1. The impacts of regulating cross-border data flows

The impacts of regulating cross-border data flows

Cross border data flows

ICT is a key source to improve productivity, expand market reach and to disseminate knowledge and enable innovation spillovers. It is also a key source of economic value creation. The significance of data in any ICT solution is irrefutable, like the blood stream in a human body– one cannot exist without the other. The pulse of the transformative force of ICT, shaping our society can be measured by the growth of traffic data in networks as well as the growth of stored data. Ultimately, these measures symbolize the pace of digitization of our societies, markets and trade-flows.

In Q1 2013 there were more than 6.4 billion mobile subscriptions globally, and by the end of 2013, 9.1 billion subscriptions are expected. In addition, Ericsson envisions that by 2020, there will be 50 billion mobile connections including various forms of machine-to-machine communication. Global mobile data traffic is expected to grow 12 times between 2012 and 2018 and will reach 14 exabytes (that’s 18 zeros!) per month while the global monthly fixed data traffic will grow 5 times over the same period. In fact, by 2018 it will reach almost 150 Exabytes. In regards to stored data, the global data supply reached 2.8 zettabytes (that’s 21 zeros!) in 2012 – while just 0.5% of this is used for analysis.

Ericsson calls this increasingly connected and digitized world the Networked Society and data plays an integral role in shaping this new society. We have a solid comprehension of this considering that more than 40 percent of the world’s mobile data traffic passes through our networks, more than 1.4 billion mobile consumers are charged and billed through Ericsson’s solutions and we manage the operations of networks serving more than 1 billion subscribers.

Regulating data flows
Data-protection regulation, including the regulation of cross-border data flows, has significant implications on sectors of the economy (finance, transport, communication, automotive, energy, health, education, commerce and entertainment), commercial businesses, public organizations and NGOs. Data protection regulation including cross-border data flows should therefore not be labeled as an ICT issue only.

Unfortunately, the public discussion concerning data-protection regulation has been too narrow, focusing only on the impact on the ICT sector alone. Even worse, the public debate has been limited to merely focusing on compliance costs of regulation. The risk here is that significant unintended consequences will be overlooked (e.g. missed new business opportunities) along with negative consequences that restrict existing business opportunities.

Because of ineffectively designed measures or poor targeting of instruments, a narrow view on cross-border data regulation does not even improve the level of protection of data subjects. The result in these cases is excessive opportunity costs to the society, consumers and businesses, leaving everyone worse off.

Here are a few of the business impacts that result from restrictions to cross-border data flows:

• Outright prohibitions of customer cross-border data flow to a foreign country.
• Outright prohibitions of employee cross-border data flow within a group of companies to a foreign country.
• Extensive, lengthy, complex, tedious and unpredictable procedural burdens of national DPA approvals of data transfer agreements.
• Forced localization of IT/Server Infrastructure.

Business impacts
Some of the restrictions above are absolute international-trade barriers as they bar the possibility of multi-national firms of consolidating their operations across multiple territories, reaping the benefits of economies of scale necessary to offering competitively priced services needed to enter a national market. Incumbent, typically national firms that already operate in the market can hereby benefit from entry barriers which also limit competition in the domestic market.

In a similar way, prohibitions to export employee data across borders within a group of companies, limit the opportunities of multinational firms to match the best skills available inside a group, hereby devaluing their capabilities and effectiveness to compete.

While other barriers increase the transaction costs of transferring data across territories, which lead to missed business opportunities, and delay project execution and add an unnecessary increase in administrative costs.

Finally, some restrictions do not prohibit or increase the cost of cross-border data flows as such, but rather take away the entire economic incentive to compete in a national market by forcing multinational companies to invest in local IT/server infrastructure. In this case, a company is free to move the data but will face local costs of excessive infrastructure resulting in disadvantageous cost structure, ultimately making the business case for a multinational firm unattractive.

Written by Rene Summer

Director of Government and Industry Relations Rene is responsible for policy, formulation and promotion research in the areas of telecom regulation, TV-broadcast regulation, media regulation, copyright, advertising, state aid and consumer privacy.

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