Frozen cloud services market - a costly deal for taxpayers

One of the strongest digitalization trends, which is also a prerequisite for many other digital services and innovations, is the use of cloud services. More and more people are choosing cloud computing to increase their efficiency, security and customer service. Major benefits arise when users share resources instead of each having to invest in their own servers, IT-savvy staff and other necessary infrastructure.

In Sweden, the public cloud computing market has unfortunately been at a standstill since 2018. This is due to legal uncertainty about when confidential information is considered to be disclosed. This is a complex issue with many legal, technical and even political roots. The legislation does not provide unambiguous answers and crucial parts have not been tested in court. This has led to an occasionally polarized debate in which stakeholders have different interpretations of how and to whom the public sector can outsource its IT operations.

The fact that Sweden ranks 14th out of 36 in the European Commission's latest ranking of the digitization of public administration in Europe shows that there is great potential for improvement. Without access to a cloud infrastructure, it will be more expensive and more difficult to develop smart digital public services. The fact that the government last year set up an inquiry to map out the legal conditions for secure and efficient IT operations is therefore positive.

More unfortunate is the delay in the investigation. Most people agree that legal uncertainty comes at a price. But is it possible to estimate the cost? IT&Telecom asked analyst firm Radar to investigate the cost of the lockdown in the public cloud services market. We found the following:

• The Swedish public sector has a low level of efficiency in its own data centers. The economies of scale and cost advantages of cloud services are not fully utilized. The average utilization of own data centers is only about 12 percent in the public sector. This inefficiency means high costs for unused capacity.
• The lockdown has so far cost the public sector around SEK 4.6 billion. In the fall of 2018, the public collaboration program eSam published a legal statement questioning outsourcing to overseas cloud service providers. The statement is contentious and led to great uncertainty in the market. Our analysis shows that the lack of cloud service investments has resulted in lost efficiency gains in the public sector of around 15% from 2018 until today. This is equivalent to around SEK 4.6 billion. In our Nordic neighbors, there have not been the same lockdowns. And neither there nor in the private sector are there corresponding lost efficiency gains.
• Continued legal uncertainty could cost the public sector an additional SEK 1.1 billion per six months. Based on the observed lack of efficiency gains between 2018 and today, our estimate is that lack of cloud service investments may cost the public sector an additional SEK 1.1 billion per six months - as long as the legal uncertainty remains.

This waste of taxpayers' money can be avoided through clearer supplier conditions, so that the public sector can fully benefit from the digital services offered by the market. It is therefore imperative that the IT Operations Inquiry delivers clear and workable legislative proposals, enabling cost-effective, innovative and secure market solutions. In addition, the continued preparation of the proposals must be prioritized and handled quickly in both the Government Offices and the Riksdag. The cost to taxpayers is increasing with each passing day.

Åsa Zetterberg, Association Director, IT&Telecom Industries
Hans Werner, CEO, Radar Ecosystem Specialists