Ovum sees the availability of enterprise-grade optical routers, together with the ability to lease individual strands within dark fiber routes, encouraging companies to light their own fiber links, with financial market participants at the forefront of this trend.
It recommends that capital markets institutions consider the economics of managing their own optical links, particularly in the most demanding geographies.
Carriers with dark fiber, meanwhile, should study how to offer self-lit, self-managed capacity to the most tech-savvy hedge funds.
If your company has sufficient traffic on its wide area network (WAN) to warrant a fiber-optic link, the normal way to get one is to go to a carrier such as AT&T or Verizon in the US, or to Orange, BT, or another of the big national incumbents in Europe.
There are, of course, other competitors that are not household names - such as Interoute or AboveNet - but they are still network operators providing a service.
While this model of optical service provision is still overwhelmingly the norm, the third Dark Fiber Convention held last week in London revealed signs of change in particular market niches, with capital markets being a case in point.
Optical equipment vendor Vello Systems said it has signed up some 30 hedge funds since it started selling to enterprises 18 months ago. These firms have leases or fractional fiber contracts, running anywhere from one to ten years, on dark fiber routes that they are lighting and managing themselves.
The reasons for this development are several. Firstly, such institutions will typically be running at least two data centers for purposes of disaster recovery/business continuity and thus need to link them.
As these facilities move from 1Gb to 10Gb Ethernet connectivity, the bill to upgrade to the new, faster protocol is such that the economics of a “do-it-yourself” approach can be compelling.
Secondly, as Ovum’s latest research shows, this year banks have been big buyers for network upgrades that were delayed through the crash cost reductions of 2009. This is a highlight of our upcoming report Global Services Contracts 1H10: Telcos on a Bankers’ Bonus.
Banks actually have a long tradition of buying and operating core bandwidth for themselves, but it has typically been for their own site-to-site connectivity via virtual private networks (VPNs), not in the trading markets environment. Now they are expanding that remit to exchange connectivity and lighting their own dark fiber.
XKL, a start-up that targets enterprise customers with optical kit (Vello started life selling to carriers and cable operators), says it has yet to win any capital markets customers, its sales to date being to big Web firms and data center operators.
By mid-2011, however, it expects to see that situation change, when dark fiber provider Allied Fiber, which is currently deploying huge amounts of new fiber between New York and Chicago, will begin to offer capacity.
As these are the main US sites for cash equities and commodities respectively, the route between these two cities is key for financial market participants. This is particularly the case now that firms are developing strategies that correlate across the different asset classes and therefore will increasingly need low-latency connectivity between the two geographies.
As is the norm in this sector of the economy, Ovum expects to see the trend towards self-managed optical networks in the capital markets spread from the US to Europe over the next couple of years. London–Frankfurt will likely be the route most in demand but there will also be heightened interest in metro-area network links around London.
It also notes that some network operators in Europe, such as Geo in the UK, have already broached the optical self-manage market, so the region is clearly seeing movement in this direction.
Beyond that, the question is whether the trend will continue on into the Asia-Pacific region. Clearly the distances are far greater there, making market arbitrage strategies a more challenging undertaking.
Ovum’s forecast for the region calls for development in local markets first, such as in Tokyo and Osaka, Singapore, and between Hong Kong and Shanghai.
For the short term, however, optical connectivity in Asia-Pacific will be provided almost entirely by carriers.
Japan’s NTT Com, for instance, has recently opened a Financial Data Centers network linking Tokyo, Hong Kong, and Singapore that will support proximity hosting and ULL at these financial exchanges.
It plans to integrate its hosting centers into a trading network (i.e. a financial extranet like BT’s Radianz) in 2011.