The Growing Importance of Where Data Lives

Consumers are increasingly sensitive about where their personal data is being processed and stored. The head of our European Telecom team explains the complexity around data sovereignty and why investors should care about the issue.

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Welcome to Thoughts on the Market. I’m Emmet Kelly, Head of Morgan Stanley’s European Telecom team. Today I’ll be talking about data sovereignty.

It’s Wednesday, April 3rd, at 5pm in London.

It’s never been easier to manage your life with just a click of a button or tap on the screen. You can take a photo, upload it to social media, and share it with friends and family. You can pay your bills online – from utilities and groceries to that personal splurge. You can even renew your library card or driver’s license or access your emails from years and years ago.

But where is all this data stored? Our recent work shows that consumers are increasingly sensitive about this issue. Among European consumers, for example, more than 80 percent think it’s either very or somewhat important to know where their data is stored. And two-thirds of European consumers would like their data to be stored in their country of residence. A further 20 percent would be willing to pay more to store data locally, especially consumers in Spain and Germany.

These results suggest that in the future, processing and storage of European data is more likely to be near shored rather than be based abroad.

A few weeks ago, I came on this podcast to talk about our expectation that European data centers will grow five-fold over the next decade. Our research showed that key drivers would include increased cloudification, artificial intelligence and data sovereignty. We believe the most under-appreciated driver of this exponential growth is the question of where data is stored and processed. This is data sovereignty; and it’s a concern for European consumers.

Data sovereignty means having legal control and jurisdiction over the storage and processing of data. It also means that data is subject to the laws of the country where that data was gathered and processed. More than 100 countries have data sovereignty laws in place, and laws governing the transfer of data between countries will only proliferate from here.

In Europe, for example, we estimate that less than 50 per cent of cloud data is stored locally, within the European continent. The remainder is stored either in the US – notably in Virginia, which is the key data center hub in the United States; or, to a lesser extent, in lower-cost locations within Emerging Markets or in Asia.

Complicating the issue of data sovereignty further are the so-called “extraterritorial laws” or "extra-territorial jurisdiction." These dictate the legal ability of a government to exercise authority beyond its normal geographic boundaries. From a data perspective, even if data is stored and/or processed in Europe, it may also be subject to extraterritorial laws. Essentially, foreign, non-European governments could still gain access to European data.

This is something to keep in mind as we put data sovereignty in the context of the transition to a multipolar world – a major theme which Morgan Stanley Research has been mapping out since 2019. The rewiring of the global economy is well under way and data security is a key imperative for policy makers against the backdrop of accelerating tech diffusion and also geopolitical tensions. Our baseline de-risking scenario for the rewiring of global trade extends to data security and implies a robust case for the near shoring of European data and data center growth.

With so little of the European data pie stored or processed in Europe, the potential upside from near-shoring is considerable. Bottom line, we think investors should pay close attention to the issue of data sovereignty, especially as it plays out in Europe over the coming decade.

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