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Executive Summary
The emergence of the Internet and the World Wide Web were technological triumphs. When thiscommon architecture for digital information and communications became wedded to broadband
networks, it melded previously distinct communications markets for data, voice and broadcast
content. This also enabled a new generation of computer architectures embodied in the very large
arrays of cheap data storage and processors that is popularly described as the “Cloud.”
Cloud computing is scalable on-demand provision of remote computing and data storage. Its
dramatic growth is captured in a 2011 study by Gartner Research, which predicted that by 2014
over 60% of the world’s server workloads will take place on virtualized Cloud servers, up from 8%
five years earlier. This growth emerges from the Cloud’s economic advantages of scale and scopethat lower costs, improve speed of service, expand operational flexibility for users and reduce risks
in IT deployment. The Cloud also enables an eco-system of innovative information andcommunications technology (ICT) applications in low-and middle-income economies that canadvance their economic growth and social goals.
This report addresses the movement towards a Cloud environment. The opening and closing essays
examine the technological requisites for successful Cloud computing and then examine how the
Cloud fits into global economic trends while highlighting key policy issues confronting utilizationof the Cloud. Three additional essays document the Cloud’s ample potential for helping India,
Mexico and South Africa achieve their development goals and address the numerous challenges inachieving this potential.
The full benefits of the Cloud require three key technological capabilities: 1) broadband networks,
2) the unrestricted flow of information (including cross-border) between customer and service
provider to meet customers’ needs wherever they arise and with whatever data they need, and 3) the
freedom to locate and operate (and scale) data centers on the basis of efficiency considerations. If
these requisites are fulfilled, the country studies show that the Cloud has five implications forbolstering the well-being of lower-and middle-income countries:
1.

The Cloud is central to being competitive in higher value-added products because both
goods and services in the world economy are becoming more ICT intensive. The Cloud canallow emerging economics to tap the economic gains from the move to globalization of thedesign, production, distribution and support of goods and services over the last 30 years, andits growing ICT intensity.

2.

Cloud ICT is vital to being competitive in South-South commerce, already the fastest
growing share of world trade and investment and the future home to most of the world’s
middle class. The Cloud opens the way for lower and middle income countries toparticipate more fully in the world’s switch to a “knowledge economy” as both consumers
and creators of knowledge based products.

3.

Cloud computing can greatly strengthen small and medium enterprises (SMEs), thereby
stimulating job creation. The Cloud reduces the cost, the upfront investment and theoperational complexities of using ICT to help build smaller businesses into larger ones. At
the same time, both SMEs and individual users are relying on many “free” Cloud services
that are in turn paid for by Cloud-enabled advertising, often delivered trans-border.

This research was supported by a grant from Verizon. The authors are responsible for its content.

4.

The Cloud creates significant benefits for both individual users and governments. All three
country studies demonstrate emerging changes in the capacity of government to deliver its
core services more economically and effectively to the benefit of citizens.

5.

The Cloud and the build-out of broadband infrastructures have strong synergies indeveloping economies. An effective Cloud infrastructure improves the economic case forcreating broadband networks in lower income countries because Cloud services create newrevenue opportunities for networks.

An additional implication of the country studies is the enormous benefit of experimentation and“learning by doing” in an environment driven by market competition and a national policy to invest
in rapidly transforming digital capabilities. This approach will require the embedding of national
experimentation and innovation in the context of global experimentation and innovation.
Governments can play a positive role in reducing the uncertainty about the rules of road concerningquestions about privacy, security and equity. But, just as the emergence of the Internet
infrastructure and the sophisticated export sectors of developing economies benefited from more
open markets, the Cloud will be most powerful where government rules restrain from detailed
micro-management and encourage multi-stakeholder groups with sophisticated expertise tocontinuously refine detailed solutions.
Successful experiments and innovations already exist. For example, for years we have permitted
personal financial information in the form of credit card systems (think Visa), link banks,
merchants, support services (fraud detection services, for instance), and consumers in shared datasystems running across national boundaries. We already utilize cross-border medical consultation(such as outsourced radiology readings) safely generating benefits in patient care, especially inareas with few medical resources. With proper care, and under minimal regulatory structure,transnational data need not be a sovereign risk.
A review of the studies of Mexico, India and South Africa highlight three clusters of policy issues.
1. It takes a vision to achieve the potential of ICT for economic and societal goals. Promoting asound Cloud ecosystem should be considered an intrinsic part of a national ICT strategy that, at
minimum, advances universal broadband build out, including all communities, urban and rural,
makes human capital investments in digital skills and identifies how to use ICT to improvegovernment services.
Building on the lessons from the advances made in promoting higher investment, lower prices andfaster innovation since the introduction of competition in telecommunications and information
service markets, sound decision-making processes are essential to making the markets work for the
public interest. This suggests that transparent rules and decision processes with multi-stakeholder
participation are critical. When possible, governments should rely on multi-stakeholder groups tocraft many of the detailed policies necessary to maximize the benefits from the Cloud.
2. It takes a global ICT network to achieve full national benefits. A national approach to creating
and using this ICT infrastructure foregoes much of its potential, and preventing the ability of
global ICT infrastructures to provide local national services misses much of the Cloud’s
performance benefits. To do so, countries should embrace:

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o

Free Flow of Information: To achieve the full benefits of global interconnection
governments should allow information to move freely and be stored globally.

oFlexible placement of facilities: Governments should not require that facilities orinformation be located in a specific country or region.

oOpen, competitive markets to encourage infrastructure development and services:
Encouragement of cross-border market access for investment in ICT (including broadband
and Cloud facilities) and commerce (including trade in services) under transparent rules
will be critical to achieving the potential of the Cloud and broadband.

3. Reliance on the open, voluntary global system for Internet/Web standard setting to sort out
questions of interoperability: Standard setting organizations like the Internet Engineering Task
Force and the World Wide Web Consortium successfully marry voluntary, commerciallydriven standard-setting with participation by all interested parties with the appropriate
expertise.
A national strategy for addressing legitimate policy concerns about the privacy of user
information and security of information works best within a framework of global principles andpolicy approaches consistent with competitive markets and flexible implementation strategies
that can cope with rapidly changing technology.
oRejection of the premise of data sovereignty: Some believe that government can only
protect citizens’ rights and national security if the data of its citizens remains exclusively
within its borders. While issues of cross-border jurisdiction (what to do with Mexican datastored in Brazil) are perennial to many facets of international commerce and require
resolution over time, their solution does not require locking data up within national borders.

oGlobal compatibility of privacy and data security rules: National rules should be anchoredin globally recognized principles (e.g., the APEC or OECD privacy guidelines) and shouldbe crafted to assure commercial non-discrimination among providers of infrastructure andservices. When possible, governments should offer mutual recognition of other countries’
laws that achieve the same objective.

oFlexible location of data: Data should be stored geographically depending on market andengineering considerations and governments should focus policy on functional goals fordifferent types of data (e.g., personal medical data may have higher standards thanmerchant data and a transparent system for remedies in the case of violations of privacy
protections.

-4-Unlocking the Benefits of Cloud Computing for Emerging Economies—
A Policy Overview
Peter Cowhey and Michael Kleeman, UC San Diego
INTRODUCTORY ESSAY
The emergence of the Internet and the World Wide Web were technological triumphs of the late
20th Century. When this common architecture for digital information and communications became
wedded to broadband fixed and mobile networks, it melded previously distinct communications
markets for data, voice and broadcast content. This marriage also allows society to take fulladvantage of a new generation of computer architectures enabled by the very large arrays of cheap
data storage and processors that are popularly described as the “Cloud.” As the Cloud becomes
fundamental to the world of information and communications technology (ICT), it will deliver
major benefits for both low and high income countries. This report examines these benefits and the
public policies needed to achieve them.
Cloud architectures permit users to decouple the main computing power and storage forapplications from the capabilities of particular end users or even end user organizations. This both
lowers the cost of information applications and allows them to operate ubiquitously, largely
unconstrained by geography wherever broadband network capacity is available. (And, while
reducing the potential power of applications, even narrowband networks can support someCloud services.).
The Cloud’s advantages for bringing ICT to low income countries are easy to grasp. There are both
short and medium-term efficiencies with very large payoffs, as well as the possibility of medium
and long-term expansion of local innovation capacity. Previously, for example, the purchase priceof software was only a small component of the overall cost of ownership; the costs of hardware,
upgrades, and supporting personnel often dwarfed the purchase price. Cloud computing shifts thesecosts to remote data centers which benefit from significant economies of scale and scope. It also
allows significant flexibility in the choice of terminal device linking the user to information
applications. 1 You don’t need a PC to have data intensive applications in the middle of a farm
field. This is why applications ranging from email to mobile enabled health care in developing
nations are shifting to Cloud-based delivery. Doing so creates cost savings, improves speed ofservice, expands operational flexibility for users and reduces risks in information technology (IT)deployment. Beyond these operational efficiencies, the Cloud enables a new range of ICT service
offerings supporting a new ecosystem of innovation of high-value applications in low-and middleincome economies that can advance economic growth and social goals. 2
These Cloud benefits require the effective and efficient movement of Internet-based information
between the customer and the Cloud service provider. This cannot occur without three key
1

The form and mix of information processing, storage and gathering will continue to vary (including personal
computers, tablets, smartphones, Internet enabled appliances and wireless sensor devices) as the “Internet ofThings” emerges, but the Cloud will make the entire architecture dramatically more powerful, flexible,
pervasive and less expensive.
2
Many of these innovations will likely involve systems to better manage critical infrastructure and resources,
such as water. (Chui, et al 2010) http://www.fastcompany.com/biomimicry/how-the-internet-of-things-isturning-cities-into-organisms

technological capabilities. First, while some Cloud supported applications can be delivered on
narrow band networks (such as simple, mobile enabled health applications), the biggest payoffs
from the Cloud arise when high speed communications service (often called “Broadband”) isavailable. Second, Cloud computing requires the unrestricted flow of information between
customer and service provider. Third, Cloud data centers can only be fully effective if they achievesignificant economies of scale and scope, and can respond dynamically to their customers’ needs
wherever they arise and with whatever data they need. This implies freedom to locate and operate
data centers on the basis of efficiency considerations, and to scale data centers by handling crossborder data needs. And, as a surprising corollary, the deployment of an effective Cloud
infrastructure improves the economic case for creating broadband networks in low-or middleincome countries by enabling the national broadband connection to provide global services almost
the instant it is connected.
The report addresses the movement toward a Cloud environment. This essay defines the terms forour discussion, sets Cloud computing in the context of global economic trends, and highlights key
policy issues. The next three essays illustrate the unfolding performance and potential of the Cloudin India, Mexico and South Africa in light of their national development goals. A concluding essay
uses case studies to pinpoint issues about setting national goals for Cloud computing andbroadband, anchoring this national ICT infrastructure into a global ICT infrastructure featuringflows of communication and information across borders and setting national policies to address
issues of privacy and security of information in a manner compatible with tapping the advantagesof the global ICT infrastructure.
1) The Dimensions and Economics of Cloud Computing
The US National Institute of Science and Technology, NIST, defines Cloud computing as “…amodel for enabling ubiquitous, convenient, on-demand network access to a shared pool ofconfigurable computing resources (e.g., networks, servers, storage, applications, and services) thatcan be rapidly provisioned and released with minimal management effort or service provider
interaction.” 3 Simply stated, the Cloud allows users to access computing resources on-demand andpay for only what they use.
The key to the Cloud’s architecture is the separation of suppliers and users and the dynamic
allocation of ICT resources along with some form of metering for reporting and billing (NIST2011). Given this architecture, the economics of the Cloud depend on the way it is deployed andthe delivery model for its capabilities. (See Figure One).
The Cloud can be deployed in one of three configurations. It can be the private capability of asingle organization, as in some global banks. It can be a shared private resource of a consortium ofusers, such as is found in parts of the utility industry. Or, it can be a public commercial resourcethat is owned and managed by a private entity and is available to any user on commercial terms.
(Obviously, hybrid models are also possible) (NIST 2011). In theory, the largest economic savings
derive from provision by a public commercial resource, which is not always feasible, thereby
making hybrid strategies attractive (Centre for Economics and Business Research, 2010).
3

In our view NIST has the best summary of the core elements of the Cloud. (Mell and Grance, 2011).
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The other critical dimension of Cloud capabilities is the service model. Software as a Service(SaaS), exemplified by Google Applications or Microsoft 360 email, is the most common service
model used by end users. The user or user-organization does not manage or control the underlying
infrastructure and does not create the basic application. The applications are accessible fromvarious client devices through either a thin client interface, such as a web browser (e.g., web-based
email), or a dedicated program interface (e.g. Outlook). In contrast, with the Platform as a Service(PaaS) model, the end application is created by the user, leveraging the Cloud provider’s offer,
which includes software tools to help the user access the underlying hardware. Examples ofsoftware tools include programming languages, program libraries, services, and development andcollaboration tools. In India, for instance, Naadhi’s realized that they needed to move their projectmonitoring-and-reporting application to the Cloud to enable prospective customers to try it before
they made a full commitment to the service. Finally, with Infrastructure as a Service (IaaS) theuser can access machine and network resources dynamically and remotely and use them as needed.
This is the lowest level of Cloud services. The user does not control the underlying infrastructure
but controls what is loaded onto the infrastructure, such as operating systems and deployed
applications.
Figure One: Alternative Deployment and Service Models for the Cloud

Source: NIST 2011

The scale of Cloud activity is becoming large and pervasive. In a study that is consistent withseveral analyses, Gartner Research (Anderson, et al, 2011) predicted the Cloud market will, by
2013, generate $150 Billion and by 2014 Gartner predicts that more than 60% of server workloads
will take place on virtualized servers, up from 8% five years earlier. Table One summarizes its
emerging engineering and economic characteristics.

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Table One: The Engineering and Economic Characteristics of the Cloud Market
1. Dominated by a global “hub and spoke” network because of advantages fora. Economies of scale and scopeb. Responding to characteristics of particular data management needsc. Peak load management
2. Growing diversification of facility locations and increasing array of competitive
entrants both in large data centers and Cloud-enabled services
a. Geographic distribution for response times, redundancy and peak load management
b. Major ICT firms and specialized new entrants
c. Growing role of firms from emerging economies

As our country studies illustrate, there is an emerging hub and spoke network for the Cloud.
Smaller Cloud facilities may handle smaller, local service applications and particularly sensitive
local data in national facilities, while data that are really large scale and inherently transnational ishandled out of a network of regional hubs. Understanding the engineering and economic case forthis arrangement is critical.
As a matter of engineering economics, the state of the art hub facilities work at major economies ofscale and scope, and they will be located based on complex operational requirements (Armbrust, etal, 2010.) Put simply, the Cloud uses a lot of resources, space, power, cooling and machines.
Apple’s first major Cloud data center (its consumer product is called iCloud) is 500,000 square feetand is powered in part by 200 acres of solar panels. And that is only about a third of the size of theworld’s largest commercial data center, which is the @Tokyo Data Center in Tokyo that is large
enough to have its own train station.
Moreover, the Cloud hubs need to work together to manage peak demand. Figure Two shows how
AWS can reduce the total capacity necessary to handle peak demand by time shifting between its
data centers in different time zones.
FIGURE TWO: How AWS makes the Cloud more cost effective by time shifting

Source: Microsoft – The Economics of the Cloud 2010-8-

Moreover, the hubs are critical for data management that is both massive and inherently global inscope. Examples of large scale and inherently transnational data include the data operations oflarge global companies coordinating international operations or public sector problem-solving
requiring the mixing of many national data streams, such as analyzing the vectors of infectious
diseases or pollution patterns.
Much of the smaller scale work involved in Cloud services will be in spokes of local Cloud
facilities. But, even then, full effectiveness will require flexibility on the free and unrestrictedmovement and management of data across borders. Tracking trucks and managing traffic, forexample, often involves border crossings. The country studies in this study indicate that dynamic
sharing among Cloud facilities to manage peak demand is already occurring even in government
services.
Moreover, Cloud hosting is rapidly diffusing globally. The private Cloud infrastructures ofgovernments and companies like Google, Ford and the major banks are already distributed aroundthe world to improve service time and reliability. Massive data centers that are larger than Apple’salso exist in Ireland, India and Wales; it is rumored that China is planning to build the largest in theworld. Even smaller nations, such as Haiti, are studying the potential of Cloud hosting centers.
Unsurprisingly, as the global center for e-commerce, software and integrated hardware-service
models (such as the iPod), the United States’ major ICT firms (especially Microsoft, Google andAmazon) were the early leaders in Cloud infrastructure. However, the evolving Cloud infrastructure
will not solely be controlled by giant ICT leaders. Many of the major Cloud centers are owned by
new specialized companies that are carving out agile strategies as suppliers of all three Cloud
service models. For example, the largest public data centers at the end of 2010 included Cloudofferings of Switch Communications, DuPont Fabros, Next Generation Data, Terremark, Quality
Technology and Digital Reality. (Data Center knowledge, 2011) Also, many of the specialized
services in the Cloud eco-system (such as video delivery) are provided by “middleware” companies(like Akamai), rather than traditional telecommunications carriers.
A hub-and-spoke system offers abundant opportunities for competitive entry for companies inemerging countries both as the owners of giant data centers and suppliers of many Cloud services.
In India, HCL and E2E among others operate Cloud supporting data centers. In Mexico, both
Amazon and Google are operating Cloud-serving centers, as well as a division of Telmex, thedominant telecommunications carrier. In South Africa Vodacom and Teraco operate several centers
and a new firm, Pamoja, is beginning to offer what is planned to be a Pan-Africa Cloud service
based out of South Africa, Kenya and other African nations. These Centers are continuing to grow;
ABB (2011) estimates that 5.75 million servers are added annually. Thus, the economics of the
Cloud allow new entrants in the industry and we expect strong regional players to do exactly that.
However, the best returns come from Cloud networks that take full advantage of economies of scaleand scope.

-9-2) The Cloud and the Transformation of Emerging Economies
The Cloud is critical to the economic welfare of emerging economics because it is central totapping the economic gains from the move to globalization of the design, production, distribution
and support of goods and services over the last 30 years and its growing ICT intensity. If lowerand middle-income countries are to profit from the transition to the Cloud, they have to frame theirpolicies in light of five implications of the Cloud for the world economy (summarized inTable Two).
Table Two: Five Implications of the Cloud for Emerging Economies
6. The Cloud is central to being competitive in higher value-added products because productsin the world economy are becoming more ICT intensive. .
7. Cloud ICT is vital to being competitive in South-South commerce, which is already thefastest growing share of world trade and investment and the future home to most of theworld’s middle class.
8. Cloud computing can strengthen SMEs and employment in all economies.
9. The Cloud creates significant benefits for both individual users and governments.
10. The emergence of the Cloud and the build out of broadband infrastructures has strong
synergies in developing economies.

