Tech Execs Issue Dire Warnings on Impact of NSA Surveillance

The U.S. National Security Agency’s wide-ranging surveillance of people’s communications worldwide is hitting America’s high-tech industry hard, said panelists on Wednesday at a roundtable held by Senate Finance Committee Chairman Ron Wyden in Palo Alto, California.

Wyden set the tone from the start: “This is going to cost America jobs.”

Several foreign governments are planning to build domestic Internets, and Brazil is concerned about storing data abroad, he added.

A recent study indicates that U.S.-based cloud service providers could lose up to one-fifth of their foreign market share, Wyden said.

The Death of the Web?

The surveillance has led to a loss of trust between America and other countries, said Google Chairman Eric Schmidt.

Foreign governments’ proposals for domestic Internets and localized data storage “are essentially a form of trade barriers” that make it “very difficult for American companies to do business,” he added.

In many cases, the solutions being proposed won’t work because of technological advances, Schmidt warned. “The simplest outcome is that we’re going to end up breaking the Internet.”

France and Germany in February discussed setting up an EU-wide communication network so emails and data would not have to pass through the U.S.

Deutsche Telekom last year proposed to set up an internal Internet within Germany’s borders.

Perhaps the loss of trust is not entirely due to the NSA’s surveillance activities.

“If the Internet isn’t somehow broken by reactive Balkanization and software/hardware firewalling in response to [the NSA’s activities], then it’s likely to simply become a swamp, void of any real meaning, through concerted efforts by Google and a zillion other online data-tracking, data-correlating and data-selling commercial organizations focused on monetizing users’ personal information for maximum possible gain,” said Stealthbits CTO Kyle Kennedy.

“No wonder people around the world … do not trust anyone, including U.S. companies offering services around the world,” he told the E-Commerce Times.

Keeping Data Localized

Brazil is mooting a model for global Internet governance that basically will take management of the Web out of America’s hands.

It also is seeking to have data stored within its borders, or data localization.

Data localization “is fundamentally about breaking the Internet,” which is without borders, said Colin Stretch, general counsel at Facebook, during the roundtable discussion.

“The notion that you would have to place datacenters and the data you serve at particular countries within a region is fundamentally at odds with the way the Internet is architected,” he pointed out.

It would make the public at large less secure, because “it also means data localization in countries that don’t obey the rules,” which would “possibly result in more access by state-sponsored espionage,” Stretch warned. Further, data localization would drive up costs.

Smaller U.S. companies, like Dropbox, would be hit hard by data localization.

“IBM just announced they’ll spend (US)$1 billion to build local datacenters in Europe,” noted Ramsey Homsany, general counsel of Dropbox, during the Palo Alto discussion. “We don’t have $1 billion lying around.”

More than 70 percent of Dropbox’s 300 million or so customers are overseas, and “20 or so countries have either put forth proposals or talked about data localization,” he pointed out. “That could make it impossible for us to serve people in those countries.”

Much Ado About Nothing?

The hue and cry is all about politics, remarked Jim McGregor, principal analyst at Tirias Research.

“Every government does this, so it should be no surprise — but the politicians are using it as a battle cry, especially politicians abroad,” McGregor told the E-Commerce Times.

Germany, for instance, spies on its own citizens, and its secret service wants to spy on people abroad, Der Spiegel reported.

Foreign governments criticize the NSA’s spying because “we’ve grown so large and are so important to the global economy,” McGregor suggested.

The industry as a whole could benefit from data localization and the emergence of local Internets, he contended, because “there may be more servers — more investment by foreign countries to build up their IT and communications infrastructure.”