Microsoft to offer cloud services from Germany

(Reuters) - Microsoft Corp plans to open data centers in Germany in partnership with Deutsche Telekom AG, offering cloud storage to European businesses keen to safeguard their data from U.S. surveillance.

A Microsoft logo is seen on an office building in New York City, July 28, 2015. REUTERS/Mike Segar

The services will be available in the second half of 2016 to customers in the 28 countries of the European Union and the four members of the European Free Trade Association, Microsoft said on Wednesday.

The move is aimed at businesses, mainly in the financial and health sectors, which have been concerned over the safety of their data after former National Security Agency contractor Edward Snowden revealed a widespread U.S. surveillance program.

“This is clearly a proactive move by Microsoft to address concerns that have been building among European enterprise customers in this post-Snowden era,” FBR & Co analyst Daniel Ives said.

Many companies have been exploring alternatives since the Court of Justice of the European Union last month struck down a 15-year-old system enabling companies easily to transfer the personal data of Europeans across the Atlantic.

While the U.S. and European governments negotiate a replacement for the so-called Safe Harbor pact, companies have considered legal measures, such as consent forms or contracts, as well as building more data centers in Europe.

Oracle Corp, IBM and Cisco Systems Inc are just a few of the U.S. companies that could be affected as their web-based services and large global workforces require user data to be shifted around.

“Other tech companies will be watching to see how Microsoft handles it,” said Ives. “It could be a sign of things to come.”

Speaking in Berlin on Wednesday, Microsoft Chief Satya Nadella - who sees the cloud as central to the company’s future - said the new data centers were designed to ensure that clients’ data remains in Germany.

Deutsche Telekom’s sister company T-Systems will act as data trustee, governing and monitoring all access.

Paul Miller, senior analyst with Forrester Research in the UK, said this set-up would make it impossible for the U.S. government legally to compel Microsoft to disclose customer data, because the trustee, T-Systems, is registered in Germany.

Microsoft said its cloud offerings, including Azure, Office 365 and Dynamics CRM Online, would be delivered from two new data center regions in Magdeburg and Frankfurt.

BITKOM, a German IT trade association that represents more than 2,200 international companies operating in the digital sector estimates that 44 percent of all businesses in Germany used cloud services last year.

Microsoft shares rose 1.3 percent to $54.19 on the Nasdaq.

Reporting by Nadine Schimroszik in Berlin and Arathy S Nair in Bengaluru; Additional reporting by Anya George Tharakan in Bengaluru; Writing by Joseph Nasr; Editing by David Evans and Robin Paxton