Network Utilization Has Nothing to do with Upgrading Bandwidth

by David Gross

One of the questions I've been asked by hedge funds is whether networks are full enough to justify upgrades to 40 or 100 gigabit, as if communications networks are like airplanes or railcars, and only need to be expanded if they're already full. But this misses the point of why upgrades beyond 10 gigabit are needed, especially in the data center, where it's long been possible to provision 10 gigabit links for much less cost than longer reach 1 gigabit connections in telecom networks.

Financial professionals more than anyone should understand the upgrade past 10 gigabit is primarily about latency, not bandwidth. And one of the primary contributors to latency, serialization delay, drops proportionally to increases in line rate. A 1500 byte packet, for example, has a 1.2 microsecond delay at 10 Gbps, but a .3 microsecond, or 300 nanosecond, delay at 40 Gbps. With financial services, one of the leading buyers of high capacity switches, the upgrade is therefore cost justified by the value of reducing execution times by 900 nanoseconds, which is far more than the cost of a new switch for many firms. None of this has anything to do with whether the existing network peaks at 10% utilization during the day, or at 60%.

Even in longer-reach networks, upgrades are tied to revenue, not just network utilization. When AT&T (T) upgraded its MPLS core to 40G, it included nine out-of-region markets where it did not offer U-Verse or any video service. The financial justification was to maintain low latency for commercial customers whose traffic was riding that MPLS networks, many of whom spend tens of thousands a month with the carrier.

Bandwidth is often described as a faster link or fatter pipe, the latter might make sense when talking about consumer video, but no one's getting 40 or 100 gigabits to their home anytime soon. In data centers and even long-reach corporate networks, it makes more sense to think of upgrades in terms of raw speed, because a faster path, not a wider lane, is essential when you're trying to make a quick trade.