Brazil’s Internet Bill Could Increase Costs for Multinationals

A controversial draft bill soon to be voted on by the Brazilian Congress has caused great concern among multinational online companies such as Google, Facebook, Yahoo and Microsoft. The legislation known as the Marco Civil da Internet – a civil-rights framework for internet users and providers – requires online services providers to keep local-user information in data centers inside Brazil.

The bill was marked as urgent by President Dilma Rousseff following revelations by Edward Snowden, a former US National Security Agency contractor, that the NSA had monitored her staff communications and data belonging to Petrobras, the state oil company. This measure is one of several Brazilian government initiatives aimed at enhancing cyber security and making Brazilians’ communication less vulnerable.

The proposal requiring providers to store the data inside Brazil has been criticized by specialists, lawyers and technology companies because it could increase costs for the online service providers and could make Brazil less competitive globally.

Multinational companies such as Facebook, Google and Microsoft say that they store the users’ information in huge offshore data centers and that the obligation to keep Brazilians’ information within the country implies an increase in costs and could restrict the Brazilians’ access to some services. “The proposal risks limit Brazilian users’ access to services provided by US companies and those of other countries”, commented Google by email. However, the company said that it supports the Marco Civil bill because it is an important law to protect the freedom of speech.

Yahoo, which has been present in the country since 1999, also expressed its support for the bill. “With the approval of the Marco Civil, Brazil will establish a precedent for the region as a country where online access is a right protected to citizens, and where companies like Yahoo can continue to innovate in order to offer the best experience to its clients”, said Kuek Yu-Chuang, regional direct of Public Politics from Yahoo. Facebook and Microsoft declined to comment the subject.

Secure Data?

Ronaldo Lemos, who drafted the original framework of the bill in 2009, argues that the requirement for foreign providers to store Brazilian users’ information in data centers inside Brazil doesn’t signify more security for data in the network. “It doesn’t make sense because the data circulates on the Internet and passes through other jurisdictions”, said Lemos, an attorney at Pereira Neto Macedo and professor at Rio de Janeiro Federal University (UFRJ).

The storage of Brazilian users’ data in one place could actually make it more vulnerable to attack by hackers, said Luiz Fernando Moncau, a researcher from FGV Direito Rio de Janeiro. Furthermore, storing data within the country could make it easier for the government to monitor Brazilian users’ information, Moncau said.

Rising Costs

The cost of implementing data centers in Brazil is very high. A study by consultants Frost & Sullivan found that Brazil is the most expensive country to build data centers, with each one costing an average of $60.9 million, significantly more than in Mexico ($48.7 million) and the US ($43 million). “The main reasons for the cost being so high In Brazil are the price of the electricity, the efficiency of the Internet network, and taxes”, Lemos said.

Several companies have said that the proposed measure will increase the cost of service for Brazilian users. “The increase in cost will be passed on to consumers and this could affect the competiveness of Brazilian businesses,” said Lemos.

Although Brazil is the world’s sixth-largest market in Internet users, with 86 million users in 2012, Google’s data center in Latin America is based in Santiago, in Chile. This city was chosen as a base for Google’s first data center in the region because of the ideal combination of reliable infrastructure, a skilled workforce and a commitment to transparent and business-friendly regulations, according to a company statement.

Another polemic proposal of the Marco Civil bill is to prohibit Internet providers from altering the price packages for different types of content. This means Internet providers would have to set charges for all data equally, with any divergence only permitted due to technical requirements. “Limiting Internet packages by the content could bring disadvantages to the consumers and further restrict the entry of new companies into the market,” said Moncau from FGV.

State-led Security

Other measures that the government has adopted to protect Brazilian online communication include investments in Brazilian startups with projects focused on protection and security in cyberspace, as well as the development of a national encrypted email system.

The government is developing its own encrypted email service, known as Expresso, for federal officials and it will substitute Outlook, Microsoft’s email service. The new email service, aimed at preventing possible espionage or data leakage, will be available to the entire population, although the model to be adopted has not yet been defined. “The Brazilian government could make this technology available to Brazilian users or oblige providers to offer their clients the possibility of using national encrypted email service,” Moncau said.

In addition, the government will invest in startups to develop new systems in defense and cyber security. A new public announcement regarding the Start-Up Brazil program will be issued at the beginning of next year. “We will select 10 startups with projects in this area. Each one will receive 200,000 Brazilian real (US$100,000) per year,” said Virgílio Almeida, secretary of Brazil’s Ministry of Information Policies for Science, Technology and Innovation.

The idea was inspired by the Pentago project which works as an incubator for businesses related to protection and security in cyberspace. There are currently 87 companies in the area of information security and cryptography in Brazil.

Almeida said that the Brazilian government has worked to implement other incentives for the technology sector such as cost reduction in energy, telecommunication, equipment and software prices. “Apart from this, we are talking to the government to reduce taxes for this sector,” he said. The government has also launched the IT Maior program, to increase the qualified workforce in this sector.