A Year Later, NSA Revelations Haunt Verizon in Germany

Could Be Bad Sign for Other American Companies Seeking Growth Abroad

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Germany favors Deutsche Telekom to replace Verizon Communications as a network provider after deciding to end the American company's contract in the wake of reports about spy surveillance by the U.S.

"The federal government wants to win back more technological sovereignty and therefore prefers to work with German companies," Tobias Plate, an interior ministry spokesman, said today at a press conference in Berlin.

Germany is using an option in the current Verizon contract to end the arrangement next year, Mr. Plate said, declining to confirm whether the government had any evidence that the provider handed information from the network to the U.S. National Security Agency.

The move is the clearest sign yet that concerns in Europe about spying by the U.S. may harm the business of American companies in the region. The decision doesn't bode well for communications providers such as Verizon and Dallas-based AT&T, which have sunk billions of dollars into winning large clients outside the U.S., said Roger Entner, lead analyst at Recon Analytics in Dedham, Massachusetts.

Security trumps speed
"Verizon is the victim here -- they tend to be faster, more flexible and cheaper than local providers," Mr. Entner said. "But now security is the trump card in the deck and that's why Deutsche Telekom wins."

Chancellor Angela Merkel's government plans to combine three separate networks under one service provider, Mr. Plate said. A proposal to award the contracts to Deutsche Telekom has already been discussed in the parliament's budget committee, though no contract has been signed yet, he said.

Harald Lindlar, a spokesman for Bonn-based Deutsche Telekom's T-Systems unit, declined to comment.

German prosecutors and lawmakers have begun investigating allegations that U.S. intelligence agents tapped Ms. Merkel's phone, underscoring the effect on U.S.-German relations of documents leaked by former NSA contractor Edward Snowden.

Ms. Merkel and President Barack Obama failed to end the dispute during talks at the White House in May, with Ms. Merkel saying "differences of opinion" persist and require further discussion.

"It has pained me to see the degree to which the Snowden disclosures have created strains in the relationship" with Germany, Mr. Obama said.

No damage claims?
Verizon's services won't be retained because the German government now requires telecommunications providers signing new contracts to confirm they're not legally obliged to share information with foreign governments, Johannes Dimroth, an Interior Ministry spokesman, said by phone yesterday. Mr. Plate, who wouldn't comment on the value of the services, said that Germany won't face damage claims from Verizon, based in New York.

Verizon, whose contract with Germany expires in 2015, provided data on the phone use of millions of customers to the NSA under a court order, Mr. Obama's administration confirmed last June.

The "relationships between foreign-intelligence services and companies revealed during the NSA affair" mean that Germany's government has to apply "especially high" security standards to its communications infrastructure in the future, the Interior Ministry said in an e-mailed statement.

In a blog post earlier this year, Verizon said the U.S. can't compel the company to produce customer data stored in foreign countries. In the post, Verizon said it would challenge the U.S. government in court if it sought such data. The U.S. can seek assistance from local law enforcement in other countries under international treaties to obtain data stored on foreign soil, Verizon said.

"Verizon Germany is a German company and we comply with German law," the New York-based company said in a statement yesterday. "We have outlined our position on the inability of the U.S. government to access customer data stored outside the U.S. in our policy blog."

A representative for Verizon in Germany didn't immediately have a comment today beyond that statement.

--Bloomberg News

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