Microsoft Offers European Users Local Data Centers Via Deutsche Telekom After 'Safe Harbor' Judgment

Microsoft has become one of the first large American companies to set up local data centers in Europe after a "safe harbor" pact, which had allowed easy flow of data between the European Union (EU) and U.S., was struck down last month by the European Court of Justice (ECJ).

Microsoft has now offered to store the data in two data centers in Germany, where privacy regulations are considered to be strong. The company has also put in place a mechanism by which it will have no access to the data unless it has permission either from the user or T-Systems, the Deutsche Telekom IT unit that will manage the data centers.

“Our new datacenter regions in Germany, operated in partnership with Deutsche Telekom, will not only spur local innovation and growth, but offer customers choice and trust in how their data is handled and where it is stored,” Microsoft CEO Satya Nadella said, in a press release Wednesday.

On Oct. 6, Europe's top court deemed invalid the safe harbor agreement noting that U.S. privacy protection rules weren't strong enough. The agreement had allowed tech companies to store information of EU users in data centers in the U.S. The ruling, which underscored concerns about privacy across the world, stemmed from a class-action case against Facebook claiming the U.S.-based social networking provider violated EU laws.

The ruling could also raise the cost of doing business for thousands of technology companies, as it mandates that they store data locally, and bolster similar requirements in other countries.

Access to customer data stored in Microsoft's new data centers will be controlled by T-Systems, a subsidiary of Deutsche Telekom, Germany's largest telecom utility, acting as a data trustee. Microsoft will not be able to access this data without the permission of the customers or the trustee, and if permission is granted, Microsoft will only access the data under the trustee's supervision, the U.S. software company said in the release.

The data centers will be located in Magdeburg and Frankfurt, and their security protocols will be certified by Germany. The centers are expected to be open for business in the second half of 2016 and their services will be available to customers in Germany, the EU and the European Free Trade Area, according to Microsoft.

While local storage entails a cost, it is also becoming a chance to win more business and offer better service to customers, and Microsoft has benefited from it. The company has recently opened local data centers in others markets, including India, and on Tuesday, Nadella said the company will soon offer its cloud services through local storage in Britain. The maker of the Windows 10 computer operating system and the Office 365 Internet-based software suite has also expanded its data centers in Ireland and Netherlands.