Microsoft’s warning against sovereign data and tech capability

Joseph Brookes
Senior Reporter

Microsoft on Wednesday argued against Australia focusing too much on sovereign tech capabilities and data storage requirements, telling a parliament inquiry it would harm competition and security.

The company also warned against rushed AI regulation, calling instead for an industry-led sandbox approach in Australia.

Microsoft Australia’s director of corporate affairs, Belinda Dennett on Wednesday pointed to the Ukraine conflict, where data sovereignty laws created complications in moving the critical information offshore in the early days of the invasion.

“Just prior to the tanks rolling in, they had to change that law,” she told the inquiry, which is investigating competition and economic dynamism.

“And tech companies were able to move their data offshore into data centres around Europe, which was vitally important to ensuring they could continue functioning as a government. I think one of the first missiles was aimed at a government data centre on Ukrainian soil.

“So I think it that might seem like an extreme example, although in these geopolitical times, perhaps not.”

Microsoft headquarters. Photo: Microsoft

Microsoft, which holds huge market shares in software, cloud computing and gaming, is arguing the Australian tech sector is diverse and much of its success — including software giants like Atlassian and Canva — owes to the establishment of tech giants and their digital infrastructure decades earlier.

The Australian cloud market is dominated by a handful of global giants, including Microsoft with a market share of around a quarter — behind leader AWS’s one third share.

But in a submission to the inquiry, Microsoft said there is still “vigorous and effective” competition in the market because of diverse cloud products and services, innovation and a “constant threat of new entry from well-resourced global firms”.

Microsoft is arguing to the House of Representatives Standing Committee on Economics for a more coherent domestic regulatory framework as Australian regulators and lawmakers consider sweeping changes.

The competition regulator continues to argue for more power to scrutinise and stop uncompetitive mergers, and has flagged digital ecosystems like Microsoft’s as being open to anticompetitive practices.

The new competition minister has also singled out big tech platforms and spent much of the last year building a case for competition law reform to help drive a “zippier” Australian economy.

The federal government is also finalising the most significant privacy law reforms in decades and is consulting on significant new cybersecurity, artificial intelligence, and potential data localisation regulations.

“AI, privacy, cybersecurity – these big policy and, in some way, risk to our business — the way we’ve sought to think about that is developing internal standards,” Ms Dennett said.

The internal standards have been well established for cyber and privacy, while AI standards have been under development for several years, according to Ms Dennett, who emphasised the internal rules are company-wide and regularly audited.

“We’re building the standards and requirements into our products, and we’re being transparent about that through our audit process, we think is the only way you’re going to be able to tackle these complex challenges like AI.”

“Sensible” external regulation was welcomed by Microsoft, Ms Dennett said, but in Australia there is already too much overlap without coordination.

“If anyone says to someone [in technology] ‘who’s your minister?’, there’s quite a few of them. There’s quite a few portfolios that we’ve engaged with,” she said.

On AI specific regulation – which the Albanese government is understood to be exploring – Ms Dennett said Microsoft is in favour of a principles approach initially that moved to self or co-regulation to find out “what the spot is” for government led regulation.

This should start with stakeholder summits and wide consultation, she said.

“I think that’s really important, particularly in something like AI that’s going to need society to decide where these guardrails should be.

“I think the biggest risk is if government feels that government has to come up with the solution on its own. That’s probably going to not be workable. I think the sandbox idea makes sense and we’d be supportive of that.”

Australian experts have backed new AI rules, including a dedicated regulator because of the technology’s high risk and easy access.

With the Albanese government’s renewed focus on building sovereign capability, including earmarking $15 billion for investments in Australian companies, Ms Dennett also warned about overlooking the contribution of foreign tech firms like Microsoft.

“Sometimes… we we have resorted to the sovereign capability sort of mandate, ignoring the role of the US companies that have been in this country for a very long time and contribute to the economy,” she said.

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