Company aims to set up bandwidth trading market

Company aims to set up bandwidth trading market

By William Jackson

GCN Staff

RateXchange Corp. is installing a system of delivery hubs in hopes of creating an international commodities market for bandwidth.

'There's a wholesale market' for telecommunications bandwidth, said Ross Mayfield, president of the San Francisco company, but he described it as chaotic. As demand and the number of providers double annually in some places, and while prices drop by a third or half, there is no efficient mechanism for buying, selling or trading pipeline capacity to keep data flowing.

RateXchange is developing Real-Time Bandwidth eXchange, which will have a delivery system for bandwidth trading. The company has deployed six of a planned 14 hubs. The first ones are in Chicago, Los Angeles, Miami, New York, San Francisco and Washington.

A bandwidth exchange would not only make it easier for users to buy and sell capacity, it could also create a secondary market in bandwidth futures for investors and speculators. A liquid market for bandwidth could bring down user costs, make provisioning more efficient and stabilize the market, Mayfield said.

But don't call your broker just yet to hedge your portfolio with 100 hours of October T1.

'We think it's too early to make any judgment on a derivative market,' said Seth Libby, telecom industry analyst for the Yankee Group, a Boston research and consulting firm.

Third party needed

RateXchange three years ago started an online lead generation site, at www.ratexchange.com, where companies wanting to buy or sell telecom capacity can list bids and offers. The participants must negotiate the deals and provision the services themselves, a process that takes 60 to 90 days.

Mayfield said he saw an opportunity for a third party to facilitate online exchanges and provide delivery. The Real-Time Bandwidth eXchange matches buyers and sellers and provides a payment mechanism for spot contracts for one month of anything from T1 to OC-48 capacity over point-to-point links, plus forward contracts for service to be provided at a future date. Forward contracts can be bought and sold before delivery.

Service is delivered through the hubs, which consist of digital cross-connect switches from an Israeli company, ECI Telecom Ltd. Buyers and sellers connect to the hubs, and RateXchange tests and monitors the connections. From the six existing hubs, the company can deliver bandwidth over any of 15 city-pair routes within 48 hours. Mayfield said he hopes to make the service real-time.

'It's just a matter of matching ports rather than provisioning a new circuit,' he said.

When all 14 hubs are deployed, they can deliver bandwidth over 91 city-pair routes.

Right now, online trading is just an alternative'quicker, simpler and maybe cheaper'to other ways of acquiring capacity, Libby said.

So far, RateXchange is the first company aggressively establishing pooling points where capacity can be delivered. Libby said a viable trading market will need pooling points in at least 20 metropolitan areas and will also probably require multiple players.

So, will big investment firms be setting up bandwidth trading desks soon'or ever?

'That's the million-dollar question,' Libby said.

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