1. The Cloud is central to the next stage of the transformation of the world economy; a stage
characterized by the growing share of ICT and services in its total value added. Services now
constitute 63% of global economic output and over 70% of this output in wealthier countries. 4
Traditionally, most services were local (the hospital, the beauty shop, or an accountant) and thus
goods (manufactured and commodities) dominated global trade. 5 However, many services thatwere once local (such as medicine) are becoming, in part, cross-border in supply. In 2010, services
constituted about 19% of all world trade and more than 30% of U.S. trade. Even this figure severely
undercounted services as a share of the value added in trade. Software and information services
play a growing role in manufactured goods. An automobile has a huge value added from software
programming, for example. Moreover, the melding of ICT-enabled services with manufactured
goods as a product offering is emerging as a central feature of a more information-intensive
economy. In fact, manufacturing is the second largest user of Cloud computing (only surpassed byfinance).
The growing scale and scope of ICT and services are central to the rapid evolution of sophisticateddivisions of labor embodied in global supply chains. Economists call this the growth of a “trade in
4

Based on 2011 GDP figures, the share of services in India, Mexico and South Africa are, respectively:
55.6%, 63.4%, and 65.9%. (CIA, 2011)5
Sweden is a model of an information and service intensive economy whose competitiveness in
manufacturing depends on these inputs. As a smaller population, wealthy economy it has important lessons
for the ultimate objectives of most lower income countries. National Board of Trade (2010)-10-

tasks” (that also includes foreign investment) (Grossman and Rossi-Hansberg 2008). This growth
has already created sophisticated national and regional sub-systems of production, distribution,
professional services, and innovation tied to global networks. Countries wishing to thrive in this“trade in tasks” require state of the art ICT infrastructures. For example, Indian companies arebusily converting traditional IT outsourcing systems into Cloud-based services with new offerings
dubbed “business process as a service”.
The growing dissemination of science-and technology-based innovation capabilities outside of theOECD countries will enable them to engage fully with the opportunities. China, India, Brazil,
Mexico, and South Africa are, in total size of national R&D expenditures, numbers 2, 8, 11, 24, and31, respectively (Battelle Institute, 2010.) When coupled with important milestones in realizing
universal connectivity and computation access in all communities, but especially in universities andcolleges at this stage of development, the era of reliance primarily on “me-too” products is endingin emerging economies is concluding.
2. The importance of South-South trade has grown dramatically, and it is becoming informationintensive. The expansion of trade, paired with investments in human capital, policies geared at
macro-economic stability, and creation of appropriate social “safety nets,” has allowed emerging
markets to double their share of world exports (from 21 to 43%) from 1994 to 2008, while creatinga sophisticated system of “South-South” trade and investment (Hanson 2012.) This shift has
reduced the role of the United States as the hub of world commerce.
The growth in South-South commerce will be further propelled by the new middle class in lesswealthy economies, which will make up more than 90% of the world’s middle class by 2030. This
sets the stage for new market demands and a further rapid shift in the demographics of income andwealth. 6 This opens the market for new designs from Southern countries attuned to these
consumers’ needs (Radjou, et al, 2012.) There is no reason, however, to think that these designs
will be less information-and service-intensive than the mix for wealthier markets.
As South-South commerce rises, so does its sophistication. This means that successful emerging
economies require global ICT and service infrastructures to support this commerce, just as theOECD nations have already demonstrated. The massive investments of India in internationalterrestrial and undersea fiber optic networks, which are among the largest in the world, are one signof this realization. Just as significantly, Southern economies become more service-oriented in theirtrade and economic value-added as they become enmeshed in the world economy. The growth ofbank, finance and business services is particularly ICT intensive. 7 Interviews for this study
discovered that at least one major Indian ICT company is providing Cloud services to Africa from
6

“The World Bank estimates that the global middle class is likely to grow from 430 million in 2000 to 1.15
billion in 2030. The bank defines the middle class as earners making between $10 and $20 a day -- adjusted
for local prices -- which is roughly the range of average incomes between Brazil ($10) and Italy ($20).” This
population in countries below OECD income levels is equal to 93% of the world middle class in 2030.
(Quoted in Knowledge@Wharton 2008).
7
In 2008 the World Bank estimated that China and Brazil grew business services at 15% annually from 1995
to 2005 while India grew these services at 25% per annum. (Reported in China MOFCOM web site on trade
in services--http://tradeinservices.mofcom.gov.cn/en/f/2008-02-02/23536.shtml) CEBR (2010) provided
details on ICT intensity of different services.
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locations in India and Singapore. Similarly, Mexico and a number of Latin American countries aredeveloping CLARA, an interconnected network of the major IT research and education centers intheir countries in order to share data and optimize use of their computing capacity. (Casasus, 2008)
3. Cloud computing will improve productivity and job creation, especially in small-and mediumsized (SME) enterprises, because it reduces barriers to new products and business models. Studiesof the EU by Etro (2009) and the CEBR (2010) identified key contributions of the Cloud. The
Cloud lowers initial entry costs for new products and businesses (especially for SMEs), it permits
faster expansion of the business while maintaining quality of services and it is cheaper to handle“peak demand” periods for ICT. Additionally, the Cloud increases productivity growth (a key
contributor to wage improvement). Etro estimated that over a five year period in the mature –therefore, slower growing – EU market, the Cloud could boost cumulative GDP growth by 0.2%
and create about one million new jobs, primarily through faster expansion of SME activity. Using afiner-grained analysis, CEBR estimated annual economic benefits in France, Germany, Italy, Spain,
and the UK to reach more than 177 billion Euros annually by 2015 with about 445,000 net new jobs
annually by that date. The share of benefits for each nation depends certain factors, such as thepercentage of their economies involved in the most ICT intensive sectors (led by banking, finance,business services, followed by manufacturing, and then transport, communication, government,
health and education services).8 A similar analysis reported in our study on Mexico yielded equallystrong results on stimulating SME growth and jobs.
To illustrate these dynamics, consider Amazon Web Services (AWS), a principal platform fornumerous start-up firms that require Cloud services, ranging from simple web services to media
streaming. In the past, these firms would have had to purchase servers, lease high speed networklines to their offices, have technology specialists to manage the servers and disk drives andconstantly risk being under capacity if product realized rapid adoption as well as massive overinvestment. With Cloud services SMEs have no capital commitment and their Cloud resources
grow dynamically. Detailed estimates for SMEs in India, for example, suggest a cost saving of atleast one-third for IT capabilities. (Sharma, et al, 2010) This massive reduction in up front capitaland operational execution risks mean that start-up firms and those facing significant growth have amuch higher chance of survival and success. This translates to more start-ups, more jobs and more
local innovation.
The cost and efficiency gains from the Cloud do not capture its long-term importance forinnovation possibilities in emerging markets. The Cloud needs to be thought of as a two (or N-)
way street. It is akin to the experience of the Apple and Android App stores. This is possible
because the Cloud supports, and demands, the use of thin clients for product delivery which drives
re-architecting many applications but perhaps more importantly opens up the market to a new classof developers, many of whom can emerge from developing countries with context specificknowledge that enables successful tailored solutions. The economics of the PC eco-system did noteasily permit such inexpensive systems solutions for applications in specialized market niches. For
example, in addition to lowering distribution costs, the Cloud creates a de facto global market
overnight for service, content and program providers (the same way the App stores enable
8

The most ICT intensive sectors spend up to 5.4% of total revenues on ICT. CEBR (2010), p. 22.
-12-thousands of independent application developers to quickly reach millions of customers). These
Cloud applications include many that might be thought of as social service applications, such as
mobile health services. In support of such efforts Kenya is developing a network of data centerswith hopes of becoming a regional Cloud hub.9 As Cloud enabled service architectures blossom,
many of the highly specialized engineering and skilled support services necessary for local
innovation clusters can be supplied transnationally. This allows individual entrepreneurs with local
expertise to innovate on a local, regional, and global scale. 10
The Cloud also makes the value propositions and traditional winners tied to ICT subject to mucheasier disruption (Cowhey and Aronson, 2009). Apple’s iTunes turned the profits in music into acommodity business while increasing margins on the hardware product and its “store”, much to thesurprise of the conventional wisdom of the day. Barriers to creating and distributing new
applications (a form of software) decline while profits rise, bolstering companies innovating
services for the new middle class of emerging markets.
4. The Cloud provides significant benefits to non-business users, including consumers andgovernments. The majority of the benefits from Cloud services are usually discussed in terms ofbusiness, but consumers benefit from the Cloud in a variety of ways, from convenience, to low cost(or free) services, to variety of on-line applications available. Of great significance, the Cloud
enables the web advertising models that are critical to developing and providing the many
information applications that are central to evolving global information markets. The size of this
digital ad market is large and growing rapidly. Gartner estimates that revenue “derived from
[Cloud-based] advertising services that is then used to deliver other IT services” was $36.5 billion
in 2010, projected to grow to $77.1 billion in 2015. (Anderson, Ed, et al. 2011) These revenues are
an important indicator of the value of advertising revenue for enabling ‘free’ Cloud delivered
services such as data storage (Dropbox and Box.Net), photo sharing (Flickr), collaboration (anymeeting) or email applications ( Hotmail). Because of the business benefits of Cloud services a
number of offerings can be made available for free (at the basic level) for consumers. Crucially,both the downloading of data and applications, and their uploading, can be done without the barrierof requiring personal computers or servers controlled by users.
As the case studies in this report document, Cloud computing is significantly reducing the cost andimproving the reliability of traditional government services. Thus, it has direct benefits forgovernments as users of ICT to fulfill core functions. For example, the Cloud is essential to thedesign of Mexico’s new “Angel Network”, the largest social service system in Latin America.
Even more interestingly, the Cloud enables new hybrids of social and commercial services that areoften provided by business models, made possible by the Cloud infrastructure, that charge little ornothing. Students worldwide access the Khan Academy educational videos over Cloud-based
YouTube (which Google hosts in multiple locations across the world, including Asia, Africa and
9

The Cloud also enables changes because it reduces the cost of terminals connected to high bandwidth
networks and provides networked intelligence capabilities critical to reliability and cost management of
remote monitoring, management and billing systems and marketing and sales support.
10
In its early stages it is impossible to predict the precise changes that will be induced by Cloud computing.
On why the large transformational impacts of a “general purpose technology,” such as electricity or cloudcomputing, plays out differently across countries and markets, see: David and Wright, 1999.
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Oceana as well as the US and Europe). In Ethiopia and India, rural healthcare is delivered with theassistance of mobile-enabled applications hosted on Cloud servers in the US, and of equal importthese applications and services are also being created in emerging markets. Many of these healthservices combine an element of traditional public health service (now delivered more ubiquitously
at a lower cost). . For example, social enterprise models where “community knowledge workers”
use a micro-finance model to provide supplementary follow-up for tiny fees. (Grameen Foundation,
2010)
5. The emergence of the Cloud and the buildout of broadband has strong synergies in developing
countries. While many Cloud services are designed to cope with narrowband networks, especiallymobile networks, they will achieve their full potential if broadband is available. Additionally, thedeployment of Cloud infrastructure can actually accelerate the broadband buildout by increasing thevalue of such networks to the users and thus their adoption, improving the economic returns for
network operators.
The buildout of broadband is uneven, but a largely foregone conclusion over time for wealthiercountries. OECD reported in June of 2011 an average of 25% wired broadband take-up across its
members, with a high of almost 40% in the Netherlands, and close to 48% for wireless broadband
with Korea over 90%. These numbers are driven by significant growth rates year on year, ranging
from under 5% in already well served nations to over 25% in newer markets.
The importance of broadband is now so broadly agreed upon that even the economic analysts ofinternational financial institutions endorse its significance. For example, broadband service is now
considered key to economic growth and development banks, such as the Inter-American
Development Bank (2012) and World Bank, which have programs promoting broadband as doesmuch of Africa (with South Africa targeting at least 80% broadband availability by 2020 11). Whatis little understood is that the Cloud can accelerate the economic feasibility for expanding
broadband build out because it radically saves costs for network providers (including last mile
providers) in delivering a broader range of products/services to customers than they could on theirown, thereby significantly expanding the ability of users in any location.
For example, there is a developing Cloud effort in Africa to ring the continent and bring services tothe different markets; the Cloud could permit even small carriers to be offering a wide productrange that can generate enough revenues to justify their investments in new network infrastructure.
The new connections in East Africa were made possible because new submarine cables have
reduced by over 50% the historic costs of connectivity 12, while bringing multi-terabit speed
services to nations along their routes. Cable landing stations with hosting center space, terrestrial
fiber and dedicated national data centers exist or are being built across the region, with South11

http://7thspace.com/headlines/414180/south_africa_indaba_wants_80_of_africans_having_broadband_by_2
020.html
12
The open access East Africa SEACOM system was the first to stimulate price drops, followed by new
capacity and major new cables such as WACS on the West Coast. Collectively they increased total capacityfrom Africa to Europe by more than 10 times and created a competitive supply market for raw bandwidth andhigh quality IP services. http://mg.co.za/article/2012-01-06-broadband-price-drop-expected;
http://www.bandwidthbar.co.za/articles/seacom.php-14-Africa and Kenya 13 creating hundreds of thousands of feet of space. But all of this connectivity inthe nation assumes unfettered broadband access to the resources available all across the global
Internet. No nation contains all of the on-line resources or services used by its citizens solely
within their national borders. Interference with broadband connectivity would slow the growth of
Cloud services adoption in affected nations and regions, effectively isolating them from the benefitsof or markets created for them by the two-way nature of Cloud.
3) The Policy Implications
A global Cloud infrastructure raises significant issues that need to be addressed on a national andeven corporate or individual level. To reiterate, the prerequisites for a Cloud infrastructure are:
These benefits of the Cloud require the effective and efficient movement of Internet based
information flow between the customer and the Cloud services provider. This cannot occur without
three key technological capabilities. First, while some Cloud supported applications can bedelivered on narrow band networks (such as mobile health data bases), the biggest payoffs from the
Cloud will arise when high speed communications service (often called “Broadband”) is available.
Second, Cloud Computing requires the unrestricted flow of information between customer andservice provider. Third, Cloud data centers can only be effective if they achieve significant
economies of scale and scope, and can respond dynamically to their customers’ needs wherever
they arise and whatever data they need. This implies freedom to locate and operate data centers on
the basis of efficiency considerations, and to scale data centers by handling cross-border dataneeds. And, as a surprising corollary, the deployment of an effective Cloud infrastructure improves
the economic case for creating broadband networks in lower or lower middle income countries.
For these conditions to emerge it will require prudent public policy that is supported by appropriate
complementary action in civil society. A review of the country studies of Mexico, India and South
Africa suggest that there are three critical issues for this nexus of government and civil society
policy and action. Here, we preview the issues that our final essay explores in full.
4. It takes a vision to achieve the potential of ICT for economic and societal goals. In all three
countries there is a clearly articulated vision, with varying degrees of success in execution, forthe growth of national broadband systems. This includes complementary investments in humancapital investment to create populations that can take full advantage of broadband at work andat home. But all three countries have only haltingly envisioned what it would take to take fulladvantage of the benefits of Cloud computing. Yet, if this essay is correct, Cloud computing isan essential complementary capability to broadband; indeed, there are synergies in theeconomics of their deployment.
5. It takes a global ICT network to achieve full national benefits. A national approach to creating
and using this ICT infrastructure foregoes much of its potential. For example, South Africa’s
domestic broadband build out will go faster if integrated into cross-border broadband
investments. And preventing the ability of global ICT infrastructures to provide local national
13

http://www.kictanet.or.ke/?p=7995; http://allafrica.com/stories/201109141049.html;
http://www.teraco.co.za/live/content.php?Item_ID=24-15-

services misses much of the Cloud’s performance benefits. Even in a country with a major
Cloud infrastructure, the diversity of data, applications, and peak capacity needs will require
relying on services from Cloud infrastructure in other countries.
6. A national strategy for addressing legitimate policy concerns about the privacy of user
information and security of information, which Cloud computing brings into sharp focus, works
best within a framework of global principles and policy approaches consistent with competitivemarkets and flexible implementation strategies that can cope with rapidly changing technology.
Our experience with ICT is that allowing both specialization and diversity in problem solving is
an important part of creating a dynamic technical ecosystem that can grow and adapt to market
needs and social goals quickly. Detailed prescriptions from the top down, especially those
imposing uniform technical practices, are counter-productive.
There is an emerging international consensus that countries and civil society should adopt highlevel, compatible principles for strengthening both privacy and security (OECD, 2011; Aspen
Institute, 2012). Indeed, as APEC (2005) recognized in its work of Privacy, effective national
measures to advance privacy protection and information security in a world with a global ICT
infrastructure requires compatible national policy approaches.14 The details of national policies
may be fine-tuned to individual national sensibilities but the approach of each nation should
conform to the general principles.
We have, for years, permitted personal financial information in the form of credit card andother financial transactions to transit numerous national jurisdictions and have done so withoutmajor harm to national interests. This example, and others, suggest with proper care and underminimal regulatory structure, transnational data need not be a sovereign risk.
The closing chapter of this report returns to these policy issues in greater depth in light of the casestudies on India, Mexico, and South Africa.

14

On implementation of the APEC framework see: http://ibmprivacy.com/2011/11/17/the-promise-of-theapec-cross-border-privacy-rules/-16-

India and the “Cloud”
Jessica Seddon
The Cloud is changing the playing field for several aspects of India’s development aspirations. It isshaking up the IT and IT-enabled services industry, India’s international “headline industry,” bychanging the market for services and the nature of competition. Existing IT giants are expanding
offerings from their traditional bases of strength and finding their niche in the expanding global
market.15 New, smaller IT companies are seizing the opportunity to leverage low-cost common
Cloud platforms to provide various services to an increasingly varied and generally growing
worldwide market. The Cloud is also opening up new possibilities for achieving domestic
development goals. Global pooling of IT infrastructure and the Cloud-enabled potential to accessinternational pools of innovation has lowered IT costs for small business, NGOs and other new
entrants in the socio-economic arena. It has also enabled new business models for companies
seeking to bring health care, telecommunications, education, financial access, and other services topoorer and more remote areas. From worker payrolls to tax administration, private Clouds havebegun to change the way that IT is developed and integrated to support public policy
implementation.
India faces several hurdles, however, before these opportunities can be seized. It must
improve its policies on data protection, including government access to data and clarifying its
stance on cross-border data flows. Its privacy policies are weak by international standards and thecountry’s recent history of blocking Cloud-based services has disregarded its own due process.
India must also develop its domestic broadband infrastructure; just 6% of the country’s 250 million
households have access to broadband. 16
Momentum for overcoming these challenges is building. Recent policy statementsemphasize that the country will pay particular attention to improving data protection and otherregulatory policies that foster the expansion of Cloud services in India, as well as strengthening
domestic broadband access to Cloud services. Implementation, however, will be a test for thepolitical and administrative system.
This paper reviews the declared intent of government, the gains that could come withsuccessful implementation of policy and infrastructure development intentions, and the obstacles
that will need to be tackled to realize the economic and social potential of the Cloud. It is cautiously
optimistic: the obstacles are neither trivial nor terminal. There is broad-based industry demand forpolicies that help the IT sector compete, wider consumer demand for Cloud-enabled services andadvances in wireless technology. These factors may make it easier (if still costly) to rapidly expand
broadband services even if India’s handicaps in building physical infrastructure persist.

15 NASSCOM (2012) documents this pattern among existing IT companies.

16 Data from TRAI (2012). Broadband defined as download speed of >256kbps.

-17-

The Policy Intent
The National Telecom Policy 2012 affirms promotion of the Cloud infrastructure when it
states that India will take “new policy initiatives to ensure rapid expansion of new services andtechnologies at globally competitive prices by addressing the concerns of Cloud users and otherstakeholders including specific steps that need to be taken for lowering the cost of service
delivery.” It advocates lowering barriers to Cloud development by “identifying areas where existing
regulations may impose unnecessary burdens and to take consequential, remedial steps in line withthe best international practices for propelling a nation to emerge as a global leader in thedevelopment and provision of Cloud services” (10.2 & 10.3). The (draft) National IT Policy(pending approval at the time of writing), envisions the Cloud playing a critical role in more thantripling India’s IT/IT-Enabled Services (ITES) revenues by 2020. The draft policy also emphasized
the “objective to gain significant global market share in emerging industries and services.” 17
The move to establish a legal and regulatory framework for data protection appears to begathering momentum. NASSCOM, India’s IT Industry Association, recently called on its members
to “step up and take the lead in driving Cloud mainstream” and to “collaborate to proactively drive
development of robust standards for security, data and risk management to alleviate customers’
concerns.” (NASSCOM, 2012, p.7) The recent appointment of a high-level committee on Cloud
Computing, chaired by a leading industry figure, further signals intent to develop a more detailed
policy framework that will “promote Cloud computing service in and from the country.” 18
As Cowhey and Kleeman note, achieving the full benefits of Cloud computing depend on
deploying broadband access to the Cloud. Here, too, the Government has ambitious objectives. The
Telecom Regulatory Authority of India’s proposed 19 National Broadband Plan targeted 45 million
subscribers by 2012 and intended to double that amount by 2014 (75 million and 160 million total
including mobile broadband). The 2012 Telecom Policy envisions providing “Broadband on
Demand” and discusses “working toward a Right to Broadband” (1.2). The specific targets are 175
million connections with a minimum download speed of 2 Mbps by 2017 and 600 million by
2020. 20 The policy also proposes enabling high speed and high quality broadband for all village

17

Information based press reports about the draft policy, such as S. Ronendra Singh, “Ministry Seeks Cabinet
Nod for National IT Policy,” Business Line. May 9, 2012. Available at:
http://www.thehindubusinessline.com/industry-and-economy/info-tech/article3401261.ece, accessed July 24,
2102. The Minister of Communications had told participants at the Confederation of Indian Industry Cloud
Summit 2012 that the policy would be tabled before the Cabinet in mid-July, but it had not been approved asof the time of writing in end July 2012.
18
Gulshan Rai, Indian Computer Emergency Response Team and a member of the Committee. Quoted in
Press Trust of India (2012). “Infosys’s Gopalakrishnan to head govt’s cloud computing panel,” The Hindu
July 8, 2012.
19
The National Broadband Plan was circulated for discussion in 2009, for execution by 2013. It wasreportedly cleared by the Department of Telecoms in April 2011, and expected to be cleared by the Cabinet inAugust 2011, but appears to still be under consideration.
20
Available at http://www.dot.gov.in/ntp/NTP-06.06.2012-final.pdf.
The proposed minimum download speed is 2 mbps by 2015 and 100 mbps on demand.
-18-

panchayats (village government offices) by 2014 and expanding from this core to make connections
available to all villages and habitations 21 by 2020.
Public discussion also emphasizes practical applications.
In particular, India’s
policymakers see the Cloud as the next big solution for service provision and public management.
“Cloud computing will significantly speed up the ability to design and roll out services, enablesocial networking and participative governance and m-Commerce at scale [sic], which were notpossible through traditional technology solutions,” notes India’s recently published National
Telecoms Policy (June, 2012) (NTP, para 8). Kris Gopalakrishnan, Chairman of the Cloud
Computing Panel notes that, “Cloud computing is the way forward to bring affordable services inareas like healthcare, education, e-governance and banking to masses.” 22
Finally, the government has also slowly strengthened historically weak data and privacy
protection in an initial response to the policy questions involving privacy and security that are
essential to get right for Cloud deployment. Data privacy is still relatively limited; there is no dataprotection regulator and the existing privacy rules apply only to the private sector and do not follow
international practices, such as the EU Data Protection Directive or the APEC Privacy Framework.
However, the Gopalakrishnan Committee is expected to look closely at further strengthening ofdata protection.
In light of this positive policy context, it is not surprising that many observers project that
Cloud computing in India is about to take off. Zinnov (2011) estimates that over 8% of IT
expenditure will be on Cloud-based services by 2015, more than quadruple the 2011 proportion.23
The report estimates that the Indian Cloud market will be worth $4.5 billion by 2015, of which theprivate Cloud market would account for $3.5 billion. NASSCOM - Deloitte (2012) foresees an
Indian market of $15 to 18 billion by 2020. The number of Cloud deployments submitted for the2012 PCQuest Best IT Implementation Awards doubled from previous years. 24
In addition to the expansion of the big multinationals (such as Microsoft and Google) in
India, a dense ecosystem of Indian players in the Cloud is emerging, with some building on existing
IT strengths. A recent report from the Indian IT/ITES industry association identified “Business
Process as a Service,” or BPOs run on a Cloud infrastructure as an important niche, for example.
However, Domestic IT and communications giants Tata Consulting Services, Infosys, Wipro,
Reliance Infocomm, Airtel, Netmagic and others are entering international markets for mainstream
Cloud services, often in partnership with international providers. Smaller startups, such as Wolf
Frameworks (Mumbai) and Orangescape (Chennai), have a growing presence as platform providers
enabling small businesses and NGOs to develop and test niche software. MAIA Intelligence, for21

