The dream of Australia becoming an Asia-Pacific Cloud computing hub could become a reality, but hinges on having a well-designed regulatory and policy environment and overcoming cost challenges, a new report argues.

The Potential for Cloud computing services in Australia report, written by Lateral Economics and sponsored by Macquarie Telecom, argues the country must move to greater industry self-regulation if the nascent local industry is to capture Cloud's significant opportunity.

"In the case of Cloud computing, industry self-regulation may be a necessary part of the overall regulatory solution," the report reads. "A legislative approach to regulation may simply be too slow and unable to continuously adapt to the rapid technological change that characterises the industry.

"Another factor in favour of industry self-regulation is that each firm has a strong incentive to build and maintain its reputation and to build a regulatory structure that promotes trust and confidence in the marketplace. In fact, imposing Cloud-specific legislation or regulations could impede the potential of Cloud computing instead of encouraging the safe and rapid growth of Cloud computing."

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Despite the call for greater self-regulation, the report notes that the country's already strong regulation and high levels of government and regulatory integrity act as positives when contrasted against major Cloud suppliers such as the US.

"The key for Australia to become a leader and not a follower is to understand that many services are increasingly a co-product of competitive service providers (usually from the private sector) and government regulators," the paper reads.

"The United States Patriot Act brazenly declares the US Government's right to access anything it wants from any Cloud infrastructure over which it can claim jurisdiction. That creates a demand for Cloud computing services that are not subject to such capricious hazards."

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Another factor in making Australia more attractive to overseas purchasers was the potential to put in place regulation which exempted foreign Cloud service users from domestic regulations.

"Firstly, we could pioneer a careful separation between the regulation of local supply and export so as to exempt foreign purchasers of Australian Cloud services from any regulatory requirements that exist in Australia solely to protect Australian users," the report reads.

"Secondly, we could allow foreigner purchasers of Cloud services to 'opt in' to that regulation should they wish." The Australian government could also act to support local providers through acting as 'anchor clients', however, this should not mean Australian agencies should exclusively use local providers.

"Just as Swiss banks are attractive to global depositors, in substantial part because of supportive Swiss regulation, so the Australian government should regulate the Cloud so that we're a preferred provider for firms, governments and other users offshore," the report reads.

"Indeed Australian governments should be prepared to import Cloud services from any country that gives them similar confidence and that will mutually recognise our own offerings to them."

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The report follows a year of major advancement in domestic Cloud services -- particularly those seeking to capture a share of the government sector.

In June, Australian Government chief information officer, Anne Steward, pointed to the lack of a common definition of what constitutes a 'Cloud' service -- rather than issues of regulation -- as being one of the major reasons government agencies had yet to come up with a common federal Cloud strategy.

The same month HP Australia began gunning for public sector data in a big way with the launch of its Government Secure Cloud Services -- a range of hybrid Cloud offerings including software as service (SaaS), infrastructure as a service and storage and database management.

Earlier in the year, Telstra said government departments at all levels had jumped at the chance to consult and trial Telstra's Cloud infrastructure, with up to 10 individual agencies identified as potential clients.

The current regulatory regime has also not muffled the explosion in data centres being either announced or built across the country during 2011.