They built it, so now will the banks come? Superloop, an Australia-based telecommunications company that lays fiber networks, is knocking on the doors of financial service companies in Hong Kong now that it has activated a sub-sea cable linking two vital data centers in the territory.
Whether financial institutions decide to buy capacity on its network may depend on their willingness to embrace cloud computing, and how much of their operations move to low-latency, high-volume automation.
Cloud and data centers are burgeoning trends. This month, Amazon opened a Hong Kong office for its AWS business of cloud-based services. The company was quick to point out that cloud-based companies are growing revenues faster than any others: the top five fastest-growing are Amazon (of course), ServiceNow, Workday, SalesForce, and Adobe. (Adobe!) This is driven by big companies’ need to use big data, artificial intelligence, and connecting the ‘Internet of Things’, which is far cheaper via services that scale global servers rather than in-house. (Although financial institutions often remain reluctant to outsource this computing.)
Government backs cloud
Moreover, Nicholas Yang, Hong Kong’s secretary for innovation and technology, greeted the AWS arrival by noting that the territory has among the most reliable electricity power supplies in the world, and that TKO Industrial Estate is the largest data center cluster in the region outside of Japan.
Among other customers, this is where Hong Kong Exchange and Clearing maintains its main data center – and banks want to co-locate their servers there, to achieve the lowest latencies as a competitive need for their trading floors.
According to Yang: “As of December 2016, the total equipped capacity of external telecommunications facilities was over 45 terabits per second. As we all know, Facebook and Google are building the fastest trans-Pacific submarine cable connecting Hong Kong and Los Angeles which, when it comes online in 2018, will increase our external telecommunications capacity by 120 terabits per second. And, together with other submarine cable systems being constructed, the total capacity of Hong Kong will reach 200 terabits per second by the end of 2018.”
This makes TKO and the other data center with international connections (at Chai Wan, on the east side of Hong Kong Island), critical infrastructure.
Making ends meet
Yet as a fluke of geography, TKO and Chai Wan are both located on the far ends of Kowloon and Hong Kong Island, respectively: they are literally the end of their lines.
From a security perspective, they could be vulnerable to a physical breach over land connecting them to the rest of either Kowloon or Hong Kong Island; from an efficiency perspective, data can’t flow between them directly.
Superloop’s TKO Express closes that gap. Until now, the only way to connect TKO and Chai Wan was via cables running along one of the three tunnels beneath Hong Kong’s harbor, which is a 22-kilometer journey. TKO Express lays cable that is underground and underwater, and is only 2.8 kilometers long. Along with existing fiber networks that Superloop has laid, it joins up 30 data centers across the territory and is the first network to directly connect the two ends of the line.
HKT, a local telecom, is laying a similar 3-kilometer fiber connection, but has yet to begin construction.
Financial service companies are the leading clients for Superloop and other telcos and data-center operators, such as SuneVision (a division of property group Sun Hung Kai). Banks like to place servers in TKO to ‘co-locate’ with HKEX’s servers, to achieve the lowest possible latency for electronic trading. But space is limited and it’s expensive to be there; it’s also a risk to have too many banks’ servers in one spot. Superloop is betting that its TKO Express will make alternative data centers more attractive, at a time when banks’ needs for computing are rising.
“Banks may keep servers involved in trading at TKO, but other parts of the business – operations, client-facing business – must go somewhere else,” said Timothy Wong, business development manager at Superloop in Hong Kong. “They need to be separated geographically, but TKO and Chai Wan were dead ends, and banks need seamless, reliable connections at low latency.”
Selling networks…selling the cloud
As a salesman he’s out to get banks to buy bandwidth on TKO Express.
HKEx declined to comment on its data center at TKO or its relationship with Superloop; an official there cited non-disclosure agreements with the company.
Not all fiber is the same. Telcos such as Hong Kong Telecom will sell capacity on their networks, but not the fiber itself. When they do sell fiber, they tend to do so using standard protocols such as Ethernet, a common local-area-network technology. But Ethernet isn’t always as fast or reliable as some clients may want. These traditional fiber networks are not ideal for the huge volumes of data going to cluster computing, let alone cloud computing.
Banks have been outsourcing a lot of their data-crunching needs due to the cost of managing the capacity this requires. So far, financial institutions have been slow to take up commercial cloud operations, and have preferred on-premise solutions. Data centers allow hundreds of terabytes of data to be computed. But the data still has to get there.
“It would take days to transfer that to the cloud using Ethernet,” Wong said. “And days to send it back – all without any interruption or corruption of the data.”
He says some organizations today compensate by loading armored trucks with hard discs, transporting them twice a day to a secret location of data servers, do the crunching, and then drive the discs back to their I.T. team. Such analytics involve risk management and searching for fraud. “This happens more often than you’d think,” Wong said.
Whether institutions are using Ethernet or trucks, such arrangements might make sense when it involves teams of fewer than 100 people who require data analytics. But the prospect of cloud computing means huge organizations will have thousands of people using virtual desktops, rather than a closed network of proprietary servers. “That’s a lot of data, but fiber enables it,” Wong said, adding he is pitching compliance departments.
He declined to discuss pricing, but says winning business is often more about getting many internal departments to sign off. So far there are financial institutions using Superloop fiber in Australia, and it is onboarding its first ones in Singapore, but Hong Kong may take time.
“The COOs tell me they’re interested, but there are many internal stakeholders to convince,” Wong said. “I’m amazed how manual banks still are.”
This article originally appeared on June 28, 2017.