Website Opens Spot Market For Telecom Bandwidth

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January 12, 1998 (10:08 AM EST)

Website Opens Spot Market For Telecom Bandwidth

By Sheridan Nye,

An Internet-based series of "spot" markets for telecommunications bandwidth, in which buyers and sellers trade blocks of bandwidth the way petroleum traders in Rotterdam trade barrels of oil, is emerging on the Web.

RateXchange, of San Francisco, Calif., recently opened a telecom spot-price market site for bandwidth dealing, joining a handful of hopefuls who hope to automate the process of international bandwidth trading. According to RateXchange president Sean Whelan, buyers and sellers of telecom bandwidth stand to benefit from operating in an open forum -- backed up with spot rates for key routes -- if they accept the need to move on from the traditional gentleman's club.

"My challenge is to get the carriers to adopt this concept," said Whelan, formerly of Sprint, MFS, and WorldCom. Executives are used to closing a deal "over a cocktail at a trade show, but now there is a real push to lower the cost of distribution. The smart ones will realize this is a productive tool for them."

Buying and selling is done anonymously. Sellers are generally major carriers with excess bandwidth who are looking for a way of unloading their surplus bandwidth anonymously, without provoking a drop in general prices. Buyers are a mixture of smaller carriers, end users, and Internet and telecom service providers.

RateXchange offers direct cost savings by cutting out the middle men, Whelan said. The company takes 0.3 cents per minute on all transactions at 25 cents or below, 0.4 cents per minute for all transactions above 25 cents, and a 2 percent charge for straight bandwidth purchase.

But the significant savings come from streamlining the transaction process itself by eliminating the hit-and-miss of personal contacts and trade shows. "I'm putting the ultimate buyer in touch with the ultimate seller," said Whelan, who estimates that "well over 50 percent of hand-shake deals fall through".

RateXchange offers only a basic indication of quality by logging routes as via a "tier one" PTT carrier, "tier two" resellers, or a refile route. Whelan looked into rating service levels, based on the International Telecommunication Union's rating system, but said buyers' main concern is price.

New carriers such as WorldCom will consider very low grade routes if the price is right, because they always test circuits before completing a deal, said Whelan, who is examining whether to include circuit testing as part of the RateXchange service.

The exchange is not the first to offer information for bandwidth traders. A U.K.-based rival, Band-X, became the world's first telecom commodities exchange when it launched in May last year, now said it has more than 1,200 registered wholesale buyers and sellers for its services. "It's very hard for a carrier to maintain customer loyalty on anything other than price," said Marcus de Ferranti, a director of Band-X.

Trading itself still has to be done offline, but both RateXchange and Band-X are looking ahead to when deals can be set up and cleared entirely over the Web. But the complexities involved in exploring various delivery methods and discounts will probably ensure exchanges will only operate as a complement to one-to-one negotiations.

"The business of buying and selling telecoms is not simple. You need ongoing relationships," de Ferranti said. By acting as a dating agency, Band-X can ensure not just the technical quality of a deal but the commercial quality, he added. "The industry is full of defaulters, unfortunately. But if anyone lets us down, we'll know about it."