Bandwidth Exchanges Due: Companies look to Brokers

SAN MATEO (03/27/2000) - A pair of emerging online brokers appear to be leading the charge toward their market's Holy Grail -- true e-commerce commodity exchanges for trading network bandwidth -- that could help them keep pace with bandwidth hungry e-businesses.

A truly dynamic telecom market would yield increased availability of bandwidth and spectrum, decreased prices, and real-time delivery of services, according to industry observers.

Despite their labels as telecom trading exchanges, most such existing companies are little more than bulletin boards, generating leads for suppliers and buyers, but offering no settlement or delivery components, which are necessary to create a dynamic exchange, according to industry analysts.

One services crusader, RateXchange, will announce this week a new bandwidth auction service and live trading on its bandwidth exchange service.

RateXchange will initiate the trading of wireless spectrum, the first such secondary market.

Most of the exchanges to date have been hampered by problems associated with delivery and the inability to complete as many as 90 percent of contracts, due to the lag in closing deals, said Ross Mayfield, president of RateXchange.

"The basic problem is the closure process, which takes about 60 to 90 days. The problem is the amount of stock and price moves on a daily basis and network conditions change, so often you don't have the goods you started with," he said.

RateXchange currently takes 48 hours to close a deal, and expects to soon move into real-time trading and delivery, Mayfield said.

RateXchange customers, such as major carriers MCI WorldCom and AT&T, often have a 30 percent excess capacity rate, but newer telecom powerhouses like Qwest can be high as 80 percent, Mayfield said.

Enron, a mega-energy company turned bandwidth supplier, is expected to announce similar telecom exchange initiatives April 13, according to Steve Kamman, an analyst at CIBC World Markets, a financial firm. Enron recently partnered with i2Technologies using its TradeMatrix platform.

"Enron specifically has legitimized the market. They're really making an aggressive play. Their movement in the area has woken up the industry," Kamman said.

Tom Gross, vice president of global bandwidth trading at Enron, said the company is planning a model that takes itself out of the loop as the intermediary, allowing Enron to participate in buying and selling bandwidth.

By 2004, Kamman expects at least 20 percent of an $80 billion dollar telecom industry to flow through these exchanges. Considering the velocity of trading, the economic impact is even greater.

"When valuing this space, you really have to also look at the velocity of trades, how many times this contract is traded before it's settled ... You'd have about $60 billion in the U.S. volume along going through that market. It's a naturally bigger market than oil and natural gas combined," Kamman said.

Kamman believes that it will take six months to one year to sort out the definitive winners and losers in this race.

"We do believe it's going to be a winner-take-all game. ...The market is going to pick a winner. Every announcement builds that momentum for companies to enter the market," Kamman said.

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