When milliseconds mean millions

I was amazed to read that a new submarine fiber-optic cable is being laid beneath the Atlantic, at a cost of hundreds of millions of dollars, in order to shorten electronic communications by a mere six milliseconds. The Telegraph reports:

The laying of the new transatlantic communications cable is a viable proposition because Hibernia Atlantic, the company behind it, is planning to sell a special superfast bandwidth that will have hyper-competitive trading firms and banks in the City of London and New York queuing to use it. In fact it is predicted they will pay about 50 times as much to link up via the Hibernian Express than they do via existing transatlantic cables.

The current leader, Global Crossing's AC-1 cable, offers transatlantic connection in 65 milliseconds. The Hibernian Express will shave six milliseconds off that time.

Of course, verifiable figures are elusive and estimates vary wildly, but it is claimed that a one millisecond advantage could be worth up to $100m (£63m) a year to the bottom line of a large hedge fund.

. . .

The British firm laying the cable, Global Marine Systems, is plotting a new route that is shorter than any previously taken by a transatlantic cable. As closely as possible, it will follow "the great circle" flight path followed by London-to-New York flights.

"We spent 18 months planning the route," says Mike Saunders, Hibernia Atlantic's vice-president of business development. "If it ever gets beaten for speed we end up giving our customers their money back, basically, so my boss would kill me if we got it wrong."

There's more at the link.

So they're spending more than $300 million to lay a cable that will shorten transmission time by a mere six thousandths of a second . . . and that'll be enough to earn a large hedge fund up to an extra $600 million per year. If a score of hedge funds use it, that means additional earnings for them totalling about $12 billion per year. Makes the initial capital outlay to lay the cable, and the 50-times-higher-than-usual rates to use it, look small by comparison, doesn't it?





Peter