'Snowden Effect' Threatens U.S. Tech Industry's Global Ambitions

FILE - In this file image made from video released by WikiLeaks on Friday, Oct. 11, 2013, former National Security Agency sys
FILE - In this file image made from video released by WikiLeaks on Friday, Oct. 11, 2013, former National Security Agency systems analyst Edward Snowden speaks during a presentation ceremony for the Sam Adams Award in Moscow, Russia. In an interview with the New York Times posted to its website on Thursday, Oct. 17, 2013, Snowden says that he did not take any secret NSA documents to Russia and that intelligence officials in China as well as Russia could not get access to the documents he had obtained before leaving the United States. (AP File Photo)

Election officials in India canceled a deal with Google to improve voter registration. In China, sales of Cisco routers dropped 10 percent in a recent quarter. European regulators threatened to block AT&T's purchase of the wireless provider Vodafone.

The technology industry is being roiled by the so-called Snowden Effect, as disclosures by former National Security Agency contractor Edward Snowden about the extent of American spying worldwide prompt companies to avoid doing business with U.S. firms. The recent setbacks for Google, Cisco and AT&T overseas have been attributed, in part, to the international outcry over the companies' role in the NSA scandal.

Fred Cate, a law professor at Indiana University, said criticism over Silicon Valley's involvement in the government surveillance program was initially limited to European politicians "taking advantage of this moment to beat up on the U.S."

"But the reports from the industry are showing that it is more than that," he added. "This is more than just a flash in the pan. This is really starting to hurt."

The impact of the Snowden leaks could threaten the future architecture of the modern Internet. In recent years, computing power has shifted from individual PCs to the so-called cloud -- massive servers that allow people to access their files from anywhere.

The Snowden revelations undermined trust in U.S.-based cloud services by revealing how some of the largest American tech companies using cloud computing -- including Google and Yahoo -- had their data accessed by the NSA. About 10 percent of non-U.S. companies have canceled contracts with American cloud providers since the NSA spying program was disclosed, according to a survey by the Cloud Security Alliance, an industry group.

U.S. cloud providers could lose as much as $35 billion over the next three years as fears over U.S. government surveillance prompt foreign customers to transfer their data to cloud companies in other countries, according to a study by the Information Technology and Innovation Foundation, a nonpartisan think tank based in Washington, D.C.

"If European cloud customers cannot trust the United States government, then maybe they won't trust U.S. cloud providers either," Neelie Kroes, European commissioner for digital affairs, said last summer after the NSA revelations were made public. "If I am right, there are multibillion-euro consequences for American companies. If I were an American cloud provider, I would be quite frustrated with my government right now."

European officials and companies have been especially troubled by the Snowden leaks because European privacy laws are more stringent than those in the United States.

After documents from Snowden revealed that the NSA had tapped German Chancellor Angela Merkel’s phone calls, she said Europeans should promote domestic Internet companies over American ones in order to avoid U.S. surveillance. German Interior Minister Hans-Peter Friedrich has suggested that people who are worried about government spying should stop using Google and Facebook altogether.

"Whoever fears their communication is being intercepted in any way should use services that don't go through American servers," Friedrich said after Snowden leaked the NSA documents.

Chris Lamoureux, the executive vice president of the company Veriday, told The WorldPost that some of his customers have requested that the company avoid storing their information in U.S.-based data centers, hoping to make it more difficult for the NSA to gain access.

"They've said, 'We don't want you to put our data in the U.S. because we're worried about what we're seeing and hearing over there right now,'" said Lamoureux, whose Ottawa-based company develops web applications for banks, governments and retailers.

Some argue that President Barack Obama has added to the tech industry's troubles abroad by emphasizing how the NSA surveillance program focused on people outside the United States, where most of Silicon Valley's customers are located.

"Those customers, as well as foreign regulatory agencies like those in the European Union, were being led to believe that using US-based services meant giving their data directly to the NSA," journalist Steven Levy wrote in a recent article in Wired magazine.

Hoping to reassure overseas customers, major tech companies (including AOL, which owns The Huffington Post Media Group) have asked the Obama administration for permission to be more open about how they responded to past requests for data from the U.S. government. They argue the government snooped on their networks without their knowledge. Recent reports based on documents provided by Snowden revealed that the NSA spied on Google and Yahoo customers, unbeknownst to the companies, by secretly tapping cables that connect data centers around the world.

"The impression is that the tech industry is in league with the U.S. government," Cate said. "But the industry would like to give the impression that they're victims of the U.S. government, too."

On Wednesday, Microsoft said it would offer customers who are wary about NSA surveillance the ability to store their data outside the United States.

Meanwhile, some foreign tech companies are trying to capitalize on the distrust between U.S. tech firms and their customers around the world. Swisscom, a cloud provider in Switzerland, is developing a service that would attract customers looking to store data under the country's strict privacy laws and away "from the prying eyes of foreign intelligence services," Reuters reported.

Germany's three largest email providers have also created a new service, called "Email Made in Germany," designed to thwart the NSA by encrypting messages through servers located within the country, The Wall Street Journal reported.

But Cate said that any businesses that try to avoid surveillance by boycotting U.S. tech companies are not really protecting their data from the NSA. After all, intelligence agencies in France and Spain also spied on their own citizens, and passed on that information to the NSA, according to documents from Snowden.

"It doesn't make a difference what you do with your data -- the NSA is going break into it," Cate said. "But that doesn't mean U.S. industry isn't going to get hurt along the way."