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Verizon's German Deal Could Be Just the First to Fall

Mitch Wagner
6/26/2014
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In the first direct fallout for US telecom of the Edward Snowden NSA spying revelations, Germany has canceled a contract with Verizon that covered Internet access and other business services for some of its agencies and transferred that business to Deutsche Telekom AG (NYSE: DT).

Multiple news agencies have reported the decision, following a statement from the German Interior Ministry today, that said the Ministry's internal communications overhaul led to the decision to terminate the Verizon Communications Inc. (NYSE: VZ) deal. That overhaul was prompted by the revelations that the US National Security Agency was requiring US telecom companies to turn over calling records and had access to their networks.

The move by the Germans could be the beginning of a general effort by foreign governments to either take away business from US carriers or prevent them from bidding on future business. This has been an industry concern, not just for telecom service providers but for the broader US tech industry, since Snowden's disclosures led to revelations of information sharing by private companies with the NSA.

For its part, Verizon is stressing the fact that its German subsidiary, which held the government contract, is a German company playing by the rules of that country. That apparently was not enough to prevent the loss of the contract, even though the government agencies being served did not include German security agencies.

Verizon provided Internet services to German government departments, with the current contract due to run out next year, according to a report on BBC.com. The European nation was angered by allegations that the US bugged Chancellor Angela Merkel's phone. Germany announced an investigation earlier this month into those accusations, leveled by Edward Snowden.

While there were no suggestions Verizon was involved in spying on Merkel, the controversy put pressure on US technology companies doing business in Germany, says the BBC:

German Interior Ministry spokesman Tobias Plate said: "There are indications that Verizon is legally required to provide certain things to the NSA, and that's one of the reasons the cooperation with Verizon won't continue".

"Furthermore, the ties revealed between foreign intelligence agencies and firms in the wake of the US National Security Agency affair, show that the German government needs a very high level of security for its critical networks," he said.

Verizon provided Internet services to multiple German government departments, but not security agencies, Plate said, according to the AP, which says "Germany had been reconsidering those contracts for some time." The Snowden revelations increased the heat. Says the AP:

Berlin has also proposed building more secure networks in Europe to avoid having to rely on American Internet companies that manage much of the electronic traffic circulating the globe.

The German government provides details in a written statement, via Google Translate: Government communications is based on two nework infrastructures, "IVBB (Information Network Berlin-Bonn) and IFMGA / BVN (Information Federal Administration / Federal Administrative network) and the federal-state interconnection network (Germany online infrastructure - DOI)." Verizon provides connectivity services for IVBB.

The demands of the network, security considerations such as Trojans, and the NSA revelations, place particularly high demands on the safety of the government's "critical communications infrastructure," the statement says.

Against this background, currently there is a reorganization of information and communication structures of the covenant, which goes beyond a mere modernization of the existing networks.

One of the aims of the reorganization is increased security.

Germany's decision is "one of the most concrete signs yet that disclosures about U.S. spying were hurting American technology companies overseas," according to The Wall Street Journal.

After the Snowden revelations, "Berlin subsequently demanded talks with Washington on a 'no-spy' deal, but these collapsed after the United States appeared unwilling to give the assurances Germany wanted," according to Reuters.

The German goverment said Deutsche Telekom, which will replace Verizon, "was already responsible for the most sensitive communications between ministries or between the government and German intelligence agencies."

Detlef Eppig, head of Verizon's German unit Verizon Germany, told Reuters Thursday:

Verizon Germany is a German company and we comply with German law.

Verizon did not receive any demands from Washington in 2013 for data stored in other countries, the company said.

"The U.S. government cannot compel us to produce our customers' data stored in data centres outside the U.S., and if it attempts to do so, we would challenge that attempt in a court," it added.

The firm declined to comment on whether there had been requests in previous years.

— Carol Wilson, Editor-at-Large, Light Reading and Mitch Wagner, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profileFollow me on Facebook, West Coast Bureau Chief, Light Reading. Got a tip about SDN or NFV? Send it to wagner@lightreading.com.

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Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
6/27/2014 | 2:22:59 PM
Re: Symbolic gesture
There have been various studies showing reluctance to do business with American cloud providers post-Snowden. But it's been difficult to prove definitive harm, and point at specific examples of lost business. Mostly, companies and government's don't say why they didn't award business to one company. Germany is a rare exception here. 
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
6/27/2014 | 2:21:20 PM
Re: Symbolic gesture
Not just a symbolic gesture. Germany is using its money to make its opinions known.
Carol Wilson
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Carol Wilson,
User Rank: Blogger
6/27/2014 | 9:56:38 AM
Re: Symbolic gesture
I wouldn't be surprised to see a cascade of similar announcements -- that's assuming US carriers have actually gotten much business from European governments. The bigger impact could be European businesses using this as a reason to avoid multinationals that are based in the US. 
DOShea
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DOShea,
User Rank: Blogger
6/26/2014 | 9:39:06 PM
Symbolic gesture
This seems like a highly publicized symbolic gesture, a message sent from the German government to the US government and its telco partners (unfortunately, the best way to describe the telcos' involvement). I wonder now if we're going to see a series of other similar moves elsewhere in the world.
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