Cloud computing technology in Australia has the potential to be world leading according to a Lateral Economics study.

 

The report, commissioned by Macquarie Telecom, identifies Australia’s stable political and regulatory regime as key factors in the potential for success, alongside solid infrastructure spending and a vibrant ICT sector that has already made substantial inroads in the industry.

 

The report concludes that the Australian industry has natural protection and competitive advantage from two sources:


Firstly, the "tyranny of distance‟. Like high transport costs in the 19th century, the relatively high latencies imposed by our distance from major digital markets mean that:

  • Australian industry has some strong advantages in supplying some parts of the domestic market (where low latency is critical) and
  • Australian industry may aspire to reasonable competitiveness in supplying parts of the export market particularly where low latency is not a critical requirement.


Secondly, regulatory security.

  • We have strong regulation and high levels of government and regulatory integrity.
  • We have a good capability to develop and manage industry self-regulation (and the cloud services industry has a strong self-interest in effective self-regulation).
  • This gives local services some advantages – particularly in juxtaposition with some of the unattractive regulatory impositions of competing countries like the US (in particular the Patriot Act).
  • This is particularly true where Australian governments seek cloud computing services but wish to avoid exposure to risks arising from foreign regulation.

 

Superior regulation could help facilitate export growth in two ways:

  • Firstly we could pioneer a careful separation between the regulation of local supply and export so as to exempt foreign purchasers of Australian cloud services from any regulatory requirements that exist in Australia solely to protect Australian users.
  • Secondly we could allow foreigner purchasers of cloud services to "opt in‟ to that regulation should they wish.


These strategies of carefully discriminating between the regulation of domestic and foreign users are pursued both by Australia and other countries in areas such as the export of finance and education.


The cloud computing industry appears to face higher costs in Australia than in our major competitor countries due to:

  • market immaturity
  • lack of scale
  • higher costs to and from offshore markets


With an open and vigorous strategy, Australia maximises its chances of growing the cloud sector domestically and „owning‟ the local market. This would be a significant achievement in adding value through import replacement. Given the current state of our international and long-haul communications links and their high cost, the objective of export-driven growth remains a challenge, and there are actions for governments to consider if they wish to ameliorate these. But a large and competitive domestic industry will be well placed to seize export opportunities in specific niches where they can wrest some advantage against competitors should circumstances change – for instance where there is increased international communication capacity, a fall in the value of the Australian dollar or a favourable shift in relative energy prices.

 


Recommendations for Government

Governments can play a role in assisting the development of cloud computing in Australia by:

  • Being an anchor source of demand, though governments should direct their business to Australian providers on their merits, and on the merits of Australian supply, not in the form of purchasing preferences.
  • Facilitating and expediting government and industry collaboration to clarify and agree on the application of existing legislation to cloud computing, particularly in relation to privacy and data security.
  • Collaborating with industry to define a code for industry self-regulation that addresses issues such as standard terms in contracts and obligation to notify of security breaches.
  • Collaborating with industry to develop export-oriented legislative and self-regulatory settings for cloud computing. In particular, where they are servicing export customers, Australian cloud service providers should be able to opt out of certain regulatory strictures designed to protect Australian resident people and corporations.
  • Collaborating with industry to ensure its policy and regulatory framework promote Australia as a data centre hub in the same way that the Singapore government is proposing a general data protection law to strengthen Singapore‟s position as a trusted hub for data processing industries such as cloud computing.
  • Investigating the state of competitiveness and pricing in domestic backhaul communication links and international links with a view to optimising public
    expenditure on communications infrastructure.
  • Governments at higher levels might be able to constructively assist in the orchestration of demands for cloud computing services from governments at lower levels. For instance the Cloud Computing Task Force report talks about the scope for local government to use the cloud, and the cloud should be a powerful source by which successful innovation in one government can be taken up by others. Federal or State governments might be able to help by rewarding councils and/or vendors with the most attractive proposals for common cloud services perhaps through competitions with set prizes attached – including advance purchase undertakings.

 

The study was welcomed by the Australian Information Industry Association (AIIA), with chief executive Suzanne Campell reiterating the report’s glowing assessment of the industry’s potential.

 

"The opportunity to define the nation as a preferred global destination of cloud computing services is precisely the kind of initiative we need to grasp in order to position Australia strongly in the emerging global economy,” Ms Campbell said.

 

"Like all technology-driven initiatives, strong engagement between the key stakeholders is essential. In particular, coordination of government regulatory environments with initiatives across the private sector will be central to developing the right outcomes.”

 

The full report can be found here