Dec 27, 2013 9:00 AM ET
Bloomberg View - The smooth flow of online communication and commerce between Europe and the U.S. is at risk of interruption, thanks in part to naked opportunism on the part of European telecommunications giants. If the governments involved fail to keep online barriers between the continents low, the Internet’s potential to be an engine of global economic growth will be constrained.
Take Deutsche Telekom AG (DTE) (DTE), the largest provider of high-speed Internet access and wireless services in Germany and the largest telecommunications organization in the European Union. To expand, the company will have to acquire additional communications companies; in order to do so, it hopes to free itself from the German government’s 32 percent ownership in the company. It has also expressed a desire to diversify into non-telecommunications lines of business, such as technical-services delivery.
The snooping scandal at the U.S. National Security Agency may help Deutsche Telekom achieve both these goals. T-Systems International GmbH, the company’s 29,000-employee-strong distribution arm for information-technology solutions, has been losing money selling systems-integration and data-processing services. Now, in response to customers’ loss of trust in American services, Reinhard Clemens, T-Systems’ chief executive officer, says he wants to refocus the company on providing cloud services.
Deutsche Telekom has also proposed to help Europe avoid NSA surveillance by creating “Schengen area routing,” a network for the 26 European countries that have agreed to remove passport controls at their borders. This network would supposedly allow these nations to securely exchange data among themselves. Conveniently, the Schengen area does not include the U.K., which is now known to be closely cooperating with the NSA.
Deutsche Telekom undoubtedly thinks that it will be able to collect fees from network operators in other countries that want their customers’ data to reach Deutsche Telekom’s customers -- and that the company has the market power to raise those tolls ever higher. As things stand, networks already try to avoid Deutsche Telekom’s wires when routing Internet traffic to German customers because the company refuses to swap traffic on a no-payment basis -- the common practice of competitive carriers around the world.
With hundreds of lobbyists in Berlin, Deutsche Telekom can see to it that if any German legislator is asked what to do about the NSA problem, he or she will respond with “Secure routing of traffic.” Surely this secure Schengen area routing would be even smoother if Deutsche Telekom owned more of the telecommunications operators involved.
Meanwhile, European telecom regulators, anxious to help European companies avoid the risk of being bought up by Verizon Communications Inc., AT&T Inc. or Carlos Slim, the Mexican wireless monopolist, are encouraging consolidation -- with Deutsche Telekom’s full support. “Now is the right time” for consolidation, Deutsche Telekom Chief Executive Officer Rene Obermann said in November.
Regulators are being told by the telecommunications incumbents that European communications will be more secure when fewer operators can work together to raise electronic barriers at the borders.
Meanwhile, the “safe harbor” arrangement between the U.S. and the European Union, which creates a streamlined process for U.S. companies to comply with EU data privacy rules, is under substantial strain. Europeans appear to now believe that the U.S. government controls everything U.S. companies do, and they have become deeply suspicious of the very idea of a safe harbor.
No one knows what will happen as a result of these developments and the telecommunications consolidation that is sweeping across Europe. Credulous European legislators, untroubled by the realities of technology and perhaps afraid to ask questions, are being told by Deutsche Telekom and other Internet service providers that they must pull up the drawbridges and erect secure physical borders in cyberspace. The worst outcome would be a balkanized Internet, in which border guards have both the ability and the incentive to favor their own commercial interests.
(Susan Crawford, a professor at the Cardozo School of Law and a fellow at the Roosevelt Institute, is the author of “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.” Follow her on Twitter at @scrawford.)
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