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Microsoft Canada president Janet Kennedy says the creation of two Canadian data centres was “really was for the Canadian government.”Dave Chan/The Globe and Mail

Some Canadian companies and governments may finally start using Microsoft Canada Co.'s cloud computing services without fear that sensitive information might flow over the border, thanks to the arrival of two new data centres.

The company announced Monday that it is opening up trial access to its new "local cloud" to a select group of long-time clients, including PCL Construction, Gibson Energy Inc. and Panasonic Canada. The broad roll-out won't begin until the second quarter of 2016.

"This really was for the Canadian government. My public-sector team has worked for six years to create the financial case for this significant investment here in this country," Microsoft Canada president Janet Kennedy said.

Ms. Kennedy declined to outline exactly how much the new Quebec City and Toronto data centres cost, but in the past year, Microsoft has launched six new data centres as part of a $15-billion (U.S.) investment in cloud services. Microsoft now has 22 "cloud regions" that support 90 countries. Until now, many Canadian government agencies had mandated that no cloud data provider could shuttle Canadian data outside the country. For instance, governments in Nova Scotia and British Columbia have passed rules that require patient health-care data stay inside Canada. The only way to provide remote storage of that data, not to mention access to powerful distributed computing platforms such as Microsoft Azure, was to host the servers that did the work on Canadian soil.

In 2015, the federal government started a consultation process at the Treasury Board to see if the information-technology industry could answer whether it was practical to, for instance, "require that all databases in which the data is stored be running on servers located in Canada." It also planned to build its own "government cloud" at Shared Services Canada. A representative from the Treasury Board could not immediately respond to a request for comment on Monday.

While Microsoft currently provides non-cloud servers and software to the government, its fast-growing cloud service has lower costs and much higher margins. Managing government data is a huge prize in the enterprise computing business and the Redmond, Wash.-based company has been working for years to get a crack at it.

There is a potential complication for data sovereigntists in the government and in business: The Trans-Pacific Partnership would effectively outlaw the practice for signatories. The former Conservative government's own summary of the deal concluded that it "prevents governments in TPP countries from requiring the use of local servers for data storage."

As law professor and TPP critic Michael Geist has pointed out, not only would that hurt the domestic market for cloud services, the deal could make Canada a less attractive site for multinational companies that want to keep data out of America by locating it in Canada. The deal has not been ratified yet, either in Canada or in the United States.

"When I came here three years ago, I was really surprised because, as you know, other developed countries have been doing cloud better than Canada because of the data residency and privacy situation," said Ms. Kennedy, who suggested that Canadians were losing out both in terms of cost and business efficiencies by avoiding cloud solutions. "A lot of [small and medium-sizes businesses] seem to be nervous about having cloud services outside the country, following the government's lead."

One of the companies in the trial, Panasonic Canada, manages some of the most sensitive data in the country: Police dash-camera footage that can oftentimes become evidence in court. Susan Black, senior director of information technology and security solutions, says the appeal of cloud computing to store and organize camera footage gets acute as more police agencies move toward body cameras.

"If you look at a 12-hour shift for the average in-car camera, about an hour [of footage] a day is kept. For body wearables, it's been as long as two hours per officer per shift," she said. Right now, that data are stored in police agencies (often at significant cost), and there are no current trials of cloud-stored police footage in Canada. But Ms. Black said the company's U.S. operation has developed an Azure cloud backup system that could be deployed here.

Microsoft has increasingly relied on cloud computing to drive revenues as its Windows-based products suffer from the overall slowdown in desktop/laptop computing. In its January quarterly earnings report, Microsoft's Azure business revenue grew 140 per cent year over year and the Intelligent Cloud segment (which includes other services like Windows Server) increased 5 per cent to $6.34-billion in revenue. Inc., a competitor in the cloud sector, saw its AWS business grow by 69 per cent in the same quarter, contributing $2.4-billion in revenue and $687-million in operating profit.

One key service of Microsoft's cloud is Office 365, a subscription-based version of its productivity software, but the locally hosted version of 365 is not yet available even for the trial participants. The company's Azure product allows for things like remote backups of sensitive data, as well as using its massive distributed computing power to run web applications such as BlackBerry Enterprise Server. The company recently purchased developer Xamarin, a long-time partner and cross-platform app developer that could help boost Microsoft's exposure in the hot mobile applications market.

Ms. Kennedy said Microsoft's cloud business has grown by 30 per cent in the past year among Canadian small businesses, and 65 per cent of its large enterprise clients already have at least one cloud service. Predictions for Canada from analysts at IDC suggest the government market for cloud services will grow by 48 per cent by 2019, with small business improving 27 per cent.

"Those are huge numbers," Ms. Kennedy said. "But they are coming off a base when a lot of people weren't doing much in cloud."

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