Clusters of homes smaller than villages.
Quoted in Press Trust of India (2012). “Infosys’s Gopalakrishnan to head govt’s cloud computing panel,”
The Hindu July 8, 2012.
23
In spite of the breathless hype, not every company seems to be sold. Zinnov (2011) reported that 42% of
the “150 Top Cloud Computing Companies” were not focusing on India.
24
Most of these were for private cloud deployments rather than the more often discussed SaaS or IaaS,
indicating that companies may still be most comfortable keeping their data on their own servers.
22

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example, paid close attention to local market features and took off after it secured the unique ability
to integrate with Tally, a ubiquitous Indian accounting package. 25
More so than the next Indian export phenomenon, the Cloud could be an important
infrastructure for solving some of India’s deeper challenges. Nearly all assessments of India’s
development prospects for the next decade agree that the country will have to tackle three deeper
structural factors: education, infrastructure and the distribution of economic opportunity. The
Cloud’s combination of scalability, flexibility and pay-for (even small)-use could contributesignificantly to India’s ability to successfully tackle several aspects of these key challenges.
1. Cloud-based software, platforms and infrastructure services could significantly lower
the cost of providing high quality secondary, vocational and higher education byenabling the country to access global stores of content as well as create and disseminate
indigenously-developed material. Rapid improvements in education will be essential if
India is to reap its much-touted “demographic dividend.”
2. The Cloud could enable governance and public management reforms required todeliver growth and inclusion-enabling infrastructure and services.
3. The Cloud could create new opportunities for entrepreneurs and small businesses aswell as those located outside of the current centres of economic growth.
However, the ultimate contribution of the Cloud will depend heavily on India’s ability toovercome several policy and implementation challenges, particularly on the extension of access tobroadband. While physical infrastructure is the immediate bottleneck to leveraging the Cloud, India
must also develop clearer policies on data protection, privacy, liability for data loss and otherregulations that would help set the stage for private investment in and use of Cloud services. Thesevariables shape the alternative scenarios for the Cloud that conclude this essay.
2. Exploiting Cloud Economics For National Development Goals.
Educating the “Demographic Dividend”
More than half of India’s population is currently younger than 25, and 13% are younger than 6
years old. A million people will enter the labor force every month for the next 20 years, many ofwithout sufficient training for current jobs much less the jobs of the future. 26 India would need amillion more teachers to meet the teacher-pupil ratio specified in the Right to Education Act, and as
many as 600,000 of the current teachers in the public school system are untrained.27
Numerous policy initiatives have sought to overcome these gaps by developing moredigital content and establishing the infrastructure to deliver this to rural educational institutions.
25

Integration with legacy systems is one of the biggest perceived obstacles to Cloud adoption in India,
according to Zinnov research cited in NASSCOM (2012).
26
The current higher education capacity is a fifth of what it will need to be by 2030, and many of the areas
with the fastest growing labour forces are the least well served by the current system. (Teamlease (2009,2012). India Labour Report, various years.) As many as half of the faculty positions in State Universities insome poorer states are vacant. (Government of India, Planning Commission. Approach Paper to the Twelfth
Plan.) Poor facilities and a severe shortage of teachers constrain primary and secondary education.
27
Government of India, Planning Commission. Approach Paper to the Twelfth Plan.
-20-

The government’s National Mission on Education through ICT began in January 2009 with a threeyear budget of just under US$1 billion to “provide high quality personalized and interactive
knowledge modules over the internet/intranet for all the learners in Higher Education Institutions inanytime, anywhere mode.” 28 This is likely to be expanded in the next Five Year Plan. The National
Knowledge Network (www.nkn.in) was launched in 2010 with a ten-year budget of about US$1.3
billion to establish a high-speed data network between all higher education institutions in the
country and to develop applications in development-relevant subjects, such as agriculture,
education, health, e-governance and grid computing.29
More recently, the Minister of Human Resource Development, Kapil Sibal, Advisor to thePrime Minister Sam Pitroda, and the Prime Minister himself have been advocating for “metauniversities,” or consortia of universities (potentially including both Indian and non-Indian
providers) coming together to develop joint virtual degrees. 30 Course materials that would beaccessible throughout the country via data centres set up as part of the plans to build a national
optical fibre network. The University Grants Commission’s recent decision to allow government
universities to collaborate in course offerings with foreign universities may also signal a growing
appetite for international content.
Educational institutions have also turned to the Cloud to lower costs. The All-India Council
on Technical Education (AICTE) became Microsoft’s largest Cloud customer in April 2012, with acontract to deploy Live@edu for more than 10,000 technical colleges (7.5 million students)
throughout India. 31 AICTE plans to roll out other Cloud-based collaboration and productivity
software (Office 365, Sharepoint, etc) over the year as part of its efforts to support interinstitutional collaboration and monitor quality of education in the institutes it oversees. Individual
institutions have also turned to the Cloud to reduce costs of existing IT infrastructure, to support
global and regional collaboration and to provide facilities for advanced, computationally intensive
research. For example, IIT-Delhi moved most of its facilities to a private Cloud in 2011 and otherinstitutions are expected to follow suit. Development platforms, such as Zoho, are an increasingly
common part of classroom projects.

Accelerating Infrastructure and Service Improvements

28

Letter D.O. No. F 16/3-2009-DL, dated January 9, 2009, from Shri N.K. Sinha, Joint Secretary, Ministry of
Human Resource Development to faculty of various higher education institutions. Available online at
http://www.ignouonline.ac.in/sakshatproposal/default.aspx
29
It appears to be running behind schedule – the initial goal was to connect 1500 institutions within 2-3 yearsof launch, but just 681 institutions had been connected to the NKN as of March 2012. As announced on thewebsite of the Government of India, Ministry of Communications and IT. http://mit.gov.in/content/nationalknowledge-network, accessed June 20, 2012.
30
PM’s Speech at the National Innovation Council, November 15, 201131
http://www.microsoft.com/en-us/news/press/2012/apr12/04-12AICTEPR.aspx-21-

There are many contributors to India’s notoriously poor infrastructure, but most analysts concur on
the obstacles that divided authority among numerous agencies, limited information sharing, andrudimentary public planning and expenditure management systems create for infrastructure andservice development. Urban transport planning, for example, can involve as many as 14 agencies
across three levels of government that may or may not communicate.
Cloud-enabled and Cloud-like management of resources for e-governance hold enormous
potential for helping the State become more effective in delivering goods and services. The Cloudis not a cure-all but it could lower the cost of coordination and information flow across Ministries
and levels of government and open doors for small public management initiatives to scale fornational impact.
Most estimates of the size of the government market for Cloud services in India are driven
by the assumption that the State will seize this opportunity to support inter-agency collaboration,
but cost-cutting and management of variable demand will likely be the key immediate drivers.
Virtualization of servers, for example, has reduced the cost of running the Unique Identification
numbers database (which will eventually cover over 1.2 billion people) that will be critical for
managing the distribution systems for subsidies, worker payments, financial services and otherpublic and private programs. Taking advantage of its reliability to vary scale on demand, India isusing the Cloud to maintain service quality for e-governance applications that have significant
seasonal variance. The Tamil Nadu government, for example, recently moved much of its data to a
private Cloud to cope with short-term spikes in transactions, such as requests for registration in
employment databases, requests for education certificates and tax payments. 32 The same provider(C-DAC) has also supported Cloud deployment of applications for the Governments of Kerala
and Chattisgarh.
The Technology Advisory Group on Unique Projects’ (TAGUP) recommends setting up
National Information Utilities that operate as private Cloud infrastructure providers forgovernment: government users would work with a team in the NIU to identify service and business
requirements, while the back-end architecture, implementation and maintenance would take place
within the NIU. Besides being less expensive and quicker to deploy for new solutions, a key featureof the Cloud is accessibility to advance IT for citizens and officials with low-end, low-processing
power devices which is central to this design (Chapter 6). Thirty-one states have State
Data Centres, a first step toward creating common IT services for various departments.
(NASSCOM, 2012) 33
Finally, the array of software, platforms, and infrastructure available to the general public
has allowed individual policymakers and rural local governments with nearly non-existent
discretionary budgets to work with communications and information management systems thatwould normally be out of their reach. A national member of parliament known for his
responsiveness to events in his remote constituency coordinates a team of 15-18 people in Delhi,
32

The press reports on the Cloud services for the Tamil Nadu government do not specify the service mode
being employed.
33This is just a first step, however. Departments tend to cling to their data and powers to manage it and someof these data centres operate more like traditional hosting centres or even as backup facilities.
-22-the state capital and his rural district using Blackberries and other smartphones, MS exchange
server on the Cloud and Google Apps. The office runs like a business, without the start-up costs ofbuying and maintaining a server or developing collaboration software. Village leaders in Kutch, aremote and poor area of Gujarat, use Facebook and Skype to create collaborative documents, track
meetings and consultations with their constituents and document village developments. A regional
NGO has also developed courses on local government budgeting and financial management that are
taught in part through Skype. 34
De-concentrating Economic Opportunity
India’s formal economy has historically been dominated by a small subset of very large firms withaccess to capital, government relations skills and other essential inputs. India has a “missing
middle” in manufacturing employment meaning most jobs are in very small or very large
enterprises with little evidence that the small businesses grow to be medium and/or large. 35
Economic activity, particularly non-agricultural activity, is also geographically concentrated. The
53 cities with populations of more than one million account for an estimated 32% of 2005-6 GDP;the 100 largest cities for 43%. (IIHS, 2011) Expansion of Cloud services could help de-concentrateeconomic opportunity in several important ways: by improving prospects for small-medium
enterprises, supporting new business models, and expanding services tailored to rural areas.
The Cloud could contribute to leveling the playing field and improving the prospects forrural non-farm businesses in a number for ways. It is already difficult to find a small business or
NGO that does not use some form of Cloud-enabled low cost or free software to lower IT costs.
Sharma et al (2010)’s survey of thirty SMEs in India found that even companies that had alreadyinvested in onsite ERPs were considering migrating to the Cloud. They estimated that mostcompanies could reduce their per-user costs by at least a third by moving to commercially available
services. Cloud deployments were the third most common project type submitted by small
enterprises (less than 1000 employees) for the 2012 PCQuest Best IT Implementation Projects, anincrease from previous years.
Cloud architecture also removes one of the stumbling blocks for small businesses seeking
to scale rapidly by reducing the need to reconfigure customer and transaction management asbusiness grows. Viva Infomedia, for example, ran its direct marketing and market research businesson a single server when it started, but switched to a Cloud solution as its business grew and its
original architecture was unable to handle the weekend peaks in SMS volume. It has since scaled
from processing 2 million SMS’s per month in 2009 to 200 million SMS’s per month today. 36
The Cloud is a key part of emerging business models to improve health care, access tofinance, education (see above), business and market information, and other services to support
businesses and workforce in rural areas. The combination of a cheap front-end device connected tosignificant data and storage and analytic capacity in a centralized back-end has opened new
business models in microfinance, veterinary care, weather monitoring and information
34

The initiative is described at http://setupanchayat.wordpress.com.
Mazumdar (2003); Hasan and Jandoc (2012)36
Srikanth RP (2011). “Viva Infomedia leverages the Cloud for managing rising volumes,” Informationweek,
November 24, 2011.
35

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dissemination, retail, and population-level health monitoring and diagnostics, among otherbusinesses. Tata Consultancy Services and State Bank of India have collaborated to offer TCS’s
core banking solution as a service to Regional Rural Banks, enabling the network to meetaggressive national financial inclusion goals. BPOs have also been able to move into lower-wage
rural areas as the Cloud enables workload balancing between smaller centres. Early movers, such as
Rural Shores and Desi Crew, have been considered “social enterprises” for providing employment
in more remote areas, but land and labor economics are on their side.37
Cloud-based networking could also be part of a shift in market structure that has thepotential to shift more control and profits to farmers rather than traders. Some of India’s commodity
markets are effectively controlled by a few key traders or intermediary companies. These
individuals make the market, while the larger numbers of small farmers without access to storage,
processing or information about supply and potential evolution of prices sell at whatever price they
can obtain. Sangli District (Maharashtra) turmeric farmers’ January 22, 2012 market boycottsuggests that this equilibrium could change. Thousands of farmers coordinated the protest over
Facebook forcing a doubling in the price they received for turmeric. 38
As Cowhey and Kleeman argued, the Cloud’s full potential to create new economic
opportunities depends on the extent of broadband penetration, but the ever-expanding array ofservices available through the Cloud also increases the strength of the economic case for extending
broadband access to rural areas. India’s draft National Broadband Plan cites a World Bank estimatethat a 10% increase in broadband penetration increases a developing country’s GDP by 1.38%, withmuch of this effect coming from the impact of information and software services available throughbroadband. ICRIER’s (2012) study of the growth dividends from Internet access and mobile phonesargues that mobile phones have had higher growth impact in India than the internet -a 1.5
percentage point impact of 10% increase in penetration vs. 1.08 for the same increase in internet in part because so many services have been made available over even lower-end phones. 39
3. Broadband Access and Cloud Regulation: The Hurdles
India faces two primary hurdles in reaping the benefits of the Cloud: expanding broadband accessand clarifying policies around data privacy, ownership, and liability for service failures. The first iscomplicated by the sheer scale of infrastructure expansion required and the institutional context of alarge public sector incumbent plus divided authority between the regulator and the Ministry. India
has also failed to establish a clear spectrum management policy, much less one that encourages
investment in broadband-capable networks. The second hurdle seems closer to being overcome.
There are no obvious political obstacles to establishing data protection policies, though
enforcement may be a challenge. The Indian government’s apparently increasing interest in
37

Infrastructure is not yet on their side. Rural Shores had to subscribe to internet service from multiple
providers in order to ensure a reasonably consistent connection. Mukherji (2012)38
http://articles.economictimes.indiatimes.com/2012-02-10/news/31046360_1_turmeric-farmers-socialmedia-sangli-district
39
While the study estimate the overall growth using state level data on economic growth, internet andmobile phone access, it also looks at case studies on impacts of internet and mobile phone based
applications in a number of sectors to “trace the pathways that translate into growth at the macro level.”-24-

controlling data flows, however, is more worrisome for global Cloud service providers (including
those historically based in India) seeking to leverage facilities, applications, and data exchanges
outside India to serve Indian customers.
Access to the Cloud: Broadband in India
Just as lack of access to broadband handicapped “utility computing” in the 1990s (Carr, 2009),
India’s infrastructure deficiencies could now hobble the growth and social impact of Cloud
services. The vast majority of Indians do not have access to broadband or even mobile data services
today and the prospects for expanding reliable broadband access remain murky. The government’s
ambitious broadband expansion targets have fueled substantial enthusiasm about India’s “digital
future,” but it is not clear how these goals will be met.
The fixed line network would have to be upgraded dramatically to deliver 75 million
household connections by 2014. TRAI (2010) estimates that there are 40 million copper loops inthe country, but Marcus and Jain (2012) report “conservative industry estimates” that half of these
are not sufficient to support broadband. The CATV network, which has 80 million subscribers
according to TRAI (2010), could offer an alternative infrastructure for broadband connections, but
only if the regulatory environment becomes more stable and the industry consolidates and upgrades
technology. Most of the connections are still analogue. 40
The NTP and the draft National Broadband Plan envision filling the gaps through public
investment in an optical fiber network financed by the Universal Services Obligation Fund. It
leaves implementation, however, to a public sector incumbent that not only has a mixed record of
infrastructure expansion but would also potentially be in charge of deciding the funding, work planand time-frame for the fibre network it would implement and then use as an internet service
provider. 41
Mobile broadband could be the key to rapid expansion of data service. Existing mobile
technologies are able to exceed the 2 Mbps target in the 2012 Telecom Policy, but their deployment
will depend on improving spectrum management and licensing as well as creating a businessenvironment that allows operators to offer data services at the lowest possible cost. A major
corruption scandal involving allocation of 2G spectrum has had a ripple effect on regulatory
uncertainty. The Supreme Court revoked many of the licenses allocated around the time of thescandal, including some that appeared to conform to then-prevalent policy norms. Its orders on
norms for allocation of spectrum and other resources also created strong incentives for caution
bordering on paralysis in the allocation of 3G licenses. Government waffling on terms of use for
40

There may be as many as 140 million subscribers according to industry sources (Marcus and Jain, 2012)
While BSNL could potentially work quickly since it would not have to coordinate with any other players,
would probably have an easier time than private or state entities in getting right of way, and already has alarge core and access infrastructure, the arrangement creates significant incentive problems. BSNL would be
an internet service provider, implementing agency for the creation of the fiber network, and, according to thedraft NBP, a member of the High-Level Committee deciding the funding requirement, work plan, and timeframe for creating the network.TRAI publicly and vehemently disagreed with the DoT’s suggestion to make
BSNL the lead implementing agency for the NBP. See TRAI (2011), Annexure D and E. The TRAI
suggestion would create a new authority with unclear ability to coordinate with BSNL, RailTel, and otherstakeholders in the network.
41

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existing 3G licenses did not help. Although domestic giants Airtel and Reliance Infocom arecontinuing with their plans to roll out 4G networks using spectrum they currently own 42, someinternational telecoms providers reportedly are scaling back their investment plans for combined
voice and data services. Resolution of the uncertainty about spectrum policy and pricing will be an
important factor in unleashing the powerful combination of mobile broadband access and Cloud
services for the benefit of consumer, business, and government users in India.
There were just fewer than 14 million fixed broadband subscriptions as of March 2012, a
penetration rate of 5.6% of households. 43 Most of these are concentrated in urban areas: as of 2010,
60% of the country’s fixed line broadband subscriptions were in the ten largest cities and just 5% of
the connections were in rural areas. (TRAI, 2010) The report notes that internet services withslower connections are more evenly distributed, but does not elaborate.
The growth rate of new fixed-line broadband subscriptions appears to have slowed over the
past few years to just a 25% increase between 2010 and 2012. The ITU estimates that just 7.5% ofIndia’s population used the Internet as of 2010. 44 This is more than fourteen times the Internetusing proportion of the population in 2000 (then 0.53%), but the growth rate is relatively low ininternational comparison: 160th fastest out of the 220 countries that ITU has tracked over the
decade. India ended the decade ranked 162 out of 220 countries in terms of Internet use.
Mobile phone access is more widely distributed. India had 919.7 million mobile
subscriptions as of March 2012, of which 74% were active (TRAI, 2012). It is not clear how many
individual subscribers this represents, since richer and more urbanized areas such as Delhi,
Himachal Pradesh, Tamil Nadu, Punjab and Kerala had teledensity of more than 100%. It is also
not clear how many of these mobile users have data plans or what their level of service is. Just 1%of the population had mobile broadband subscriptions in 2010 according to BSA (2011). Still, thegrowth prospects are significant, particularly if the broadband backbone develops and mobile
becomes the predominant option for last-mile connectivity.
Privacy and Data Protection
India has the infrastructure to be a major global player in Cloud services. As of 2005 (thelatest data available), it had 20,000 Mbps of international bandwidth, ranking 8 of 167 countries forwhich data were available. 45 Much of this capacity has been built over the last decade; the country
had just 267 Mbps in 1999 and ranked 26th at that time. The industry is substantially internationally42

