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NSA Spying Will Cost US Tech Titans Billions, and That's Just the Start

"We’re trading away not only privacy, but also the US tech economy, internet openness, America’s foreign policy interests, and cybersecurity."

The National Security Agency spying scandal will cost the US technology and telecommunications industries billions of dollars in coming years if potential clients—including corporations and governments—take their business elsewhere following revelations of rampant US surveillance, according to a new study.

The financial cost to US corporate giants like IBM, Microsoft, Oracle, AT&T and Verizon is just the tip of the iceberg.

The NSA spying scandal, which was prompted by former NSA contractor Edward Snowden's disclosure of classified documents, has already harmed US foreign policy efforts, jeopardized key relationships with US allies, and imperiled the ambitious US Internet Freedom Agenda, according to the report, which was published Tuesday by New America's Open Technology Institute.

The basic architecture of the global internet could also be at risk if governments close off their networks in response to US surveillance efforts, the report warns.

We're trading away not only privacy, but also the US tech economy, internet openness, America's foreign policy interests.

"Too often, we have discussed the National Security Agency's surveillance programs through the distorting lens of a simplistic 'security versus privacy' narrative," Danielle Kehl, a policy analyst at OTI and the primary author of the report, said in a statement. "But if you look closer, the more accurate story is that in the name of security, we're trading away not only privacy, but also the US tech economy, internet openness, America's foreign policy interests, and cybersecurity."

It's been one year since Snowden leaked a vast trove of classified documents detailing the NSA's secret spying programs, igniting a global furor and a national debate about the limits of the surveillance state in a democracy.

Since then, many of the top US tech companies have faced intense scrutiny about their role in the classified US intelligence system PRISM, which the NSA used to examine data—including emails, videos and online chats—via requests made under the Foreign Intelligence Surveillance Act (FISA). The nation's top telecom companies have faced similar scrutiny about their role in the NSA's bulk metadata program, which collects the phone records of tens of millions of US citizens, including the number called, when the call was made, and the length of the conversation.

Snowden's leak, which was the most wide-ranging disclosure of US classified documents since the Pentagon Papers, has prompted the White House and Congress to develop legislation called the USA Freedom Act designed to reform the NSA by ending the government's bulk metadata collection program, and increasing the oversight and transparency of the NSA programs. The White House and Congress are expected to reach final agreement on the bill this week.

Kevin Bankston, OTI's Policy Director and an author of the report, is cautiously optimistic about the USA Freedom Act, but points out that it will take time for the US tech industry to regain the trust of both users and potential corporate and government clients.

Substantial damage to the US economy has already been done, and the OTI report is just the latest effort to attempt to quantify that damage. Last year, the Information Technology & Innovation Foundation published a report saying that US cloud computing providers could lose as much as $35 billion by 2016 because of the NSA revelations.

ITIF senior analyst Daniel Castro wrote that Snowden's disclosures "will likely have an immediate and lasting impact on the competitiveness of the US cloud computing industry if foreign customers decide the risks of storing data with a US company outweigh the benefits."

James Staten, an analyst at Forrester projected a net loss for the internet service provider industry of as much as $180 billion by 2016, which would amount to a 25 percent decline in the overall information technology services market. "All from the unveiling of a single kangaroo-court action called PRISM," Staten wrote.

Earlier this year, Japanese telecom giant NTT Communications conducted a survey of more than 1,000 "Information and Communications Technology (ICT)" decision-makers from France, Germany, Hong Kong, the UK, and the US. The survey found that the Snowden disclosures "have had a direct impact on how companies around the world think about ICT and cloud computing in particular." Nearly 90 percent of the respondents said they are "changing their cloud buying behavior, with over one in three (38 percent) amending their procurement conditions for cloud providers

Germany, one of the closest US allies and the engine of Europe's economy, has been particularly upset by the NSA's secret surveillance programs. Revelations that the NSA wiretapped German Chancellor Angela Merkel's cell phone have caused US diplomatic relations with Germany to dramatically deteriorate.

In June, the German government cancelled a network infrastructure contract with Verizon, citing the NSA spying scandal. "Revelations about surveillance by the US National Security Agency and its relations with US companies demonstrate that the Federal Government's critical communications infrastructure needs to meet high security standards," Germany's Interior Ministry said in a statement.

The most far-reaching consequence of the NSA spying scandal could be its impact on the underlying architecture of the global internet.

Earlier this month, following the disclosure of a CIA plot to recruit agents inside Germany, the German government took the highly unusual step of expelling the CIA's top officer in Berlin, a move reminiscent of Cold War-era relations between the US and the Soviet Union.

Perhaps the most far-reaching consequence of the NSA spying scandal could be its impact on the underlying architecture of the global internet. Earlier this year, Merkel floated the idea of creating a European network that offers "security for our citizens, so that one shouldn't have to send emails and other information across the Atlantic. Rather, one could build up a communication network inside Europe." Brazil is planning to lay an undersea communications cable directly to Europe following revelations that the NSA spied on top Brazilian officials.

These proposals "threaten to undermine the functioning of the internet, which was built on protocols that send packets over the fastest and most efficient route possible, regardless of location," according to the OTI report. "The localization of internet traffic may also have significant ancillary impacts on privacy and human rights by making it easier for countries to engage in national surveillance, censorship and persecution of online dissidents, particularly where countries have a history of violating human rights and ignoring the rule of law."

"The rise in data localization and data protection proposals in response to NSA surveillance threatens not only U.S. economic interests, but also Internet Freedom around the world," the OTI report states.

The authors point out that the NSA scandal has imperiled the US Internet Freedom agenda, which was articulated in 2010 by then-Secretary of State Hillary Clinton, and is designed to promote freedom of expression and the freedom to connect around the world.

"Many observers have noted that the Internet Freedom agenda could be one of the first casualties of the NSA disclosures," the OTI report says. "The US government is fighting an uphill battle at the moment to regain credibility in international internet governance debates and to defend its moral high ground as a critic of authoritarian regimes that limit freedom of expression and violate human rights online."

The US government now faces a stark choice. Policymakers can continue down a path toward an ever-more intrusive security state, risking billions of dollars in economic harm to the US tech sector, undermining US diplomatic relationships, threatening the architecture of the internet, and imperiling the US Internet Freedom agenda. Or, policymakers can enact real NSA reforms designed to restore America's role as a global leader on internet security and openness, and a trusted partner to its friends and allies around the world.