Phasor measurement units (PMUs) are being widely installed in the transmission grid. Many power system applications based on PMUs have been developed or are under development in academia and industry. For those applications, data latency is often a critical factor that affects their performance thus making the topology of the communication network that exchanges real-time data between the control center (CC) and substations (SS) of vital importance. This paper introduces a method to conceptualize and analyze possible communication topologies by simulating them in Network Simulator 3 (NS3). Moreover, a new algorithm is developed to optimize the clustering of substations in such a way that the data latency performance of the decentralized communication topology can meet the requirements for PMU based applications. To validate the proposed methodology, the IEEE 118-bus system is used as the test case. A PMU based wide-area controller for transient stability is simulated in the MATLAB Simulink to validate the proposed communication topologies. It is concluded from the simulation results that the decentralized communication topology at a lower cost designed by optimizing the substation cluster boundaries can be an alternative choice and can help PMU based applications achieve good performance by limiting data latency to an acceptable level. Also, this paper can provide a technical guidance for power utilities choosing the most appropriate communication network for the PMU based real-time applications.