Airtel holds 4G spectrum in 8 markets invidually and through its partnership with Qualcomm and has
already rolled out 4G services in Bangalore and Kolkata; Reliance holds 4G spectrum in all 22 of India’s
markets, though does not have the voice network and tower infrastructure to go with it.
43
Broadband is defined as download speed of at least 256 kbps in these data. The new National Telecom
Policy revises this definition to at least 512 kbps and 2 mbps by 2015. Data on fixed broadband subscriptions(13.79 million) from the Telecom Regulatory Authority of India (TRAI); Number of households (247
million) from the Census of India, 2012. If one assumes that most or all of these are urban connections, there
would be 17.5 subscriptions per 100 urban households.
44
Data reported by ITU rely on alternating reports from the Department of Telecoms and ITU estimates.
45
World Development Indicators, as reported on nationmaster.com-26-

oriented: IT accounted for more than one-fifth of the country’s total exports during 2011-12, withIT services and BPO accounting for most of these revenues.46
India’s weak data security policies are, however, a significant competitive disadvantage.
Cloud services often provide greater security for data than traditional services or in-house
databanks, but many users still balk at the perceived loss of control of their data. Nearly one quarterof respondents in a recent survey of firms considering shifting to Cloud services rated “datasecurity” as the largest barrier to adoption, and over 10% listed “loss of control” as the largest
barrier. 47 These potential customers are likely to look for strong legal regimes to reinforce
providers’ commercial incentives to provide secure services and provide some kind of framework
for compensation in case of a data breach.
The Business Software Alliance (2012) India Country Report gives India a middle grade ondata privacy. The Information Technology Act Amendment of 2008 makes it illegal for individuals
to disclose sensitive personal information that they may be handling without the consent of theindividual, even if the action is not in breach of contract. The Information Technology (Reasonable
Security Practices and Procedures and Sensitive Personal Data or Information-2011) Rules requireorganizations collecting private data to give notice to people from whom they are collecting data, todisclose their privacy policy and to offer a dispute resolution process. However, it allows
companies to define their own security standards, “commensurate with the information assets being
protected with the nature of business” and considers reasonable protection to have been given if thecompany follows its documented processes. It suggests IS/ISO/IEC 27001 as one such reasonable
standard but does not require it..48
Policymakers clearly recognize the problem: the National Telecom Policy 2012 raised
concerns that its pro-Cloud position was undercut by the vague policy regime about data protection,
privacy and liability for loss for existing users and providers. Also, the Gopalakrishnan Committee
has a mandate to address privacy concerns. IT firms are also pressing for change. NASSCOM has
called on its members to “work with government to develop policies for security, privacy, sensitive
data management, audit requirements, legal guidelines, etc. to allay client fears. It should provide
agency support for policy enforcement, certifications, international lobbying, etc.” (12) Mumbaibased firms have formed a chapter of the international Cloud Security Alliance. Firms may also beable to triage India’s poor data laws in the meantime by binding themselves through contracts withinternational partners to comply with provisions, such as the EC’s “safe harbor” route. Many
global Cloud service providers have robust systems for data protection in place because they handle
data for their longstanding global services though compliance with the laws of Europe and theUnited States and other globally-recognized principles.
Policies concerning government access to Cloud data appear to be moving in the opposite
direction. Most countries have some rules that provide the government privileged access to data on
ISPs or Cloud providers, but India’s powers are particularly sweeping. Government authorities haverelatively unlimited access to data in the Cloud: Section 69 of the Information Technology Act
46

NASSCOM estimates for IT Sector Exports, RBI data on overall exports.
Alphawise, Morgan Stanley Research (2011), cited in NASSCOM (2012).
48
Government of India, Ministry of Communications and IT (2011). Notification G.S.R. 313.
47

-27-

2000 allows the government access to any information transmitted through a computer resource “inthe interest of the sovereignty or integrity of India, the security of the State, friendly relations withforeign States or public order or for preventing incitement to the commission of any cognizableoffence.” The reasons must be recorded in writing, but the government can require the technology
provider to decode any data transmission.
The Indian government’s increasing efforts to access and control data on the Cloud may not
only be a deterrent to companies concerned about privacy of sensitive data, but also limit Indianusers’ access to the full range of Cloud services. In a move that could foreshadow a form ofprotectionism for India-located Cloud service providers, India forced RIM to provide access to its
encrypted Blackberry Messenger service and set up a dedicated server in Mumbai in spring 2012,
after a two-year discussion.
In any country, including India, there is a risk that barriers to the transborder nature of
Cloud services may arise, sometimes even as unintended consequences of government actions
driven by other public policy objectives. The Indian government has demonstrated its willingness
and interest in blocking what it deems to be “objectionable” content with limited due process. For
example, requests by the Indian government to Google to remove content from its website between
July and December 2011 were 49% higher than in the previous reporting period. The DoT hasreportedly issued a list of 150 sites that it would like ISPs to block, even as the Madras High Court
ruled that an earlier government order to block an entire site instead of offensive URLs wasillegal. 49 Policymakers are, again, debating curbs on social media after online rumors about
violence against citizens from the northeast, allegedly posted by Pakistanis that provoked a mass
exodus of northeasterners from southern states. While each case may have its merits, there is no
institutional process to consider the costs and benefits of suspending services and flows of data.
Conclusion
Several scenarios could emerge from this context. If neither data privacy protection nor
broadband access changes substantially, India may be able to maintain its existing strength as a
global IT services provider, but not make major strides otherwise possible through the Cloud. In
this first scenario, international Cloud services could reasonably develop as service providers linked
by international data pipelines to the global economy. Contracts or treaties enabling firm-level“Safe Harbor” or similar certification could be a reasonable substitute for new laws on data forfirms large enough to afford it.
The domestic IT industry would also have an advantage in this scenario by being better
able to comply with directives to locate servers in India for unhampered government access to data.
NASSCOM – Deloitte (2012) seems to accept country and regional variation in data privacy
regulation as a given, noting that the existence of “legal zones” will allow regional players toremain competitive with the few global “scale” players who will emerge as the leaders ininfrastructure as a service. Given the size of the market, international firms may also set up hosting
centres in India in spite of the economic disadvantages of having to segregate Indian from other49

Mishra, Abhinandan, (2012). “Government wants 150 sites blocked,” Sunday Guardian. June 24, 2012.
http://www.sunday-guardian.com/news/government-wants-150-sites-blocked, accessed June 24, 2012.
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consumers, but cost structure may be affected given the high prices of electricity and land nearaccess to reliable bandwidth in India. Policy developments that restrict Cloud providers fromserving Indian customers from globally distributed infrastructure would further limit the domestic
development gains from the Cloud by restricting access to the global pool of information,
applications, and service innovations.
Simply maintaining the IT Industry in some form would result in a disappointing outcome.
The Cloud offers many potential benefits, particularly for a country in India’s state of development.
The Cloud could be a critical contributor to crucial solutions for scaling education, improving
infrastructure (and governance) and re-invigorating the economy, but the domestic market andcontributions will be limited in a bandwidth-constrained environment. Some limitations could beovercome with advances in data compression that allow more information to be accessed on mobile
devices over 2G or 3G networks, but many applications will not be appealing in an environment
with intermittent, slow access to the Cloud. The government’s less ambitious plans to provide
broadband at reasonably widely distributed hubs, such as universities or district-level governments
if not panchayats could provide some access to Cloud social services and education as well as
government use of Cloud as a service infrastructure, but may not provide sufficient everyday
accessibility to support consumer or business use.
Looking ahead, India’s main Cloud challenge will be to overcome the complicatedpolitical, circumstantial and institutional tangles affecting broadband deployment. A powerful
public incumbent with a mixed track record in service and infrastructure development is currently
the lead agency in deploying the fibre-optic network. This needs to be reconsidered. The cableindustry is fragmented and unresponsive to regulatory direction, a state of affairs perpetuated byregulatory uncertainty about licensing and about the level of competition from wireless services
once spectrum management is clarified. Regulatory clarity will enable the industry to consolidate,professionalize and respond to increasing demand for data services. The processes for spectrum
allocation will need an overhaul if mobile networks are expected to provide last mile or evenbroader coverage to compensate for weak fixed infrastructure. The rules for 3G allocation werestalled for months. At the time of writing, the auction itself seemed likely to substantially miss thecourt-ordered deadline. The 4G networks could prove to be a kind of deus ex machina moving past
the stalled options, but the business model for affordable 4G broadband remains too hazy to expect
an easy resolution.

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References
Business Software Alliance (2012). Country Report: India.
Hasan, Rana, and Karl Robert Jandoc (2012). “Labor Regulations and Firm Size Distribution inIndian Manufacturing,” Columbia Program on Indian Economic Policies Working Paper 2012-3.
IDC (2010). ““The India Cloud Computing Market: Current State and Future Roadmap Study
2010.”
Indian Institute for Human Settlements (IIHS), (2011). Urban India 2011: Evidence. New Delhi:
IIHS.
Indian Council for Research on International Economic Relations (ICRIER) (2012). India: theImpact of Internet. New Delhi: ICRIER.
Mazumdar, Dipak (2003). “Small and Medium Enterprise Development in Equitable Growth andPoverty Alleviation” in Christopher M. Edmonds (ed) Reducing Poverty in Asia; Emerging Issues
in Growth, Targeting and Measurement, Asian Development Bank, Edward Elgar, Chaltenham,
UK.
Mukherji, Sourav, and S. Pinto (2012). “Rural Shores: Service Excellence at Indian Hinterland,”Mimeo. IIM-Ahmedabad.
NASSCOM - Deloitte (2012). Deconstructing the “Cloud”: The New Growth Frontier for the
Indian IT-BPO Sector. New Delhi: NASSCOM.
Sharma, Monica, Mehra, Ashwani, Jola, Haresh, Kumar, Anand, Misra, Madhvendra, andVijayshri Tiwari, (2010). “Scope of cloud computing for SMEs in India,” Journal of Computing,
Volume 2, Issue 5, May 2010.
Telecom Regulatory Authority of India (TRAI) (2010a). “Implementation of Digital Addressable
Cable TV Systems in India,” 5th August, 2010. Recommendations/10
Telecom Regulatory Authority of India (TRAI) (2010). “Recommendation on National Broadband
Plan,” 8th December, 2010. Available at
http://www.trai.gov.in/WriteReadData/Recommendation/Documents/Rcommendation81210.pdf,
accessed June 15, 2012.
TRAI (2011). Letter 341-18/2011 – CA regarding “Recommendations of the Authority on DoT
reference on TRAI recommendations on "National Broadband Plan."
TRAI (2012). “Highlights on Telecom Subscription Data as on March 2012,” Press Release86/2012.
Zinnov Management Consulting (2011). “Private Cloud Market in India,” EMC-Zinnov
Whitepaper.

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Cloud Computing in Mexico: Prospects and Challenges for the Public
and the Private Sectors 50
Judith Mariscal & J. Ramon Gil-Garcia
Centro de Investigación y Docencia Económicas, Mexico
1. Introduction
Mexico sits next to the nation where the Internet and Cloud computing were developed yet less than
13% of its 112 million population have broadband access. Adoption of Cloud computing is growing
and has the potential to diminish barriers to entry and to lower investment risks, including those
associated with quick technological obsolescence. Diverse government agencies are providing
Cloud computing enabled e-Government services and have become a driver for Internet usage inthe population. 51 Cloud computing, a new technology model in the chain of innovations that havefollowed the evolution of the Internet, holds has the potential of generating a significant impact inthe economy and increase welfare. As a driver of economic growth, the Cloud offers theopportunity to leapfrog traditional information and communication technologies (ICT) for thereasons laid out by Cowhey and Kleeman, particularly in the case of Mexico (Alford & Morton,
2009; IMCO, 2012).
However, to generate this impact, Cloud computing needs to be widely used by businesses,
government entities and society as whole. Broadband network access, less expensive user devices,
software and digital skills facilitate tapping the full potential of the Cloud. In addition, an adequate
regulatory framework could not only promote its potential within countries, but also promote it
across nations through the development or international standards and agreements. The aim of thischapter is to analyze the evolution of the ICT sector in Mexico with a focus on the enabling
conditions that can facilitate the transition to Cloud computing.
In Mexico, adoption of Cloud computing is growing and it has the potential to diminish barriers toentry into the ICT market as well as to lower investment risks, including those associated withquick technological obsolescence. Diverse government agencies are providing Cloud computingenabled e-Government services and have become drivers for Internet usage in the population. 52
However, we observe a significant divide between both the private sector and levels of government.
Federal government agencies seem to be using Cloud computing more intensively than state andlocal governments, which often lack quality broadband access and the necessary human andfinancial resources. Although states and municipalities do not need to develop their own private
Clouds, they still need to have high quality broadband access to obtain the benefits of Cloudcomputing applications. Therefore, Mexican governments face numerous challenges, such as abroadband infrastructure deficit with inequality of access to Internet by individuals, businesses andgovernments as well as security concerns derived from the nature of certain policy domains, such as
public safety, public health or crisis management. Mexico has the unique opportunity to become the50

The authors acknowledge the valuable research assistance of Lucia Gamboa and Cesar Renteria.
A salient example is the online tax payment system, which is now hosted in a private cloud and is used bymost taxpayers in the country.
2
A salient example is the online tax payment system, which is now hosted in a private cloud and is used bymost taxpayers in the country.
2-31-

next “digital paradise in Latin America given its relative advantage in the region in terms ofbroadband adoption and technical expertise and its proximity to the United States.
2. Mexico’s current situation
Since the first generation of telecommunication reforms in the 1990s, Mexico has significantly
advanced its adoption of ICTs. Communication access penetration per 100 inhabitants has grown at
an annual average of 20% from1990 to 2009, from 6.6 to 104.6, which was driven by wireless.
Furthermore, growth of ICT in Mexico has advanced from representing 1.53% of GDP in 1990 to
3.05% in 2009 (Figure 1). As is the case for the developing world, the most impressive advance
pertains to voice through mobile telephony. Even those at the lowest segment of the income levelin Mexico use mobile services.
Figure 1

Figure 2

Telecommunication revenue as a percentage
of GDP (1990-2009)

Number of subscriptions by type of ICT in
Mexico (1996-2009)(Percentage of GDP)

(Number of subscriptions)

Source: OECD (2011).

In terms of broadband development, Mexico has increased its penetration at an average rate of 47%
compared to 11% in OECD countries during the last four years. Moreover, it has the third highest
rate of broadband penetration in Latin America (behind only Uruguay and Chile). These indicators
are encouraging; however, Mexico still falls behind other OECD countries and, more importantly,
its current penetration levels cannot meet the growing needs of the Mexican economy.
Broadband adoption, in contrast to mobile services, is quite uneven; only 0.7% population of thepoorest decile has broadband, while 22% of the same segment has access to mobile telephony(INEGI, 2011). Moreover, the national fixed network does not cover the majority of the Mexican
territory despite competing network backbones. The publicly owned electric utility (Comisión
Federal de Electricidad, CFE) has a national fiber backbone that only covers approximately 25% of
the territory, i.e., 69% of the population. 53A separate backbone of the dominant telecommunications
carrier (Telmex) covers roughly the same routes (See Figure 3).
53

Estimation based on INEGI data. Points of interconnections of the national backbone were estimated tohave an influence zone with a radius of 40Km.
-32-

Figure 3
Coverage of Both National Public-Owned and Telmex-Owned Fiber Backbones

Source: Made by the authors, based on CFE information.
Note: blue lines are for Telmex and green lines are for (CFE).

The unequal broadband coverage exacerbates institutional connectivity disparities. While 80% of
local government offices have internet access, states such as Oaxaca and Yucatan have the lowest
access proportion: 44% and 65%, respectively (INEGI, 2009). In the case of education and healthcare Cloud-based services, like distance education and telemedicine, the average national internet
access for primary and secondary schools is approximately 35%. Additionally, only 14% of public
hospitals have access to telemedicine, while eight states do not have any access (Brambila &Mariscal, 2012). Figure 4 shows the coverage differences among states. Note that connection
quality is not considered and access does not guarantee speed requirements for cloud-based
services.

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Figure 4
Proportion of institutions with Internet by type and state
Local Governments

Primary Schools

Hospitals

Source: Brambila & Mariscal, 2012.

Mexico compares favorably on both speed and price when compared to the average of the countries
in the region. In terms of speed, the region’s average is 2.3 Mbps and Mexico’s 3.0 Mbps speed isabove that (see Figure 5). 54 However, when compared to OECD countries, Mexico ranked last in2010 with an average connection speed of 1.5 Mbps, while the average for members of the groupwas 4.3Mbps (OECD, 2011). Moreover, the reliability of broadband service is highly variable.
Figure 5
Average download speed offered in Latin America

Source: Galperin and Ruzzier (2011).

54

The data from Galperin and Ruzzier used different methodologies than used in the OECD Outlook, so
results may be slightly different, but are consistent with rankings and average ratios.
-34-

In terms of accessibility, broadband prices are good indicators for evaluating market maturity interms of competition. Consistent with the data formerly shown, Mexico is ranked among thecountries in Latin America with the lowest prices in US dollars per Mbps, just behind Chile andJamaica (see Figure 6).
Figure 6
Broadband tariffs per Mbps
(US dollars at PPP)

Source: Galperin and Ruzzier (2011).

However, when compared with OECD countries, Mexico has the highest tariffs per Mbps.
Moreover, Mexico’s monthly price for 1Mbps, above 20 USD, is ten times that of Japan, twice thatof Portugal and far above the United States (where the average charge is 3.33 USD per Mbps)(OECD, 2011). Thus, despite recent advances, Mexico faces limited access to high quality
broadband, which may be the single most important inhibitor of the continued Cloudcomputing growth.
In terms of infrastructure for Cloud computing, Mexico mainly uses the services offered by the big
names in the market, Google and Amazon. Also, Triada, a subsidiary of Telmex, provides virtual
information storage, application hosting platforms and online services for national and internationalfirms as well as the Mexican government. This provider owns the largest data centers in Latin
America and has received the highest certification level by the International Computer RoomExpert Association (ICREA). Its customers include Hewlett Packard, IBM and the Mexican
government’s Revenue Administration System (SAT in Spanish).

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3. Policy objectives
Mexico has ambitious goals for broadband network deployment, but it has not clearly articulated a
Cloud computing strategy. An interoperability and open data scheme exists that defines Cloudcomputing and establishes that government agencies must determine the terms and contracting
conditions for Cloud services, 55 but a comprehensive government strategy does not exist.
In regard to broadband, the e-Mexico Digital Agenda strategy (2010-2015) has the goal ofdelivering 38% of fixed and mobile penetration by 2015; however, the current levels of penetration
indicate that this aspirational metric will be hard to reach. The recently-announced Digital Agenda
also aims toward reaching 70% broadband penetration in Mexico’s Small & Medium Enterprises(SMEs) with 20 or more employees (Agenda Digital, 2012). Additionally, this year the Ministry ofCommunications and Transport (SCT, by its acronym in Spanish) issued a plan ("Acciones para el
Fortalecimiento de las TIC y la Banda Ancha") oriented toward improving the supply of
telecommunication services through public and private investment in infrastructure. 56 One option isusing passive infrastructure owned by the State to lever more than 6,000 governmental properties
and the rights of way over 49,000 kilometers. This program also includes the creation of anInternet Exchange Point (IXP) to facilitate access without traffic having to travel to the UnitedStates before coming back to the user in Mexico.
Spectrum availability is a crucial input for the development of wireless broadband services. The
growth of end user devices combined with consumers’ and business’ need to stay connected iscreating new network requirements. Like the United States, Mexico has announced ambitious plans
to free up spectrum for mobile broadband. 57 There are 425 MHz of available spectrum in the bandsof 700MHzwith 2.3 and 2.5 GHz expected to be available to carriers during the coming years. 58Just
as importantly, the transition from analog to digital television will occur in 2015. This will liberate
the 700 MHz spectrum and generate a ‘digital dividend’ in a frequency band critical for rapid
broadband services coverage.
The Digital Agenda announced goals for developing demand for services through the promotion of
ICT adoption, as well as the creation of content and application markets. This is intended to help
Mexican users acquire the skills and tools necessary to take advantage of broadband applications. It
will also increase the number of Community Digital Centers, advancing from the current 6,788 to
24,000 in late 2012. This will be mainly achieved by increasing the existing satellite-based
capacity. Besides, implementation of an intensive campaign on digital literacy through these centers
is contemplated with the collaboration of various public institutions, such as the National Institute55

Esquema de interoperabilidad y de Datos Abiertos de la Administración Pública Federal, see:
http://www.dof.gob.mx/nota_detalle.php?codigo=5208001&fecha=06/09/201156
One of the plan’s strategies is to deploy a network of fiber-to-the-node through a public-private partnershipto reach unprofitable areas; the goal is to cover 400 un-served municipalities. SCT determined that thesezones are unprofitable based on the European Union Regulatory Commission’s criteria.
57
However, if critics of Mexican policy are correct, the Mexican mobile broadband network is lesscompetitive than that of the United States, thereby raising questions about the incentive of operators to invest
for competitive advantage.
58
Other bands, such as 71-76 and 81-86 GHz will be declared for free use with the objective of enhancing
operators transport capacity.
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for Adult Literacy, the Mexican Institute of Youth and the Health, Social Development and
Education Ministries.
Thus, the Ministry of Communications, (Secretaría de Comunicaciones y Transportes – SCT) has
been the most important governmental actor in articulating polices that aim to improve network
access. Indeed, these objectives are crucial requirements for Cloud services provision; however,there is no coordinating effort between SCT and other agencies, such as the Ministry of Economy(SE) or the Ministry of Public Function, to design a comprehensive Cloud computing strategy. The
SE’s Information Technology Sector Development Program 2.0 59 (PROSOFT, by its acronym in
Spanish) is the most articulated strategy to promote IT competitiveness within the private sector. It
aims to “position Mexico as a service hub of logistics and IT by taking advantage of its geographic
position, its preferential access to markets and its large human capital endowment” (SE, 2008).
Despite the fact that this strategy promotes IT outsourcing and insourcing, software development,
and greater access for private companies, it makes no reference to Cloud computing services inparticular. Thus, compared to countries like India, Mexico has no clear plan or policy bundle for
the Cloud.
4. Private Sector and the Cloud: Opportunities for Cost Reductions
In Mexico, the adoption of technological tools by companies has been uneven. Data from 2008
indicates that only 50% of companies with ten or more employees use broadband (OECD, 2010).
Only 40% of SME’s have access to a computer, of which only 25% uses the Internet mainly for
information search (Visa & Nielsen, 2008).
The shared nature of Cloud services can contribute to a decrease in IT operating expenditures andprovide access to applications that would otherwise be unaffordable 60 (Nelson, 2009). Someestimates suggest the economic payoffs for Mexico could be very significant. The Instituto
Mexicano para la Competitividad (IMCO) estimated the aggregate potential private sector savings
based on a study by Etro (2009). They calculate that a structural change in the business’ costfunction diminishes fixed costs by 1% to 5%. This reduction diminishes market barriers, thus
boosting competition, production and consumption. For Mexico, a decrease of 1% in fixed costs of
SME’s translates into 1,800 new SME’s or 63,400 new jobs. 61
Specifically, a 45-employee business transitioning from an on premise IT operation to an Office
365 service would save 67% of its total IT expenses, equivalent to 2.7% of the total costs of a
Mexican medium business. These savings are derived from cutting large initial spending on
59

The first PROSOFT program was launched in 2002. This new version builds on the previous program
incorporating IT services and BPO objectives.
60
Once the transition takes place, there are additional factors that must be considered in the cost reduction
calculus. They include the newly created demand for file servers, the firm’s capacity to cut personnel and thefile server utilization rates.
61 In adopting the model developed for Europe to analyze Mexico, IMCO estimated that Mexico had 180,665
ME’s which have 35 employees on average. The Economic Impact of Cloud Computing on Business
Creation, Employment and Output in Europe (2009) estimate uses a stochastic and dynamic generalequilibrium model. While the Cloud can lower IT costs, complex migrations to cloud can involve higher
transition costs because of labor costs, time and expenses. (West, 2010; Berry & Reisman, 2012).
-37-

infrastructure, access to economies of scale only available to large companies, outsourcing
maintenance and tech support to the service provider, access to better security schemes and time-tomarket services improvement. But high broadband costs coupled with low quality inhibit Cloud
growth potential may deepen the inequalities in the adoption of technological tools by companies.
The Cloud has the potential to open up access to new entrants who currently encounter market
barriers due to high costs; however, without infrastructure growth and lower tariffs, the Cloud may
only end up benefiting those who already have access.
5. Government Uses of Cloud Computing
The benefits that governments can achieve from their use of cloud computing are significant(Paquette, Jaeger & Wilson, 2010; Zissis & Lekkas, 2011). Cloud computing could potentiallyreduce costs, improve the quality of services, and promote participation and collaboration among
governments, government agencies, and between governments, citizens, private firms, and NGO’s.
However, in the context of Mexico, it is important to consider some challenges such as the divide
between federal agencies and state and local governments, the lack of broadband access in the
country, and the inadequacy of the legal and regulatory framework.
Some of the benefits for the public sector of advanced Cloud computing use are identified inprevious studies (IMCO, 2011; Zissis & Lekkas, 2011): (1) Increasing the collaboration amongagencies and departments through wikis and application in the Cloud in order to improve Webcontent; (2) Promoting government efficiency through the use of Cloud-based applications andservices on-demand; (3) Allowing database access from different levels of government agencies
that are attempting to solve particular public or policy problems; (4) Providing online services tolocal governments, which otherwise would not have the infrastructure and technical capabilities todevelop or contract these services in traditional models; (5) Reaching citizens by providing aplatform for them to propose actions and comment about government programs and services; and(6) Improving the services to citizens through the use of Cloud portals that provide effective
information and services.
In addition, a new interoperability and open data directive identifies Cloud computing as an
essential factor for improving the provision of services to citizens by the federal government(IMCO, 2011). For example, the new citizen-oriented portal of the federal government(www.gob.mx) is hosted in the Cloud (IMCO, 2011). In June 2011, this portal started operating
through cloud services (Google’s Site Search technology) in order to reduce costs. (In its first year
the Cloud service cost rose to $1.6 million but hardware costs dropped even as the volume ofsearches doubled from 50 to 100 million) (Garza-Cantú, 2012). From the citizens’ point of view,
the Cloud has one of the main advantage: People are able to access information and services frommultiple government agencies using a single authentication process. There are three main
components of this project (Miranda, 2012): (1) specialized search engine, (2) webpage withpersonalized information and services, and (3) a website with government information linked to
specific location through maps.
In 2012, the Revenue Administration Service (Servicio de Administración Tributaria, SAT),
another federal example of the program’s use, moved its tax payment platform to the Cloud. The-38-

SAT’s website hosts 100 thousand daily searches, which is ten times more than any other federal
portal (Garza-Cantú, 2012). The SAT started outsourcing some of its IT services in 2003 and by
2009 a virtualization process was initiated as a first step to go into a private Cloud. The SAT Cloudcomputing solution is comprehensive and includes standard services, such as collaboration, email,and instant messaging and other services such as security cameras and intelligent monitoring(Moreno-Gutierrez, 2010).
At the state level, the government of Guanajuato implemented a Cloud computing application to
improve its internal services (Navarro Espínola, 2010). The Cloud helped them improve
interoperability and flexibility in order to grow their capacity to develop and manage a state-run
platform. The functions included were email, calendar, document management, websites, video,and contacts (Política Digital, 2009). The Guanajuato government identified the following items as
critical factors for their decision (IMCO, 2011): (1) profound budgetary limitations, (2) reducing
the cost of IT management and support, (3) increasing interoperability, and (4) flexibility for newneeds and future growth. In 2009, 70% of state government employees were using the Cloud-based
collaboration tool and reporting improvements in collaboration, security and information
management.
Another interesting example is Mexico City government and its use of Cloud computing’s software
as a communications tool (Guillot, 2010). The purpose of the initiative is to integrate all city social
services and have the information available to the agencies responsible for those services. The
Angel Network, as the project is called, will become the largest social services system in Latin
America. Given the size and uncertainty of demand for the project, building the necessary
infrastructure would have been expensive and time consuming;) therefore, , government officials
decided to outsource some of the services and use a Cloud-based Customer Relationships
Management (CRM), which was compatible with the existing call centers (Guillot, 2012) (GarzaCantu, 2010). In addition to Angel Network, Mexico City is also using a Cloud computing solutions
for its email service, collaborative calendars, document sharing, websites, and video.
The Mexican Institute for Competitiveness (IMCO, 2011) estimates some of the savings derived
from this new technological model: the public sector could save up to 1.7% of the Gross Domestic
Product (GDP) if all agencies moved to the Cloud. On average, federal agencies could save 35% of
their total IT budget; state government could save about 27% of their annual IT budget. 62.
6. Challenges to Cloud Computing in Mexico
As stated above, the disparity between federal government agencies and state and local
governments is a real challenge to Cloud computing; the disparity includes unequal access toadequate broadband infrastructure, limited capital and inadequate technical and administrative
expertise to develop and manage Cloud computing solutions. Though some may view broadband
access as a challenge specific to local governments, the problem also includes federal and state

62

IMCO also identified which agencies would obtain the greater benefits: (1) Revenue Administration
Service, (2) Mexican Petrol, (3) Mexican Institute for Health and Social Security, and (4) the Ministry of
Education. On average, federal agencies could save 35% of their total IT budget.
-39-

agencies as well. Agencies throughout the government constantly interact with businesses andcitizens that often lack reliable high-speed Internet accesses.
Another important challenge for Cloud computing use within the Mexican government is security(Paquette, Jaeger & Wilson, 2010; Zissis & Lekkas, 2011) due to the risk of exposing information
to vendors or even third parties. Providers need to implement sufficient security measures andpolicies to avoid cyberattacks (Miranda, 2012). In addition, government agencies need to mitigate
risks associated with certain services in the Cloud. The actions taken to avert risks need to be
tailored to each organization and need to consider the risks for certain types of data (MorenoGutierrez, 2010). Agencies with highly secured data, such as national security or intelligenceagencies, will probably not use the Cloud. Security risks are not the same for every project in every
policy domain. Governments should assess the risks and necessary measures for specificapplications and services using the Cloud. A low risk situation is Mexican citizens accessing open
curriculums from U.S. universities, s which would only benefit them and the nation.
The creation of the IXP in Mexico would facilitate lower-cost and improved access to the Cloud
providing additional incentives for Cloud computing vendors to enter the market. More
competition would lead to greater efficiencies and lower costs for government and private users.
The absence of international standards and variations in domestic privacy laws raises otherchallenges for both governments and the private sector in Mexico and other countries. In countries
such as Mexico, there are continued debates about the different models for privacy protection. For
example, are more sector-specific regulations (which Mexican officials associate with the UnitedStates) or more blanket general rules (which Mexican officials associate with the European Union)
superior? Or, given common goals, are they roughly equivalent? Ultimately, the government must
determine which approach would best balance security and privacy when using Cloud data
storage. 63 It is clear that a broader embrace of Cloud computing would benefit from a common
international approach to these issues.
Past international efforts have come short of developing a common framework for Cloud-related
policy. The OECD has shown an effort in this direction by issuing guidelines to address privacy
issues related to cross-data flows; however, they were adopted in 1980 and have not been revised.
Another attempt was made by the United States who submitted a proposal in 2007, endorsed by
Mexico, to expand the United Nations’ Provisional Central Product Classification (CPC) to include“computer and related services, regardless of whether they are delivered via a network, including
the Internet”, but this proposal has not been adopted. 64
63

The debates in the United States over merits of its Electronic Communications Privacy Act (ECPA), signed
in 1986, and the Patriot Act tend to be the dominant examples discussed in Mexico due to the proximity of
the United States. Both laws have numerous critics and defenders. There is evidence that consumers believethat such U.S. regulations, and their counterparts in other countries, may present a risk that governments offoreign companies could access their private data for intelligence purposes (Berry & Reisman, 2012). Sortingout the facts goes beyond this paper. For example, US officials and cloud firms stress that exaggerated
concerns over the Patriot Act have been used as a way to discourage foreign countries from housing data with
US providers (Rauf, 2011).
64
CPC 84 – Computer and related services. WTO. 26 January 2007. Available at:
http://trade.ec.europa.eu/doclib/docs/2008/september/tradoc_140348.pdf-40-

7. Policy Recommendations
Broadband development is a necessary condition for Cloud computing’s growth. The Mexican
telecommunications sector has increased its market efficiency, especially in recent years withadvances in achieving lower interconnection rates and spectrum allocation. 65However, there arestill barriers to entry, and thus investment has not been sufficient to counter the current lack ofaccess to broadband by a significant part of the Mexican population. The elimination of barriers toentry in the sector includes strengthening institutional processes that provide certainty toinvestment, the release of additional spectrum bands, licensing more fiber optic capacity andgranting rights of way to telecom companies.
More importantly, there has been a lack of a long-term vision for the role of the state in promoting
both broadband development and Cloud computing adoption. The recent policies of the Calderon
government point in the right direction; they need to be continued by the next administration.
Moreover, a nationally coordinated program to promote a transition to Cloud computing must be
designed; it should include close collaboration between the SCT, which promotes broadband
adoption, and the Ministry of Economics, which would promote a transition to Cloud computing.
Even though there are isolated initiatives in government that use Cloud computing, there is a lackof coordination and a comprehensive program to promote its use both in local governments and insmall and medium enterprises. An integrated policy program must come from the President’s officein order to provide the leverage and coordination necessary for wide adoption of Cloud computing.
Mexico is becoming an increasingly important hub for business process outsourcing (BPO) andother outsourcing services (Business Monitor International, 2012). A similar hub could beestablished for Cloud computing services, with Mexico serving not just Latin America but also theUnited States and Canada. Mexico’s lead in broadband penetration, hosting the largest data centers
in Latin America, its proximity to the United States and being the largest Spanish speaking country
in the world provide ideal conditions for this leading role. However, Mexico must first address its
infrastructure deficit and provide the necessary regulatory framework to take further advantage ofthese conditions. Even though Mexico has a privacy baseline regulation for data protection, 66 it
could strengthen its jurisdiction in a manner similar to countries that provide secrecy stipulations
and therefore a higher level of data privacy. In terms of infrastructure, the current deficit could
deter foreign organizations wanting to contract Cloud computing services outside from Mexico,
since they would not have reliable and fast access to their data and applications. The government
has the potential to lead the transition to Cloud computing, bringing with it Mexican citizens aswell as the private sector.
In organizational terms, it is very important that Cloud-computing solutions are closely aligned tothe mission of the government and its overall IT strategy (Miranda, 2012). It is also important toperform a detailed cost-benefit analysis before deciding how to pursue a Cloud computing solution.
65

The SCT and COFETEL have adopted a policy of gradual reduction of interconnection tariffs, for example
for fixed telephone lines the reduction has been from 1.25 USD in 2000 to .32 USD in 2011. In terms ofspectrum allocation, before 2010 Mexico had about 150MHz, which increased about 60% to 240MHz (SCT,2010).
66
Reglamento de la Ley Federal de Protección de DatosPersonales en Posesión de los Particulares. See:
http://dof.gob.mx/nota_detalle.php?codigo=5226005&fecha=21/12/2011-41-

In many cases, going to the Cloud will be cost-effective, but depending on the specific problem andthe characteristics of the policy domain and the national context, using Cloud computing solutions
may not be the best alternative. Governments need to carefully analyze all their options and make a
final decision based on solid data. Some of the new capabilities may require fundamental changes
in the structure and functions of IT organizations within government. It is not only about staffing
adequately, but also about redesigning processes and structures to better fit a new environment inwhich cloud computing applications are at the core of the activities of government IT organizations.
Integrating Cloud computing into existing government processes is not always easy and requires
technology, policy, management and staff development (Miranda, 2012). The set of workforce
capacities would need to change too. Government organizations, which now need programming andnetwork skills would need staff members who know how to establish contractual relationships thatare enforceable and easy to manage. Cloud computing applications need well defined contracts anda clear definition of roles between the agency requiring the service and the IT vendor offering
the solution.
In summary, Mexico has a strong potential to become the digital paradise for Latin America r interms of Cloud computing and other IT services. However, the next administration must provide aclear long-term vision to lead its citizens and the private sector in this transition. The Mexican
government must transform isolated policies into a coherently aligned program in close
collaboration with the private sector, demonstrating its commitment by tackling the broadband
infrastructure deficit that currently exists.

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References
Alford, Ted and Morton Gwen. (2009). The Economics of Cloud Computing Analyzed, Sys-Con
Media, 26 October 2009 - http://tedalford.sys-con.com/node/1147473
Berry, Renee and Reisman, Matthew. (2012) Policy Challenges of Cross-Border Cloud Computing,
USTR.
Bramila, C. and Mariscal, J. (2012). Institutional Connectivity: The Case of Mexico.
Business Monitor International. 2012. Mexico Information Technology Report Q1 2012.
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Galperin, H. and Ruzzier, C. (2010). Broadband tariffs: benchmarking and analysis. In Valeria
Jordan and Hernand Galperin (Editors) Fast-tracking the digital revolution: Broadband for Latin
DIRSI-America and the Caribbean. United Nations: Santiago de Chile.
Garza-Cantú, Mariano (2010). El GDF tiene angel en sus programas sociales. Politica Digital.
http://www.politicadigital.com.mx/?P=leernoticia&Article=20702&c=11
Garza-Cantú, Mariano (2012). Se busca: Gob.mx. Política Digital.
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Guillot, Luis (2010). Cloud computing en el gobierno del Distrito Federal. Presentation at theseminar “Computo en la Nube ¿Una Promesa para el Sector Público de México?, Mexico City, July
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INEGI (2009).Resultados de la Encuesta Nacional de Gobierno, Seguridad Pública y Justicia
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IMCO (2012) – Cloud Computing - European Parliament Directorate General for Internal Policy,
Brussels 2012 –http://www.europarl.europa.eu/committees/fr/studiesdownload.html?languageDocument=EN&file=73411
Miranda, Horacio (2012). Cloud Computing: Los 10 Principales Desafíos en la Administración
Pública. Presentation at the seminar “Computo en la Nube para el Sector Público de México”,
Mexico City, May 30.
Moreno Gutiérrez, Mauricio (2010). Cómputo en la Nube en el Sector Público Mexicano: Caso
SAT. Presentation at the seminar “Computo en la Nube ¿Una Promesa para el Sector Público deMéxico?, Mexico City, July 14.
Navarro Espínola, Hugo (2010). Cómputo en la Nube. Presentation at the seminar “Computo en la
Nube ¿Una Promesa para el Sector Público de México?, Mexico City, July 14.
Nelson, Michael R. “Cloud Computing and Public Policy.” Briefing paper for the ICCP
Technology Foresight Forum, Organization for Economic Cooperation and Development. October
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OECD (2011).OECDCommunicationsOutlook.OECDPublishing.
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Politica Digital (2009). Guanajuato: Cloud computing y política informática.
http://www.politicadigital.com.mx/?P=leernoticia&Article=2505
Rauf, David Saleh. “PATRIOT Act Clouds Picture for Tech.” Politico, November 29, 2011.
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Visa and Nielsen (2008). Perspectivas de las Pymes. México.
West, M. Darrell (2010). Saving Money through Cloud Computing. Governance Studies at
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Zissis D., and Lekkas, D. (2011). Securing e-Government and e-Voting with an open cloudcomputing architecture. Government Information Quarterly 28, 239–251.

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Cloud computing in South Africa: Prospects and Challenges
Alison Gillwald (University of Cape Town), Mpho Moyo (Research ICT Africa),
Miriam Altman (HSRC) – August 2012
1. INTRODUCTION
South Africa has characteristics of both an advanced and developing economy. It has access totechnology, sophisticated institutions including research and universities, a strong private sector
and fiscal resources. At the same time, one-half of the 50 million people in South Africa live below
the poverty line, with a large proportion with weak educational attainment and less than 12% havethe broadband access needed for effective Cloud services. South Africa is an early-adopter ofleading-edge technologies by high-end users (both individuals and corporations) in ways thatparallel developed economies, while the majority of the population, the public sector, and mostsmall and micro enterprises reflect the slower adoption pattern in developing countries. Thus, it is anation where Cloud computing offers substantial potential to bolster economic growth and tocontribute to solutions that help resolve inequities in access to services.
Some of the most important benefits from the Cloud would be gained through diffusion amongst
SMEs and in public services. Enabling immediate access to the IT infrastructure and services
previously only available to large enterprises, Cloud computing can significantly enhanceinnovation and entrepreneurship. It also has the potential to open up international and offshore
markets not previously accessible to most South African companies and to contribute both toeconomic growth and competitiveness.
However, a range of factors inhibit the widespread adoption of Cloud services within the country.
While there are high expectations, Cloud implementation in South Africa lags behind more matureand competitive markets. The success of the Cloud is premised on the availability, accessibility andaffordability of the underlying infrastructure. This is a critical determinant of cloud diffusion 67 andone of the primary factors inhibiting the adoption of Cloud computing in South Africa. The
country’s ranking on global ICT indices has declined dramatically over the last decade (WEF,
2004, 2012 and ITU, 1998, 2008). Other factors inhibiting the take-up of Cloud services relate toconcerns around security, privacy and surveillance, particularly amongst highly-regulated and riskaverse sectors such as financial services.
The potential value of this disruptive new technology is evident in the entry of all the major
technology firms in South Africa. From consumer online service firms like Amazon Web Services(AWS) and Google, to new Cloud-based start-ups like Salesforce.com, these companies havepresence in the SA market. While the larger, more traditional global companies, such as Microsoft,are finding ways to differentiate their product line offerings at the national level, telcos, such asincumbent fixed line operator Telkom, and mobile operators are also trying to leverage their
existing infrastructure and offer Cloud services as they seek ways to broaden their revenue streams
in response to increased competition and a decrease in legacy market growth.

