Data Center Infrastructure

US Spying Fuels Demand for DT's Cloud Biz

The reluctance of German companies to entrust US technology providers with their data is fueling demand for Deutsche Telekom's cloud services, according to a senior executive from T-Systems, the German telecom operator's IT services division.

Deutsche Telekom AG (NYSE: DT) has already touted the attractions of its cloud offerings over those from US web-scale players, which are thought to have shared customer data with US authorities such as the National Security Agency. (See BT, DT Tie-Up Holds All-IP, Cloud Promise.)

German and European Union legislation means that data stored in Deutsche Telekom's German data centers is safe from prying US eyes, insists the operator.

The situation is driving enterprise business in Deutsche Telekom's direction, according to Ingo Marten, a senior vice president with T-Systems International GmbH , and US technology providers have been among the operator's new customers.

In November, for instance, Microsoft Corp. (Nasdaq: MSFT) struck an agreement under which Deutsche Telekom became the "trustee" of customer data stored on Microsoft equipment housed in the German operator's domestic facilities.

Because the data is being managed by Deutsche Telekom, in the German operator's own centers, US authorities cannot force Microsoft to hand it over -- or so Deutsche Telekom claims.

"The American players were struggling to convince German companies to rely on American infrastructure," said Marten during a discussion with Light Reading's Telco Transformation website.

Marten says a major data center that Deutsche Telekom is using to support these arrangements is already "fully booked out," forcing the operator to think about making additional data center investments to cope with demand.

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The developments will help Deutsche Telekom make progress towards a target of doubling annual revenues from cloud services between 2014 and 2018.

Deutsche Telekom has yet to report full-year sales for 2015 but saw revenues from cloud services grow by 27% in the July-to-September quarter last year, to about €260 million ($283 million).

That equals about 17% of the revenues that T-Systems generated in total from outside the Deutsche Telekom Group.

But T-Systems has also been spending heavily to support its new IT capabilities, investing €288 million ($314 million) -- or 19% of externally generated revenues -- in capital expenditure in the July-to-September quarter.

"Our level of investment remains high and is attributable to the realignment of the business model," said Deutsche Telekom in its last earnings report. "We are investing in … cutting-edge digital innovation areas like cloud computing and cyber security."

Indeed, while partnering with Microsoft and US technology players including Cisco Systems Inc. (Nasdaq: CSCO) and Salesforce.com Inc. , Deutsche Telekom believes it can challenge the web-scale giants in the market for public cloud services. (See DT Ups Cloud Challenge to Google, Amazon and DT Takes Cloud Fight to Google, Amazon.)

Security is an important aspect of Deutsche Telekom's rival offering, but the operator also reckons its systems integration and consulting capabilities will help it take on the likes of Google (Nasdaq: GOOG) and Amazon.com Inc. (Nasdaq: AMZN).

Its strategy contrasts markedly with that of the big US operators, which have been recently been selling or exploring sales of data center assets and focusing on their core business activities.

"From my perspective the US carriers gave up the game," said Marten in his interview with Telco Transformation. "In Germany and Europe, it's a different game because Microsoft has said it needs to partner with Deutsche Telekom."

Although Deutsche Telekom could face a challenge from local companies offering data center services, the players with truly "hyper-scale" abilities are based in the US market.

A spokesperson for Deutsche Telekom tells Light Reading it is much harder for authorities to obtain customer data in Germany than it is in the US.

"There are legal procedures when the government says you have to do this but the scope is very narrow," said the spokesperson. "In the US when the government says you have to provide data they do not even have to explain why."

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

Mitch Wagner 1/21/2016 | 2:12:16 PM
Stifling growth I wonder to what extent data sovereignty and privacy  concerns have stifled US cloud growth. Has this been quantified?
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