Sell porkbellies, buy bandwidth

Bandwidth has become a commodity as worth trading as pork bellies, gold or any natural resource.

Markets that trade in data capacity are therefore an obvious development and the US conglomerate Enron Broadband Services Inc. - which deals in every kind of commodity, including weather - launched its European online bandwidth exchange in London last week.

The market maker is bundling bandwidth with commodities such as power, gas, coal and petrochemicals on its EnronOnline Web site. This is the largest business-to-business e-commerce site in the world, handling nearly 4,000 transactions a day with a notional value of more than US$2.5 billion (2.7 billion euros).

"We've sighted a huge market where there are inefficient players and an opportunity for our business model to be successful," says Steve Elliott, managing director of Enron Broadband Services Europe.

Some 20 percent of bandwidth is being used at any one time compared to 86 percent of oil pipeline capacity. Bandwidth trading could push the figure up to 50 percent and Enron predicts a worldwide market worth $450 billion (480 billion euros) by 2005. This is despite the current bandwidth oversupply, which saw prices fall by as much as 70 percent last year. "So many things are data-centric and the market is growing so significantly that we believe data is going to be the world's biggest commodity," says Marcello Romano, vice president of bandwidth trading.

Enron has some assets of its own in terms of fibre optic routes and has created "pooling points" in centres around Europe to help buyers and sellers make the physical connections for the A-to-B bandwidth that they are buying.

It also plans to trade in data storage in Europe now that so many firms are willing to keep information in remote locations or serve multimedia applications around the world. It makes money on the spread between bid and offer prices and in bundling products into integrated offerings.

The exchange's unit of trade is generally an STM-1 line, which carries 155 megabits of data per second, and short three-month contracts are becoming common. As well as its spot market, Enron expects a futures market to develop.

The UK firm Band-X founded a bandwidth and voice-minutes trading business in London in 1997. "We're like the London Stock Exchange: we don't own capacity and don't compete with carriers. We do the matchmaking between buyers and sellers," says co-founder Richard Elliott.

Band-X has built "IP exchanges" - routers in data centres around the world where it tests the quality of circuits supplied by sellers and makes the information available to prospective buyers.

"We make it so they can buy bandwidth on demand, instead of having to sign up for a year with an operator. Present trading is only a fraction of the total industry, so our main competition is still the traditional mechanisms.

"Bandwidth contracts could be for 25 years. Or someone may just want to stream a sports event for an hour - we have the flexibility."

For all their convenience, online exchanges may not be the most efficient way to buy or sell bandwidth. The telecoms consultancy Analysys, in a report this month titled Global IP Operators, argues that big carriers still prefer to negotiate in private and "at the close of the deal, the price paid for bandwidth is rarely the price posted on the exchange." Clearly, online bandwidth exchanges are not yet a match for backroom face-to-face deals.

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