Should the global cloud market be centered so much on the United States? A number of nations in Europe don’t think so, and that’s beginning to drive a noticeable shift toward country-specific sovereign clouds.

The issue is data, where it resides and who controls it. As Amazon Web Services Inc., Microsoft Corp. and Google LLC built substantial businesses as cloud providers, the fact that European data would be hosted primarily by large U.S. conglomerates has not been lost on European companies and governments.

First, there is a growing competitive issue. A recent report by the Synergy Research Group found that the European cloud market expanded fourfold between 2017 and 2021, with providers more than doubling cloud revenues. However, European cloud businesses lost market share, dropping from 27% to 16% during the same period.

That situation has led to the launch of Gaia-X, an initiative to build a European cloud computing ecosystem, originally created by 22 organizations based in Germany and France. A number of additional European nations have signed on since then, including Poland in September.

The other motivation for European nations has been the passage in 2018 of the U.S. Clarifying Lawful Overseas Use of Data or CLOUD Act. This action by Congress resolved a pending case where Microsoft Corp. had refused to turn over email data to the U.S. government that was stored on servers in Ireland.

The CLOUD Act compels U.S. cloud providers to allow access for certain types of data stored outside of the country. The act also contains a provision for executive agreements that would allow law enforcement in foreign countries to request data directly from U.S. firms.

New market for data protection

An end result of these actions has been the creation of a new market for the sovereign cloud, a secure, compliant regional cloud that meets data residency and data sovereignty demands.

Among the many announcements unveiled as part of VMworld this month was the launch of a set of provider partnerships to develop the sovereign cloud. Under VMware Inc.’s new initiative, partners must deliver cloud services that adhere to the data sovereignty requirements of a specific jurisdiction in which the cloud operates.

“Sovereign references data being subject to privacy laws,” Rajeev Bhardwaj, vice president of products for the Cloud Provider Business at VMware, said in an exclusive interview with SiliconANGLE. “Every country has its own specific regulations, jurisdictions and control. The idea that the data is subject to the legal protections of a nation is data sovereignty.”

In a release accompanying this month’s announcement, VMware indicated that its role will be to connect customers with pre-validated sovereign cloud providers and provide technical guidance and best practices.

“From a VMware perspective, we will provide a framework where cloud providers will deploy these clouds,” Bhardwaj said. “This is a massive opportunity for our cloud providers, and it’s a very important initiative for VMware.”

Opportunity for telcos

The list of providers released by VMware also offers an intriguing subplot for the sovereign cloud initiative. There is a noticeable interest among telecommunications providers and related services companies in delivering this opportunity.

Out of the 10 providers announced, half are either telcos or major suppliers of telco services. The list includes major global telcos such as TIM or Telecom Italia, TELMEX, a leading firm in Mexico, and Telefonica, the Spanish multinational telco provider.

Also on the list are TietoEVRY, a Finnish software company with a significant telecom business, and Datacom, another support provider for the telco industry. Google announced the formation of its own sovereign cloud service this month for France, in partnership with Thales, another major provider of telecommunications services.

Dominance of the cloud market by hyperscalers has significantly impacted growth opportunities for telcos. However, as early as 2015, the research firm STL Partners identified the sovereign cloud as a key strategic initiative for the telco industry.

“If telcos in certain markets act swiftly, there is a major new and addressable opportunity in cloud created by profound recent changes in data sovereignty and security requirements,” STL researchers noted.

The rise of the sovereign cloud has brought a dance between the large cloud providers and the telco world into sharper focus. Over the past year, Google Cloud has been focused on expanding its telco business, adding Telefonica and TIM as customers and closing a major deal with AT&T.

Microsoft has unveiled Azure Orbital to connect satellites to the cloud and launched Azure for Operators as a carrier grade platform with edge compute capabilities.

In an interview earlier this year, Adam Selipsky, newly installed chief executive of AWS, indicated that the cloud giant was engaged in its own conversations with “virtually every telecom operator.”

At stake is ultimate control of data services at the edge, and the telco industry’s interest in VMware’s sovereign cloud initiative reveals a strategy where it’s hedging its bets. Telcos needs partnerships with the hyperscalers, but the major industry players are deeply interested in being cloud providers as well. Sovereign cloud now offers that opportunity.

“Governments worldwide are all trying to digitize, and they want protection for who has access to this data,” Bhardwaj said. “It’s all about flexibility and choice.”

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