Recently, the financial industry was reminded of the vulnerabilities of offshore outsourcing relationships. While the problems were related to communications, this time they were based on the physical infrastructure -- a global network of fiber-optic cables -- upon which global information exchange depends rather than on organizational difficulties in managing offshore relationships.
During the week straddling January and February 2008, four undersea cables carrying Internet traffic were disabled -- three were at least partially cut and a fourth was taken offline due to problems with a power system. Two of the cables were located off the coast of Egypt near Alexandria and the other two were in the Gulf of Oman off Iran. The cuts resulted in serious Internet traffic interruption in the Arabian Peninsula. But more significant for the financial services industry, the damaged Mediterranean cables, which are the chief conduits for Europe-bound Internet traffic from India, affected communications to and from India.
The ISP Association of India (ISPAI) reported a 50 percent to 60 percent reduction of bandwidth to Europe. Some Indian outsourcers, including Satyam (Hyderabad, India), acknowledged minor latency problems, while others claimed they experienced no problems whatsoever. According to various sources, large firms were able to reroute traffic over Pacific Ocean routes, while smaller outsourcing firms and private users were denied bandwidth.
The effect of the outage on most outsourcing customers was fairly mild, according to David Appasamy, a spokesman for Sify Technologies, a Chennai, India-based network and e-commerce services provider. "The cable outage caused shortage of bandwidth, increasing latency to Europe and the U.S. East Coast for many carriers," Appasamy says. "But for those with circuit restoration capabilities and enough spare capacity, there was minimal impact and latency."
Still, the incident was a wake-up call. While the interruption near Alexandria occurred at a critical "choke point," damage to submarine Internet and telecom cables is common. Cable repair provider Global Marine Systems reported more than 50 repairs made to cables in the Atlantic last year alone.
A senior technology executive at a major U.S. bank in the Northeast who requested anonymity acknowledges concern about the recent outage. "Some of the companies servicing us were somewhat impacted," he reports. "Nothing mission-critical that would impact our end clients, but there has been some sluggishness."
While the source says the cable failures provide "a good lesson for all of us to draw upon when we look for global [sourcing] locations," he stresses that the more urgent lessons are focused on the flow of information rather than the locations of operations. "Certainly, we have to think about issues having to do with the transport medium itself, but also in terms of how we route our traffic -- not just in anticipation of scenarios like this, but also in the event of excess or overload of a given network," he says.
The CIO of a midsize U.S. insurance carrier who also requested anonymity says that while his company suffered "not a blip" due to the outage because the insurer's outsourcing providers had the capability to reroute their traffic to eastbound channels, the incident "does make you think." He likens the outage to the massive Northeast blackout of 2003, which started at a single power plant in Ohio. "Nobody expected one thing to bring down such a vast area, but afterward new redundancies were built in," the insurance CIO says. "It's likely the same will happen in the wake of this incident."
The nature of Internet communications tends to distract from the real vulnerabilities of the system, according to Matthew Josefowicz, a principal with Novarica (New York). The recent failure of the Internet-bearing fiber-optic cables in the Middle East "underscores some of the risks of offshore outsourcing and the relative fragility of the global information infrastructure," he asserts. "In a virtual information economy, we tend to forget that these signals travel over a [vulnerable] physical infrastructure." --Anthony O'Donnell
Courtesy of Insurance & Technology, a TechWeb property.
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio