Why distance matters - connectedplanetonline.com

HT to Telecom Ramblings:

>>Why distance matters

Challengers dominate the low-latency market — but for how long?

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Near-instantaneous high-bandwidth connections have given rise to a new form of financial trading based on algorithms. These algorithmic trading systems seek to generate profits by quickly acting upon extremely small changes in the price of a security. In this environment, a few extra milliseconds of transmission time can mean the difference between a profitable trade and one that’s not worth doing because the price changed while the buy order was on its way.

Network operators supporting these automated high-speed trades have learned that in this particular environment, distance does matter. From a global perspective, New York and Chicago are not so far apart. But if a fiber network operator uses a route between the two cities that’s 50 miles longer than a competitor’s route, it can add critical milliseconds, pushing the round trip time above a level acceptable for high-speed trades.

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Perhaps it’s not surprising that it’s nimble companies like these, rather than established service providers such as AT&T and Verizon, that are capitalizing on the demand for low-latency connectivity and pioneering new services to meet those demands. But I also can’t help wondering how long that situation will remain. It wouldn’t seem very difficult for the telco giants to gear up their own low-latency routes and leverage connections they already have with financial industry clients to capture a substantial chunk of this new market.