The move demonstrates the reality behind the risk to US technology providers of losing European customers following the ‘Snowden' revelations of blanket spying by America's NSA intelligence agency.
Germany's Interior Ministry announced on Thursday that it will not be renewing Verizon's contract to supply a highly sensitive communications network linking Berlin's government ministries, according to BBC and Reuters reports.
The contract, held by Verizon since 2010, will switch to Deutsche Telekom when it comes up for renewal next year. Deutsche Telekom already handles sensitive communications between German ministries and intelligence agencies.
German Interior Ministry spokesman Tobias Plate explained: "There are indications that Verizon is legally required to provide certain things to the NSA, and that's one of the reasons the co-operation with Verizon won't continue.
"Furthermore, the ties revealed between foreign intelligence agencies and firms in the wake of the US National Security Agency affair, show that the German government needs a very high level of security for its critical networks."
Verizon may not have been helped by the fact that it provides cyber security services, as well as communications and telecoms networks. Ironically, Verizon publishes the widely respected “Data Breach Investigations” report.
Verizon has denied Berlin's claim that it must hand over data held in Europe, saying: “The US Government cannot compel us to produce our customers' data stored in data centres outside the US, and if it attempts to do so, we would challenge that attempt in a court."
So what are the rights and wrongs of the case?
Industry expert Brian Honan of BH Consulting told SCMagazineUK.com they will likely be settled by a case currently going through the US courts, where Microsoft is appealing against US Government demands to access data held overseas, specifically in a data centre in Dublin.
Verizon – perhaps with contracts like the German one in mind – has supported Microsoft's stance, saying earlier this month the ruling “would have an enormous detrimental impact on the international business of American companies, on international relations and on privacy”.
Honan told SC: “The US Government see it as their right to go and seize data, no matter where it is located. That ruling is being challenged by Microsoft so it will be interesting to see what the results are of that. Verizon is saying that the US Government is illegal to do it – well, that is going to depend on the ruling of this appeal.”
He added: “I would venture to say that if Microsoft lose that appeal, it's going to do significant damage to US cloud-based services and US tech companies trying to sell services outside the US.”
Honan is also not surprised at Germany's stance. “Given the allegations from Snowden about the alleged mass surveillance by US government agencies on non-US citizens – ie, Europeans and everybody else in the world – and given the high value that Germany places on privacy, this doesn't come as a real shock and surprise, as a reaction to those allegations.
“Germany has talked about having isolated networks that are using non-US companies and technologies as well. Brazil has aired similar concerns and has talked about government agencies not using US-based services.”
* In some positive news for privacy supporters, European Commission vice president Viviane Reding has this week welcomed the announcement by US Attorney General Eric Holder that the Obama administration is seeking to extend to EU citizens the data protection available under the US Privacy Act – currently only offered to US citizens.
Reding has called the move “an important first step towards rebuilding trust in our transatlantic relations. Now the announcement should be swiftly translated into legislation so that further steps can be taken in the negotiation. Words only matter if put into law.”