Commoditizing Global Bandwidth - Company Business and Marketing

Telecommunications, June, 2000 by Sean Buckley

Ron Vidal, group vice president for new ventures and investor relations at Level 3, argues that there is no clear definition of what a bandwidth exchange is and what kinds of bandwidth will be sold there. For example, if a Wall Street broker sells a futures contract and can not deliver, the customer will look somewhere else, but if there are no other suppliers it is not really a market. Even if there are three players that respond to a request, it's better than one, Vidal observed, but it's not as good as a hundred if you're seeking to create a true market.

"Instead of just saying this is a bandwidth exchange, let's talk about what kind of bandwidth is going to be listed," Vidal said. "If you are selling long-distance minutes from New York to Los Angeles, you will have hundreds of choices, but if you want conduit, you may only have one."

Analyst Tom Nolle, president of CIMI Corp, agrees. "Transport bandwidth is a key element in profitable network services. Bandwidth isn't sufficient to be profitable--you need something with a higher margin, such as virtual private networks (VPNs)--but owning your own bandwidth creates a better margin for you than a competitor who has to lease his. As long as the primary owners/creators of bandwidth are carriers that seek retail service profits, there'll be no such thing as a bandwidth exchange," Nolle said.

Even a new player like Williams, which began formalizing its own strategy for bandwidth trading in February, cautions that the creation of a true bandwidth exchange is not as simple as it sounds. According to Sharon Grow, vice president of Williams' bandwidth trading committee, people need to have a clear understanding of the trading and telecom industries to become players in this emerging market.

"The marketplace is still defining itself," Crow said. "I think it is somewhat aggressive for companies to be saying that it has finally arrived. I find it fascinating that it's being oversimplified by saying you can place one commodity template onto another. In some cases that's true, but this is the first case in which transport is a commodity and in which the infrastructure is constantly advancing based on technology. Supply and demand are like roller coasters. Are they moving in tandem, or is the supply moving faster than the demand? In one moment you hear there's a fiber glut, and in the next there's another killer application."

Sean Buckley is a staff editor at Telecommunications(r)