The U.S. government is reportedly concerned about the potential security threat from Chinese cloud computing firms such as Alibaba and Huawei and weighing what can done to keep them from gaining access to sensitive data. But how much of an impact would such a move really have on the U.S. cloud market?
According to the New York Times, U.S. officials are considering tighter rules to govern the Chinese cloud providers. This comes just months after a group of nine Republican senators urged the Biden Administration to impose sanctions on Huawei and Alibaba as well as other Chinese cloud providers. This group also asked U.S. Commerce Secretary Gina Raimondo to add these companies to the Entity List, which puts restrictions on foreign entities, governments or individuals.
For context, Gartner VP Sid Nag and Synergy Research Group Research Director John Dinsdale recently told Silverlinings Alibaba is the fourth largest cloud infrastructure provider globally and the leading cloud provider in China. Alibaba in May detailed plans to spin off its cloud division into a separate company. Synergy listed Huawei among a number of other "major" cloud players in its full-year 2022 recap, naming it alongside the likes of Cisco, IBM, Oracle and VMware.
These efforts come on the heels of the U.S. government’s “rip-and-replace” initiative in the telecom sector, which called for operators to remove equipment from Chinese telecom equipment makers Huawei and ZTE and replace it with gear from approved vendors. That program has been fraught with challenges due to funding shortfalls.
Congress only appropriated $1.9 billion to reimburse wireless and wireline operators for the costs incurred by switching out their existing gear from ZTE and Huawei with other vendor equipment, but the actual costs were estimated to be closer to $4.64 billion. The Federal Communications Commission (FCC) has acknowledged this shortfall and said that initially it will only pay service providers about 39.5% of their rip-and-replace costs.
Cloud fallout
It's too early to say what types of rules or regulations, if any, that the U.S. government might impose on Chinese cloud computing platforms. However, analysts said that most U.S.-based companies are steering clear of Huawei and Alibaba clouds unless they have divisions in China.
“They usually have more politically palatable options nearby based on deployments from AWS, Azure and Google,” said John Byrne, research VP for communications services providers, operations and monetization at IDC.
Byrne added that Oracle recently increased its focus on sovereign clouds as a way to tout the fact that they are a trustworthy partner for enterprise clients.
Indeed, Oracle earlier this month launched its EU Sovereign Cloud specifically to help enterprise customers benefit from cloud infrastructure and also satisfy European Union (EU) regulations. Digital sovereignty is becoming increasingly important for companies operating in the U.S. because of existing EU regulations such as the General Data Protection Regulation (GDPR) as well as new proposed regulations such as the AI Act, which seeks to regulate artificial intelligence.
Roy Chua, founder and industry analyst with AvidThink, said the majority of U.S.-based companies both large and small that he works with only consider U.S.-based or European-based public cloud providers for their cloud strategies.
“Rather than taking bets to save dollars or tap into Chinese cloud innovation, these firms just shy away from Chinese cloud platforms altogether,” Chua said.
When companies have major clients in China, the Middle East/Africa or Latin America, they may consider using Chinese cloud companies but only for storing and processing region-specific customer data, he added.
This aversion to Chinese cloud providers is a fairly new phenomenon. Chua said that five or more years ago there was a lot more interest in China’s cloud companies. He added that these companies were present at many U.S.-based and European trade shows and were trying to actively engage with new customers. However, this is no longer the case and most of these companies are now absent from U.S. trade shows.