Fierce competition in hot low-latency market
High-speed financial trading creates new ‘premium’ revenue opportunities for carriers and co-location providers leveraging gigabit and wavelength services.
Carriers are vying to one-up one another in the hot new low-latency market. The market, which carriers began to recognize about a year ago, is dominated by large financial organizations seeking to generate revenues on delay-sensitive transactions. The faster an organization’s route to a trading partner, the faster a transaction can be executed and the more money the financial institution can make.
“They’re making money on very small increments of movement in the price of a security,” said Erik Kreifeldt, senior analyst for TeleGeography, a research firm that studies carrier traffic patterns. “To capture those [opportunities], they have to act extremely fast, and they have to have a lot of money in play.”
Level 3 Communications is one carrier that has aggressively pursued the low-latency market. The company invested in a system that can calculate the best route through the network between any two locations and provide a latency number the customer can expect between those locations.
“We didn’t build it specifically for financial services, but that’s where it has become hot,” said Paul Savill, senior vice president of transport and infrastructure services for Level 3. “We picked up on the fact that they were the ones buying [the offering] and that most of the activity was between Chicago and New York.”
Offering latency assurances has helped transform what previously were relatively undifferentiated wavelength and Ethernet private line services. “Seeing that there is this demand and that we could charge a premium when we had the best latency, we were able to prove in a business model so that we can make the investment now to drive further performance increases,” Savill said.
As a result, Level 3 has been tweaking its routes to enhance latency — in some cases cutting out loops and diversions, in others pulling new fiber or straightening out detours. The company also optimized the optronics in its optical transport equipment, Savill said.
Last week, Level 3 announced that it would offer three tiers of low-latency services in response to customer demand. While some customers will pay top dollar for the lowest latency possible, others just want “something close,” Savill said. In addition, he said, there is a third group of customers that “don’t want to be so far behind they’re way of whack.” In conjunction with the new offerings, Level 3 also said that each of the top service tiers could use the tier immediately below it as a backup route.
When Connected Planet talked to Savill late last week, he said the company had the fastest route available between Chicago and New York. There was one route that was better but it had no capacity left, he said.
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© 2013 Penton Media Inc.
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