Banking on optical networking

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Optical networks used to be the sole domain of the telecommunications carrier community. However, dramatic changes are underway, and each year, enterprises represent a larger percentage of the overall optical networking market. According to industry analyst firm IDC, the enterprise segment represented 16% of the overall market in 2005 and is expected to grow to 18% or $540 million this year. The enterprise segment comprises numerous vertical industries, including financial services; federal, state, and local government; education; and healthcare. Deployments of optical networks by banking and securities firms represent one of the largest groups, with estimated rollouts of $200 million or almost 36% in 2006. Regulatory requirements and business continuity concerns are the primary drivers of this growth.

In 2003, regulatory agencies in the United States proposed that critical financial institutions should have fully operational recovery sites located 200 to 300 miles away from their primary data centers. This initiative was seen as an important means to strengthen the resiliency of the U.S. financial markets. In the final specification, the agencies did not establish absolute mileage requirements but strongly recommended “sufficiently geographically dispersed” sites. As a result, many financial services firms turned to optical technologies to connect the longer distances between their data centers. Today, the most common distance is approximately 100 km.

Another regulatory influence is the Sarbanes-Oxley Act, introduced in 2002. Originally, the act required that financial correspondence had to be retained for a 5-year period, but this was later amended to 7 years. As such, the storage requirements for many organizations are doubling every year, with no leveling off in sight.

What sets financial services organizations apart from other industries is the value of the information within their networks. Consulting firm Contingency Planning Research estimates that the average hourly cost of downtime can range from $89,500 for an airline reservations center to $6.5 million for a large brokerage firm. To protect such valuable assets, financial services firms have embraced optical networking to provide high-speed, synchronous connectivity between geographically dispersed data centers.

Whether a financial services company opts for a private network or a managed service is largely an issue of economics and location. Private networks can provide organizations with substantial financial advantages over managed services from carriers. With storage needs and bandwidth requirements growing exponentially, monthly recurring fees for a managed service continue to climb with each incremental expansion. By contrast, a private network infrastructure works on a fixed rate model for the monthly dark fiber cost as well as the upfront capital cost for the equipment to light the fiber. Once the private network is in place, capacity can be expanded with no additional increases in monthly operating expenses. Additionally, securing funds for capital investments is often easier than seeking increases in monthly operating budgets.Th 217490

RBC Financial Group has deployed Meriton Networks’ optical equipment to connect to and between its data centers, which sit 55 km and 77 km away from the corporate office and 100 km apart from each other.

Today’s optical network systems are significantly easier to design, deploy, operate, and maintain than they were even 5 years ago. As a result, it is now practical for enterprises to run their own private networks. The biggest barrier limiting the deployment of private networks is the availability of dark fiber in certain locations. In some cities, such as New York, the dark fiber market remains healthy, and there are a number of incumbent and alternate carriers offering dark fiber at competitive prices. In other cities, such as London and Toronto, dark fiber is extremely scarce and becoming prohibitively expensive — if it’s available at all. Furthermore, the recent consolidation in the industry (e.g., Level3 acquiring Looking Glass Networks, Qwest acquiring OnFiber) may remove competitive influences on certain routes in the United States, further affecting the affordability of dark fiber.

Aside from the economic advantages of a private network, financial services organizations strongly prefer dedicated, private networks. Due to the sensitive nature of the information being carried on their networks, they do not want any risk of security breaches. Nor are they willing to tolerate any outages that are not 100% related to their own network.

RBC Financial Group, for example, is one of North America’s leading diversified financial services companies and Canada’s largest bank. Faced with ever-growing bandwidth demands, RBC needed to add capacity to its existing OC-48 network. RBC was using one OC-48 circuit — provided as a managed service — to connect data centers located approximately 100 km apart in southern Ontario. Over the next 10 years, RBC estimated that it would need to expand from that single OC-48 to six or eight times that capacity. Anticipating that a managed service for the additional bandwidth would be expensive, RBC began to consider a private network.

The two key challenges were acquiring the dark fiber and finding the right optical networking equipment that met RBC’s criteria of scalability, security, and “enterprise-manageability” — and also fit within the overall business case. According to Dominic Paré, the bank’s manager of WAN infrastructure, “The single most pivotal point was securing the dark fiber. We had been shopping for years and only secured the facilities we needed in areas just as we needed them,” he recalls.

After evaluating various vendor offerings, RBC selected the agile optical networking portfolio from Meriton Networks, including the 7200 OSP optical switching platform, which gathers and reports performance monitoring statistics at every node and requires very little engineering (only SONET-like link engineering). RBC also is deploying the 3300 OSM optical services multiplexer, the 8600 NMS network management system, and the 1455 OFA optical fiber amplifiers. To meet future growth, RBC wanted an infrastructure that could support 32 or more channels at 10 Gbits/sec over DWDM. The 1455 OFAs are deployed for optical amplification and integrated dispersion compensation to accommodate future demands.

RBC compared the monthly recurring cost of an expanded managed service to meet its capacity needs over 5 years versus the cost of the dark fiber lease and the equipment. The payback period for the private network was less than a year.

Optical networks continue to gain popularity with financial services organizations because of their high-speed, high-bandwidth capabilities, which can be used to address the burgeoning demand for capacity. Choosing between a managed service and a private network is a question of location (dark fiber availability and pricing) as well as economics. For many organizations, the cost savings, control, and security inherent in a private network outweigh the convenience of a managed service. And the latest generation of optical networking equipment provides enterprises with cost-effective systems that are powerful yet easy to manage and deploy.

Dramatic cost savings versus a managed service.
A secure infrastructure that isn’t shared with other ­organizations.
Economies of scale. With a fixed cost (dark fiber lease and optical equipment), capacity can be expanded with no increases in monthly operating costs.

Scalability up to 320 Gbits/sec.
“Enterprise-manageability” with easy-to-use NMS and SONET-like link engineering for the equipment.
Lowest total cost of ownership.
A complete networking solution without monthly costs.

Ken Davison is vice president of marketing for Meriton Networks. Prior to Meriton, Davison has held senior positions at Siemens AG (Unisphere Networks), Newbridge Networks, and several telecom startups including DragonWave and Critical Telecom. He may be reached via the company’s web site at

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