4.3 Costs of cloud data transfer

 Send or zip and send: Data holders send data to a user(s) directly or after compressing the data file, for example by email.

The study carefully examined the characteristics of the four transfer methods. It quickly became evident that point-to-point methods (sending data and device to device) are not commercially viable (nor ‘enforceable’) and therefore it was agreed that it was not sensible to include them for detailed investigation in the study.

File sharing services enable data sharing at a commercial scale (one holder to several users). However, data volumes that can be transferred are relatively small. It is also notable that for many file-sharing services costs associated with data transfer can be zero. However, both the holder and user will need compatible software, but this can often be obtained for free. Examining detailed costs for these three services is therefore unnecessary since transfer can take place at no extra cost (as a result of restrictions to cross-border data flow) to the holder or the user47 .

Cloud is the only commercially viable transfer method in terms of volume data transfers and access by many users. It is also notable that this is a method that requires remote storage (potentially in a third country - across a border from the holder and/or the user(s)). It is also the only method that generally requires a data sharing account and thus incurs costs for the data holder. Therefore this study focused on cloud as the primary method of interest for this study for cross-border data transfers.

4.3 Costs of cloud data transfer

At the beginning of the study it was thought that it would be relatively easy to examine additional costs for data transfer arising from cross-border data flow restrictions. It was assumed that one would look at the cost of storage (of fixed size of data – for example 1TB) from a provider to store data anywhere and then compare this with the cost to store data in a particular location or Member State. With hindsight it is evident this assumption was flawed and rather naïve, for two main reasons.

 Most large cloud providers have adopted pricing schedules that stipulate a single price in US dollars for cloud data storage wherever in the EU the user is located. In essence these are flat rate pan-EU pricing policies.

 As the next section demonstrates most of the large cloud providers only have cloud data centres in small number of EU Member States. They did not offer a service that enabled users to choose where their data would be stored.

Discussions with cloud providers also revealed that the price/subscription charged to users is independent of the cost of provision. Obviously over a long time period cloud service providers will need to obtain a return on their investment. But in the short-term other considerations, such as maximising market share, can take precedence.

A strategy maximising market share at the start of technology service deployment is relatively common. In the early 2000’s Internet Service Providers initiated intense price competition, with some even offering free connections, to maximise market share.

47 Obviously hardware, software and ISP service costs are incurred but these are not solely related to data transfer.

Consolidation then took place in the market and price levels rose to more realistic levels that ‘covered costs’.

At an early stage in the study it became evident that looking at the costs of cloud services to users could produce spurious results. In order to overcome this problem it was decided not to focus on service users’ costs when examining the additional costs to data transfer arising from cross-border data flow restrictions. 48 Instead the study examined the additional costs for cloud service providers. The logic being that these costs could be absorbed by cloud service providers in the short-term and not passed on to cloud service users in the form of usage or subscription costs. But in the long term, in a competitive market, cloud service providers would have to pass these costs on to consumers or they would go broke.

The study therefore embarked on an exercise, unforeseen at that the start of the project, to examine the cost of building and operating cloud data centres in EU Member States. The underlying premise for this approach was that a rational economic cloud service provider in a competitive market would locate cloud data centres in the most economically advantageous location that met user needs. It must be pointed out the relationship between ‘economically advantageous’ and ‘user needs’ does not mean that cloud data centres would be located in the cheapest locations, other factors also needed to be considered.

From the cloud supplier’s viewpoint an example of these further considerations is the need for stable access to sufficient numbers of workers during the construction and operational phases of cloud centre development. User needs will also determine the location of cloud data centres. For example one cloud service provider felt that had to locate a data centre close to a major financial centre because their financial clients required low latency. Data centres could be built in cheaper locations in other Member State, but they would not be able to provide their financial users with low latency due to the additional time it would take a packet of data to get from the other Member State.

This final example highlights that even when examining cloud data centre construction costs (supply side issues for providers) the economic rationale for location decisions will not always be prevalent. Quality or speed of service that users require (demand side issues for providers) is also important considerations. By examining where cloud data centres have been located it is possible to examine if locations might have been influenced by cross border restrictions to cross-border data flow. Also by modelling cloud data centre costs in all EU Member States it is possible to examine the additional costs (above the average data centre cost or the most economically advantageous location) that might arise as a result of restrictions to cross-border data flow causing a data centre to be built in a particular location or Member State.

An important staring point was to examine where existing cloud data centres are located. This provided an insight to average costs that have been incurred in the Member States chosen so far as locations for cloud data centres. This information provides an important

48 At the start of the study it was not evident where local data restrictions existed. Nor was the extent of geographical coverage of cloud data services known. As a result local scenarios were not investigated. In addition, resources for economic analysis were restricted and sufficient coverage of representative locations would not have been possible. This would be a valuable area for further analysis.

benchmark when considering other Member States that might require a data centre to be built in their country if restrictions on cross-border data flow are sufficiently onerous.

The issue of data centre location becomes more complex if competition in cloud service markets is required. Market competition arises through having two or more providers. In the case of cloud data services this could mean (that in Member States with onerous restrictions on cross-border data flow) two or more cloud data service centres would be desirable to offer competitive services to users. Since considerable economies of scale arise through building large data centres this could lead to over provision of data storage space, if competition is required, in Member States with onerous restrictions on cross-border data flow. However, it is probable that this excess space would be utilised by the cloud provider(s) to serve cloud users in other Member States; unencumbered by restrictions on cross-border data flow. Whilst this issue might have some relevance, if competition is desirable, it would be very difficult to investigate due to the understandable commercial sensitivity concerns of cloud service providers about sharing their marketing and economic strategies. Our team have spoken with many of the leading cloud service providers, but they were not willing to share commercially sensitive information.

The approach adopted in this study is therefore relatively simple. Firstly, an examination of where the cloud data centres of leading providers are located takes place. The study then focuses on building a model of the costs of cloud data centre provision in all EU Member States. This can then be used to examine the potential additional costs49 of locating cloud data centres in Member States with the most onerous restrictions on cross-border data flow.

The next section examines the deployment of cloud data centres across Europe. Documented information about the Google cloud data centre in Belgium is used to identify key cost components for data centres and the magnitude of costs associated with their development. The costs of key components, most notably staff costs and electricity, are compared across EU28 Member States.

It is important to clarify the main difference between a cloud and a data centre. A cloud data centre is an off-premise form of computing that offers data storage and other services on the Internet, whereas a data centre usually refers to on-premises hardware or a remote location that stores data within an organisation's network.

The penultimate section develops a model to forecast costs for cloud data centre deployment in EU28 Member States. The various cost components are calculated using Eurostat data and rankings are provided to compare Member State’s relative performance. The section concludes with a comparison of costs across the construction (three years) and ten year operational life of a cloud data centre.

The final section examines the cost of developing cloud data centres located in the first round of deployment; these are regarded as being located in the optimal locations desired by cloud service providers to meet user needs. These costs are compared with the

49 In comparison with the average cost for a cloud data centre in EU28 Member States or in comparison with the average cost for building and operating cloud data centres in the locations already selected by cloud service providers.