The Problems With Trading Bandwidth
Companies looking for new broadband solutions may eventually benefit from bandwidth trading markets, but the energy companies must first overcome a number of obstacles. Foremost is the problem of connectivity. In the natural gas and electricity markets, each trade is based on delivery to or from a certain point. In the natural gas business, the benchmark price is set at the Henry Hub, a pipeline-snarled terminal in Louisiana. For the bandwidth trading market to work, each major city must have an accepted termination point, like the Henry Hub, so that carriers — and I-managers — know where they can interconnect with a given network.
El Paso and Enron have each tried to address this problem. In late April, El Paso Global Networks announced plans to partner with The Carlyle Group to build neutral pooling points in four cities. That same day, Enron Broadband Services announced that it would immediately open its pooling points — it has 25 of them — to any companies that want to interconnect.
But other telecom carriers are suspicious of the energy companies pooling point strategies and have been reluctant to connect at their sites. Many prefer to interconnect at sites owned by truly independent companies, such as LighTrade.
The pooling points matter also entails a stickier problem: provisioning. At present, if a large company wants to lease an OC-48 (2.5-gigabit-per-second) circuit from New York to Atlanta, it may take months to connect the companys network to an available fiber network. For bandwidth trading to be viable, provisioning time should be measurable in minutes or hours, not days. But speeding provisioning times will require heavy investments in switching infrastructure for the pooling points, and its not yet clear who will make those investments or where each citys version of the Henry Hub will be located.
If those locations are established and provisioning speeds are shortened, then I-managers should be able to buy bandwidth in increments as short as an hour — resulting in great benefit and cost savings to companies large and small.
I-managers may also benefit if the energy companies can persuade the regional Bells and the long-distance companies to agree to standardized contracts that specify firm delivery terms.
Historically, telecom companies have agreed to contracts that require their "best efforts." If an I-manager orders a circuit for a certain application and its not installed within the time promised by the salesman, the manager has no recourse. Under the structure being sought by the energy companies, if a carrier agrees to install a circuit within a certain time and doesnt deliver, the carrier will face financial penalties.
Although all these issues must be resolved, Tom Osha, chief of staff of Broadwing — which owns an 18,500-mile fiber network, as well as local exchange provider Cincinnati Bell — is also bullish on bandwidth trading. He said the push by Enron and the other Houston companies will be good for his company and the telecom industry as a whole. "By getting into the market, they are offering additional alternatives for connectivity. That connectivity between and among networks will help the entire telecom market mature," Osha said.