67

Microsoft estimates that total cost of ownership on 100 000 servers data centre is 80% lower than one with
1000 servers. See “The Economics of the Cloud”, November 2010, available at
http://wwwmicrosoft.com/presspass/presskits/cloud/docs/The-Economics-of-the-Cloud.pdf, visited 26 June
2012.
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It is difficult to quantify the exact extent of Cloud computing in South Africa. Besides the problems
associated with the very limited public and official data that exists on the ICT sector as a whole, theterm has been over-used or misused and it is often used to refer to all data outsourcing or all online
services. There is a clear increase in the uptake of virtualisation technologies as enterprises havebecome increasingly aware of the potential benefits of the services, yet many claim to be using the
Cloud when they are simply making use of outsourcing and storage facilities on remote servers. On
the other hand, personal Cloud-based solutions, such as Dropbox and Google Apps or Flicker, arewidely used by individuals.
The global financial crisis has intensified interest in the Cloud as a means of reducing capital
expenditure and optimizing IT resource utilization in South Africa. However, there is a preference
for private over public Cloud implementations. The private Cloud is seen to provide firms withincreased security or ensure they control where their data is stored, which governance rules andshortly legislation may demand. However, industry commentators believe that current cost-cuttingpressures will compel IT intensive enterprises onto the public Cloud services in an attempt toconsolidate and achieve economies of scale making the agreement on global rules that will enable
this essential (Interviews with MTN, Internet Solutions and Pamoja, June 2012).
Besides the challenges of constrained broadband availability for the expansion of Cloud computing
services, several regulatory challenges face Cloud providers wishing to provide services into andout of South Africa. These include differences in domestic data privacy, security and freedom of
expression regimes in different jurisdictions across the globe. South Africa has not been engaged ininternational efforts by multilateral organizations to standardize cloud-related policy. This
negatively impacts South Africa’s ability to attract Cloud computing services exported from large
computer and data processing services companies, mainly from the United States, which offer
services in South Africa, and within South Africa itself, 68
This chapter is organized as into sections 2 through 5. Section 2 considers the high level objectivesof ICT policy, as against the current reality. Section 3 reviews available knowledge on cloudcomputing in SA. Little empirical research data is available, thus there is more reliance here on
interviews and media reports. Section 4 considers the adoption of Cloud-based services for private
and public services. Section 5 presents challenges to the diffusion of Cloud computing. Section 6
concludes the chapter.
2. ICT LANDSCAPESouth Africa has fallen in ICT competitiveness rankings during the past decade (WEF, 2012 and
ITU, 2008). Telecommunications has not ranked high on the list of priorities for the new regime inSouth Africa, with infrastructure related to housing, water, electricity and road infrastructure
receiving greater attention. A comprehensive ICT policy review and evaluation have not been donefor 15 years. In 2011, the former Minister of Communications, Roy Padayachee, brought the largest
communications companies together aiming to find solutions to achieving 100% broadband and thecreation of one million jobs through ICT for a “Vision 2020”. A new Minister, Dina Pule, wasinstalled in 2012 and broadened this process to a wider group of stakeholders. The Minister68

See for example efforts by International Telecommunications Union (ITU) to raise awareness in African
http://www.itu.int/ITU-D/afr/events/FTRA/2012/documents/Session9_Study_on_CC_Fall.pdf-46-

instituted a national policy review with the intention of developing an integrated e-strategy for thecountry by the end of 2013.
This was in response to and in alignment with the National Development Plan for South Africa,
which proposes that by 2030, ICT is expected to underpin the development of an inclusive dynamic
information society and knowledge economy. In the short term from 2012 to 2015, this will entail
the development of a “comprehensive and integrated e-strategy that reflects the cross-cutting natureof ICTs” (National Development Plan, 2011). ICT use strategies such as e-literacy, skills
development and institutional development and other strategies to promote ICT diffusion strategies
that provide for intergovernmental as well as private and public co-ordination are a principal part ofthe process. Another key focal point will be affordable access to a number of services through theeffective regulation of competitive markets (National Development Plan, 2011).
In the medium term of 2015 through2020, a target earlier proposed by the Department ofCommunications is to achieve 100% broadband penetration by 2020. This will include expanding
the definition of broadband from 256 kilobits per second to at least 2 megabits per second (National
Development Plan, 2011).
In the long term of 2020 through2030, the South African government plans to make extensive useof ICTs in delivery of services to citizens. Services will include government, information andeducational services. The Plan suggested greater collaboration between the state, industry andacademia as part of the e-strategy (National Development Plan, 2011). Although not explicitly
cited, Cloud technologies are seen as key to this process, and creating the needed broadband
infrastructure to enable Cloud is explicitly seen as essential.
Currently, the average access speed for individuals is approximately 384 kbps in 2010 (ITU
2011) 69. While the stated goal is to achieve 100% broadband by 2020, there is currently only
connectivity for 9% to 13% of the population. South Africa will need to achieve an appropriatebalance between quality, speed, access and diffusion. Over the past decade, SA has fallen in the
ITU ranks from 72 in 2002 to 97 by 2010. In Africa, SA ranks fifth after Mauritius (69), Seychelles(71), Tunisia (84), Morocco (90), and Egypt (91).
Affordability and access will be critical factors in ensuring a faster diffusion of Internet usage. In
the first instance, modeling for the Vision 2020 process reveals that it would cost approximately an
additional USD$40 billion to expand the current networks to achieve 100% broadband, with a
combination of mobile and fixed line access. However, this would require a substantial shift in
culture, and credible commitments to effective access to backbone infrastructure.
3. TRENDS IN CLOUD COMPUTING IN THE SA CONTEXTThere is growing awareness of the benefits Cloud computing can offer to businesses of all sizes,
according to some of the global network operators that have a South African presence. Very few
firms are able to offer truly global Cloud infrastructure – primarily AWS, Google and Microsoft.
All three of the major Cloud computing offerings are operational in South Africa – AWS’s massive
shared computing capacity EC2, Google and software vendor Microsoft are aggressively pushing69

The speeds will differ depending on service providers, time of day, or location. For example,
MyBroadband reviewed 41 Internet service providers and respective services. The download speeds ranged
from 0.22 – 4.7 mbps in November 2011. (MyBroadband 2012).
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the Cloud. These companies compete locally with established carriers and large managed data
network service providers, such as Internet Solutions (a division of SA based Dimension Data, now
owned by NTT).
Cloud computing is a growing area of business in South Africa, but some service providers possibly
overstate their involvement. Some claim to have offered Cloud-based services for more than 15
years and other major players claim to have pioneered such services in South Africa during the last
three years. What is clear is that the potential benefits of being on the Cloud are becoming betterknown and more and more enterprises are using Cloud services or plan to use a form of Cloud
service within the next 24 months in South Africa (McKinsey presentation ICT Indaba, Cape Town
June 2012.)
While large corporate enterprises are the early adopters of Cloud computing in South Africa, as
elsewhere in the world, the greatest beneficiaries of adopting Cloud in developing countries, suchas South Africa, arguably exist for SME and the public sector. These sectors have historically notinvested as intensively in IT infrastructure and services and by moving onto the Cloud they canenjoy the cost-benefits associated with the economies of scale offered by the Cloud at a fraction of
the cost of having invested in the physical network and services (Microsoft South Africa.
Interviewed 29 June 2012).
The South African Cloud computing arena is in transition as many enterprises begin substituting
their established in-house IT departments for private Cloud services (Internet Solutions, Microsoft,interviews). New economic realities including downward pressure on revenues due to the global
economic recession and rising capital overheads are likely to force some companies with private
Cloud systems to move applications into the public Cloud. In most cases, the main issue that comeswith moving companies onto the public Cloud relates to trust and security and country or company
governance rules. Service provider trust remains a major issue constraining the outsourcingof services.
Legal constraints on extension of trans-border cloud services
Finding the right balance between protection of information and commercial advancement will be achallenge going forward. The legal constraints arising from the imminent Protection of Personal
Information Bill (POPI) aimed at protecting the privacy of individuals and the security of stored
data are significant. However, they may be essential in ensuring that cross border trade is facilitatedin providing assurance to foreign and SA operator trading. International norms will be needed in the
future to ensure privacy provisions that are essential in protecting data do not also hinder the
potential commercial development possible through electronic trade. Until that is done, the POPI
will be an essential piece of legislation to enable trade and its slow passage will in itself be thebarrier to transactions.
Tammy Bortz, from legal firm Werksmans, (Bortz 2012) says the POPI Bill will impact crossborder data flows, especially where South African companies use offshore Cloud providers. The
POPI Bill prohibits the transfer of personal information to a foreign entity unless the recipient of
the information is subject to a law or agreement which upholds similar information protection
principles or the data subject consents to the transfer. As a result, Bortz advises companies toestablish what laws apply to protect personal information in the jurisdiction in which the Cloud-48-

provider is situated and to consider any restrictions of the transfer of such data back into
South Africa.
The legal implication of the proposed bill is that companies are more likely to find it risky to movedata outside South Africa due to the more stringent privacy laws. Additionally, if the bill becomesan act it is likely to limit the places in which a company can cost-effectively do business, ascompanies will be reluctant to be liable for any breaches on a customer’s privacy. It is argued that
local companies are not able to offer the same economies of scale offered by companies thatprovide Cloud services on a global scale (Pamoja, interviewed17 July 2012).
Analysts argue that South African entrepreneurs should be able to focus on creating Value Added
Services. Legislation, such as the POPI Bill, could force entrepreneurs to choose a far more
expensive Cloud service provider in order to simplify the contract and reduce risk. “This is an
unnecessary throttle on our development”, argues Fripp (2011).
“Local Cloud service providers face an uphill battle in their attempts to compete with foreign
providers. To make matters worse, the POPI Bill is a step closer to protectionism that will shackle
us to uneconomic, unreliable, expensive options when there is, literally, a world of possibilities out
there for us to choose from”.
“The global information economy, including Cloud computing, works best when information flows
freely across borders in a responsible way with appropriate privacy and security protections. Efforts
to lock data within a particular country or region will not only undermine the benefits of the global
information economy, but also disadvantage local enterprises that want to take advantage of thetremendous cost, productivity and innovation advantages that cloud computing enables,” says
Benioff (Fripp 2011).
A South African entrepreneur who offers SaaS using cheaper, more reliable offshore hosting will
be able to offer products at a lower cost. New businesses will be able to sell more products to more
people and, in turn, will be able to grow his business more effectively. “While I don’t advocate forirresponsible use of personal data, I do feel that we need a legislative environment that is sensitive
to the globalisation of IT that is taking place, and takes steps to make it easier for South Africans tobenefit” (Fripp 2011).
INFRASTRUCTURE AS SERVICEAWS’s virtual servers are the global leaders in the IaaS field. In South Africa AWS competes
against local providers such as Telkom, Internet Solutions and MTN Solutions. In South Africa
hosting and data centre providers believe that the key concepts underpinning Cloud computing havebeen derived from hosting and co-location services, which they refer to as part of infrastructure asservice offerings. Infrastructure providers believe that Cloud services is the logical next step andare moving up the value chain to include offerings such as software as a service (Internet Solutions,interviewed 28 June 2012).
PLATFORM AS A SERVICE
Microsoft believes its Windows Azure platform has the largest share of the South African PaaS
market, with no material competitors (Microsoft South Africa, Interviewed 29 June 2012), but
Google’s App Engine has a South African presence. Microsoft believes that competitiveness in-49-

PaaS depends on the richness of the ecosystem of applications that leverage a common frameworks
and interfaces. Most PaaS providers monetize the services by charging developers to use theunderlying processing power, storage and network capacity, and other higher level service such as
billing, optimized content delivery and service level guarantees (Kushida et al, 2012: 71). But
providers differentiate themselves on their unique platform attributes, efficiency of application
development and the user and development population size. This is why Microsoft is supporting
SME to use their platform for development purposes, with the associated benefit for Microsoft ofbuilding market share among clients who have invested in learning its architecture.
SOFTWARE AS A SERVICE
Cloud services eliminate the operational complexity and cost of installing, maintaining andupgrading complex IT systems in the users’ own environment (Kushinda et al, 2012: 72). Software
as service providers, such as Salesforce.com, create third party application markets to enhance theirserver offering. The company provides CRM and related Cloud computing application solutions
and development tools for the business web. Applications and content services, which include
Google Apps and Microsoft Office, offer productivity services, e-mail, customer relationshipmanagement CRM and Enterprise Resource Planning via the Cloud.
Salesforce’s Benioff, says Cloud-based Software-as-a-Service (SaaS) represents a great opportunity
for South African entrepreneurs. The much lower barriers to entry and simplicity of launching
Cloud-based services open up international markets to local businesses (Fripp 2011). This allows
local businesses to generate revenue flows into the country. According to Fripp (2011), analyst
firm IDC expects the worldwide SaaS market to reach more than US$40 billion by 2014, while ABI
Research expects the global market for hosted services to reach US$34 billion in 2012. This trend isreflected in the South African market where interest in SaaS is growing rapidly.
There are some leading examples that mark the direction of Cloud adoption. For example, TSystems now offer SAP infrastructure in the cloud, and signed on Consol Glass in September 2011
(Fripp 2011).
INTEGRATION AS A SERVICEThis is a delivery model in which functionality of system integration is put it into the Cloud,providing data transport between enterprise-wide systems and third parties (suppliers and othertrading partners) on-demand. South African-based Cloud aggregator Pamoja seeks to provide
integration services between different Cloud providers based on open application programmeinterfaces (APIs). This model is expected to allow greater flexibility than closed proprietor Cloudcomputing services as companies have the liberty to select different Cloud service from multiple
Cloud providers and that best meet their specifications and at the best price.
SEACOM (providing dedicated bandwidth between Africa and Europe) has announced its intention
to provide Cloud computing services for the African continent, through its subsidiary Pamoja. This
will deliver internationally based Cloud services to African end-users as locally connected services
and avoid international bandwidth costs (Pamoja, interviewed 17 July 2012). This will be an
essential ingredient in generating sufficient volumes onto SEACOM infrastructure. SEACOM
contends that “submarine connectivity accounts for about 90%-95% of the distance a byte of
information travels, yet is only a fraction of the total cost of a service to the user. Backhaul and last-50-

mile connectivity is scarce and priced at premium." (Business Day, Thibiso Mochiko, 17 August
2012)
IBM announced its expanding Cloud services for South Africa in September 2011. This builds on
its existing Business Continuity and Recovery Service Centre, and adds IBM Cloud Data Centre
and Cloud Lab in Johannesburg. IBM Smart Cloud solutions allows for either private Cloud
services or provision in the IBM Cloud. According to Manners (2011), South Africa is the fourthcountry globally to have both Cloud Data Centre and Cloud Lab. The data centre is the firstopportunity to South African enterprise clients to receive hybrid cloud services that offer “offer
predetermined service level agreements on software as a service (SaaS) or utility-based computing
model while also conforming to governance issues within data storage”.
4. ADOPTION OF PUBLIC AND PRIVATE CLOUD SERVICES SECTORSThe public service stands to gain from economies of scale and cost savings offered by public Cloud
services, but has been slow to adopt such services (Microsoft South Africa, Interviewed 29 June2012). It is further contended that SMEs, on the other hand, stand to gain the most from public
Cloud services (Microsoft South Africa, Interviewed 29 June 2012).
Table 1: Current predominant uses of cloud computing by different sectors and subsectors
None

Some

Extensive

Sector & subsectors

IaaS

PaaS

SaaS

Public service
Education (Higher)Enterprise
SME
Personal
Source: Compiled by authors on basis of interviews
HIGHER EDUCATION AND RESEARCH
Much has been written about the potential of Cloud computing in the developing world to be a
powerful tool for socioeconomic benefits, particularly for the rapidly expanding education sector in
Africa. It is argued that since Africans are relatively unconstrained by existing IT infrastructure,
educational and research institutions could be “essentially leapfrogging to the Cloud” with pay-asyou-go mobile phone, which would be capable of liberating users from the memory and processor
constraints of location-based computing (see Fritelli 2012 for example).

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Despite the potential to stimulate innovation by lowering the bar for new entrants, entrepreneurs
and researchers for experimentation, other than pockets of activity sponsored by Google (Umbono)and World Bank (m-labs) most research institutions are not experiencing the flexibility andcomputing capacity made available by the Cloud. Further, if trans-border data are constraining
remote education and access to world class curriculum and possibly testing, this would further limit
the benefits of Cloud services to this critical segment in Africa.
AWS’s Cloud infrastructure, along with Google and Microsoft’s developer tools, provide access tocomponents previously not available for creating Cloud-based systems. But these require
broadband connections. The South African Research and Education Network (SANRen), which isoperated by The Tertiary Education and Research Network (TENET) on behalf of the Departmentof Science and Technology, has been able to source its own international bandwidth through a 10
GPs circuit to London on the SEACOM cable for a fraction of the cost of nationally commercial
available bandwidth and dimensioned its network to conform with contemporary research
expectations and meet some of the technical conditions for cloud computing.
TENET is working to extend the benefits of the SANRen Network to different campuses acrossSouth Africa. The SANRen Network includes a 10 GPs backbone and fibre rings in Johannesburg,
Pretoria, Cape Town and Durban. The University of KwaZulu-Nata in Durban provides a PaaS
support for remote developers working on an open source global m-Health application suite, also
leveraging this and related networks but again data regulations may limit its utility for international
Cloud-based service provisioning.
Some of its university clients are considering moving dedicated e-mail services onto the web, butthere does not seem to be sufficient confidence in moving entire administrative systems or resourcebases onto the Cloud. (TENET, Interviewed 26 June 2012) Seven universities are willing to moveonto the Cloud but reliable/redundant international connectivity remains a challenge. The main
driver for wishing to do so relates to agility of Cloud services, but with a risk of disruption thevalue is diminished (TENET, Interviewed 26 June 2012).
A number of research computing projects are also expected to move to AWS as the provider makes
its computing platform available to the universities for free. Data privacy and security of Cloud
services was of some concern amongst universities, but potential cost saving could be a more
influential driver of universities onto the Cloud, according to Greaves.
PRIMARY AND SECONDARY EDUCATIONThe quality of education remains a central challenge for South Africa. At the school level, only 7%of all those born in 1994 completed high school with the equivalent of a 50% pass mark. About halfof this cohort dropped out in the last two-to-three years of school, also with insufficient capability
to access post-school opportunities. There are about three million youth aged 15 to 24 who are outof school and out of work. The intention is to dramatically expand vocational training andeducation, but in a context where this system is small relative to demand. In higher education, thereis the intention of expanding distance learning as reflected in a policy paper prepared by the
Department of Higher Education in 2012. Half of the university students are enrolled at a distancelearning institution, the University of South Africa (UNISA). Unisa has the intention ofstrengthening online learning, including the development of mentors for students.

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The use of cloud services is currently minimal in solving these challenges. However, it is clear thatthey are unlikely to be resolved without widespread access to low cost bandwidth, devices andCloud-based education and appropriate relaxing of data protection regulations to enable remote
Cloud-based services.
ENTERPRISES
Larger firms are more likely to invest in private cloud services (Mahlong, 2012). At present, large
enterprises are leveraging dedicated IT departments and are beginning to outsource some
applications to third parties. While some companies have migrated onto the cloud, this is mostly
onto the private cloud as companies still have security concerns about moving on the public cloud.
“Out of 100 large JSE-listed corporations that we interviewed, 46% are already using cloudcomputing,” said World Wide Worx MD Arthur Goldstuck. “Another 6% plan to introduce it next
year and another 4% the year after, so it will be close to 60% by 2013.”(IT News Africa 2011).
Cloud providers believe that the significant benefits, and security and privacy improvements fromthe public cloud will help migrate customers there in time. However, even with these obvious
advantages some large enterprises are constrained by governance rules that prevent them frommoving some of their applications into the public Cloud as the location of the server is unknown as
required by law or company policy (Microsoft South Africa, Interviewed 29 June 2012).
One of the major deals to emerge was the purchase of Johannesburg and London listed data
network management company Dimension Data by NTT in 2010 for $3.12 billion. The statedpurpose of the acquisition was to leverage the complementary strengths of both companies in orderto provide end-to-end, global-one-stop and high quality ICT services. This entailed combining
NTT’s network carrier capabilities and assets with Dimension Data’s pan-African system integrator
expertise as both companies were geared towards strengthening their global position in preparation
for the provision of managed infrastructure services and cloud computing (NTT and Dimension
Data, 2010).
For South African companies to attract substantial Cloud business, it will have to reach greater
scale and lower cost. According to Frip (2011), the base fees for cloud hosting are comparable
between SA and overseas, but the cost of service providers’ offerings diverge considerably. “Datatraffic for South African hosting options costs between R15 and R85 per GB, depending on thelevel of service required. Foreign Cloud service providers charge as little as R1 per GB for datatransfer”. Fripp (2011a) tributes the difference in charges for service providers like Rackspace,
Microsoft Azure or Amazon EC2, to scale, which enables lower per customer charges. South
African companies rely on a smaller customer base and high cost bandwidth. This will posechallenges for the expansion of South African IT-enabled offshoring services to foreign clients.
SMES
There is a general perception that small-medium enterprises have the most to gain from theassociated economies of scale at a fraction of the price of investing in such infrastructure andservices and are expected to adopt public Cloud services more quickly. However, the high cost of
bandwidth and absence of long-standing trust relationships have inhibited SME take up (Microsoft
South Africa, Interviewed 29 June 2012). It is estimated that by 2011, only 9% of SMEs made useof the Cloud, according to Arthur Goldstuck (Engineering News 2012).

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The benefits of the Cloud are, as a result, being marketed aggressively to small-medium businesses(Microsoft, IBM, McKinsey presentations ICT Indaba 2012). Microsoft, as part of a programmethat supports innovation and entrepreneurship, is offering start-ups free Cloud services on theirplatform. A few local, small software businesses will be offered USD 60,000 of free Cloudcomputing over a two-year period. This, of course, is also likely to lock them into their services in
the longer term.
5. CHALLENGES TO WIDESPREAD CLOUD COMPUTING
5.1.1.

