NSA Spying Scandal Could Cost U.S. Tech Giants Billions

AT&T and Verizon have remained silent about their role in the NSA's programs

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NSA / Reuters

The National Security Agency headquarters in Fort Meade, Md.

The National Security Agency spying scandal could cost the top U.S. tech companies billions of dollars over the next several years, according to industry experts. In addition to consumer Internet companies, hardware and cloud-storage giants like IBM, Hewlett-Packard, and Oracle could suffer billions of dollars in losses if international clients take their business elsewhere. Now, the nation’s largest Internet companies are calling for Congress and President Obama to reform the U.S. government’s secret surveillance programs.

Google, Apple, Microsoft, Yahoo, Twitter and Facebook are facing intense scrutiny following revelations from former NSA contractor Edward Snowden, who leaked classified documents about the NSA’s snooping programs. In particular, the tech giants have been stung by disclosures about a classified U.S. intelligence system called PRISM, which the NSA used to examine data — including e-mails, videos and online chats — via requests made under the Foreign Intelligence Surveillance Act (FISA).

Snowden’s disclosures stoked privacy concerns about how the largest U.S. tech companies handle their vast troves of user data. Since then, the companies have strenuously denied that they give the NSA “direct” or unfettered access to their computer servers, and they’ve waged a public competition to demonstrate their commitment to transparency. But recent reports have described how the NSA taps directly into the networks of the tech giants, a disclosure that prompted outrage from top company executives, most notably Eric Schmidt, Google’s executive chairman.

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After Snowden’s leak, the Information Technology & Innovation Foundation (ITIF), a non-partisan, D.C.-based think tank, published a report saying that U.S. cloud computing providers could lose as much as $35 billion by 2016 because of the NSA revelations. ITIF senior analyst Daniel Castro, the report’s author, wrote that Snowden’s disclosures “will likely have an immediate and lasting impact on the competitiveness of the U.S. cloud computing industry if foreign customers decide the risks of storing data with a U.S. company outweigh the benefits.”

Analysts at Forrester, the respected tech industry research firm, went even further. In a blog post, Forrester analyst James Staten projected a net loss for the Internet service provider industry of as much as $180 billion by 2016, which would amount to a 25% decline in the overall information technology services market. “All from the unveiling of a single kangaroo-court action called PRISM,” Staten wrote. His estimate includes domestic clients, which could bypass U.S. cloud providers for international rivals, as well as non-U.S. cloud providers, which could lose as much as 20% of their business due to foreign governments — like Germany — which have their own secret snooping programs.

With numbers at that scale, it’s not hard to understand why the top U.S. Internet companies are vehemently protesting the government’s secret surveillance programs. Silicon Valley executives frequently tout their belief in idealistic principles like free speech, transparency and privacy. But it would be naive to think that they also aren’t deeply concerned about the impact of the NSA revelations on the bottom line.

“Businesses increasingly recognize that our government’s out-of-control surveillance hurts their bottom line and costs American jobs,” Rep. Justin Amash, the Michigan Republican and outspoken critic of the NSA’s secret programs, told TIME by email. “It violates the privacy of their customers and it erodes American businesses’ competitive edge.”

On Monday, a coalition of the largest U.S. Internet companies launched a campaign to pressure the government to reform its surveillance programs. “People won’t use technology they don’t trust,” said Microsoft general counsel Brad Smith. “Governments have put this trust at risk, and governments need to help restore it.” Several tech CEOs, including Google’s Larry Page, Yahoo’s Marissa Mayer and Facebook’s Mark Zuckerberg, are personally throwing their weight behind the effort.

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It’s the most high-profile effort yet by the tech titans to repair the damage to their corporate reputations caused by the NSA revelations. The coalition is calling for limits on government authority to collect user information; better oversight and accountability; greater transparency about the government’s demands; respect for the free flow of data across borders; and the avoidance of conflict between governments.

“Recent revelations about government surveillance activities have shaken the trust of our users, and it is time for the United States government to act to restore the confidence of citizens around the world,” said Mayer, Yahoo’s CEO. Page, Google’s CEO, said: “The security of users’ data is critical, which is why we’ve invested so much in encryption and fight for transparency around government requests for information. This is undermined by the apparent wholesale collection of data, in secret and without independent oversight, by many governments around the world.”

Monday’s statement by the leading Internet companies is the most forceful sign yet that they are serious about repairing the damage done to their reputations — and future business prospects — by the NSA revelations. But one group of companies that has also been implicated in the Snowden leaks remains conspicuously absent: The nation’s largest telecom companies. Both AT&T and Verizon have remained stone-cold silent about their role in the NSA’s programs. Last week, AT&T said it planned to ignore a shareholder proposal calling for greater transparency about government data requests.

The United States government is now at a crossroads. America faces difficult choices about how to balance the vital imperatives of national security and consumer privacy. For years, civil liberties groups warned that the Internet giants posed the greatest risk to privacy in the digital age. After the Snowden revelations, it’s become clear that the gravest threat to civil liberties comes not from the private sector, but from the U.S. government itself. U.S. policymakers must decide if they wish to continue down the path toward an ever-more intrusive surveillance state — risking billions of dollars in damage to the U.S. economy — or apply real oversight and reform to an intelligence apparatus that has undermined confidence in the government and the nation’s most innovative and profitable businesses.