-March with the announcement of Digital Compass 2030.

The pillars of this strategy were two bills, the DSA and DMA, which, as has been said, now want to be strengthened. The problem, apart from the conceptual one expressed above, is that they want to be sovereign and at the same time maintain the freedom of action and performance of all companies in the community territory. Something that the Spanish proverb sees difficult, when he says that “you cannot be at Mass and ringing” or, in the same sense, “you cannot ring the bells and go to the procession.”

European operators can be the referee

Faced with this dilemma, the role to be played by European telecommunications operators will be crucial. It will depend on the way in which they solve the dilemma of offering advanced telecommunications services and resorting, as they are already doing, to the large US technology companies, in order to host a large part of their users’ data in their clouds and process the information to offer a service with greater added value, all without loss of confidentiality.

Michael Trabbia, CTO of the French operator Orange, in a recent meeting with journalists to give an account of Orange’s agreement with Google Cloud for the development of data analytics and artificial intelligence systems, acknowledged that it could not be intended to develop a Equivalent technological capacity with a company the size of Orange to that of large US companies operating globally in the cloud services market.

European telecommunications operators appear to be resigned to relying on American technology companies, Iain Morris recently wrote on the telecommunications specialist portal Light Reading. And he added that the collaboration agreement between Orange and Google Cloud is very similar to the one that Vodafone and Google Cloud started at the end of 2019. In his day, Johan Wibergh, director of technology of the British operator Vodafone, assured the financial news agency Bloomberg that his company could not do the task alone and that Google Cloud has highly competitive technologies to replace those that Vodafone has, that are becoming obsolete.

The technology managers of the European operators ensure that the data of their users that they host are fully confidential and will not be transferred to third parties, with the signing of an explicit commitment

Vodafone, before the agreement with Google Cloud, had its own data platform that worked with a comparatively less powerful system called Hadoop and around 600 physical servers of its property. Also, in the middle of last year, Telefónica entered into an alliance with Google Cloud to boost its cloud computing business and get more out of its data centers, while Google would take advantage of Telefónica’s data center infrastructure and he would expand his in Spain.

It is likely that European operators, even the largest such as those mentioned, will have to put themselves in the hands of the big American technology companies to offer a telecommunications service with great added value. But, as experts warn, it will be of little use if your entire technological infrastructure depends on third parties, who are also the ones that control the entire cloud computing business. European operators have always complained that they were taking over the large investments in cable and mobile radio stations and other companies, such as Facebook or Netflix, were taking advantage of the fixed and mobile infrastructure to keep most of the profits.

Now telecommuting, or at least the hybrid that has accelerated the pandemic, is becoming the norm. Most companies already have, or want to have, a large part of their resources hosted in the cloud and with process and scheduling services included. The operators recognize that the pure service of hosting data in the cloud is no longer enough and that companies want to have data processing services similar to those offered by large American technology companies. “Offering broadband is not enough, you have to give something more,” they say privately.

The problem is the level of intermediation that European operators will have in the near future. If they only offer mobile broadband licenses and fixed access networks and cabling infrastructure to customers until the arrival of data processing in the cloud and its forwarding, the bulk of the value-added service and its benefits will remain in tech hands. Something similar will happen to when they provided only Internet and broadband, with the difference that the value-added services of the future will be much more important and, therefore, their profitability.

The trump card of confidentiality and the secure cloud

European operators have few tricks to tip the balance in their favor. In reality, apart from the fact that they have mobile phone licenses and capillary networks for access to consumers, the card to be played is the confidentiality of the data of European consumers and their companies. The advantage is that the European Union has one of the most restrictive privacy laws, with the data protection directive transferred to all member states, which prohibits data from going outside the European Union and requires the explicit consent of your use by European users.

The technology managers of the operators ensure that the data of their users that they host are fully confidential and will not be transferred to third parties and have signed an explicit commitment, so they can be sued otherwise. Until now, it has not been doubted that this is the case, in part because they retained control of the hosting of the data and because the information processing was minimal and the data could remain confidential with different encryption systems.

With the provision to customers of information cooked by third parties, in a data center system hosted anywhere, ensuring the sovereignty and confidentiality of the information is a much more complicated process. As long as the data is hosted on servers, it is relatively easy to guarantee the information. When part of this data is sent to a third party for processing and return, which also does not have to be subject to the laws of the European Union, it is easier for the chain of custody to contain weaker links. You just have to see the growing activity of hackers, who put the most robust systems in check.

This fear of the increasing fragility of European telecommunications networks with the rise of the cloud is what has probably prompted France to develop a strategy to have “clouds of trust”. French operators have already set to work to obtain this “seal of trust”. The idea advocated is to create a joint venture between the European company that offers the service, such as an operator, and another company that handles the information processing in the cloud, be it a US technology company or any other company.

If the European company is primarily responsible for managing the data, it is likely that there will not be many unwanted information leaks, especially if it retains its control. For now, Orange, Free and Bouygues Telecom, three of the four main French telecommunications operators, have already created joint ventures with technology companies to obtain the seal of “trusted cloud”. The fourth, SFR, is on it.

Bouygues Telecom has just created Bouygues Telecom Entreprises OnCloud, an independent entity with its own structure, equipment and two data centers, to offer private, hybrid and public cloud services to those who require it and guarantee that they will be “secure”. Follow in the footsteps of Free, which has partnered with Scaleway, and Orange, which has partnered with CAP Gemini, a French company well known for what was previously known as IT services, and with Microsoft as a “strategic partner”. The French authority that must grant the trust seal is supposed to examine the scope of this agreement with Microsoft so that all information security requirements are met.