Broadband Connectivity

The South African landscape is characterised by high access and usage costs, low PC ownershipand a weak IT literacy (Research ICT Africa 2012 database). The South African market is thelargest in Sub-Saharan Africa and, unlike more mature markets, fixed and mobile voice services
drive telecom revenues. There are two fixed-line operators (Telkom, Neotel) and one state-owned
national broadband company (Infraco, which was launched in 2007). The local fixed market isdominated by Telkom with the late entrant Neotel making very small inroads in the market sincelaunching commercially in 2007 following several years of licensing delays. Neotel has less than
10% of the fixed market. Telkom, the incumbent fixed-line network, is smaller now than before
privatisation following the large scale disconnection of nearly 2 million subscribers. These
subscribers were unable to afford services toward the end of the official monopoly period in 2001
and, since then, have declined year on year to 4,297,400 in 2009. Total number of minutes of local
traffic has also declined but international traffic has not (Telkom Annual Report 2010).
Figure 1 – Computer ownership and usage in South Africa 2011

Source: Research ICT Africa.2011/2012 Household and Individual User database-54-

Fewer than 2% of South Africans had wireline broadband access as of 2010. With the low
penetration of fixed broadband resulting from this legacy unlike that of mature economies, theadvent of mobile broadband has rapidly overtaken fixed broadband. Unlike Europe in and North
America, where there was universal fixed line services, mobile broadband is increasingly being
used as primary service rather than as complementary service to fixed broadband in the home
(Gillwald and Simon, 2012).
This sub-optimal performance is reflected in South Africa’s steady descent down global rankings,
such as the World Economic Forum where South Africa was ranked 34 in 2004 to 72 in 2012,
while on the ITU Development Index it fell from 77 in 2002 to 92 in 2008.
Delays to the licensing of the network operators, particularly by Broadband Infraco – (which
promised mobile operators, previously prevented from building their own backhaul networks, inparticular very low cost access to a public network and initially appeared to have squeezed out
private sector investment) – forced other operators to build out their own competing intercity links,
undermining its potential business case. Furthermore, local governments and municipalities arealso beginning to invest in the last mile.
Some provincial governments, such as Gauteng and the Western Cape, have instituted broadband
plans and government e-services, as have their major cities, Johannesburg and Cape Town.
Ethekwini municipality in KwaZulu Natal has also proceeded with metropolitan networks andservices.
The result has been significant duplication in metropolitan areas where multiple cables, including
non-licensed cable company Dark Fibre Africa, have been laid along with some duplication on themain intercity routes and very little extension of the network off the main routes to smaller towns
and villages.
The poor penetration of the fixed line network together with high costs has historically resulted inrelatively slow uptake of ADSL. Against this, fixed wireless broadband offering of the second
network operator have not really been able to compete. It was, in fact, 3G mobile broadband service
offerings by the mobile operators that quickly overtook ADSL and these offerings, unlike those inEurope and North America, are many people’s primary broadband connection, not a supplementary
mobile connection.
High quality, low cost always-on bandwidth is therefore not pervasive. Although the number ofundersea cable projects underway have improved international bandwidth and despite many
network operators investing in backhaul and metro fibre projects, national terrestrial network andlast-mile connectivity remains a challenge especially outside of major economic centres.
5.1.2.

International bandwidth

Until 2009, South Africa had among the highest international bandwidth prices in the world, four
new submarine cable systems have caused prices to drop significantly. The privately held, open
access SEACOM cable was the first competing cable to land in 2009 and is significant in that it is
the only cable servicing eastern seaboard of the continent and links South Africa, Mozambique,
Madagascar, Tanzania and Kenya with India and Europe.

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The EASSy and MainOne cable landed in 2010 and the West African Cable system (WACS)
become operational in late 2011 with an initial capacity of 500 gigabytes upgradable to a mammoth5.12 terabytes (Africa, 21012), while the ACE cable is expected to be online in 2012.
The landing of these cables has led to an improvement in international bandwidth capacity, bothwith regard to the quality and price of bandwidth, as well as competitive sales to all carriers, which
has led to greater affordability of international bandwidth. This cost saving, however, has notalways been passed on to the customer, with either additional bandwidth for the same price or for
moderately reduced prices seen in the market.
The high price and erratic quality of bandwidth have been the two main limiting factors for the
uptake of externally sourced or export Cloud computing services by corporations in South Africa
and remains a concern for current and potential Cloud users. Among SME’s, the issues relate more
fundamentally to access and pricing.
Despite the high cost of bandwidth, providers present a strong business case for the adoption of
public Cloud services. It is argued that there are some applications that require a lot of bandwidth.
The cost incurred by businesses is related to the volume of information transmitted and thecomplexity of the data. If the company is connected 24 hours a day the costs can be significant. In
this case, the public Cloud computing services become attractive as they provide the opportunity to
streamline costs. This is a major driver for the increased uptake of Cloud-based services in South
Africa (Microsoft South Africa, interviewed 29 June 2012). With the problems of international
bandwidth effectively addressed, the challenge now lies in the national terrestrial backbone
highlighted above.
5.1.3.

Regulatory issues

REGULATORY UNCERTAINTY AND COMPETITION
The policy and regulatory environment is currently framed by the Electronic Communications Act
of 2006, with some amendments made since then, plus the introduction of convergence legislation.
The emergence of the private and public corporate landscape has been an uneven birthing process,with movement toward a more competitive environment taking place in fits and starts. The partial
privatisation of the fixed-line incumbent (Telkom) was completed in 2002 and, after much delay
and legal contestation, a third mobile operator, CellC, was licensed.
In 2000, the Independent Communications Authority of South Africa (ICASA) Act merged two
existing regulatory authorities: the Independent Broadcasting Authority and the South African
Telecommunications Regulatory Authority. This was achieved with no prior policy or law onconvergence and, therefore, resulted in a single institution informed by two different statutes on
broadcasting and telecommunications. The Act was amended in 2006 to accommodate the changes
to the appointment process in the Council in line with the Electronic Communications Act, passed
in 2005 and operational in 2006, which sought to create an enabling environment for convergence.
Policy uncertainty in the ICT sector in South Africa has a negative impact on objectives ofaffordable access to services including universal broadband. Mixed and often contradictory
strategies and sequencing problems with privatization, liberalisation and independent regulation
have been compounded by weak state coordination (See Gilllwald 2005). Out-maneuvered by-56-foreign equity partners involved in the partial privatisation of the incumbent network, the primaryobjective of doubling the number of subscribers on the network did not materialise, while theincumbent used its extended monopoly to entrench its dominance in the market and undermine newentrants in the liberalized Value Added Networks (VANS) sector. 70
Constrained by institutional arrangements that limited their autonomy, however, the regulator has
not often had the statutory powers, and seldom the enforcement capacity, to circumscribe thebehaviour of the incumbent so it does not negatively impact other service providers. Without
effective regulation, the assumed benefits of liberalisation, including more affordable access andmore efficient allocation of resources in the market through competition, did not materialise 71.
In response to the negative outcomes in the sector and as a result of a decade of failed reform led by
the Department of Communication and the apparent inability of the State to use its 37% remaining
share of Telkom, (including the failure to fashion Telkom as the national broadband champion oninternational bids such as the World Cup and the Wide Area Array Satellite,) without reference toexisting sector policy the Department of Public Enterprises established a new state owned
broadband company Broadband Infraco (see Gillwald 2009 for more detailed account).
This cut across the already delayed licensing framework of the Department, undermining its
credibility in terms of state commitments to investors. The policy paralysis within the Departmentof Communication was finally broken by a ground breaking court72 ruling that liberated service
providers from Telkom and other PSTN operators and compelled the Ministry and ICASA tolicence new service providers and allow them to provide their own facilities. 73
This immediately allowed hundreds of previous VANS operators to offer full services, creating
conditions conducive to entry into the market by foreign investors. One example is NTT’s purchaseof Dimension Data discussed above.
CONSUMER PROTECTION
One of the major regulatory issues relates to property of the data stored on the Cloud, particularly
when consumers want to change suppliers. Currently, companies are locked in to a particular Cloud
provider as most of the solutions are proprietary. This raises questions about who will monitor
timely compliance of contractual obligations. At present, this is not being regulated by either thesector regulator, ICASA or the Consumer Commission.

70

The Competition Commission has proposed to the Competition Tribunal that Telkom be fined
ZAR3.5billion fine for anti-competitive behavior during this period.
71 While the sector regulator received several anticompetitive complaints these were all either taken on
review by Telkom and lost on procedural grounds or took so long in the courts they were overtaken by
events.
72 Altech vs Minister of Communications, ICASA and others (2008)73
In 2006 Altech brought a court action challenging the decision to limit the number of converted ECNS
licences against ICASA and the Minister of Communications on whose directive ICASA had acted. It alsosought relief from a contested prohibition on VANS being able to provide their own network facilities
without having to obtain these from incumbent licensed telecom network operators such as Telkom or Neotel.
The ruling overturned ICASA restrictions on ECNS licences and ruled in favour of self-provision of
telecommunications facilities (See Gillwald 2009 for analysis of its implications for sector development)-57-

PRIVACY
At present, there are no clear guidelines for South African providers with regard to the protection of
information in the Cloud. This is a major constraint in attracting investors to South Africa(Microsoft South Africa, Interviewed 29 June 2012).
Currently, the Electronic Communications and Transactions Act (2002) has limited privacy
protections for information collected electronically (BSA 2012). South Africa is far from beingaligned with international standards. Copyright laws in South Africa are not aligned to those in the
US or Europe. (BSA 2012).
SECURITY AND PIRACY
A study by the Business Software Alliance South Africa (2012) raises issues relating to software
licence abuse and piracy through the Cloud. About 42% of businesses that use paid Cloud services
around the world were reported to be sharing their log-in credentials within their organisations.
While 45% in emerging economies and only 30% in mature markets were reported to be sharing
their credentials internally. Even though some licences allow sharing of accounts, Cloud service
providers do not charge by the seat but by the amount of computing resources consumed. About
56% businesses that use Cloud services believe that it is wrong to share log-in credentials, which isregarded as software piracy. Other than software piracy, other issues raised included piracy ofentertainment, such as music, and infringement of intellectual property rights.
TAXATION
Providing data services across borders and between different jurisdictions also has potentiallynegative tax implications. Cloud providers face different tax regimes and, at present, there is no
locally coordinated position. Furthermore, there is disagreement about whether a Cloud service
should be taxed where it’s delivered or where it’s consumed. The current lack of agreement over
the tax regimes is likely to further limit the ability of operators to optimise the economies of scaleassociated with international aggregation of data storage and other services (Pamoja, interviewed
17 July 2012). This jurisdictional issue is commonly raised in new forms of internationaltransaction and it can be expected to be resolved in the Cloud domain and not remain a significant
issue over time.
CONTROL OF DEVICE
A key feature of infrastructure operated by public Clouds is the evolution toward Clouds of Clouds
in the same way as the Internet evolved into a network of networks (Renda, 2012). This will only
be possible if open interfaces govern the exchange and portability of data from one Cloud toanother at no switching costs.
Interoperability into the Cloud will be critical, whether for proprietorial systems such as Apple orthose opting for operating systems such as Google that connect to the ecosystem. For example,
Telcos are far more likely to bundle service through their gateways. However, we can expect that
Cloud-based interoperability will be easier to manage today than in the past due to the increased
adoption of web-based interface protocols (common in Web 2.0 environments and largely
independent of the Cloud).

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PROMOTION OF FREE TRADE
The stated policy intention of government is to promote open-source software. For example, aformal policy for use of open source software in government was adopted in 2007. However, thebroader strategy has not yet been implemented. Moreover, any public procurement is subject tostringent Preferential Procurement rules. SA is not a member of the WTO plurilateral agreement on
Government procurement (BSA 2011).
6. CONCLUSION
Cloud computing in South Africa is in its early growth stages. Global companies are aggressively
marketing the benefits of Cloud services. Many large companies that have adopted virtualisation
technologies are beginning to realise that Cloud computing has significant efficiency gains andhave the potential to enhance innovation and entrepreneurship. As a result, companies have started
to transition their IT departments to private Clouds. While concerns surrounding security andprivacy of data continue to hamper the adoption of public Cloud services, it is believed that costpressures are expected to force companies to increasingly move some applications onto public
Clouds in order to streamline costs. The state could play an important role in utilising Cloud
services and innovation in widespread activities such as education.
The availability and affordability of broadband is a critical determining factor for the growth of
Cloud computing services in South Africa. In addition, addressing the policy gaps concerning
protection of private information, data and cyber security will go a long way in creating trust andadoption of Cloud-based services. This will, in turn, facilitate access to international markets andoffshore niche markets and contribute both to economic growth and competitiveness.

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7. REFERENCES
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8. INTERVIEWS
Bester, A. (2012). Interview on the implications of cloud computing on trade flows in and out ofSouth Africa. CEO Pamoja. 17 July 2012).
Cull, Dominic (2012). Interview on the legal and regulatory factors impacting on the potential of
cloud computing services. Legal adviser to the Internet Services Providers Association of South
Africa. 26 June 2012.
Greaves, Duncan (2012). Interview on current uses and potential uses of cloud-based services inSouth Africa for educational purposes. CEO of TENET. 26 June 2012.
McKinsey, IBM and Microsoft presentations (2012). ICT Indaba, Cape Town June 2012.
Nyati, Mteto (2012) Interview on the potential of cloud computing in South Africa. MD ofMicrosoft South Africa. 29 June 2012.
Scott, Alistair and Hatfield, Barry (2012). Interview on the potential of cloud computing in South
Africa. Internet Solutions South Africa. 28 June 2012.

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ANNEXURE 1 – LEGAL FRAMEWORK
1. National ICT policy and legal framework.
The Electronic Communications Act was passed in 2005. The Act was developed with the aim ofpreparing the telecommunications sector for a converged and competitive environment. The Act
was signed into effect in 2006, although many of the aspects of the law have yet to be implemented.
The Act sought to ensure a non-discriminatory access regime, an effective competition frameworkand efficient and equitable spectrum assignment and use in a technologically neutral licensing
framework (Esselaar, Gillwald, Moyo and Naidoo, 2010). In September 2009, the Department ofCommunication gazetted a broadband policy for with the purpose of increasing accessibility andaffordability throughout South Africa (Government Gazette 32578, 18 September 2009). The roleof the state in the broadband policy is to invest where there are cases of market failure (Esselaar etal, 2010).
Hampered by a market structure unsupportive of competition and ineffectual regulation, policy
outcomes, however, have not fulfilled any of these objectives. During the last decade, South Africa
has slipped steadily down global indices as indicated above. The Department of Public Enterprises(DPE) in recognition of the national broadband deficit embarked on a separate process to establish
Broadband Infraco (Infraco), a state-owned company that has invested in national and international
backbone electronic communications networks. In October 2009, ICASA issued an electronic
network services licence to Infraco to provide wholesale services to other electronic network
service providers.
2. Protection of Private Information (POPI) BillAt present, there is no clarity with regard to the protection of information. This is a major constraint
in attracting investors to South Africa (Microsoft South Africa, Interviewed 29 June 2012). In 2009,
the South African government proposed the Protection of Personal Information (POPI) Bill in orderto bring South Africa’s data protection frameworks in line with international standards. The bill is
expected to affect the way companies collect, process and transmit personal information. The bill
stipulates that information cannot be collected from individuals (natural or juristic) without theirconsent and agreement on reasons for collection. Organisations such as banks, retailers or any otherorganisation that determines the need to collect particular information, are responsible for ensuring
compliance. The bill further includes restrictions on transmitting, storing or processing personal
information outside South Africa, unless the destination country has the same levels of regulatory
protection in place. In addition, the bill requires companies to proactively inform affected parties in
the case of security or privacy breaches that could potentially impact their reputations. The POPI
bill has implications for consumer-focused sectors including telecoms, healthcare, retail andfinancial sectors. The bill also impacts Cloud services. Companies will need to ensure that internal
IT staff is knowledgeable of the legislation in order to ensure compliance.
There are significant implications for cost of business associated with the requirements of the
proposed legislation, but there is widespread agreement that the development of services offered on
the Cloud is dependent on a sense of trust that people’s private data is protected and cannot be
divulged to third parties or be exploited for commercial purposes.

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In terms of data protection, the POPI bill will only have a real impact when it becomes law. If thebill becomes an act, it is likely to facilitate greater information flows between different continents
where this was previously restricted due to the lack of adequate data protection (Microsoft South
Africa, interviewed 29 June 2012).
The current policy will have to increasingly take into account the dynamism of the market. For
example, at present, the younger generation places less importance on privacy and more importanceon honesty. The increased use of online services and social networks has made it necessary give
more constitutional rights to privacy. From an Internet service provider perspective, which acts as agateway to the Cloud, is the importance to find a balance between the rights of subscribers and therights of the state (ISPA, Interviewed 26 June 2012). In addition, information is not only moving
into the Cloud but is increasingly becoming IP-based and there is a need to address this perspective
within the policy and law.
3. Electronic Communications Transactions Act 2002
Despite South Africa being among the leading countries in terms of introducing e-commerce andtransactions legislation nearly a decade ago, about 60% of the Act is still not implemented, so
issues of cyber-security and trust required for diffusion of Cloud-type services remains problematic.
Even though the Electronic Communications and Transactions Act (ECT Act), which covers
activities like ecommerce and personal information collected through electronic means, was passed
as long ago as 2002, large sections of the Act have not been implemented. The Act provides legal
recognition for electronic contracts and signatures. It contains guidelines on record keeping,electronic evidence and automated transactions. It mandates cryptography service providers to beregistered and electronic signatures to be accredited by authentication service providers. In
addition, the protection of critical databases is mandatory (ECT Act, 2002). Chapter 11 of the ECTAct makes provisions for protection of personal information and cyber-security. The Act outlines anumber of cyber offences and allows cyber inspectors to administer the act. However, this has notbeen operationalized in nearly a decade ( ISPA, Interviewed 26 June 2012).
One of the key challenges related to the ECT Act is that the privacy provisions are voluntary.
According to Dominic Cull (interview 26 June 2012), the e-commerce provisions are adequate,
however there are challenges that remain regarding international co-operation and enforcement. In
2011, South Africa drafted an amended national cyber security framework, but it has not beengazetted (ISPA, Interviewed 26 June 2012).

-64-Unlocking the Benefits of the Cloud: Policy Principles
Peter Cowhey and Michael Kleeman
Our introductory essay proposed five long-term benefits from the Cloud for emerging economies.
We argued that these fit the larger story of economic transformation of lower-and middle-income
countries and the interdependencies of the world economy.
Five Implications of the Cloud for Emerging Economies
1. The Cloud is central to being competitive in higher value-added products because productsin the world economy are becoming more ICT intensive.
2. Cloud ICT is vital to being competitive in South-South commerce, already the fastest
growing share of world trade and investment and the future home to most of the world’s
middle class.
3. Cloud computing can strengthen SMEs and employment in all economies.
4. The Cloud creates significant benefits for both individual users and governments.
5. The emergence of the Cloud and the build out of broadband infrastructures has strong
synergies in developing economies.

The country studies have illustrated these benefits in some detail. For example, India, Mexico andSouth Africa are all promoting powerful ICT and Broadband networks in order to advance thetechnological underpinning of more value-added benefits in world commerce. Leaving aside theimportance of the Cloud for their manufacturing processes, such as Mexico’s sophisticatedautomobile production plants, all three countries are looking to become suppliers of Cloud-based
services for both domestic and South-South commerce. Business processing as a Service is an
example. India is providing Cloud services to Africa. South African companies hope to be Cloud
providers to their region. Mexico hopes to be a “digital paradise” for Latin America. These
offerings are provided by both giant global ICT firms and companies based in these emerging
economies.
All three country studies described powerful benefits for SMEs and job creation that the Cloud
would create. The Cloud reduces the cost, the upfront investment and the operational complexities
of using ICT to help build smaller businesses into larger ones. At the same time, both SMEs andindividual users are relying on many “free” Cloud services that are, in turn, paid for by Cloud
enabled advertising often delivered trans-border. Restricting the Cloud, and on-line ads enabled by
the Cloud, would greatly reduce the ICT service options for many users.
It was also striking to observe how many projects and experiments are under way in these three
countries to use the Cloud to improve government services. These range from health to taxationand social services. The countries differ significantly in how systematically and self-consciously
they link these initiatives into a strategy for government use of Cloud computing.

