Banking has woken up to the public cloud risk. Has telecom?

Last year's sequence of Big Tech outages offered a glimpse of the Internet apocalypse – a sneak preview of a Mad Max planet where cloud-dependent economies have toppled and the cash in your pocket is only good for wiping your nose or showing children what Churchill looked like. It's not far off this now. Visit most pubs in central London, as your correspondent occasionally does after a day's laboring over the keyboard, and you will find that your banknotes are about as useful as Monopoly money. You can thank the pandemic for that, along with our Big Tech vassalage.

People obviously haven't been reading The Handmaid's Tale, where a military dictatorship in a cashless American society seizes control of electronic payment systems and stops women from using them. Kudos to feminist author Margaret Atwood for not only envisaging the death of cash nearly four decades before it happened (the novel was published in 1985), but also for imagining just how dystopian it could be. Pre-apocalypse, cash in the hand is a symbol of liberation. An electronic payment is servitude of one form or another.

Figure 1: (Source: Andre Taissin on Unsplash)

Even worse would be to entrust the world's financial systems to a handful of Big Tech companies, and yet this is precisely what is happening. The Bank for International Settlements (BIS), established and owned by many of the world's central bank authorities, is sufficiently alarmed to have just published a white paper entitled "Big tech interdependencies – a key policy blind spot." No prizes for guessing where the authors stand on this issue.

Among their concerns is that banks and other financial institutions have become overly reliant on cloud computing services provided by a few tech giants. A survey commissioned by Google Cloud, and cited in the BIS report, found that 83% of respondents already use some form of public cloud.

"The market for cloud computing services is highly concentrated," the authors write, pointing out that AWS, Microsoft Azure, Google Cloud and Alibaba Cloud have a market share of 70% across all sectors.

Systemic threats

The nightmare scenario is that one of these clouds suffers an outage that lasts more than just a few hours, or even collapses. The risks are hardly diminishing. You can guarantee that Russian hackers courting Vladimir Putin's approval are firing off code written to cripple important US companies. The 2008 financial crisis showed how dangerous it is to assume that some organizations are too big to fail.

Outside banking, this is the reason Vodafone, a telecom operator also reliant on cloud services, tries to use multiple vendors.

"We are cautious about picking one strategic supplier for everything," said Vodafone CTO Johan Wibergh at a recent press briefing. "We have a huge amount of equipment everywhere and don't want to be completely dependent on one partner. If there is a problem it goes down, and if that vendor goes bankrupt what do you do?"

However, this multi-vendor approach would not address the systemic risk for either banking or telecom. Vodafone might be able to pivot from AWS to Microsoft Azure if the former suddenly failed. But if dozens of companies are using the same three or four clouds, they would all need to have redundancy to prevent disruption. Many don't. Even if they did, the risks would only grow with the disappearance of one critical cloud provider.

In its paper, this is what BIS describes as "concentration risk," and the authors say it is particularly evident in the cloud services market. "Because there are no readily available substitutes or infrastructures for these services, a disruption in one of these big techs could have systemic implications for the financial system," they write.

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Let's be clear: A long-lasting outage at AWS or Microsoft Azure is not the same as a bog-standard supplier snafu. In telecom, it is not even the same as the recent decisions by Ericsson and Nokia to quit Russia, where the Nordic vendors sell network products to all the main operators. Weeks after they stopped deliveries in protest at Putin's invasion of Ukraine (and to comply with sanctions), networks still appear to be running – even if they are starting to age and malfunction. Just a few hours of public cloud downtime in our Internet-addicted world could equal billions of dollars in lost economic output.

BIS doesn't seem to have a magical remedy, but it's good to see that banking authorities are at least aware of the issue. Most of the warnings in the telecom sector have come from anxious technology executives rather than watchdogs, and they are simultaneously under pressure to run networks more efficiently and reduce overheads. That scramble for efficiency in such an uber-competitive market could turn out to carry a very big cost.

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— Iain Morris, International Editor, Light Reading