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A broader implication of an understanding of global technology and economic developments, andthe particular stories of individual countries, is the enormous benefit of experimentation andlearning by doing in an environment driven by market competition and a national policy to invest indigital capabilities. The Cloud is the next major addition, along with the growth of a mobile
broadband and a seemingly infinite variety of powerful end user devices (ranging from wirelesssensors through smart grids and smart phones), in redefining how networked information cantransform the world economy and many essential services for society.
It will take experience, trial and error, plus lots of smart, determined entrepreneurs in the private
and public sectors, to figure out true potential of this new technology. 74 Innovation, the turning of a
new technology into a powerful contribution to the economy and society, takes more than invention
and massive investment. It requires interpersonal networking to spread the diffusion of theinnovation and maximize learning about its possible applications. It takes an infrastructure ofshared assets, such as research universities providing skilled people, and it takes innovative
business models that will overturn established market practices and enable opportunities for new
entrepreneurs. And, it requires specialized investment arrangements geared to the market, as
exemplified by the emergence of venture capitalists that were willing to take far larger risks thanconventional banks and were far more attuned to market nuances than public research funding, tofund much of the Internet’s transition from a technology to massive commercial innovations. 75
This broad range approach will require the embedding of national experimentation and innovationin the context of global experimentation and innovation. Governments can play a positive role in
reducing uncertainty about the rules of the road concerning inevitable and legitimate questions
about privacy, security, and equity. But, just as the emergence of the Internet infrastructure and thesophisticated export sectors of developing economies benefited from more open markets, the Cloud
will be most powerful where government rules restrain from detailed micro-management andencourage multi-stakeholder groups with sophisticated expertise to continuously refine detailed
solutions.
These experiments and innovations have been evolving over the years. We have, for years,
permitted personal financial information in the form of credit card systems (think Visa), link banks,
merchants, support services (fraud detection services, for instance) and consumers in shared datasystems running across national boundaries. The transnational character holds true for email, plus
mobile telephone billing and text based content, that transit numerous national jurisdictions and do
so without major harm to national interests. These examples, and others, suggest that, with propercare and under minimal regulatory structure, transnational data need not be a sovereign risk.
Medical consultation systems (such as “outsourcing” radiology readings) involve sensitive crossborder personal data flows that benefit patients, because a combination of medical ethics andprivacy rules create a system that focuses on the required forms of protection but does not attempt
to limit the movement of data. The Cloud’s capabilities will accelerate these and many otherdevelopments. Therefore, it brings these innovations into more dramatic focus. But the global
forerunners show that there are huge benefits from encouraging global experimentation withinlight-handed guidelines.
74
75

David and Wright, 1999
Breznitz and Cowhey, 2012.
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Policy Measures to Promote the Benefits of the Cloud
A global Cloud infrastructure raises significant issues that need to be addressed on a national andeven corporate or individual level. In the introduction to this report we stated the prerequisites for a
Cloud infrastructure as follows:
These benefits of the Cloud require the effective and efficient movement of Internet-based
information flow between the customer and the Cloud services provider. This cannot occur without
three key technological capabilities. First, while some Cloud-supported applications can bedelivered on narrow band networks (such as mobile health data bases), the biggest payoffs from the
Cloud will arise when high speed communications service (often called “Broadband”) is available.
Second, Cloud Computing requires the unrestricted flow of information between customer andservice provider. Third, Cloud data centers can only be effective if they achieve significant
economies of scale and scope, and can respond dynamically to their customers’ needs wherever
they arise and with whatever data they need. This implies freedom to locate and operate data
centers on the basis of efficiency considerations, and to scale data centers by handling crossborder data needs. And, as a surprising corollary, the deployment of an effective Cloud
infrastructure improves the economic case for creating broadband networks in lower or lowermiddle income countries.
For these conditions to emerge it will require prudent public policy that is supported by appropriate,
complementary action in civil society. There is nothing requiring a single top down policy designfor the global ICT infrastructure that will take advantage of the Cloud and broadband. Indeed, anysuch unified design could blunt the innovation of ICT infrastructure and associated services.
Nonetheless, a review of the country studies of Mexico, India and South Africa suggest that there
are three critical issues for this nexus of government and civil society policy and action. We suggest
how a common, global approach to some principles for policy could facilitate effective national
action within a dynamic global ICT infrastructure.
1. It takes an explicit vision to achieve the potential of ICT for economic and societal goals. In all
three countries there is a clearly articulated vision, with varying degrees of success in execution, forthe growth of national broadband systems. This includes complementary investments in humancapital investment to enable populations to take full advantage of broadband at work and at home.
But all three countries have only haltingly envisioned what it would require to take full advantageof the benefits of Cloud computing. Yet, if this essay is correct, Cloud computing is an essential
complementary capability to broadband; indeed, there are significant synergies in the economics oftheir deployment.
As the country studies showed, the emergence of Cloud service revenues provide incentives forbroadband build out. Nonetheless, national policies to promote broadband and the skills to use ICT
are essential complements to increasing the benefits of the Cloud. 76 Indeed, we conclude that:76

The principles suggested here often draw on the OECD (2011), the Aspen Institute (2012), and APEC
(2005).
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The Cloud’s centrality to National ICT strategy: promoting a sound Cloud eco-system should beconsidered an intrinsic part of a national ICT strategy that, at minimum, advances universal
broadband build out. Including all communities, urban and rural, makes human capital investments
in digital skills and identifies how to use ICT to improve government services.
Building on the lessons from the advances made in promoting higher investment, lower prices andfaster innovation since the introduction of competition in telecommunications and information
service markets, sound decision-making processes are essential to making the markets work for the
public interest.
Transparent rules and decision processes with multi-stakeholder participation: Governments
should focus on creating transparent rules and due process in rule-making encouraging multistakeholder notice and comment. When possible, they should rely on multi-stakeholder groups tocraft many of the detailed policies necessary to maximize the benefits from the Cloud.
While no set of processes can in themselves assure sound policies, these approaches raise the odds
that governments will gather the most appropriate information and create market confidence in thecompetitive investment that must complement public investment in such assets as human capital
and, in some cases, network infrastructure to areas that are particularly hard to serve, such as thosewith small scattered populations. 77
2. It takes a global ICT network to achieve full national benefits. A national approach to creating
and using this ICT infrastructure foregoes most of its potential. For example, South Africa’s
domestic broadband build out will go faster if integrated into cross-border broadband investments.
Also, preventing the ability of global ICT infrastructures to provide local national services missesmuch of the Cloud’s performance benefits. Even in a country with a major Cloud infrastructure,
the diversity of data, applications and peak capacity needs will require reliance on unrestricted andunencumbered services from Cloud infrastructure in other countries. Moreover, redundancy instorage and processing is important to achieving reliability.
Free Flow of Information: To achieve the full benefits of global interconnection, governments
should allow information to move freely and be stored globally.
Flexible placement of facilities: Governments should not require that facilities or information
be located in a specific country or region.
Encourage infrastructure development and services in open competitive markets: Encouragementof cross-border market access for investment in ICT (including broadband and Cloud facilities) andcommerce (including trade in services) under transparent rules will be critical to achieving thepotential of the Cloud and broadband.
The corollary to taking advantage of the ICT network and computing structure is to avoid
entangling public policy choices influencing the Cloud (and the Internet) in micro-management ofcommercial innovation tied to an Internet driven ICT system. An example is the concern expressedover interoperability of various Cloud systems. When solutions are not perfectly interoperable it is
not a reason for a policy intervention. Imagine if governments intervened in a mature technology
market, such as automobiles, because many of the mechanical components of a Mercedes or Ford
77

Noam, 2001
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automobile are not fully interoperable. The variety of automobile “solutions” is, in fact, what
drives continual upgrades in a mature technology.
The logic of an Internet-organized structure for ICT, including Cloud systems, is built around theincreasingly standardized interfaces of Internet and related protocols that permit rapid
experimentation with solutions through trial and error. Variety is part of the innovation systemanchored by the common Internet protocols (that are set by an open system of global standard
setting). As one technology executive described how this works in one key underpinning for ICT
applications, HTML5: “What has driven HTML5 and what has driven the ecosystem of theInternet is that fast, iterative design process that happens when you have more control over the
expression of your ideas at a scale that is massive.” 78 Trying many different solutions quickly
across millions of users, now a standard tool for software developed in Cloud environments, is a
key to innovation. This suggests the following principle:
Cloud policy should rely on the open, voluntary global system for Internet/Web standard
setting to sort out questions of interoperability. For example, standard settingorganizations, like the Internet Engineering Task Force and the World Wide Web
Consortium, have strong track records and are open to participation by all interested
parties. They successfully marry voluntary, commercially driven standard-setting withparticipation by all interested parties with the appropriate expertise.
3. A national strategy for addressing legitimate policy concerns about the privacy of user
information and security of information, which Cloud computing brings into sharp focus, works
best within a framework of global principles and policy approaches consistent with competitivemarkets and flexible implementation strategies that can cope with rapidly changing technology.
Our experience with ICT is that allowing both specialization and diversity in problem solving is an
important part of creating a dynamic technical ecosystem that can grow and adapt to market needs
and social goals quickly. Detailed prescriptions from the top down, especially those imposing
uniform technical practices to a dynamic and evolving ecosystem, are counter-productive.
There is an emerging international consensus that countries and civil society should adopt highlevel, compatible principles for strengthening both privacy and security (OECD, 2011; Aspen
Institute, 2012). Indeed, as APEC (2005) recognized in its work on privacy, effective national
measures to advance privacy protection and information security in a world with a global ICT
infrastructure requires compatible national policy approaches. 79 The details of national policies
may be fine-tuned to individual national sensibilities, but the approach of each nation should
conform to the general principles. However, care should be taken to create policies that reflect atrue underlying need, and minimally satisfy that need, along with appropriate transparency and, if
needed, penalties when these policies are not adequately adhered to.

78

The quotation is from Rob Chandhok. http://www.fiercedeveloper.com/story/qualcomms-rob-chandhokpredicts-future-cross-platform-development-and-progr/2012-07-01#ixzz24bwl1LHn. On the modular
standardization of the Internet interfaces, and their implication for competition, see Cowhey and Aronson,
2009.
79
On implementation of the APEC framework see: http://ibmprivacy.com/2011/11/17/the-promise-of-theapec-cross-border-privacy-rules/-69-

We have, for years, permitted personal financial information in the form of credit card and otherfinancial transactions to transit numerous national jurisdictions and have done so without major
harm to national interests. This example, and many others, suggest with proper care, and underminimal regulatory structure, transnational data need not be a sovereign risk.
It is important to note that the benefits of a sound policy framework go beyond the benefits ofprotection for individual users (whether individuals or businesses). They also grow confidence inthe use of the Cloud ICT environment. Our country case studies indicate even businesses continue
to worry about the privacy of their data on public Cloud facilities and providers of these services
should take care to both undertake the necessary steps to protect data and inform users of theprotections they undertake.
While finding ways to secure data and respect broad principles about privacy of data stored in the
Cloud are important, we note that two issues keep emerging across countries. We briefly explicate
these issues and suggest ways of beginning to handle them in a practical, responsible manner.
We believe that the first of these issues is a dead end. This is the notion of data sovereignty—that agovernment can only protect citizen rights and national security if the data of its citizens remains
exclusively within its borders. While issues of cross-border jurisdiction (what to do with Mexican
data stored in Brazil) are perennial in international commerce and require resolution over time, thesolution does not require locking data up within national borders 80. For example, the protection of
citizen privacy rights does not require the physical location of the data in the country81. Datatagging, encryption and management systems allow data to be complex and expensive to decryptand have national identity tags that trigger the appropriate rules for its management, wherever thedata reside. Two broad principles capturing this idea are:Flexible location of data: Data should be allowed to be stored geographically depending on market
and engineering considerations and governments should instead focus policy on functional goals fordifferent types of data (e.g., personal medical data may have higher standards than merchant data) if
necessary, and a transparent system for remedies in the case of violations of privacy protections.
Global compatibility of privacy and data security rules: National rules should be anchored in
globally recognized principles (e.g., the APEC or OECD privacy guidelines) and should be crafted
to assure commercial non-discrimination among providers of infrastructure and services. Whenpossible, governments should offer mutual recognition of other countries’ laws that achieve thesame objective.
Second, our case studies made clear that the security of data issue of government access to personal
data is a sensitive issue everywhere. Every government exercises the power to access personal data
for security reasons, although national practices vary. Even among wealthy democracies, many
countries exercise this power frequently and with considerable secrecy. (Indeed, parliamentary
systems tend to delegate more discretion to the executive branch of government than is typical in asystem of divided powers found in countries like the United States. Thus, many parliamentary

80

National Foreign Trade Council et al, 2011
In fact today virtually all international e-commerce would violate a sovereign jurisdictional requirement,
independent from any Cloud implementation

81

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governments exercise these surveillance powers with fewer requirements for transparency than in
the United States.)
On matters so close to the fundamental responsibility of governments for security, there willcontinually be a debate about the right degree of government access. But recognizing the need for acommon set of principles and drawing on the best lessons from the extensive experience inhandling this balancing act in the past would be good starting points. This suggests the following
general principle:
Governments should embrace internationally recognized principles for Internet data privacy andsecurity that draw on policy precedents: As the Aspen IDEA Principles (2012) proposed,“Governments should work to create a level playing field and achieve global interoperability on
privacy and data protection principles by basing privacy rules on globally recognized principles(such as the OECD privacy guidelines)… Internet providers should disclose requested third-party
information only to the extent required by law and, to the extent permitted by law, should provide
affected customers [regardless of nationality] with reasonable advance notice of any suchcompelled disclosure.).” 82
As governments wrestle with this sensitive issue, they should also consider the fact that there is along history of balancing goals of privacy and national security. The Economist has suggested that,as a starting point for working out balance, governments consider: “A good general principle would
be to afford data stored in a private e-mail account as much protection as letters stored in a locked
desk drawer...” 83 While this pithy formula won’t be the right final answer, it reminds us that there
is a rich prior history of reconciling security and privacy that assists governments in working out acommon set of policy principles.

82
83

Aspen Institute, 2012. The clause, “regardless of nationality”, was added by the authors.
The Economist, 2012.
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Conclusion
The Cloud, and its underlying broadband networks, is the next logical phase in the move toward
global connectivity, which started with the telegraph and most recently was embodied by theInternet. The benefits of the Cloud, with its economic efficiencies and technological drivers, aregrowing inevitably in scale and scope. The move toward the Cloud is not the pinnacle of ourtechnological achievement in ICT, but it is a significant plateau, building on numerous technology
trends that have converged to enable its emergence. Like the globalization of products and physicalcommerce and the Internet before it, the Cloud disrupts legacy practices but will bring value acrossall segments of society and increase intellectual, economic and social inclusion worldwide. Alongwith any change comes the legitimate concern about potential negative impacts. However, if
globalization and the Internet have taught us anything, it is that the public values the benefits thesechanges can bring and that by moving with a bit of patience, and a light hand, governments canachieve the dual goals of protecting their citizens and improving their lives in the face of suchchanges.

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Biographies
Peter Cowhey is the Dean and Qualcomm Professor of Communications andTechnology Policy at the School of International Relations and Pacific Studies,
University of California, San Diego. He is an expert on global technology andtrade policies and has advised both international organizations and manynational governments on information and communications policies.
Professor Cowhey has a distinguished record of public service. He has served inboth the Clinton and Obama Administrations. In the Clinton Administration he
was head of international policy for the Federal Communications Commission and in the Obama
Administration he was the Senior Counselor to the U.S. Trade Representative. At the FCC he wasa leader in the restructuring of U.S. competition policies for global communications markets andthe negotiations leading to the WTO Agreement on Basic Telecommunications Services. As SeniorCounselor his responsibilities included supervision of U.S. trade policies for information andcommunications markets as well as intellectual property and investment policies. In 2009-2011 heserved as the Chief Policy Officer of the Aspen Institute’s project on International Digital Economy
Accords. He currently serves as the Vice Chairman of the California Council on Science andTechnology as well as the Chairman of the Connect Innovation Institute. He is also a member of theboard of directors of the Grameen Foundation, the global anti-poverty organization and a memberof the board of the Institute of the Americas.
His research includes six books and many scholarly articles. Some of his recent writings include:
Transforming Global Information and Communication Markets (MIT Press 2009 with J. Aronson)
and Reviving America’s Forgotten Innovation System: Fostering U.S. Growth through Incremental
Product and Process Innovation (forthcoming from the Council on Foreign Relations with
D. Breznitz).
Michael Kleeman is a senior fellow at the University of California San Diego(UCSD) working with the School of International Relations and its affiliatedInstitute for Global Conflict and Cooperation (IGCC). His current activities at
the University are focused on preparedness and national security issues.
Formerly a Vice President at The Boston Consulting Group, Director at Arthur
D. Little, and a founding executive at Sprint International and with Wiltel,
Kleeman has been involved with numerous technology companies in North America, Europe andAfrica as advisor and executive.
Much of his telecommunications work has been in developing markets and he has been involved ininnovative network projects in the former USSR (he was the founding CTO of Global Telesystems
Group), an open access fiber network in South Africa and networks in Haiti. His recent
communications work includes advising telecom firms in several nations in Sub-Saharan Africa on
network architecture and upgrades, and he has consulted with Alcatel-Lucent, AT&T, NEC, Nokia,
Cisco and other hardware firms. He also has extensive experience in submarine communications,
ROV and manned submersibles and worked with DARPA on projects with related scope.
He has been affiliated as a senior fellow with The Berkeley Roundtable on theInternational Economy (BRIE-UC), the Annenberg Center (affiliated with the Annenberg School

of Communications at USC), IMD in Switzerland, and the BIOS Institute in Santa Fe, a firm
specializing in Complex Adaptive Systems. He was an advisor to the Kent Ridge Digital Labs(KDRL) in Singapore, and served on the founding Advisory Board of Science Foundation Ireland.
He has also served on the Boards of TrustE and Equal Access.
He currently serves on the Boards of The Institute for the Future, The Marine Mammal Center in
California, SEACOM, and is the National Volunteer Partner to the President, Humanitarian
Services, of the American Red Cross.
Dr. Miriam Altman is a Distinguished Research Fellow at the Human Sciences
Research Council, having served as Executive Director from 2002 to 2010. She
was appointed as a Commissioner to the National Planning Commission in theSouth African Presidency in May 2010 and has played a leading role in shaping
employment policy and dialogue in South Africa. Her work concentrates onframing practical public and private strategies aimed at stimulating employment.
“Evidence-based Employment Scenarios” is the flagship, drawing together top decision and opinion
makers in business, labour, government and academia to identify how employment and poverty
reduction targets might be reached. As part of this work, she has led teams to frame industry
strategies. Most recently, Miriam was project leader in identifying an investment strategy toachieve 100% broadband for the SA Ministry of Communication’s Vision 2020 process. Miriam
regularly advises international, national, provincial, and municipal leaders on policy that advances
efforts to stimulate the economy, promote employment and reduce poverty. She has a BA in
economics from McGill University, an M.Phil from the University of Cambridge and a PhD in
Economics from the University of Manchester.
Alison Gillwald is Executive Director of Research ICT Africa and Adjunct
Professor at the University of Cape Town’s Graduate School of Business,
Management of Infrastructure Reform and Regulation programme. Prior tothis she was Associate Professor at the Witwatersrand University Graduate
School of Public and Development Management, where she founded the
Learning Information Networking and Knowledge (LINK) Centre in 1999
with the purposes of fast tracking ICT policy and regulatory training inSouthern Africa. She did so after serving a term on the founding Council of the South African
Telecommunications Regulatory Authority (SATRA). She has served on the board of the publicbroadcaster, the South African Broadcasting Corporation, Womensnet and Media Monitoring
Project. And has consulted to infoDev, the African Development Bank, Government of Mauritius,International Telecommunications Union, Commonwealth Telecommunications Organisation,
United Nations Department of Economic and Social Affairs, the South African Presidency,
Treasury, Department of Trade and Industry, and Competition Commission. She has a Master
degree on democratic media policy and a PhD on telecommunications policy.
Mpho Moyo is a researcher in Information and Communication Technologies (ICT). She holds a
Masters in International Relations and a Bachelor of Social Science in Politics, Philosophy andEconomics. Mpho has gained extensive experience in conducting research across the sub-Saharan-76-

African ICT market. Before joining Research ICT Africa, Mpho worked at Frost & Sullivan as ananalyst in Information Communication Technology.
Judith Mariscal (Ph.D. LBJ School of Public Affairs at UT in Austin), is
full Professor at the Centro de Investigación y Docencia Economica (CIDE)
where she is Director of the Telecommunications Research Program,
Telecom-CIDE. She is a member of the Steering Committee for DIRSI, aresearch network on ICT policy for development in Latin America and the
Caribbean as well as Social Witness for Transparency International Chapter
Mexico Her current research focuses on ICT regulatory and public policies
and has published in leading journals such as Telecommunications Policy, Latin American
Studies and Information Technologies and International Development. She has authored two
books: Unfinished Business: Telecommunications Reform in Mexico, published by Praeger Press in
2000, and Digital Poverty: Latin American and Caribbean Perspectives, published by ITDG in2007, coauthored with Hernan Galperin.
Dr. Jessica Seddon is Founder-Director of Okapi Research and Advisory, aresearch collective focused on institutional design at global, national, local,
and organization scales. Her research and consulting focus on theinteraction of institutions with the information ecology and their joint effecton group behavior. Dr. Seddon has advised a number of state and national
government initiatives in India, most recently the Prime Ministers' National
Transport Development Policy Committee and the High Powered Expert
Committee on Urban Infrastructure. She is currently involved in developing
interdisciplinary, practice-grounded research and innovation programs as Head of Knowledge
Management at Villgro Innovations Foundation, a social enterprise incubator, and as SeniorResearch Advisor at the Indian Institute for Human Settlements, a prospective National Innovation
University focused on urban issues. Dr. Seddon is also Adjunct Professor at the School of Publicand Environmental Affairs, Indiana University. She has published book chapters and articles on
infrastructure, Indian political economy, IT and governance, environmental regulation and otherinstitutional design topics in international academic and policy journals including Foreign Affairs
and Harvard Business Review. She is a term member and former International Affairs Fellow of theCouncil on Foreign Relations. Prior to founding Okapi, Dr. Seddon served as Head of Research at
the Indian Institute for Human Settlements, Director of the Centre for Development Finance andProfessor at the Institute for Financial and Management Research in Chennai. Dr. Seddon has alsotaught as Assistant Professor, Political Economy, at UC San Diego and worked in the Chief
Economists Offices of the World Bank and the Inter-American Development Bank. Dr. Seddon
earned her Ph.D. from Stanford University Graduate School of Business and her B.A. from
Harvard University.

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